SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549




FORM
10-Q/A


(Amendment No.
1)




x
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




For the
quarterly period ended March 31, 2010.




or




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
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S.
      Employer
              Identification
      No.)





No. 9, Xin Yi Street, Ganjingzi
District


Dalian City, Liaoning
Province, PRC, 116039


(Address
of Principal Executive Offices including 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 Exchange Act 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 xNo o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every, Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§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 if the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company




Large
      Accelerated Filer o
            Accelerated
      Filer o
            Non-Accelerated
      Filer o
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act).


Yes oNo x




As of May
14, 2010, 21,136,391 shares of the issuer’s common stock, par value $0.001, were
outstanding.








EXPLANATORY
NOTE
  We are
filing this Quarterly Report on Form 10-Q/A (the “Amendment”) to amend Part I,
Item 1, Financial Statements, Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, and Item 4T, Controls and
Procedures, in the original Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission (the “Commission”). This Amendment has been
filed to revise and correct certain disclosures in the  Notes to
Consolidated Financial Statements, add in the repayment plan for the $30.6
million in aggregate borrowings due during 2010 and to disclose in detail the
weaknesses in internal controls that exist at March 31, 2010, in response to the
Commission’s comment letters dated May 24, 2010 and June 11,
2010.
  PagePart
      I: Financial Information:
                      1Item
      1 - Financial Statements
                      1Item
      2 - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                      34Item
      4T - Control and Procedures
                      47Signatures
                      50


PART
I





FINANCIAL
INFORMATION




ITEM
      1
            FINANCIAL
      STATEMENTS




Energroup
Holdings Corporation





Reviewed
Consolidated Financial Statements





March
31, 2010 and December 31, 2009





(Stated
in US Dollars)





1





Energroup
Holdings Corporation





Contents
              PagesReport
      of Registered Public Accounting Firm
              3Consolidated
      Balance Sheets
              4-
      5Consolidated
      Statements of Operations
              6Consolidated
      Statements of Changes in Stockholders’ Equity
              7Consolidated
      Statements of Cash Flows
              8 – 9Notes
      to Consolidated Financial Statements
              10 – 34





2





Board of
Directors and Stockholders


Energroup
Holdings Corporation





Report of Registered
Independent Public Accounting Firm





We have
reviewed the accompanying consolidated interim balance sheets of Energroup
Holdings Corporation as of March 31, 2010 and December 31, 2009, and the related
consolidated statements of income, stockholders’ equity, and cash flows for the
three-month periods ended March 31, 2010 and 2009. These consolidated interim
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
statements 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 consolidated interim financial statements for them to be in
conformity with U.S. generally accepted accounting principles.





South
      San Francisco, California
            Samuel
      H. Wong & Co., LLPMay
      9, 2010
            Certified
      Public Accountants





3





Energroup
Holdings Corporation


Consolidated
Balance Sheets


As
of March 31, 2010 and December 31, 2009


(Stated
in US Dollars)





Notes
                                  
                                  At
                                  
                                  
                                  AtMarch 31,
                                  
                                  
                                  December 31,2010
                                  
                                  
                                  2009ASSETSCurrent
      AssetsCash
                                  
                                  2(D)
                                  
                                  $
                                  12,637,572
                                  
                                  
                                  $
                                  41,984,101Restricted
      Cash
                                  
                                  3
                                  
                                  
                                  13,879,340
                                  
                                  
                                  
                                  2,176,224Accounts
      Receivable
                                  
                                  2(E),4
                                  
                                  
                                  23,804,756
                                  
                                  
                                  
                                  39,876,187Other
      Receivable
                                  
                                  
                                  
                                  
                                  376,481
                                  
                                  
                                  
                                  591,025Related
      Party Receivable
                                  
                                  5
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Inventory
                                  
                                  2(F),6
                                  
                                  
                                  3,782,416
                                  
                                  
                                  
                                  3,683,989Advance
      to Suppliers
                                  
                                  2(G),7
                                  
                                  
                                  63,142,510
                                  
                                  
                                  
                                  844,964Prepaid
      Expenses
                                  
                                  
                                  
                                  
                                  959,228
                                  
                                  
                                  
                                  30,103Prepaid
      Taxes
                                  
                                  
                                  
                                  
                                  631
                                  
                                  
                                  
                                  231,568Deferred
      Tax Asset
                                  
                                  2(Q)
                                  
                                  
                                  468,998
                                  
                                  
                                  
                                  468,922Total
      Current Assets
                                  
                                  
                                  
                                  
                                  119,051,932
                                  
                                  
                                  
                                  89,887,082Non-Current
      AssetsProperty,
      Plant & Equipment, net
                                  
                                  2(H),8
                                  
                                  
                                  23,287,915
                                  
                                  
                                  
                                  23,727,484Land
      Use Rights, net
                                  
                                  2(I),9
                                  
                                  
                                  13,105,600
                                  
                                  
                                  
                                  13,175,559Construction
      in Progress
                                  
                                  2(J)
                                  
                                  
                                  6,703,935
                                  
                                  
                                  
                                  6,692,837Total
      Assets
                                  
                                  
                                  
                                  $
                                  162,149,382
                                  
                                  
                                  $
                                  133,482,962LIABILITIES
      & STOCKHOLDERS' EQUITYCurrent
      LiabilitiesBank
      Loans
                                  
                                  10(A)
                                  
                                  $
                                  30,572,988
                                  
                                  
                                  $
                                  15,942,197Notes
      Payable
                                  
                                  11
                                  
                                  
                                  11,702,579
                                  
                                  
                                  
                                  7,312,935Accounts
      Payable
                                  
                                  
                                  
                                  
                                  4,058,650
                                  
                                  
                                  
                                  3,272,626Taxes
      Payable
                                  
                                  
                                  
                                  
                                  8,632,779
                                  
                                  
                                  
                                  6,987,848Other
      Payable
                                  
                                  
                                  
                                  
                                  1,957,800
                                  
                                  
                                  
                                  2,096,958Accrued
      Liabilities
                                  
                                  
                                  
                                  
                                  1,900,222
                                  
                                  
                                  
                                  1,922,103Customer
      Deposits
                                  
                                  2(L)
                                  
                                  
                                  2,896,615
                                  
                                  
                                  
                                  2,416,615Related
      Party Payable
                                  
                                  5
                                  
                                  
                                  2,675,626
                                  
                                  
                                  
                                  2,307,429Total
      Current Liabilities
                                  
                                  
                                  
                                  
                                  64,397,263
                                  
                                  
                                  
                                  42,258,711Long
      Term LiabilitiesBank
      Loans
                                  
                                  10(B)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Total
      Liabilities
                                  
                                  
                                  
                                  $
                                  64,397,263
                                  
                                  
                                  $
                                  42,258,711





See Notes
to Financial Statements and Accountant’s Report





4





Energroup
Holdings Corporation


Consolidated
Balance Sheets


As
of March 31, 2010 and December 31, 2009


(Stated
in US Dollars)





At
                      
                      
                      AtNotes
                      
                      March 31,
                      
                      
                      December 31,Stockholders' Equity
                      
                      
                      
                      2010
                      
                      
                      2009Preferred
      Stock - $0.001 Par Value 10,000,000 Shares Authorized; 0 Shares Issued
      & Outstanding at March 31, 2010 and December 31, 2009.
                      
                      
                      
                      $
                      -
                      
                      
                      $
                      -Common
      Stock - $0.001 Par Value 21,739,130 Shares Authorized; 21,136,392 Shares
      Issued & Outstanding at March 31, 2010 and December 31,
      2009.
                      
                      11
                      
                      
                      21,137
                      
                      
                      
                      21,137Additional
      Paid in Capital
                      
                      
                      
                      
                      42,530,331
                      
                      
                      
                      42,530,331Statutory
      Reserve
                      
                      2(M),13
                      
                      
                      2,077,488
                      
                      
                      
                      2,077,488Retained
      Earnings
                      
                      
                      
                      
                      47,843,505
                      
                      
                      
                      41,329,899Accumulated
      Other Comprehensive Income
                      
                      2(N)
                      
                      
                      5,279,658
                      
                      
                      
                      5,265,396Total
      Stockholders' Equity
                      
                      
                      
                      
                      97,752,119
                      
                      
                      
                      91,224,251Total
      Liabilities & Stockholders' Equity
                      
                      
                      
                      $
                      162,149,382
                      
                      
                      $
                      133,482,962





See Notes
to Financial Statements and Accountant’s Report





5





Energroup
Holdings Corporation


Consolidated
Statements of Operations


For
the three-month periods ended March 31, 2010 and 2009


(Stated
in US Dollars)





For three
                            
                            
                            For threeMonths ended
                            
                            
                            Months endedNote
                            
                            March 31,
                            
                            
                            March 31,2010
                            
                            
                            2009Sales
                            
                            2(O),22
                            
                            $
                            55,510,121
                            
                            
                            $
                            40,893,923Cost
      of Sales
                            
                            2(P)
                            
                            
                            47,212,872
                            
                            
                            
                            35,169,469Gross
      Profit
                            
                            
                            
                            
                            8,297,249
                            
                            
                            
                            5,724,454Operating ExpensesSelling
      Expenses
                            
                            2(Q)
                            
                            
                            341,016
                            
                            
                            
                            864,959General
      & Administrative Expenses
                            
                            2(R)
                            
                            
                            576,370
                            
                            
                            
                            559,113Total
      Operating Expense
                            
                            
                            
                            
                            917,386
                            
                            
                            
                            1,424,072Operating
      Income/(Loss)
                            
                            
                            
                            
                            7,379,863
                            
                            
                            
                            4,300,382Other Income (Expenses)Other
      Income
                            
                            
                            
                            
                            9,482
                            
                            
                            
                            44,606Interest
      Income
                            
                            
                            
                            
                            2,229
                            
                            
                            
                            113,235Other
      Expenses
                            
                            
                            
                            
                            (8,323
                            )
                            
                            
                            (46,623
                            )Interest
      Expense
                            
                            
                            
                            
                            (417,898
                            )
                            
                            
                            (217,219
                            )Release
      of Escrowed Make Good Shares
                            
                            
                            
                            
                            -
                            
                            
                            
                            (3,502,152
                            )Total
      Other Income and Expense
                            
                            
                            
                            
                            (414,510
                            )
                            
                            
                            (3,608,153
                            )Earnings
      before Tax
                            
                            
                            
                            
                            6,965,353
                            
                            
                            
                            692,229(Income
      Tax Expense)/Deferred Tax Benefit
                            
                            2(V),15
                            
                            
                            (451,747
                            )
                            
                            
                            (280,208
                            )Net
      Income
                            
                            
                            
                            $
                            6,513,606
                            
                            
                            $
                            412,021Earnings
      Per Share
                            
                            2(Z),18- Basic
                            
                            
                            
                            $
                            0.31
                            
                            
                            $
                            0.03- Diluted
                            
                            
                            
                            $
                            0.31
                            
                            
                            $
                            0.02Weighted
      Average Shares Outstanding- Basic
                            
                            
                            
                            
                            21,136,392
                            
                            
                            
                            17,272,756- Diluted
                            
                            
                            
                            
                            21,136,392
                            
                            
                            
                            21,136,392





For the
                  
                  
                  For threeyear ended
                  
                  
                  Months EndedDecember 31,
                  
                  
                  March 31,
                  
                  
                  AccumulatedComprehensive Income
                  
                  2009
                  
                  
                  2010
                  
                  
                  TotalsNet
      Income
                  
                  $
                  6,054,442
                  
                  
                  $
                  6,513,606
                  
                  
                  $
                  12,568,048Other Comprehensive IncomeForeign
      Currency Translation Adjustment
                  
                  
                  1,776,168
                  
                  
                  
                  14,262
                  
                  
                  
                  1,790,430$
                  7,830,610
                  
                  
                  $
                  6,527,868
                  
                  
                  $
                  14,358,478





See Notes
to Financial Statements and Accountant’s Report




6




Energroup
Holdings Corporation


Consolidated
Statements of Changes in Stockholders’ Equity


As
of March 31, 2010 and December 31, 2009


(Stated
in US Dollars)





AccumulatedCommon
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      
                      
                      
                      ComprehensiveShares
                      
                      
                      
                      
                      
                      Paid in
                      
                      
                      Statutory
                      
                      
                      Retained
                      
                      
                      OtherOutstanding
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Reserve
                      
                      
                      Earnings
                      
                      
                      Income
                      
                      
                      TotalBalance
      at 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
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      16,467,994
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      16,467,994Net
      Income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,054,442
                      
                      
                      
                      -
                      
                      
                      
                      6,054,442Appropriations
      of Retained Earnings
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Foreign
      Currency Translation Adjustment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,776,168
                      
                      
                      
                      1,776,168Balance
      at December 31, 2009
                      
                      
                      21,136,392
                      
                      
                      $
                      21,137
                      
                      
                      $
                      42,530,331
                      
                      
                      $
                      2,077,488
                      
                      
                      $
                      41,329,899
                      
                      
                      $
                      5,265,396
                      
                      
                      $
                      91,224,251Balance
      at January 1, 2010
                      
                      
                      21,136,392
                      
                      
                      $
                      21,137
                      
                      
                      $
                      42,530,331
                      
                      
                      $
                      2,077,488
                      
                      
                      $
                      41,329,899
                      
                      
                      $
                      5,265,396
                      
                      
                      $
                      91,224,251Release
      of Shares Placed in Escrow
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      Income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,513,606
                      
                      
                      
                      -
                      
                      
                      
                      6,513,606Appropriations
      of Retained Earnings
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Foreign
      Currency Translation Adjustment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      14,262
                      
                      
                      
                      14,262Balance
      at March 31, 2010
                      
                      
                      21,136,392
                      
                      
                      $
                      21,137
                      
                      
                      $
                      42,530,331
                      
                      
                      $
                      2,077,488
                      
                      
                      $
                      47,843,505
                      
                      
                      $
                      5,279,658
                      
                      
                      $
                      97,752,119





See Notes
to Financial Statements and Accountant’s Report





7





Energroup
Holdings Corporation


Consolidated
Statements of Cash Flows


For
the three-month periods ended March 31, 2010 and 2009


(Stated
in US Dollars)





For three
                      
                      
                      For threeMonths ended
                      
                      
                      Months endedMarch 31,
                      
                      
                      March 31,2010
                      
                      
                      2009Cash
      Flow from Operating ActivitiesCash
      Received from Customers
                      
                      $
                      72,276,096
                      
                      
                      $
                      36,366,161Cash
      Paid to Suppliers & Employees
                      
                      
                      (103,990,669
                      )
                      
                      
                      (39,601,549
                      )Interest
      Received
                      
                      
                      2,229
                      
                      
                      
                      113,235Interest
      Paid (net of amount capitalized)
                      
                      
                      (459,049
                      )
                      
                      
                      645,353Income
      Tax Paid
                      
                      
                      488
                      
                      
                      
                      (19,360
                      )Miscellaneous
      Receipts
                      
                      
                      9,482
                      
                      
                      
                      44,606Cash
      Sourced/(Used) in Operating Activities
                      
                      
                      (32,161,423
                      )
                      
                      
                      (2,451,554
                      )Cash
      Flows from Investing ActivitiesEscrowed
      Funds from Private Placement Placed in Restricted Cash
                      
                      
                      (537
                      )
                      
                      
                      2,607Increase
      of Funds in Restricted Cash
                      
                      
                      (11,702,579
                      )
                      
                      
                      -Payments
      for Purchases of Equipment & Construction of Plant
                      
                      
                      (124,671
                      )
                      
                      
                      (3,481,309
                      )Payments
      for Purchases of Intangible Assets
                      
                      
                      (2,371
                      )
                      
                      
                      (18,100
                      )Payments/Withdraw
      of Deposits
                      
                      
                      -
                      
                      
                      
                      (43
                      )Cash
      Sourced/(Used) in Investing Activities
                      
                      
                      (11,830,158
                      )
                      
                      
                      (3,496,845
                      )Cash
      Flows from Financing ActivitiesProceeds
      from Bank Borrowings
                      
                      
                      14,630,790
                      
                      
                      
                      4,390,442Cash
      Sourced/(Used) in Financing Activities
                      
                      
                      14,630,790
                      
                      
                      
                      4,390,442Net
      Increase/(Decrease) in Cash & Cash Equivalents for the
      Year
                      
                      
                      (29,360,791
                      )
                      
                      
                      (1,557,957
                      )Effect
      of Currency Translation
                      
                      
                      14,262
                      
                      
                      
                      1,057Cash
      & Cash Equivalents at Beginning of Period
                      
                      
                      41,984,101
                      
                      
                      
                      5,695,798Cash
      & Cash Equivalents at End of Period
                      
                      $
                      12,637,572
                      
                      
                      $
                      4,138,898Non-Cash Financing
Activity:Release
      of shares held in escrow
                      
                      $
                      -
                      
                      
                      $
                      3,502,152





See Notes
to Financial Statements and Accountant’s Report





8





Energroup
Holdings Corporation


Reconciliation
of Net Income to Cash Provided/(Used) in Operating Activities


For
the three-month periods ended March 31, 2010 and 2009


(Stated
in US Dollars)





For three
                    
                    
                    For threeMonths ended
                    
                    
                    Months endedMarch 31,
                    
                    
                    March 31,2010
                    
                    
                    2009Net
      Income
                    
                    $
                    6,513,606
                    
                    
                    $
                    412,021Adjustments
      to Reconcile Net Income to Net Cash Provided by Cash
      Activities:Non
      Cash Expense Recorded for the Release of Escrowed Shares
                    
                    
                    -
                    
                    
                    
                    3,502,152Amortization
                    
                    
                    72,330
                    
                    
                    
                    67,102Depreciation
                    
                    
                    553,144
                    
                    
                    
                    565,157Provision
      for Bad Debt
                    
                    
                    (162,338
                    )
                    
                    
                    (99
                    )Decrease/(Increase)
      in Accounts Receivable
                    
                    
                    16,233,768
                    
                    
                    
                    2,071,840Decrease/(Increase)
      in Other Receivable
                    
                    
                    214,543
                    
                    
                    
                    10,494Decrease/(Increase)
      in Related Party Receivable
                    
                    
                    -
                    
                    
                    
                    (6,927,188
                    )Decrease/(Increase)
      in Inventory
                    
                    
                    (98,427
                    )
                    
                    
                    157,249Decrease/(Increase)
      in Advance to Suppliers
                    
                    
                    (62,297,547
                    )
                    
                    
                    (120,446
                    )Decrease/(Increase)
      in Prepaid Taxes
                    
                    
                    230,937
                    
                    
                    
                    127,788Decrease/(Increase)
      in Prepaid Expenses
                    
                    
                    (929,126
                    )
                    
                    
                    (334,114
                    )Decrease/(Increase)
      in Deferred Tax Benefit
                    
                    
                    (75
                    )
                    
                    
                    (809
                    )Increase/(Decrease)
      in Notes Payable
                    
                    
                    4,389,644
                    
                    
                    
                    -Increase/(Decrease)
      in Accounts Payable
                    
                    
                    786,024
                    
                    
                    
                    (3,779,839
                    )Increase/(Decrease)
      in Taxes Payable
                    
                    
                    1,644,930
                    
                    
                    
                    784,896Increase/(Decrease)
      in Other Payable
                    
                    
                    (139,157
                    )
                    
                    
                    (188,377
                    )Increase/(Decrease)
      in Related Party Payable
                    
                    
                    368,197
                    
                    
                    
                    -Increase/(Decrease)
      in Accrued Liabilities
                    
                    
                    (21,877
                    )
                    
                    
                    883,429Increase/(Decrease)
      in Customer Advances
                    
                    
                    480,001
                    
                    
                    
                    317,190Total
      of all adjustments
                    
                    
                    (38,675,029
                    )
                    
                    
                    (2,863,575
                    )Net
      Cash Provided by/(Used in) Operating Activities
                    
                    $
                    (32,161,423
                    )
                    
                    $
                    (2,451,554
                    )





See Notes
to Financial Statements and Accountant’s Report





9





Energroup Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





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 (“BVI”) 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.





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.





10





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





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 March 31, 2010, 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 (FASB ASC 810 Consolidation).





11





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





(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.





(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





12





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





(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.





(L)
            Customer
      Deposit





Customer
deposit 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.





(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.





13





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





(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.





Beginningin March 2008, the
Company encouraged its independent sales agents to share the cost in marketing
Chuming pork products.  The Company encouraged such behavior by
offering to its agents: (1) favorable credit terms, such as 45 to 60 days
unsecured credit and (2) more significant discount.  The Company
recognizes the sales revenue directly based on the dollar amount sold to
independent sales agents.  In accordance to 605-50-45-2, discounts
offered to independent sales agent are accounted for as reductions in
revenue.




Independent
sales agents are customers of the Company.  They do not have the right
to return products for refunds.  Accordingly, the Company does not
provide sales allowances for products sold to customers.


(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.  Selling expense, in absolute dollars, and as a percentage
of revenue, has decreased because of the coordinated effort with independent
sales agents to gain higher return on marketing efforts.  Refer to
Note 2(O) for further
details.





(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.





14





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





(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 (FASB ASC 740), 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.





(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.





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
                    
                    3/31/2010
                    
                    
                    12/31/2009Period
      end RMB : US$ exchange rate
                    
                    
                    6.8361
                    
                    
                    
                    6.8372Average
      period RMB : US$ exchange rate
                    
                    
                    6.8360
                    
                    
                    
                    6.8409




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.


15





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





(Y)
            Earnings
      Per Share





The
Company computes earnings per share (“EPS”) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per share” (FASB ASC 260), 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. The
Company has adopted the new accounting policies and has determined that there is
no material impact to the financial statements presented
herein.





(Z)
            Recent
      Accounting Pronouncements





In June
2009, FASB issued FASB Statement No. 166, Accounting for Transfers for
Financial Assets (FASB ASC 860 Transfers and Servicing) and
FASB Statement No. 167 (FASB ASC 810 Consolidation), a revision to
FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest
Entities(FASB ASC 810 Consolidation).








16





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





On June 30, 2009, FASB issued FASB
Statement No. 168,Accounting
Standards CodificationTM(FASB ASC 105Generally Accepted
Accounting Principles)a replacement of FASB Statement No. 162the
Hierarchy of Generally Accepted Accounting Principles. On the effective date of this
standard, FASB Accounting Standards CodificationTM (ASC) became the source of
authoritative U.S. accounting and reporting standards for nongovernmental
entities, in addition to guidance issued by the Securities and Exchange
Commission (SEC). This statement is effective for financial statements issued
for interim and annual periods ending after September 15, 2009.  If an
accounting change results from the application of this guidance, an entity
should disclose the nature and reason for the change in accounting principle in
their financial statements.  This new standard flattens the GAAP hierarchy
to two levels: one that is authoritative (in FASB ASC) and one that is
non-authoritative (not in FASB ASC). Exceptions include all rules and
interpretive releases of the SEC under the authority of federal securities laws,
which are sources of authoritative GAAP for SEC registrants, and certain
grandfathered guidance having an effective date before March 15, 1992. Statement
No. 168 is the final standard that will be issued by FASB in that form. 
There will no longer be, for example, accounting standards in the form of
statements, staff positions, Emerging Issues Task Force (EITF) abstracts, or
AICPA Accounting Statements of Position. The
Company has adopted and implemented the new accounting
policy.


3.
              Restricted
      Cash





The
restricted cash reflects funds received from the financing transaction described
in Note 19 that has been held in an escrow with US Bank in the United States
that requires releases authorized by the lead investor.  The balance
remaining in the escrow account is attributed to two criteria the Company was
not able satisfy by prescribed dates in accordance to the financing
transaction.  The two unfilled criteria were: (1) hiring of a Chief
Financial Officer within 90 days of the closing of the financing transaction
that met the approval of the investors and (2) appointment of a successor
auditor.  If criteria (1) and criteria (2) had been met, $1,500,000
and $500,000 of funds would have been released to the Company,
respectively.  The amount in excess of the total of the $2,000,000
million subject to the aforementioned criteria was comprised of unused funds
earmarked for the payment to a third party investor relation firm from a list
prescribed by the investors and any interest earned between December 31, 2007
and December 31, 2009.  The amount earmarked for the investor
relations firm was approximately $170,000, and the balance of approximately
$6,000 was related to interest earned.  The Company has also
classified these funds as restricted because they remain in the escrow account
which is subject to release by the investors.  The criteria for
restriction of the funds have been modified in accordance to a settlement
agreement entered into by the Company and the investors in the financing
transaction in Note 19, on December 30, 2009.  Refer to Note 20 for
further details on the settlement agreement that modifies the
restrictions.  The Company believes that is has properly accounted for
the amount of $2,176,760 held in escrow as restricted as of March 31, 2010 for
the following two reasons: (1) the Company was not able to freely access those
funds, and (1) the modification of the terms covered in the settlement agreement
were subject to events that would occur subsequent to the March 31,
2010.





Included
in the restricted cash of $13,879,340, $11,702,579 represents compensating
balances held at banks to partially secure banking facilities in the form of
notes payable. The imposed restrictions dictate that funds cannot be withdrawn
when there are outstanding notes payable, and the funds are only allowed to be
used to settle bank indebtedness. The funds deposited as compensating balances
are interest bearing.





17


Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





4.
            Accounts
      Receivable





Accounts
Receivable at March 31, 2010 and December 31, 2009 consisted of the
following: -
 
 At
                    
                    
                    AtMarch
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009Accounts
      Receivable – Trade
                    
                    $
                    24,045,208
                    
                    
                    $
                    40,278,976Less: Allowance for
      Doubtful Accounts
                    
                    
                    (240,452
                    )
                    
                    
                    (402,789
                    )Net
      Accounts Receivable
                    
                    $
                    23,804,756
                    
                    
                    $
                    39,876,187
 
 At
                    
                    
                    AtMarch
      31,
                    
                    
                    December
      31,Allowance for Bad
    Debts
                    
                    2010
                    
                    
                    2009Beginning
      Balance
                    
                    $
                    (402,789
                    )
                    
                    $
                    (188,495
                    )Allowance
      Provided
                    
                    
                    -
                    
                    
                    
                    (214,294
                    )Charged
      Against Allowance
                    
                    
                    -
                    
                    
                    
                    -Reversal*
                    
                    
                    162,337
                    
                    
                    
                    -Ending
      Balance
                    
                    $
                    (240,452
                    )
                    
                    $
                    (402,789
                    )
 
 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.  As of March 31, 2010, the Company has not had any receivables
that were unrecoverable.
 
 Accounts
receivable aging analysis at March 31, 2010 and December 31, 2009:
-
  At
                                
                                
                                AtMarch
      31,
                                
                                
                                December
      31,2010
                                
                                
                                20091-30 Days
                                
                                $
                                12,591,025
                                
                                
                                $
                                17,757,22330-60 Days
                                
                                
                                5,305,588
                                
                                
                                
                                12,643,46661-90 Days
                                
                                
                                2,383,173
                                
                                
                                
                                5,004,37091-120 Days
                                
                                
                                352,405
                                
                                
                                
                                4,833,711121-365 Days
                                
                                
                                3,413,017
                                
                                
                                
                                40,206Over 365 Days
                                
                                
                                -
                                
                                
                                
                                -Total
                                
                                $
                                24,045,208
                                
                                
                                $
                                40,278,976
 
 The
Company believes it has provided adequate provisions for doubtful
accounts. As of May
22, 2010, we had received settlement of more than 70% of the Accounts Receivable
that were between 121-365 days outstanding. The Company believes that the
subsequent settlement of accounts provides further evidence that its allowance
for bad debt was adequate. In the past, the Company has not
experienced any accounts that have become uncollectible.  As a result
of the Company’s position in its industry and the type of products that it
sells, which are considered consumer staples, it can exert significant influence
and bargaining power on it customers, which includes, among others, the
collection of outstanding accounts.  If in the event that the
Company’s customers do not pay, they will be faced with the consequence that the
Company will cease to supply its products to them, and that the Company can take
legal action to recover losses.
 
 *The
Company has corrected an error in disclosure.  The $162,337 was
previously described as a specific write off of uncollectible amounts, show in
the “Charged Against Allowance” line item detailed above; this amount reflects a
reversal of the allowance provided by the Company based on its gross accounts
receivable outstanding.  The amount has been classified as a
“Reversal”.  In accordance with SFAS 154 and SAB 99, the Company
believes this correction of error is immaterial both quantitatively and
qualitatively.  There was no impact to the Company’s financial
position, result of operations, and cash flows for the periods
presented.




18





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





5.
            Related Party
      Receivable and Payable





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 (FASB ASC 210-20), 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 payable balance of $2,675,626at March 31, 2010 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
      Huayu Seafood Food Co., Ltd.
                                  
                                  $
                                  5,516,296
                                  
                                  Food
      Co. sold cooked food to Huayu dating back to 1/2007.Subtotal
      of Related Party Sales
                                  
                                  
                                  5,516,296B
                                  
                                  Food
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Fodder Co., Ltd.
                                  
                                  
                                  256,715
                                  
                                  Food
      Co. advanced prepayment to Fodder Co. for purchase of raw materials dating
      back to 7/2009C
                                  
                                  Food
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Mingxing Livestock Product Co., Ltd.
                                  
                                  
                                  183,285
                                  
                                  Food
      Co. purchased material on behalf of Mingxing Dating back to
      6/2009D
                                  
                                  Food
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Chuming Industrial Development Co., Ltd.
                                  
                                  
                                  21,962,912
                                  
                                  Food
      Co. paid bank loan principal and interest on behalf of Industrial Co.
      dating back to 1/2008E
                                  
                                  Food
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Chuming Trading Co., Ltd
                                  
                                  
                                  7,021,547
                                  
                                  Food
      Co. paid material on behalf of Trading dating back to
    3/2010F
                                  
                                  Meat
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Chuming Industrial Development Co., Ltd.
                                  
                                  
                                  6,172,349
                                  
                                  Meat
      Co. paid bank loan principal and interest on behalf of Industrial Co.
      dating back to 4/2009G
                                  
                                  Meat
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                                  
                                  
                                  2,364,732
                                  
                                  Prepayment
      to Stockbreeding Combo for Purchase of hogs dating back to
      7/2008.H
                                  
                                  Sales
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Huayu Seafood Co., Ltd.
                                  
                                  
                                  2,717,126
                                  
                                  Sales
      Co. help Huayu purchase materials dating back to
9/2008.I
                                  
                                  Sales
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Chuming Group Co., Ltd.
                                  
                                  
                                  8,357,926
                                  
                                  Sales
      Co. purchased hogs and paid general and administrative expenses on behalf
      of Group dating back to 7/2008.J
                                  
                                  Sales
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                                  
                                  
                                  15,927,008
                                  
                                  Sales
      Co. paid for Stockbreeding to buy hogs from farmer dating back
      7/2008K
                                  
                                  Sales
                                  
                                  Loan
      Receivable from
                                  
                                  Dalian
      Chuming Industrial Development Co., Ltd.
                                  
                                  
                                  5,594,980
                                  
                                  Sales
      Co. purchased materials for Industrial Co. dating back to
      7/2009Subtotal
      loans to related parties
                                  
                                  
                                  70,558,580Gross
      related party receivables
                                  
                                  $
                                  76,074,876





19





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





Ref.
                                                          
                                                          Subsidiary
      Due from:
                                                          
                                                          Nature
      of Balance
                                                          
                                                          Related
      Party
                                                          
                                                          Balance
                                                          
                                                          Description
      of TransactionL
                                                          
                                                          Meat
                                                          
                                                          Purchase
      of Raw Materials resulting in Trade Payable to
                                                          
                                                          Dalian Chuming
      Stockbreeding Combo Development Co., Ltd.
                                                          
                                                          $
                                                          8,487,806
                                                          
                                                          Meat
      Co. purchased of hogs from Stockbreeding Combo dating back to
      12/2009M
                                                          
                                                          Meat
                                                          
                                                          Purchase
      of Raw Materials resulting in Trade Payable to
                                                          
                                                          Dalian
      Chuming Group Co., Ltd.
                                                          
                                                          
                                                          28,895,745
                                                          
                                                          Purchase
      of hogs from Group dating back to 7/2008.Subtotal
      of Purchases from Related Parties
                                                          
                                                          
                                                          37,383,551N
                                                          
                                                          Food
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Chuming Group Co., Ltd.
                                                          
                                                          
                                                          1,566,161
                                                          
                                                          Food
      borrowed from Group to purchase materials dating back to
      4/2009.O
                                                          
                                                          Food
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                                                          
                                                          
                                                          2,047,951
                                                          
                                                          Stockbreeding
      Combo bought raw materials on behalf of Food Co. dating back to
      4/2009P
                                                          
                                                          Food
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Huayu Seafood Co., Ltd.
                                                          
                                                          
                                                          8,425,912
                                                          
                                                          Food
      Company collected customer deposits on behalf of Huayu Co. dating back to
      7/2009Q
                                                          
                                                          Meat
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Chuming Group Co., Ltd.
                                                          
                                                          
                                                          7,314,119
                                                          
                                                          Group
      loaned to Meat Co. dating back to 4/2009R
                                                          
                                                          Meat
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Huayu Seafood Co., Ltd.
                                                          
                                                          
                                                          2,950,978
                                                          
                                                          Huayu
      Co. loaned to Meat Co. dating back to 7/2009S
                                                          
                                                          Meat
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Mingxing Livestock Product Co., Ltd.
                                                          
                                                          
                                                          610,716
                                                          
                                                          Mingxing
      Co. paid the operation expense on behalf of Meat Co., dating back to
      7/2009T
                                                          
                                                          Meat
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Chuming Fodder Co., Ltd.
                                                          
                                                          
                                                          1,259,958
                                                          
                                                          Fodder
      Co. paid the fodder materials on behalf of Meat dating back to
      3/2010U
                                                          
                                                          Sales
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Mingxing Livestock Product Co. Ltd.,
                                                          
                                                          
                                                          1,602,016
                                                          
                                                          Sales
      Co. collected bank loans on behalf of Mingxing dating back to
      8/2008V
                                                          
                                                          Sales
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Chuming Fodder Co., Ltd.
                                                          
                                                          
                                                          5,071,862
                                                          
                                                          Fodder
      Co. bought materials on behalf of Sales Co. dating back to
      4/2009W
                                                          
                                                          WFOE
                                                          
                                                          Loan
      Payable to
                                                          
                                                          Dalian
      Chuming Group Co.
                                                          
                                                          
                                                          10,517,278
                                                          
                                                          Group
      loaned funds to WFOE (includes funds transferred from Meat for US
      RTO.)Subtotal
      of Loans from Related Parties
                                                          
                                                          
                                                          41,366,951Gross
      Related Party Payable
                                                          
                                                          
                                                          78,750,502Setoff Related Party Payable (Receivables
      have been set-off
      againstPayables)
                                                          
                                                          $
                                                          2,675,626





20





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





A.
            The
      Food Company sold USD 5.5 million (RMB 37.71 million) cooked food to Huayu
      Company on credit.





B.
            Food
      Company prepaid USD 256 thousand (RMB 1.75 million) to Fodder Company in
      third quarter of 2009 for the purchase of raw
  materials.





C.
            Food
      Co. purchased material USD 183 thousand(RMB 1.25Million) on behalf of
      Mingxing dating back to 6/2009





D.
            Food
      Company paid USD 21.96 million (RMB 150 million) bank loan principal and
      interest on behalf of Industrial Development
  Company.





E.
            Food
      Co. paid USD 7 million (RMB 48 million) for materials on behalf of Trading
      Company.





F.
            Meat
      Co. paid USD 6.17 million (RMB 42.2 million) bank loan principal and
      interest on behalf Industrial Development
  Company.





G.
            The
      prepayment of USD 2.36 million (RMB 16.16 million) from Meat Company to
      the Stockbreeding Combo Development Company was for the purchase of
      hogs.





H.
            Sales
      Company bought USD 2.7 million (RMB 18.6 million) raw materials on behalf
      of Huayu Seafood Company.





I.
            The
      balance of USD 8.35 million (RMB 57.13 million) receivable from Chuming
      Group to Sales Company was for the payments of hogs and operation
      expense.





J.
            Sales
      Company help the Combo Development Company to pay USD 15.9 million (RMB
      109 million) to local farmers for the purchase of
  hogs.





K.
            Sales
      Company purchased USD 5.6 million (RMB 38 million) materials for
      Industrial Development Company.





L.
            The
      balance of USD 8.48 million (RMB 58 million) payment owed by the Meat
      Company to Chuming Stockbreeding Combo Development Company was for the
      purchase of hogs.





M.
            The
      Group sold hogs to Meat Co. for 28.9 million (RMB 197.5
      million).





N.
            Food
      borrowed  USD 1.56 million(RMB10.7 million) from Group to
      purchase materials





O.
            Stockbreeding
      Combo Development Company purchased USD 2 million (RMB 14 million) for
      Food Company.





P.
            Food
      Company collected USD 8.43 million (RMB 57 million) customer deposits on
      behalf of Huayu Seafood Company.





Q.
            Meat
      Company borrowed USD 7.3 million (RMB 50 million) operation funds from
      Chuming Group.





R.
            Meat
      Company borrowed USD 2.9 million (RMB 20 million) operation funds from
      Huayu Seafood Company.





S.
            Mingxing
      Livestock Company paid USD 611 thousand (RMB 4.1 million) general and
      administrative expenses for Meat
Company.





21





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





T.
            Fodder
      Co. paid USD 1.26 million (RMB 8.61 million) the fodder materials on
      behalf of Meat Company.





U.
            Sales
      Company collected USD 1.6 Million (RMB 10.9 million) bank loans on behalf
      of Mingxing Livestock Company.





V.
            Fodder
      Company bought USD 5.1 million (RMB 34.67 million) materials on behalf of
      Sales Company.





W.
            The
      outstanding payable balance of USD 10.5 million (RMB 71 million) due to
      the Group has been transferred to the books of
  Chuming.





The
related party payable 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 (FASB ASC 850) 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.





22





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





6.
            Inventory





At
                          
                          
                          AtMarch 31,
                          
                          
                          December 31,2010
                          
                          
                          2009Raw
      Materials
                          
                          $
                          688,814
                          
                          
                          $
                          1,479,197Work
      in Progress
                          
                          
                          100,717
                          
                          
                          
                          95,051Finished
      Goods
                          
                          
                          2,992,885
                          
                          
                          
                          2,109,741$
                          3,782,416
                          
                          
                          $
                          3,683,989





7.
            Advance to
      Suppliers





At March
31, 2010, the Company had $63,142,510 advance to suppliers, of which $62,519,089
representing 99.02% paid by the Company’s subsidiary Meat Company to the Chuming
Group on March 25, 2010 for the purchase of 300,000 hogs in consummation of the
hog purchase agreement described in Note 16.





8.
            Property, Plant &
      Equipment





At
                            
                            
                            
                            
                            AccumulatedMarch
      31, 2010:
                            
                            Cost
                            
                            
                            Depreciation
                            
                            
                            NetBuildings
                            
                            $
                            21,737,261
                            
                            
                            $
                            (4,605,799
                            )
                            
                            $
                            17,131,462Manufacturing
      Equipment
                            
                            
                            10,025,111
                            
                            
                            
                            (4,467,176
                            )
                            
                            
                            5,557,935Office
      Equipment
                            
                            
                            480,907
                            
                            
                            
                            (418,882
                            )
                            
                            
                            62,026Vehicles
                            
                            
                            916,258
                            
                            
                            
                            (680,144
                            )
                            
                            
                            236,114Furniture
      & Fixture
                            
                            
                            525,408
                            
                            
                            
                            (225,029
                            )
                            
                            
                            300,378$
                            33,684,945
                            
                            
                            $
                            10,397,030
                            
                            
                            $
                            23,287,915At
                            
                            
                            
                            
                            
                            AccumulatedDecember
      31, 2009:
                            
                            Cost
                            
                            
                            Depreciation
                            
                            
                            NetBuildings
                            
                            $
                            21,661,732
                            
                            
                            $
                            (4,341,813
                            )
                            
                            $
                            17,319,919Manufacturing
      Equipment
                            
                            
                            9,983,958
                            
                            
                            
                            (4,227,442
                            )
                            
                            
                            5,756,516Office
      Equipment
                            
                            
                            473,623
                            
                            
                            
                            (397,488
                            )
                            
                            
                            76,135Vehicles
                            
                            
                            926,735
                            
                            
                            
                            (664,628
                            )
                            
                            
                            262,107Furniture
      & Fixture
                            
                            
                            525,323
                            
                            
                            
                            (212,516
                            )
                            
                            
                            312,807$
                            33,571,371
                            
                            
                            $
                            (9,843,887
                            )
                            
                            $
                            23,727,484





9.
            Land Use
      Right





The
Company had the following intangible assets outstanding at December
31:





At
                      
                      
                      AtMarch
      31,
                      
                      
                      December
      31,2010
                      
                      
                      2009Land
      Use Rights, at Cost
                      
                      $
                      14,737,521
                      
                      
                      $
                      14,735,150Less: Accumulated
      Amortization
                      
                      
                      (1,631,921
                      )
                      
                      
                      (1,559,591
                      )$
                      13,105,600
                      
                      
                      $
                      13,175,559








23





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





10.
            Bank
      Loans





(A)
            Short
      Term Bank Loans





At March
31, 2010 and December 31 2009, the Company had the following short-term loans
outstanding:





AtMarch
      31,Bank
                  
                  Interest Rate
                  
                  Due
      Date
                  
                  2010Bank
      of China - Liaoning Branch
                  
                  
                  5.841
                  %
                  12/12/2010
                  
                  $
                  4,388,467Bank
      of China - Liaoning Branch
                  
                  
                  6.16
                  %
                  10/27/2010
                  
                  
                  2,047,951Shanghai
      Pudong Development Bank - Dalian Branch
                  
                  
                  5.841
                  %
                  11/25/2010
                  
                  
                  4,388,467Shanghai
      Pudong Development Bank - Dalian Branch
                  
                  
                  5.841
                  %
                  7/16/2010
                  
                  
                  5,851,289Agricultural
      Bank of China - Wafangdian Branch
                  
                  
                  5.832
                  %
                  10/30/2010
                  
                  
                  4,388,467Huaxia
      Bank - Dalian Branch
                  
                  
                  5.576
                  %
                  1/6/2010
                  
                  
                  7,314,112Bank
      of East Asia - Dalian Branch
                  
                  
                  7.33
                  %
                  10/22/2010
                  
                  
                  2,194,235$
                  30,572,988





AtDecember
      31,Bank
                  
                  Interest
      Rate
                  
                  Due
      Date
                  
                  2009Bank
      of China - Liaoning Branch
                  
                  
                  5.841
                  %
                  11/11/2010
                  
                  $
                  2,252,384Bank
      of China - Liaoning Branch
                  
                  
                  5.841
                  %
                  11/18/2010
                  
                  
                  2,135,377Bank
      of China - Liaoning Branch
                  
                  
                  5.841
                  %
                  10/27/2010
                  
                  
                  2,047,620Agricultural
      Bank of China - Wafangdian Branch
                  
                  
                  5.310
                  %
                  10/30/2010
                  
                  
                  2,925,174Shanghai
      Pudong Development Bank - Dalian Branch
                  
                  
                  5.841
                  %
                  7/16/2010
                  
                  
                  4,387,761Bank
      of East Asia - Dalian Branch
                  
                  
                  7.33
                  %
                  10/22/2010
                  
                  
                  2,193,881$
                  15,942,197





The loans
provided by the Bank of China are 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).  Also, the Agricultural Bank and Shanghai Pudong
Development Bank loans have been guaranteed by the Dalian Chuming Group Co.,
Ltd. Both the CEO Mr. Shi Huashan and Dalian Chuming Group Co., Ltd. have
guaranteed the loan from Bank of East Asia.





(B)
            Bank
      Loan through Group





The
Company obtained a loan of $20,466,901 (RMB 160,000,000) from Dalian Chuming
Group Co., Ltd; which in turn, obtained these funds in a joint loan commitment
from both China Development Bank and Shenzhen Development Bank (“Banks”) via a
collateralized loan.  Dalian Chuming Group Co., Ltd. (“Group”)
collateralized the loan by purchasing a bond from China Export and Credit
Insurance Corporation (“Bond Issuer”).  The bond guarantees to the
Banks the entire principal and accrued interest of the loan.  The cost
of the bond is RMB 1,000,000 annually, or in USD: $120,668, 121,902, and 125,284
for the years 2004, 2005, and 2006, respectively, which was paid by the
Company.  The loan carries a fixed interest of 5.76% per
annum.  The Company pledged both land use rights and buildings to the
Bond Issuer.  The Company pursued a loan from Dalian Chuming Group
Co., Ltd as the financing solution of choice because the Company’s tangible
assets, at the time of origination, were insufficient to collateralize the loan.
Additionally, the Company lacked the favorable credit history to directly
establish credit facility with the bank.





24





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





At
December 31, 2007, the Company repaid its debt, in its entirety to Dalian
Chuming Group Co. Ltd by setting off receivables owed by the Group to the
Company.  The Company repaid the loan in order to meet the
requirements of the equity financing transaction detailed in Note
19.  The balances are now owed by Dalian Chuming Group Co. Ltd to the
Banks, and liability for paying the bonding insurance annually lies with the
Group.  The pledged collateral of land use rights and buildings made
to the Bond Issuer still underlie the loan currently owed by the Group, and as
such, the Company’s assets, namely the buildings and land use rights are at risk
if the Group were to default on this loan.





11.
            Notes
      Payable





Notes
payable consisted of the followings:-





AtMarch
      31,Notes
      to
                                
                                Due
      Date
                                
                                2010Shanghai
      Pudong Development Bank - Liaoning Branch
                                
                                5/18/2010
                                
                                $
                                7,314,112Huaxia
      Bank
                                
                                7/22/2010
                                
                                
                                4,388,467$
                                11,702,579





AtDecember
      31,Notes
      to
                            
                            Due
      Date
                            
                            2009Shanghai
      Pudong Development Bank - Liaoning Branch
                            
                            5/18/2010
                            
                            $
                            7,312,935$
                            7,312,935




The Notes
do not carry a stated interest rate but do carry a specific due
date.  These notes are negotiable documents issued by financial
institutions on the Company’s behalf to vendors.  These notes can
either be endorsed by the Vendor to other third parties as payment, or prior to
coming due, they can discount these notes to other financial
institutions.  These notes are short term in nature so the Company
does not calculate an imputed interest on them.  These notes are
collateralized by the Company’s deposits as described in Note 3.Restricted
Cash.


12.
            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 ofShares
                  
                  
                  Common
      Stock Capital
                  
                  
                  AdditionalPaid
      in Capital
                  
                  
                  Equity %Operating
      Companies Founders
                  
                  
                  14,688,948
                  
                  
                  $
                  14,689
                  
                  
                  $
                  29,486,367
                  
                  
                  
                  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
                  
                  
                  $
                  42,530,331
                  
                  
                  
                  100.00
                  %


25




Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





13.
            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
                      
                      
                      AtMarch
      31,
                      
                      
                      December
      31,2010
                      
                      
                      2009PRC
      Registered Capital
                      
                      
                      15,566,849
                      
                      
                      
                      15,566,849-
      Statutory Reserve Ceiling based on 50% of Registered
    Capital
                      
                      
                      7,783,424
                      
                      
                      
                      7,783,424Less: - Retained Earnings
      appropriated to Statutory Reserve
                      
                      
                      (2,077,488
                      )
                      
                      
                      (2,077,488
                      )Reserve
      Commitment Outstanding
                      
                      $
                      5,705,936
                      
                      
                      $
                      5,705,936





14.
            Advertising
      Costs





Advertising
expenses were $60,098 and $47,124 for the three-month periods ended March 31,
2010 and 2009, respectively.





15.
            Income
      Taxes





The
Company and its subsidiaries are subject to income tax under the jurisdictions
under which they operate.  The following table details the Company and
its subsidiaries, and the statutory tax rates to which they are
subject:





Entity
                      
                      Country of Domicile
                      
                      Income Tax RateEnergroup
      Holdings Corporation
                      
                      USA
                      
                      
                      15.00% - 35.00%Precious
      Sheen Investments Limited
                      
                      BVI
                      
                      
                      0.00%Dalian
      Chuming Precious Sheen Investment Consulting Co., Ltd.
                      
                      PRC
                      
                      
                      25.00%Dalian
      Chuming Slaughtering & Pork Packaging Co. Ltd.
                      
                      PRC
                      
                      
                      25.00%Dalian
      Chuming Processed Foods Co. Ltd.
                      
                      PRC
                      
                      
                      25.00%Dalian
      Chuming Sales Co. Ltd.
                      
                      PRC
                      
                      
                      25.00%





As shown
in the table above, Dalian Chuming Slaughtering & Pork Packaging Co. Ltd.,
Dalian Chuming Processed Foods Co. Ltd., Dalian Chuming Sales Co. Ltd., and
Dalian Chuming Precious Sheen Investment Consulting Co. operate in the
PRC.  They generate substantially all of the profits for the
Company.  The Company expects that these subsidiaries will only be
subject to PRC taxes in the foreseeable future, because the Company has not yet
established a plan to repatriate it earnings to the United States.





26





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





Although
the Companies PRC subsidiaries are subject to statutory income tax rates
detailed above, the individual effective tax rates for each subsidiary vary
significantly.





Dalian
Chuming Slaughtering & Pork Packaging Co. Ltd. has been given special
tax-free status by the PRC government because of the Company’s standing as
leader in its industry in Dalian.  Accordingly, the Company has not
made a provision for income taxes in the PRC for the three-month periods
ended  March 31, 2010 and 2009.





Dalian
Chuming Processed Foods Co. Ltd has provided for income taxes for the
three-month periods ended March 31, 2010 and 2009 in the amounts of $451,747 and
$280,208, respectively.





Dalian
Chuming Sales Co. Ltd. has not provided for income taxes in years 2010 and 2009
because it has incurred operating losses for those respective
years.  The Company has chosen to derecognize its deferred tax assets
arising from net operating losses in prior periods by expensing the asset to the
income tax expense account.  The amounts expense related to
de-recognition of deferred tax assets for the years ended December 31 2009 and
2008 were $176,191 and $11,246 respectively.  Management made the
decisions of de-recognition based on new information such as changes in market
conditions and the further streamlining of the Company’s
business.  Management does not believe that previously accrued
deferred tax assets will be used to reduce taxes payables at any point in the
foreseeable future.  Management deemed the use of a valuation
allowance inappropriate based on the circumstances in accordance to guidance
provided under ASC 740-10-40.





Although
the Company is subject to United States income taxes, it is a holding company
with no operations or profits within the US borders.  The Company
currently only incurs expenses in the United States that are associated with
being a public company.





After
accounting for special tax-free status and net operating loss of aforementioned
subsidiaries, the consolidated taxable earnings were determined, and the
consolidated tax expenses were as follows: -





i.
                    
                    2010
                    Tax
      expense
                    
                    
                    (451,747
                    )ii.
                    
                    2009
                    Tax
      expense
                    
                    
                    (280,208
                    )





16.
            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 March 31, 2010 except for the
commitment to have the construction in progress finished.





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 March 31, 2010, the Company expects
minimum quantities of hogs detailed in the following table:





Year
                    
                    Hogs
                    
                    
                    Price
      Per Hog
                    
                    
                    Amount2010
      (April to Dec)
                    
                    
                    666,735
                    
                    
                    $
                    205.84
                    
                    
                    
                    137,240,732





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.




27





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





17.
            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.





Below is
a presentation of the Company’s results of operations and financial position for
its operating subsidiaries at December 31, 2009 and 2008, and for the years 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).





Results
      of Operations
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      WFOE,For
      the period ended
                      
                      Meat
                      
                      
                      Food
                      
                      
                      Sales
                      
                      
                      PSI,
      &March
      31, 2009
                      
                      Company
                      
                      
                      Company
                      
                      
                      Company
                      
                      
                      Eliminations
                      
                      
                      TotalSales
                      
                      $
                      39,423,641
                      
                      
                      $
                      5,387,671
                      
                      
                      $
                      12,366,527
                      
                      
                      $
                      (16,283,916
                      )
                      
                      $
                      40,893,923Cost
      of Sales
                      
                      
                      (34,409,997
                      )
                      
                      
                      3,968,091
                      
                      
                      
                      (13,075,296
                      )
                      
                      
                      16,283,916
                      
                      
                      
                      (35,169,469
                      )Gross
      Profit
                      
                      
                      5,013,643
                      
                      
                      
                      1,419,580
                      
                      
                      
                      (708,769
                      )
                      
                      
                      -
                      
                      
                      
                      5,724,454Operating
      (Loss)/Profit
                      
                      
                      4,763,599
                      
                      
                      
                      1,244,811
                      
                      
                      
                      (1,586,117
                      )
                      
                      
                      (121,911
                      )
                      
                      
                      4,300,382Other
      Income (Expense)
                      
                      
                      (24,620
                      )
                      
                      
                      (63,141
                      )
                      
                      
                      (18,676
                      )
                      
                      
                      (3,501,716
                      )
                      
                      
                      (3,608,153
                      )Earnings
      before Tax
                      
                      
                      4,738,979
                      
                      
                      
                      1,181,670
                      
                      
                      
                      (1,604,793
                      )
                      
                      
                      (3,623,628
                      )
                      
                      
                      692,229(Income
      Tax Expense)
                      
                      
                      -
                      
                      
                      
                      (280,208
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (280,208
                      )Extraordinary
      Expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      Income
                      
                      $
                      4,738,979
                      
                      
                      $
                      901,462
                      
                      
                      $
                      (1,604,793
                      )
                      
                      $
                      (3,623,628
                      )
                      
                      $
                      412,021





Eliminated
      Intercompany Sales of Products SoldThree-month
      periods ended March 31, 2009Sold
      From:
                  Sold
      To:
                  
                  AmountFood
      Company
                  Sales
      Company
                  
                  $
                  2,741,755Meat
      Company
                  Sales
      Company
                  
                  
                  1,953,126Meat
      Company
                  Food
      Company
                  
                  
                  11,589,035$
                  16,283,916





28





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





Results
      of Operations
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  WFOE,For
      the period ended
                  
                  Meat
                  
                  
                  Food
                  
                  
                  Sales
                  
                  
                  PSI,
      &March
      31, 2010
                  
                  Company
                  
                  
                  Company
                  
                  
                  Company
                  
                  
                  Eliminations
                  
                  
                  TotalSales
                  
                  $
                  52,075,237
                  
                  
                  
                  7,547,628
                  
                  
                  
                  4,406,044
                  
                  
                  $
                  (8,518,787
                  )
                  
                  $
                  55,510,121Cost
      of Sales
                  
                  
                  (45,788,964
                  )
                  
                  
                  (5,456,549
                  )
                  
                  
                  (4,486,146
                  )
                  
                  
                  8,518,787
                  
                  
                  
                  (47,212,872
                  )Gross
      Profit
                  
                  
                  6,286,273
                  
                  
                  
                  2,091,079
                  
                  
                  
                  (80,103
                  )
                  
                  
                  -
                  
                  
                  
                  8,297,249Operating
      (Loss)/Profit
                  
                  
                  6,036,600
                  
                  
                  
                  1,884,253
                  
                  
                  
                  (421,542
                  )
                  
                  
                  (119,448
                  )
                  
                  
                  7,379,863Other
      Income (Expense)
                  
                  
                  (356,530
                  )
                  
                  
                  (62,573
                  )
                  
                  
                  6,947
                  
                  
                  
                  (2,354
                  )
                  
                  
                  (414,510
                  )Earnings
      before Tax
                  
                  
                  5,680,070
                  
                  
                  
                  1,821,680
                  
                  
                  
                  (414,595
                  )
                  
                  
                  (121,802
                  )
                  
                  
                  6,965,353(Income
      Tax Expense)
                  
                  
                  -
                  
                  
                  
                  (451,747
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (451,747
                  )Extraordinary
      Expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      Income
                  
                  
                  5,680,070
                  
                  
                  
                  1,369,933
                  
                  
                  
                  (414,595
                  )
                  
                  
                  (121,802
                  )
                  
                  
                  6,513,606





Eliminated
      Intercompany Sales of Products SoldThree-month
      periods ended March 31, 2010Sold
      From:
                        
                        Sold
      To:
                        
                        AmountFood
      Company
                        
                        Sales
      Company
                        
                        $
                        2,200,250Meat
      Company
                        
                        Sales
      Company
                        
                        
                        2,256,409Meat
      Company
                        
                        Food
      Company
                        
                        
                        4,062,128$
                        8,518,787





Financial
      Position
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    WFOE,At
                    
                    Meat
                    
                    
                    Food
                    
                    
                    Sales
                    
                    
                    PSI,
      &December
      31, 2009
                    
                    Company
                    
                    
                    Company
                    
                    
                    Company
                    
                    
                    Eliminations
                    
                    
                    TotalCurrent
      Assets
                    
                    $
                    175,070,968
                    
                    
                    $
                    54,889,689
                    
                    
                    $
                    32,573,276
                    
                    
                    $
                    (172,646,851
                    )
                    
                    $
                    89,887,082Non
      Current Assets
                    
                    
                    24,795,021
                    
                    
                    
                    18,567,360
                    
                    
                    
                    232,971
                    
                    
                    
                    528
                    
                    
                    
                    43,595,880Total
      Assets
                    
                    
                    199,865,989
                    
                    
                    
                    73,457,049
                    
                    
                    
                    32,806,247
                    
                    
                    
                    (172,646,323
                    )
                    
                    
                    133,482,962Current
      Liabilities
                    
                    
                    123,737,988
                    
                    
                    
                    61,796,444
                    
                    
                    
                    40,265,515
                    
                    
                    
                    (183,541,236
                    )
                    
                    
                    42,258,711Total
      Liabilities
                    
                    
                    123,737,988
                    
                    
                    
                    61,796,444
                    
                    
                    
                    40,265,515
                    
                    
                    
                    (183,541,236
                    )
                    
                    
                    42,258,711Net
      Assets
                    
                    
                    76,128,001
                    
                    
                    
                    11,660,605
                    
                    
                    
                    (7,459,268
                    )
                    
                    
                    10,894,913
                    
                    
                    
                    91,224,251Total
      Liabilities&
      Net Assets
                    
                    $
                    199,865,989
                    
                    
                    $
                    73,457,049
                    
                    
                    $
                    32,806,247
                    
                    
                    $
                    (172,646,323
                    )
                    
                    $
                    133,482,962





29





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





Financial
      Position
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    WFOE,At
                    
                    Meat
                    
                    
                    Food
                    
                    
                    Sales
                    
                    
                    PSI,
      &March
      31, 2010
                    
                    Company
                    
                    
                    Company
                    
                    
                    Company
                    
                    
                    Eliminations
                    
                    
                    TotalCurrent
      Assets
                    
                    $
                    157,130,484
                    
                    
                    $
                    60,883,143
                    
                    
                    $
                    40,835,827
                    
                    
                    $
                    (139,797,523
                    )
                    
                    $
                    119,051,932Non
      Current Assets
                    
                    
                    24,481,882
                    
                    
                    
                    18,406,638
                    
                    
                    
                    208,542
                    
                    
                    
                    387
                    
                    
                    
                    43,097,450Total
      Assets
                    
                    
                    181,612,366
                    
                    
                    
                    79,289,781
                    
                    
                    
                    41,044,369
                    
                    
                    
                    (139,797,135
                    ))
                    
                    
                    162,149,382Current
      Liabilities
                    
                    
                    99,792,104
                    
                    
                    
                    66,257,380
                    
                    
                    
                    48,919,429
                    
                    
                    
                    (150,571,650
                    )
                    
                    
                    64,397,263Total
      Liabilities
                    
                    
                    99,792,104
                    
                    
                    
                    66,257,380
                    
                    
                    
                    48,919,429
                    
                    
                    
                    (150,571,650
                    )
                    
                    
                    64,397,263Net
      Assets
                    
                    
                    81,820,262
                    
                    
                    
                    13,032,400
                    
                    
                    
                    (7,875,060
                    )
                    
                    
                    10,774,515
                    
                    
                    
                    97,752,119Total
      Liabilities&
      Net Assets
                    
                    
                    181,612,366
                    
                    
                    
                    79,289,781
                    
                    
                    
                    41,044,369
                    
                    
                    
                    (139,797,135
                    )
                    
                    
                    162,149,382








30





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





18.
            Earnings Per
      Share





Components
of basic and diluted earnings per share were as follows: -





For
      the
                      
                      
                      For
      theThree months
                      
                      
                      Three monthsMarch
      31,
                      
                      
                      March
      31,2010
                      
                      
                      2009Net
      Income (A)
                      
                      $
                      6,513,606
                      
                      
                      $
                      412,021Basic
      Weighted Average Shares Outstanding (B)
                      
                      
                      21,136,392
                      
                      
                      
                      17,272,756Dilutive
      Shares:- 
      Addition to Common Stock from Exercise of Placement
    Warrants
                      
                      
                      -
                      
                      
                      
                      -- 
      Addition to Common Stock from Contingent Shares Held in Escrow (Please
      refer to Note 19)
                      
                      
                      -
                      
                      
                      
                      3,863,636Diluted
      Weighted Average Shares Outstanding: (C)
                      
                      
                      21,136,392
                      
                      
                      
                      21,136,392Earnings
      Per Share:-
       Basic (A)/(B)
                      
                      $
                      0.31
                      
                      
                      $
                      0.03- 
      Diluted (A)/(C)
                      
                      $
                      0.31
                      
                      
                      $
                      0.02Weighted
      Average Shares Outstanding:- 
      Basic
                      
                      
                      21,136,392
                      
                      
                      
                      17,272,756- 
      Diluted
                      
                      
                      21,136,392
                      
                      
                      
                      21,136,392





19.
            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.





31





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





20.
            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 3,863,636 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
March 31, 2010, the Company had adequate authorized capital to issue common
shares upon the exercise of the warrant.





At March
31, 2010, 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
                
                
                3,863,63621,136,392iii.
                
                Common
      shares issuable upon exercise of placement agent warrants
                
                
                386,36421,522,756





32





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





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
period.  The agreement stated 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(FASB ASC 815-15).  Under such accounting
treatment, the liquidated damages were 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.  The terms of the financing
transaction have been amended under a settlement agreement entered into on
December 30, 2009.  Under the settlement agreement, if certain
requirements are met by the Company by prescribed dates, the liquidated damages
may be waived and the funds may be released to the Company.  If the
Company does not meet the requirements by the prescribed dates, the Company may
still be required to pay the liquated damages from the escrow account that has
been classified as restricted cash on the Company’s balance
sheet.  Refer to Note 20 for further detail regarding the settlement
agreement.





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 were
to be released back to him if the Company met 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.  The Company met the
aforementioned targets.  In accordance with SFAS 128, Earnings per Share(FASB ASC
260), 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 were not included in the weighted average basic shares outstanding
for three months end March 31, 2009, but are included in the weighted average
diluted shares outstanding for the same period.  The escrowed shares
have been released to the Chairman and CEO; therefore, for the three months
ended March 31, 2010, the 3,863,636 have been included in both basic and diluted
weighted average shares outstanding.  Please refer to Note
17.





In
accordance with Topic 5.T of the Staff Accounting Bulletins (SAB 79), the
Company had recorded compensatory expense for shares to be released from escrow
by charging the Company’s earnings and recording a corresponding increase to the
Company’s contributed paid in capital.  The Company recorded
$3,502,152 for the three months ended March 31, 2009. The terms and conditions
related to the signatures required to release the shares in escrow back to the
Chairman and CEO have been modified under the settlement
agreement.  Refer to Note 20.





21.
            Settlement
      Agreement





On
December 30, 2009, the Company entered into a settlement agreement with certain
investors in its 2007 private placement of common stock, refer to Note 19.
Pursuant to the terms of settlement agreement, the Company had agreed with the
investors to appoint a new Chief Financial Officer, appoint independent
directors to serve on the Company’s board of directors, and have Registration
Statement effective by March 31, 2010 (these requirements are referred to as the
“Public Company Requirements”), except that the Company has the right to extend
the deadline to have the Registration Statement declared effective until May 15,
2010, if the reviewed financial statements at September 30, 2009 included in the
Registration Statement are no longer current and the audited financial
statements as of and for the year ended December 31, 2009 must be included in
the Registration Statement.




33




Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of March 31, 2010 and December 31, 2009


And
for the three-month periods ended March 31, 2010 and 2009





The
Company believes it has satisfied all of the criteria set forth in the
settlement agreement described above except for its Form S-1 Registration
Statement that has yet to be declared effective by the US SEC as of May 14,
2010. The Company has sought an extension from majority investors for the
Registration Statement declare effectiveness deadline until June 30,
2010.





22.
            Sales





Chinese
National Pork Reserve





In 2009,
the PRC government established the Chinese National Pork Reserve with the
mission of: (1) avoiding the risk of a supply shortage of pork, and (2)
maintaining an orderly market for pork.  The Chinese National Pork
Reserve will be comprised of facilities located in eleven different cities
nationwide.  Dalian was selected as one of the eleven cities to host a
facility.





On June
15, 2009, the Company’s operating subsidiary, Meat Company, after passing a
qualification process, was selected to be a supplier to the Chinese National
Pork Reserve; accordingly, the Company signed a long-term supplier
agreement with the Chinese National Pork Reserve.  Under the terms of
the agreement, the Company is to supply 30,000,000 kg of fresh pork to
the Chinese National Pork Reserve, annually. The agreement provides guidelines
whereby the facility must use up and replenish 10,000,000 kg of fresh meat
(approximately 150,000 hogs) every four months. The Company’s 2010 first
quarter sales was $55,510,121 of which $2,987,622 (RMB
20,423,385), representing 5.39% of total sales, consisted of fresh pork
sold to the Chinese National Pork Reserve.





Subsidy





The
Company’s operating subsidiary, Food Company, received grants of $29,257 from
the Dalian City government in February 2010. The subsidy was given to the
Company for the support of its environment protection contribution.







ITEM
      2
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 5.5%) in the
first quarter of 2010.





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.




34




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





As of
March 31, 2010, we had 735 employees, of whom 388 were operating personnel, 258
were sales personnel, 37 were research and development personnel and 52 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.
            DalianChuming 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;
      and




3.
            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 wholly
foreign owned enterprise on 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 25,713 metric tons in the first quarter of
2010, as compared to 18,512 metric tons in the first quarter of
2009.





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.  Due to a shortage in supply, live hog
prices rose significantly in 2008.  However, during the first half of
2009, the average pork price declined as compared to the average price during
the same periods in December 2008.  The decline in pork prices was due
to a decline in demand which was the result of wide public perception that the
swine flu epidemic in late April and early May affected the health and quality
of pork produced during such time.  In June 2009, in response to the
decline in pork prices and demand, the Chinese government purchased and placed
into storage large quantities of pork products.  This was done to help
reduce public fear that the pork supplies were contaminated due to the swine flu
epidemic in an effort to cause  the pork price to rebound to a
reasonable level.  This action by the PRC government helped to regain
consumer confidence to increase the purchase of pork products, and as the demand
began to rise, the prices of pork began to rise again in July 2009, and by the
end of the year ultimately rose to a level higher than the prices seen during
the first half of 2009.




35




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. Currently our distribution network is
principally located in Liaoning Province, especially Dalian city. We have
however expanded our sales network for processed food products to almost all
large and medium cities in northeast China. In the near future we need to
further extend this network and penetrate all the northeast provinces of China
with all our products. 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 40.23% of our total sales for the first quarter of
2010.   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.




36




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:





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 March 31, 2010, 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.




37




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.





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.




38




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.




Earnings
Per Share





We
compute earnings per share (“EPS”) in accordance with Statement of Financial
Accounting Standards No. 128, “Earnings per share” (“FASB ASC 260”), and SEC
Staff Accounting Bulletin No. 98 (“SAB 98”). FASB ASC 260 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.





For the
three months ended March 31, 2010, the Company has increased both its basic and
diluted weighted average shares outstanding by 3,863,636 shares.  For EPS
purposes, these shares which are owned by the Chairman and Chief Executive
Officer were previously reported in the Company’s 2009 and 2008 financial
statements as contingent shares because they were held in an escrow account in
accordance to the Company’s financing agreement in 2007, which was subsequently
modified on December 30, 2009.  These shares have been released out of
escrow, and as such are accounted for as outstanding in calculating both basic
and diluted EPS. Other than the aforementioned shares, no other stock has been
issued by the Company during the three months ended March 31, 2010. 
Additionally, the weighted average price for the Company’s common stock during
the three month period was lower than the exercise price for the outstanding
warrants issued to the placement agent from the 2007 financing transaction, the
effect of the warrants have been excluded from the calculation of diluted EPS,
because their potential exercise would have been anti-dilutive in
nature.





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 March 31, 2010 and March 31, 2009.





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





March
      31,
              2010
            
            
            %
      of
              Sales
            
            
            March
      31,
              2009
            
            
            %
      of
              SalesSales
            
            $
            55,510,121
            
            
            
            100
            %
            
            $
            40,893,923
            
            
            
            100.00
            %Cost
      of Sales
            
            
            (47,212,872
            )
            
            
            85.05
            %
            
            
            (35,169,469
            )
            
            
            86.00
            %Gross
      Profit
            
            
            8,297,249
            
            
            
            14.95
            %
            
            
            5,724,454
            
            
            
            14.00
            %Selling
      Expenses
            
            
            341,016
            
            
            
            0.61
            %
            
            
            864,959
            
            
            
            2.12
            %General
      & Administrative Expenses
            
            
            576,370
            
            
            
            1.04
            %
            
            
            559,113
            
            
            
            1.37
            %Total
      Operating Expense
            
            
            917,386
            
            
            
            1.65
            %
            
            
            1,424,072
            
            
            
            3.48
            %Operating
      Income / (Loss)
            
            
            7,379,863
            
            
            
            13.29
            %
            
            
            4,300,382
            
            
            
            10.52
            %Other
      Income (Expense)
            
            
            (414,510
            )
            
            
            0.75
            %
            
            
            (3,608,153
            )
            
            
            8.82
            %Earnings
      Before Tax
            
            
            6,965,353
            
            
            
            12.55
            %
            
            
            692,229
            
            
            
            1.69
            %(Income
      Tax Expense) / Deferred Tax Benefit
            
            
            (451,747
            )
            
            
            0.81
            %
            
            
            (280,208
            )
            
            
            0.69
            %Net
      Income
            
            $
            6,513,606
            
            
            
            11.73
            %
            
            $
            412,021
            
            
            
            1.00
            %Earnings
      Per ShareBasic
            
            $
            0.31
            
            
            
            
            
            
            $
            0.03Diluted
            
            
            0.31
            
            
            
            
            
            
            
            0.02Weighted
      Average Shares OutstandingBasic
            
            
            21,136,392
            
            
            
            
            
            
            
            17,272,756Diluted
            
            
            21,136,392
            
            
            
            
            
            
            
            21,182,756




39




Sales.Our sales include
revenues from sales of our fresh pork, frozen pork, and processed food products.
During the quarter ended March 31, 2010, we had sales of $55,510,121 as compared
to sales of $40,893,923 for the quarter ended March 31, 2009, an increase of
approximately 35.7%. Our sales for our various product categories in the first
quarter of 2010 are summarized as follows:





Sales
      by product category, in dollars:
              
              First
      Quarter 2010(amount)
              
              
              %
      of Total Sales
              
              
              First
      Quarter 2009 (amount)
              
              
              %
      of Total Sales
              
              
              %
      of increase from 2009 to 2010Fresh
      Pork
              
              $
              44,711,975
              
              
              
              80.55
              %
              
              $
              31,550,154
              
              
              
              77.15
              %
              
              
              41.72
              %Frozen
      Pork
              
              $
              3,279,742
              
              
              
              5.91
              %
              
              
              3,956,106
              
              
              
              9.67
              %
              
              
              -17.10
              %Processed
      Food Products
              
              $
              7,518,404
              
              
              
              13.54
              %
              
              
              5,387,663
              
              
              
              13.17
              %
              
              
              39.55
              %Total
      Sales
              
              $
              55,510,121
              
              
              
              100
              %
              
              
              40,893,293
              
              
              
              100
              %
              
              
              35.74
              %








First
      Quarter
              2010
              (Weight
      in tons)
            
            
            %
      of
              Total
      Sales
            
            
            First
      Quarter
              2009
              (Weight
      in tons)
            
            
            %
      of
              Total
      Sales
            
            
            %
      of change
              from
              2009
      to 2010Fresh
      Pork
            
            
            21,010
            
            
            
            81.71
            %
            
            
            14,245
            
            
            
            76.95
            %
            
            
            47.49
            %Frozen
      Pork
            
            
            2,362
            
            
            
            9.19
            %
            
            
            2,581
            
            
            
            13.94
            %
            
            
            -8.49
            %Processed
      Food Products
            
            
            2,341
            
            
            
            9.10
            %
            
            
            1,686
            
            
            
            9.11
            %
            
            
            38.85
            %Total
      Sales
            
            
            25,713
            
            
            
            100
            %
            
            
            18,512
            
            
            
            100
            %
            
            
            38.90
            %





We
believe that the increases in sales revenue and sales volume in fresh pork and
processed food products arises from our increase in our overall number of
sales agents, and our expansion of  the geographic coverage of our
sales agent network. We have also stimulated sales through our sales agents
have by extending sales discounts to them. Furthermore, there has been
continuing strength in consumer demand for these products in the periods
presented. For frozen pork, our sales volume decreased by 8.49% in the first
quarter of 2010 and our sales revenue for this product category decreased 17.10%
as compared to the same period in 2009.  We attribute this decrease in
the sale of frozen pork products to our increased use of agents (who mainly
sell fresh pork), and see it also as reflective of a trend among end-users for
fresh pork products, given the improvements in logistics and distribution in the
supply chain and health and nutritional concerns..




40




In the
first quarter of 2010, we slightly 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 first quarter
of 2010, our sales volume by weight of fresh pork increased as compared to the
first quarter of 2009.   For processed food products, our sales by
weight increased by 38.85%, but because of slightly higher average per-kilogram
prices to customers, our sales revenue for this product category increased by
39.55%.





The
following table shows the change in the average price per kilogram for our
product to consumers in the quarter ending March 31, 2010, as compared to the
same quarter last year:





Average
      Per-Kilogram Price to Customers (in $US)First
      Quarter of 2010
              
              
              First
      Quarter of 2009
              
              %
      change
              
              
              Change
      in PriceFresh
      Pork
              
              $
              2.13
              
              
              $
              2.21
              
              
              
              -0.04
              %
              
              $
              -0.09Frozen
      Pork
              
              $
              1.39
              
              
              $
              1.53
              
              
              
              -0.09
              %
              
              $
              -0.14Processed
      Food Products
              
              $
              3.21
              
              
              $
              3.20
              
              
              
              0.01
              %
              
              $
              0.01







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 March 31,
            
            Showcase
              Stores
            
            
            Supermarkets
            
            
            Restaurants
      and
              Canteens2009
            
            
            873
            
            
            
            345
            
            
            
            4,7262010
            
            
            942
            
            
            
            581
            
            
            
            5,186





As shown
in the table above, as of March 31, 2010, as compared to March 31, 2009, 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 first quarter of 2010 increased by $12,043,403 or approximately 34.24%,
from $35,169,469 for the three months ended March 31, 2009 to $47,212,872
for the three months ended March 31, 2010. The increase was principally
attributable to the increase in the sales and sales volume for fresh pork
and processed food products in the first quarter of 2010 as compared to the
same period in the prior year. Our cost of sales for our various product
categories in the first quarter of each of 2010 and 2009 is summarized and shown
as a percentage of overall cost of sales in the following chart:




41




Cost
      of Sales First Quarter
              
              
              %
      of Overall Cost of
              
              
              Cost
      of Sales First Quarter
              
              
              %
      of Overall Cost of
              
              
              %
      of increase fromProduct
      Category
              
              2010
              
              
              Sales
              
              
              2009
              
              
              Sales
              
              
              2009
      to 2010Fresh
      Pork
              
              $
              39,029,801
              
              
              
              82.67
              %
              
              $
              27,779,537
              
              
              
              86.01
              %
              
              
              40.5
              %Frozen
      Pork
              
              
              2,731,784
              
              
              
              5.79
              %
              
              
              3,426,644
              
              
              
              4.92
              %
              
              
              -20.28
              %Processed
      Food Products
              
              
              5,451,287
              
              
              
              11.55
              %
              
              
              3,963,288
              
              
              
              9.07
              %
              
              
              37.54
              %Total
      Cost of Sales
              
              $
              47,212,872
              
              
              
              100
              %
              
              $
              35,169,469
              
              
              
              100
              %
              
              
              34.24
              %





The
following table shows our cost of sales in the first quarter of each of 2010 and
2009 as a percentage of sales within each product group.





Product
      Category:
              
              Cost
      of Sales First Quarter 2010
              
              
              %
      of Product Group Sales
              
              
              Cost
      of Sales First Quarter 2009
              
              
              %
      of Product Group Sales
              
              
              %
      Change Product Group SalesFresh
      Pork
              
              $
              39,029,801
              
              
              
              87.29
              %
              
              $
              27,779,537
              
              
              
              88.05
              %
              
              
              0.76
              %Frozen
      Pork
              
              
              2,731,784
              
              
              
              83.29
              %
              
              
              3,426,644
              
              
              
              86.62
              %
              
              
              -3.33
              %Processed
      Food Products
              
              
              5,451,287
              
              
              
              72.51
              %
              
              
              3,963,288
              
              
              
              73.56
              %
              
              
              1.05
              %Total
      Cost of Sales
              
              $
              47,212,872
              
              
              
              72.51
              %
              
              $
              35,169,469
              
              
              
              86.00
              %
              
              
              13.49
              %





Our cost
of sales of fresh pork products increased by 40.5% and by 0.76% as a percentage
of sales of fresh pork products, in each case as compared to the first quarter
of 2009. The large increase in the overall cost of sales for this product
resulted primarily from the period over period increase in sales volume.
Conversely, our cost of sales of frozen pork products decreased by 20.28%
and by 3.33% as a percentage of sales of frozen pork products, in each case
as compared to the first quarter of 2009,  This large decrease in
 the overall cost of sales of this product resulted primarily from the
period over period decrease in sales volume. During the first quarter of 2010,
the cost of sales of processed food products increased by 37.54% and 1.05% as a
percentage of sales of processed food products, in each case as compared to the
same period last year. The large increase in the overall cost of sales for this
product resulted primarily from the period over period increase in sales volume.
..




The following table shows the estimated average per-kilogram
price we paid for live pigs in 2010 and 2009:





Average
              Unit
      Price Per Kilogram in 2010
              (in
      $US)
            
            
            Average
              Unit
      Price Per Kilogram in 2009
              (in
      $US)
            
            
            Price
      Increase (decrease)
              (in
      $US)
            
            
            %
      Increase(decrease) from 2009 to 2010First
      Quarter
            
            
            1.59
            
            
            
            1.77
            
            
            $
            (0.18)
            
            
            
            (10.17)%Second
      Quarter
            
            
            -
            
            
            
            1.50
            
            
            
            -
            
            
            
            -Third
      Quarter
            
            
            -
            
            
            
            1.75
            
            
            
            -
            
            
            
            -Fourth
      Quarter
            
            
            -
            
            
            
            1.70
            
            
            
            -
            
            
            
            -




42




Gross Profit.Gross profit
was $8,297,249 for the three months ended March 31, 2010 as compared to
$5,724,454 for the three months ended March 31, 2009, representing an increase
of $2,572,795, or approximately 44.94%. Management attributes the increase in
gross profit the lower average cost of live pigs and increased sales volume of
frozen pork and processed food products. Our gross profit as a percentage of
sales remained relatively consistent, yielding 17.86% in the first quarter
of 2010 as compared to 16.16% in the first quarter of 2009.





The
following table presents our gross profit for the three months ended March 31,
2010 and 2009. 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
      ProfitFirst Quarter of
                2010
              
              
              %
      of Product Group Sales
              
              
              Gross
      Profit First Quarter of 2009
              
              
              %
      of Product Group Sales
              
              
              %
      of increase from First Quarter of 2009 to First Quarter of
      2010Fresh
      Pork
              
              $
              5,682,174
              
              
              
              12.71
              %
              
              $
              3,770,617
              
              
              
              11.95
              %
              
              
              50.70
              %Frozen
      Pork
              
              
              547,958
              
              
              
              16.71
              %
              
              
              529,462
              
              
              
              13.38
              %
              
              
              3.49
              %Processed
      Food Products
              
              
              2,067,117
              
              
              
              27.49
              %
              
              
              1,424,375
              
              
              
              26.44
              %
              
              
              45.12
              %Total
      Gross Profit
              
              $
              8,297,249
              
              
              
              14.95
              %
              
              $
              5,724,454
              
              
              
              14.00
              %
              
              
              6.79
              %





In the
first quarter of 2010, the gross profit of each of the fresh pork and processed
pork segment increased by 50.70% and 45.12% as compared to the same period
last year principally due to lower average cost of live pigs and increased sales
volume of the fresh pork segment. 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 reduction in the average cost of live pigs, we
were able to increase our gross profit for the frozen pork segment slightly even
though we had a decrease in both sales volume and average price to customers in
that product.  .




Selling
Expenses.Selling expenses
totaled $341,016 for the three months ended March 31, 2010, as compared to
$864,959 for the three months ended March 31, 2009, a decrease of $523,943 or
60.57%. 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.




43




General and Administrative Expenses.General and administrative expenses totaled $576,370 for the three months
ended March 31, 2010 as compared to$559,113 for the same period in 2009, an
increase of $17,257 or 3.09%. This change is primarily attributable to increased
outside legal fees and audit fees, and increased staff.





Other income (Expense).Our
other income (expense) consists of interest income, other expenses, and interest
expense.  In the first quarter of 2010, we had total other expenses of
$414,510 as compared to $106,001 for the first quarter of 2009, excluding a
compensatory expense arising from the expected release of 482,955 of our shares
from an escrow arrangement entered into as part of a private equity financing
consummated by us in December 2007.  See Note 19 of the consolidated
financial statements included in Item 1 of this Quarterly Report on Form
10-Q.  Our total other expenses in the first quarter of
2010 increased by $308,509, or 291.04% as compared to other expenses in the
same period in 2009 excluding the compensation charge from the expected escrow
release.  This increase in total other expenses is primarily
attributable to an increase in interest expense on bank
indebtedness..





Net Income.Net income for
the three months ended March 31, 2010 was $6,513,606 as compared to $3,914,173
for the same period in 2009, an increase of $2,599,433 or 66.41%. This
increase in net income is attributable to the factors described above, but also
generally to the fact that  sales volume of fresh pork and processed
food product significantly increased period over period.





LIQUIDITY
AND CAPITAL RESOURCES





Cash
Flows





Three
Months Ended March 31, 2010





As of
March 31, 2010, we had cash and cash equivalents of $12,637,572, other current
assets of $106,414,360 and current liabilities of $64,397,263. On March 31,
2009, we had $4,138,898 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
used in operating activities was $32,161,423 for the three months ended March
31, 2010, while net cash flow used in operating activities was $2,451,554 in the
same period of 2009.  The large increase in the net cash used in
operating activities for the first quarter of 2010 reflects an upfront payment
made by us to suppliers for the purchase of hogs.   This up-front
payment was made in order to procure high-quality pigs at a relatively
preferential price. This payment was made as part of the hog purchase
arrangement with the Group which we entered into on December 19, 2007 and is
described in further detail below under “Contractual Obligations.”





Net cash
used in investing activities was $11,830,158 for the three months ended March
31, 2010, compared to cash used in investing activities of $3,496,845 in the
same period of 2009. This change is primarily due to an increase of
$11,702,579 in restricted cash in the first quarter of 2010, representing
compensating balances held at banks to partially secure banking facilities in
the form of notes payable. The imposed restrictions dictate that funds cannot be
withdrawn when there are outstanding notes payable, and the funds are only
allowed to be used to settle bank indebtedness.





Net cash
sourced from financing activities was $14,630,790 for the three months ended
March 31, 2010, as compared to net cash sourced from financing activities of
$4,390,442 in the same period of 2009.  This increase resulted
principally from an increase in our borrowings from banks during the first
quarter of 2010 as compared to the same period of 2009.  These
additional borrowings are short-term loans, and were used for operational
purposes.




44




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.  Over the first quarter of 2010,
however, accounts receivable decreased from $39,876,187 to
$23,804,756.  This decrease was primarily the result of certain
customers paying down their outstanding accounts receivable at the beginning of
a calendar year, and our efforts to encourage our sales agents to make payments
in cash through our use of sales discounts given to some of our sales
agents.





Uses
of Liquidity





Our cash
requirements through the end of fiscal 2010 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 2010. 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
March 31, 2010, we had short-term loans outstanding $ 30,572,988 in
aggregate borrowings from Bank of China, Shanghai Pudong Development Bank,the
Agriculture Bank of China, Bank of East Asia and Bank of Huaxie, and on
which we pay interest at average rates of 6.06% per annum.  As of
March 31, 2010, we did not have any standby letters of credit or standby
repurchase obligations.  We intend
to satisfy our short-term debt obligations that mature over the next 12 months
through either additional short-term bank loans, in most cases by rolling the
maturing loans into new short-term loans with the same lenders, or equity
financings in the public capital market.





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 three months ended
March 31, 2010 and 2009, which was in each instance a gain, was $14,262 and
$1,057, respectively.





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 2008, the RMB continued to
appreciate against the U.S. dollar. As of March 31, 2010, the market foreign
exchanges rate was increased to 6.8361 RMB to one U.S. dollar. As a result, the
ongoing appreciation of RMB to U.S. dollar may negatively impact our gross
margins in the future.




45




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 March 31, 2010, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.





Payments Due by PeriodTotal
              
              
              Less than 1
      year
              
              
              1-3 Years
              
              
              3-5 Years
              
              5 Years +Contractual
      Obligations :Bank
      Indebtedness
              
              $
              30,572,988
              
              
              $
              30,572,988
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Other
      Indebtedness
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Capital
      Lease Obligations
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Operating
      Leases
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Purchase
      Obligations
              
              $
              137,240,732
              
              
              $
              137,240,732
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Total
      Contractual Obligations:
              
              $
              167,813,720
              
              
              $
              167,813,720
              
              
              $
              -
              
              
              $
              -
              
              
              
              -




As indicated in the table, as of March 31, 2010,
we had $137,240,732 in purchase obligations, which relates to our agreement for
the purchase and sale of hogs. On December 19, 2007, we entered into a hog
purchase agreement whereby the Group will provide, at fair market prices, a
minimum number of hogs to us.





At March
31, 2010, management projected minimum quantities of hogs as detailed in the
following table:




Year
            
            Hogs
            
            
            Price Per Hog
            
            
            Amount2010
      (April to Dec)
            
            
            
            666,735
            
            
            $
            205.84
            
            
            $
            137,240,732




For purposes of estimating future payments, we
project that the fair market price of the hogs will increase by 10% each year.
The assumption of 10% reflects our expectations with regard to inflation and the
rising costs of inputs in breeding livestock.





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.




46







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 March 31, 2010, we had approximately $12,637,572
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 $14,262 and
$1,057 in the three months ended March 31 of 2010 and 2009, 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.




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
March 31, 2010, 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 (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) . Our chief executive officer and our
chief financial officer solely as a result of the significant weaknesses in
internal control over financial reporting described in our Annual Report on Form
10-K for the fiscal year ended December 31, 2010, our chief executive officer
and our chief financial officer have concluded that the Company’s disclosure
controls and procedures were ineffective.




47




Other
than our appointment of (i) Sharon Xiaorong Tang as our chief financial officer
and (ii) the addition of three independent directors to our board, together with
the establishment of three board committees, including an audit committee on our
board (as described in our Current Reports on Form 8-K dated March 31, 2010 and
March 23, 2010, respectively), 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 March 31,
2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




As of
March 31, 2010, the Company had yet to become compliant with SOX 404 and
maintain effective internal controls; however, the progress of the Company’s
remedial measures is detailed below.  The Company expects to be
compliant by the fiscal year ending December 31, 2010.
 
 A
“material weakness” is a significant deficiency, or combination of significant
deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements presented will not be
prevented or detected. A “significant deficiency” is a control deficiency, or
combination of control deficiencies, that adversely affects a company’s ability
to initiate, authorize, record, process or report external financial data
reliably in accordance with GAAP such that there is more than a remote
likelihood that a misstatement of the annual or interim financial statements
presented that is more than inconsequential will not be prevented or
detected.
  At
March 31, 2010, management has identified the following material weaknesses in
our internal control over financial reporting, and has proposed the following
plan of implementation with respect to each material weakness:
 
 ·
              Weakness:The Company’s
      board of directors has yet to pass a formal resolution to put in place a
      strategic plan and framework in order to comply with the regulations
      placed on issuers concerning internal
  controls.
  Implementation Plan: The
board of directors intends to pass a resolution to adopt the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) Framework which
provides for a structure to establish a control environment, risk assessment,
control activities, information and communication, and monitoring of effective
internal controls. The board also intends that the Chief Executive Officer shall
be made to take ultimate ownership of establishing an effective internal control
system.
  As of
March 31, 2010, the Company had not yet passed a formal resolution, however,
Board has instructed Ms. Ma Feng Qin, a Board Member, to take charge of the
implementation of a system of an internal control system that will ultimately
meet the goal of compliance with SOX 404 Act.  In March 2010, the
Company appointed two new independent directors who have experience in US public
companies and whose expertise in US financial reporting standards is expected to
be contributed to the Company. In addition, the Company has established an audit
committee comprising of independent directors, which is expected to play an
important role in enhancing the Company’s processes and procedures relating to
internal control and corporate reporting including financial
reporting..  The Company is in the process of identifying and hiring
more professionals with experience in SOX 404 to enable the Company to
effectively address this issue.
  ·
              Weakness: The Company
      accounting department is currently understaffed and lacks personnel with
      expertise in US GAAP and SEC reporting
  standards.
 
 Implementation Plan: The
Company is currently in the hiring process for a senior financial accounting
officer and staff accountants to fulfill the demands and rigors of being a US
public reporting company. The Company will also provide training to existing
employees on the requirements of US GAAP and SEC Reporting
standards.
  As of
March 31, 2010, the Company has hired a new Chief Financial Officer, however, as
of the date hereof the Company continues to seek actively candidates for a
senior financial reporting officer knowledgeable in US GAAP and SEC Reporting
standards.  Upon hiring of a senior financial reporting officer, that
individual could further hire and train personnel as
needed.
  ·
                Weakness:The Company
      does not have an internal audit function and
      department.
  48
  Implementation Plan: The
Company will establish an internal audit department.
 
 As of
March 31, 2010, the Company has created an internal audit
department.  The effectiveness of this new department is currently
under evaluation, and has yet to be determined.
 
 ·
              Weakness:The Company’s
      present methods and systems for tracking related party transactions are
      inadequate. Since the corporate reorganization and separation of Chuming
      from the Group occurred recently (at the end of 2007), and the Company’s
      accounting system in the past was manually based, only manual records of
      related party transactions are currently available. Further, the Company
      notes that its current accounting staff is not sufficient in size to
      undertake an exercise to completely re-summarize all of the events and
      transactions that led to the current related party transaction balances
      disclosed in its financial statements. Specifically, paragraph 2(c) of the
      Statement of Financial Accounting Standards No. 57 (SFAS 57) requires us
      to disclose in our financial statements the dollar amounts of each of the
      periods presented, for our related-party transactions. Due to certain
      limitations in our historical records, the present capacity of our
      accounting staff, and the fact that our historical records relating to
      these related party transactions are manually-based, these related party
      transactions have been presented according to their general category and
      current balance, with each such balance representing one or more prior
      transactions culminating in such
balance.
  Implementation Plan:The
Company will write and rewrite formal contracts with these Related Parties as
necessary to detail the nature of these transactions. The Company’s accounting
staff will formalize the process of recording these related party transactions,
so that the nature of these transactions are more easily understandable and may
be adequately disclosed in the Company’s financial statements. The Company and
management acknowledge our responsibility to comply with the requirements of
SFAS 57, and fully intend to take all necessary steps to update our accounting
systems and procedures in order to achieve such compliance on an ongoing basis.
In addition, we expect that the foregoing material weakness is related to our
lack of adequate accounting staff (see paragraph below), and that appropriate
changes to our staff are expected to eliminate the foregoing material
weakness.
  As of
March 31, 2010, the Company has implemented from an operational standpoint, a
plan for the elimination of related party transactions unrelated to the
Company’s core business transactions. Therefore, all related party transactions,
except for the purchase of hogs which is conducted under an arms-length Hog
Procurement Agreement, will be phased out and eliminated. The Company continues
to develop desktop and closing procedures in order to report historical and
remaining related party balances on a more timely and accurate basis. Contracts
with related parties, which include netting agreements, have been formalized for
past transactions; however, on going forward basis the Company is in the process
of creating standardized contracts that will govern related party transactions
that occur frequently and regularly, such as purchases of hogs.


49




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: June
      22, 2010
            By:
            /s/
      Shi HuashanName:
      Shi HuashanTitle:
      President and Chief Executive Officer(Principal
      Executive Officer)By:
            /s/
      Sharon TangName:
      Sharon TangTitle:
      Chief Financial Officer(Principal
      Financial and Accounting Officer)




50




EXHIBIT
INDEX





Exhibit
      No.
            
            Description31.1
            
            Certification
      by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
            
            Certification
      by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
            
            Certification
      by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
            
            Certification
      by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.





51