UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549










FORM
10-Q


(Mark
One)





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




For the
quarterly period ended June 30, 2010




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




For the transition period from
______________ to
_______________





Commission
File Number 0-28806





ENERGROUP
HOLDINGS CORPORATION


(Exact
name of registrant as specified in its charter)





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





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





+86
411 867 166 96


(Registrant’s
telephone number, including area code)




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


Yes  x  No  o




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


Yes  o  No  o




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




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




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




As of
June 30, 2010, the Registrant had 21,136,391 shares of Common Stock
outstanding.









ENERGROUP
HOLDINGS CORPORATION





FORM
10-Q





INDEX





Page
      NumberPART
      I. Financial Information
            
            
            3Item
      1.
            Financial
      Statements
            
            
            3Consolidated
      Balance Sheets
            
            
            6-7Consolidated
      Statements of Operations
            
            
            8Consolidated
      Statements of Changes in Shareholders’ Equity
            
            
            9Consolidated
      Statements of Cash Flows
            
            
            10Notes
      to Consolidated Financial Statements
            
            
            11-34Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            
            35Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            
            49Item
      4.
            Controls
      and Procedures
            
            
            50PART
      II. Other Information
            
            
            53Item
      6.
            Exhibits
            
            
            53Signatures
            
            
            
            54




2




PART
I.  FINANCIAL INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS




Energroup
Holdings Corporation
 
 Reviewed
Consolidated Financial Statements
 
 June
30, 2010 and December 31, 2009
 
 (Stated
in US Dollars)
  3
  Energroup
Holdings Corporation
 
 Contents
              
              PagesReport
      of Registered Public Accounting Firm
              
              
              5Consolidated
      Balance Sheets
              
              
              6 -
      7Consolidated
      Statements of Incomes
              
              
              8Consolidated
      Statements of Changes in Stockholders’ Equity
              
              
              9Consolidated
      Statements of Cash Flows
              
              
              10Notes
      to Consolidated Financial Statements
              
              
              11
      - 34
 
 4
  Board of
Directors and Stockholders
 Energroup
Holdings Corporation
  Report of Registered
Independent Public Accounting Firm
 
 We have
reviewed the accompanying interim consolidated Balance Sheets of Energroup
Holdings Corporation (the “Company”) as of June 30, 2010 and December 31, 2009,
and the related statements of income, stockholders’ equity, and cash flows for
the three-month and six-month periods ended June 30, 2010 and 2009. These
interim consolidated financial statements are the responsibility of the
Company's management.
 
 We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on
our review, we are not aware of any material modifications that should be made
to the accompanying interim consolidated financial statements for them to be in
conformity with U.S. generally accepted accounting principles.
 
 San
      Mateo, California
              Samuel
      H. Wong & Co., LLPJuly
      25, 2010
              Certified
      Public Accountants
 
 5
  Energroup
Holdings Corporation
 Consolidated
Balance Sheets
 As
of June 30, 2010 and December 31, 2009
 (Stated
in US Dollars)
 
 Notes
                  
                  
                  At
                    June
      30,
                    2010
                  
                  
                  At
                    December
      31,
                    2009ASSETSCurrent
      AssetsCash
                  
                  
                  2(D)
                  
                  
                  $
                  13,530,309
                  
                  
                  $
                  41,984,101Restricted
      Cash
                  
                  
                  3
                  
                  
                  
                  28,640,249
                  
                  
                  
                  2,176,224Accounts
      Receivable
                  
                  
                  2(E),4
                  
                  
                  
                  44,776,618
                  
                  
                  
                  39,876,187Other
      Receivable
                  
                  
                  
                  
                  
                  
                  
                  372,500
                  
                  
                  
                  591,025Related
      Party Receivable
                  
                  
                  5
                  
                  
                  
                  25,899,355
                  
                  
                  
                  -Inventory
                  
                  
                  2(F),6
                  
                  
                  
                  3,546,281
                  
                  
                  
                  3,683,989Advance
      to Suppliers
                  
                  
                  2(G)
                  
                  
                  
                  700,433
                  
                  
                  
                  844,964Prepaid
      Expenses
                  
                  
                  
                  
                  
                  
                  
                  6,135
                  
                  
                  
                  30,103Prepaid
      Taxes
                  
                  
                  
                  
                  
                  
                  
                  1,236,080
                  
                  
                  
                  231,568Deferred
      Tax Asset
                  
                  
                  2(Q)
                  
                  
                  
                  470,892
                  
                  
                  
                  468,922Total
      Current Assets
                  
                  
                  
                  
                  
                  
                  
                  119,178,852
                  
                  
                  
                  89,887,082Non-Current
      AssetsProperty,
      Plant & Equipment, net
                  
                  
                  2(H),7
                  
                  
                  
                  22,849,903
                  
                  
                  
                  23,727,484Land
      Use Rights, net
                  
                  
                  2(I),8
                  
                  
                  
                  13,086,163
                  
                  
                  
                  13,175,559Construction
      in Progress
                  
                  
                  2(J)
                  
                  
                  
                  6,731,013
                  
                  
                  
                  6,692,837Total
      Assets
                  
                  
                  
                  
                  
                  
                  $
                  161,845,931
                  
                  
                  $
                  133,482,962LIABILITIES
      & STOCKHOLDERS' EQUITYCurrent
      LiabilitiesBank
      Loans
                  
                  
                  9(A)
                  
                  
                  $
                  24,821,549
                  
                  
                  $
                  15,942,197Notes
      Payable
                  
                  
                  10
                  
                  
                  
                  11,749,846
                  
                  
                  
                  7,312,935Accounts
      Payable
                  
                  
                  
                  
                  
                  
                  
                  4,060,984
                  
                  
                  
                  3,272,626Taxes
      Payable
                  
                  
                  
                  
                  
                  
                  
                  9,890,133
                  
                  
                  
                  6,987,848Other
      Payable
                  
                  
                  
                  
                  
                  
                  
                  2,047,471
                  
                  
                  
                  2,096,958Accrued
      Liabilities
                  
                  
                  
                  
                  
                  
                  
                  214,613
                  
                  
                  
                  1,922,103Customer
      Deposits
                  
                  
                  2(L)
                  
                  
                  
                  2,601,902
                  
                  
                  
                  2,416,615Related
      Party Payable
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  2,307,429Total
      Current Liabilities
                  
                  
                  
                  
                  
                  
                  
                  55,386,498
                  
                  
                  
                  42,258,711Long
      Term LiabilitiesBank
      Loans
                  
                  
                  9(B)
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      Liabilities
                  
                  
                  
                  
                  
                  
                  $
                  55,386,498
                  
                  
                  $
                  42,258,711
  See Notes
to Financial Statements and Accountant’s Report
  6
 Energroup
Holdings Corporation
 Consolidated
Balance Sheets
 As
of June 30, 2010 and December 31, 2009
 (Stated
in US Dollars)
 
 Notes
              
              
              At
                June
      30,
                2010
              
              
              At
                December
      31,
                2009Stockholders'
      EquityPreferred
      Stock - $0.001 Par Value10,000,000
      Shares Authorized;0
      Shares Issued & Outstanding at June 30, 2010 and December 31,
      2009.
              
              
              
              
              
              $
              -
              
              
              $
              -Common
      Stock - $0.001 Par Value 21,739,130 Shares Authorized; 21,136,392 Shares
      Issued & Outstanding at June 30, 2010 and December 31,
      2009.
              
              
              
              
              
              
              21,137
              
              
              
              21,137Additional
      Paid in Capital
              
              
              
              
              
              
              44,230,331
              
              
              
              42,530,331Statutory
      Reserve
              
              
              2(M),12
              
              
              
              2,077,488
              
              
              
              2,077,488Retained
      Earnings
              
              
              
              
              
              
              
              54,439,947
              
              
              
              41,329,899Accumulated
      Other Comprehensive Income
              
              
              2(N)
              
              
              
              5,690,530
              
              
              
              5,265,396Total
      Stockholders' Equity
              
              
              
              
              
              
              
              106,459,433
              
              
              
              91,224,251Total
      Liabilities & Stockholders' Equity
              
              
              
              $
              161,845,931
              
              
              $
              133,482,962
  See Notes
to Financial Statements and Accountant’s Report
 
 7
  Energroup
Holdings Corporation
 Consolidated
Statements of Incomes
 For
the three and six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 
 
 Note
              
              
              3
      months
                ended
                June
      30, 2010
              
              
              3
      months
                ended
                June
      30, 2009
              
              
              6
      months
                ended
                June
      30, 2010
              
              
              6
      months
                ended
                June
      30, 2009Sales
              
              
              2(O),21
              
              
              $
              54,284,455
              
              
              $
              48,279,491
              
              
              $
              109,794,577
              
              
              $
              89,173,413Cost
      of Sales
              
              
              2(P)
              
              
              
              45,821,654
              
              
              
              41,200,068
              
              
              
              93,034,526
              
              
              
              76,369,536Gross
      Profit
              
              
              
              
              
              
              
              8,462,801
              
              
              
              7,079,423
              
              
              
              16,760,051
              
              
              
              12,803,877Selling
      Expenses
              
              
              2(Q)
              
              
              
              293,294
              
              
              
              507,404
              
              
              
              634,310
              
              
              
              1,372,363General
      & Administrative Expenses
              
              
              2(R)
              
              
              
              819,634
              
              
              
              711,732
              
              
              
              1,396,004
              
              
              
              1,270,845Total
      Operating Expense
              
              
              
              
              
              
              
              1,112,928
              
              
              
              1,219,136
              
              
              
              2,030,314
              
              
              
              2,643,208Operating
      Income
              
              
              
              
              
              
              
              7,349,873
              
              
              
              5,860,287
              
              
              
              14,729,737
              
              
              
              10,160,669Other
      Income
              
              
              
              
              
              
              
              20,809
              
              
              
              -
              
              
              
              30,291
              
              
              
              28,348Interest
      Income
              
              
              
              
              
              
              
              73,421
              
              
              
              4,330
              
              
              
              75,649
              
              
              
              117,565Other
      Expenses
              
              
              
              
              
              
              
              (98
              )
              
              
              (33,344
              )
              
              
              (8,421
              )
              
              
              (63,708
              )Interest
      Expense
              
              
              
              
              
              
              
              (418,794
              )
              
              
              (85,376
              )
              
              
              (836,691
              )
              
              
              (302,595
              )Release
      of Make Good Shares
              
              
              
              
              
              
              
              -
              
              
              
              (4,716,074
              )
              
              
              -
              
              
              
              (8,218,227
              )Total
      Other Income/(expense)
              
              
              
              
              
              
              
              (324,662
              )
              
              
              (4,830,464
              )
              
              
              (739,172
              )
              
              
              (8,438,617
              )Earnings
      before Tax
              
              
              
              
              
              
              
              7,025,211
              
              
              
              1,029,823
              
              
              
              13,990,565
              
              
              
              1,722,052Income
      Tax
              
              
              2(V),14
              
              
              
              (428,769
              )
              
              
              (474,978
              )
              
              
              (880,517
              )
              
              
              (755,186
              )Net
      Income
              
              
              
              
              
              
              $
              6,596,442
              
              
              $
              554,845
              
              
              $
              13,110,048
              
              
              $
              966,866Earnings
      Per Share
              
              
              2(Y),17Basic
              
              
              
              
              
              
              $
              0.31
              
              
              $
              0.03
              
              
              $
              0.62
              
              
              $
              0.06Diluted
              
              
              
              
              
              
              $
              0.31
              
              
              $
              0.03
              
              
              $
              0.62
              
              
              $
              0.05Weighted
      Average Shares OutstandingBasic
              
              
              
              
              
              
              
              21,136,392
              
              
              
              17,272,756
              
              
              
              21,136,392
              
              
              
              17,272,756Diluted
              
              
              
              
              
              
              
              21,136,392
              
              
              
              21,136,392
              
              
              
              21,136,392
              
              
              
              21,136,392
 See Notes
to Financial Statements and Accountant’s Report
 8
 
 Energroup
Holdings Corporation
 Consolidated
Statements of Changes in Stockholders’ Equity
 As
of June 30, 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
              
              
              $
              91,224,251Reversal
      of liquidation damage deduction
              
              
              -
              
              
              
              -
              
              
              
              1,700,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,700,000Net
      Income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,110,048
              
              
              
              -
              
              
              
              13,110,048Appropriations
      of Retained Earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Foreign
      Currency Translation Adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              425,134
              
              
              
              425,134Balance
      at June 30, 2010
              
              
              21,136,392
              
              
              $
              21,137
              
              
              $
              44,230,331
              
              
              $
              2,077,488
              
              
              $
              54,439,947
              
              
              $
              5,690,530
              
              
              $
              106,459,433
  For
      the
              
              
              For
      sixyear
      ended
              
              
              Months
      EndedDecember
      31,
              
              
              June
      30,
              
              
              AccumulatedComprehensive
      Income
              
              2009
              
              
              2010
              
              
              TotalsNet
      Income
              
              $
              6,054,442
              
              
              $
              13,110,048
              
              
              $
              19,164,490Other Comprehensive
      IncomeForeign
      Currency Translation Adjustment
              
              
              1,776,168
              
              
              
              425,134
              
              
              
              2,201,302$
              7,830,610
              
              
              $
              13,535,182
              
              
              $
              21,365,792
 See Notes
to Financial Statements and Accountant’s Report
 9
  Energroup
Holdings Corporation
 Consolidated
Statements of Cash Flows
 For
the three and six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 
 3
      months
              
              
              3
      months
              
              
              6
      months
              
              
              6
      monthsended
              
              
              ended
              
              
              ended
              
              
              endedJune
      30, 2010
              
              
              June
      30, 2009
              
              
              June
      30, 2010
              
              
              June
      30, 2009Cash
      Flow from Operating ActivitiesNet
      Income
              
              $
              6,596,443
              
              
              $
              554,845
              
              
              $
              13,110,049
              
              
              $
              966,866Non
      Cash Expense Recorded for the Release of Escrow Shares
              
              
              -
              
              
              
              4,716,074
              
              
              
              -
              
              
              
              8,218,227Reversal
      of liquidation damage deduction
              
              
              1,700,000
              
              
              
              -
              
              
              
              1,700,000Amortization
              
              
              78,962
              
              
              
              357,504
              
              
              
              151,292
              
              
              
              424,606Depreciation
              
              
              613,359
              
              
              
              594,746
              
              
              
              1,166,503
              
              
              
              1,159,903Decrease/(Increase)
      in Accounts & Other Receivables
              
              
              (46,867,235
              )
              
              
              8,552,388
              
              
              
              (30,581,264
              )
              
              
              3,707,436Decrease/(Increase)
      in Inventory & Purchase Deposit
              
              
              62,678,212
              
              
              
              763,617
              
              
              
              282,239
              
              
              
              800,418Decrease/(Increase)
      in Prepaid Taxes & Expenses
              
              
              (284,250
              )
              
              
              206,579
              
              
              
              (982,514
              )
              
              
              (556
              )Increase/(Decrease)
      Accounts, Taxes & Other Payables
              
              
              (1,278,998
              )
              
              
              1,558,503
              
              
              
              5,770,639
              
              
              
              (1,624,816
              )Increase/(Decrease)
      in Accrued Liabilities
              
              
              (1,685,616
              )
              
              
              (296,264
              )
              
              
              (1,707,492
              )
              
              
              587,165Increase
      in Customer Deposits
              
              
              (294,714
              )
              
              
              398,604
              
              
              
              185,287
              
              
              
              715,795Cash
      Sourced/(Used) in Operating Activities
              
              
              21,256,163
              
              
              
              17,406,596
              
              
              
              (10,905,261
              )
              
              
              14,955,043Cash
      Flows from Investing ActivitiesDecrease/(Increase)
      Funds in Restricted Cash Account
              
              
              (14,760,909
              )
              
              
              (643
              )
              
              
              (26,464,025
              )
              
              
              1,964Purchases
      of Property, Equipment, and Construction of Plants
              
              
              (202,425
              )
              
              
              (43,409
              )
              
              
              (327,096
              )
              
              
              (3,524,718
              )Increase
      of Land Use Rights
              
              
              (59,525
              )
              
              
              (293,186
              )
              
              
              (61,896
              )
              
              
              (311,286
              )Payments/(Withdraw)
      of Deposits
              
              
              -
              
              
              
              34,852
              
              
              
              -
              
              
              
              34,808Cash
      Sourced/(Used) in Investing Activities
              
              
              (15,022,859
              )
              
              
              (302,387
              )
              
              
              (26,853,018
              )
              
              
              (3,799,233
              )Cash
      Flows from Financing ActivitiesProceeds
      from Bank Borrowings
              
              
              -
              
              
              
              1,263
              
              
              
              8,879,352
              
              
              
              4,391,705Repayment
      of Bank Loans
              
              
              (5,751,438
              )
              
              
              -
              
              
              
              -
              
              
              
              -Cash
      Sourced/(Used) in Financing Activities
              
              
              (5,751,438
              )
              
              
              1,263
              
              
              
              8,879,352
              
              
              
              4,391,705Net
      Increase/(Decrease) in Cash & Cash Equivalents for the
      Period
              
              
              481,865
              
              
              
              17,105,472
              
              
              
              (28,878,926
              )
              
              
              15,547,515Effect
      of Currency Translation
              
              
              410,872
              
              
              
              1,701,699
              
              
              
              425,134
              
              
              
              1,702,756Cash
      & Cash Equivalents at Beginning of Period
              
              
              12,637,572
              
              
              
              4,138,898
              
              
              
              41,984,102
              
              
              
              5,695,798Cash
      & Cash Equivalents at End of Period
              
              $
              13,530,309
              
              
              $
              22,946,069
              
              
              $
              13,530,309
              
              
              $
              22,946,069Supplementary
      information:Interest
      Received
              
              $
              73,421
              
              
              $
              4,330
              
              
              $
              75,649
              
              
              $
              117,565Interest
      Paid
              
              
              418,794
              
              
              
              182,607
              
              
              
              836,691
              
              
              
              365,214Income
      Tax Paid
              
              
              428,769
              
              
              
              474,978
              
              
              
              880,516
              
              
              
              755,186
 
 10
 
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 
 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.
 
 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.
  11
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 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 has owned
the three operating subsidiaries since December 31, 2007 as a result of a
reverse merger consummated via share exchange.  Control of our
operating subsidiaries (through the Company. its subsidiaries, processors or
other entities) was consistently held prior to and after the reverse
merger. The
Company also owns two intermediary holdings companies.   As of
June 30, 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).
  12
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 (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
  13
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
  (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.
  14
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
  (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.
  15
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 (U)
                Retirement
      Benefits
 
 Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to the statement of operations as
incurred.
 
 (V)
                Income
      Taxes
 
 The
Company uses the accrual method of accounting to determine and report its
taxable reduction of income taxes for the year in which they are available. The
Company has implemented Statement of Financial Accounting Standards (SFAS) No.
109 (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
                
                6/30/2010
                
                
                12/31/2009Period
      end RMB : US$ exchange rate
                
                
                6.8086
                
                
                
                6.8372Average
      period RMB : US$ exchange rate
                
                
                6.8347
                
                
                
                6.8409
  16
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 RMB is
not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US$ at
the rates used in translation.
 
 (Y)
                Earnings
      Per Share
 
 The
Company computes earnings per share (“EPS”) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per share” (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.
 
 (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).  The Company has
adopted the new accounting policies and has determined that there is no material
impact to the financial statements presented herein.
 
 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 of $28,640,249 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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 4.
                Accounts
      Receivable
 
 Accounts Receivable at June 30, 2010
and December 31, 2009 consisted of the following: -
 
 At
                
                
                AtJune
      30,
                
                
                December
      31,2010
                
                
                2009Accounts
      Receivable – Trade
                
                $
                45,228,907
                
                
                $
                40,278,976Less: Allowance for
      Doubtful Accounts
                
                
                (452,289
                )
                
                
                (402,789
                )Net
      Accounts Receivable
                
                $
                44,776,618
                
                
                $
                39,876,187
 
 At
                
                
                AtJune
      30,
                
                
                December
      31,Allowance for Bad Debts
                
                2010
                
                
                2009Beginning
      Balance
                
                $
                (402,789
                )
                
                $
                (188,495
                )Allowance
      Provided
                
                
                (49,500
                )
                
                
                (214,294
                )Charged
      Against Allowance
                
                
                -
                
                
                
                -Reversal*
                
                
                -
                
                
                
                -Ending
      Balance
                
                $
                (452,289
                )
                
                $
                (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 June 30, 2010, the Company has not had any receivables
that were unrecoverable.
 
 Accounts
receivable aging analysis:-
  At
                
                
                AtJune
      30,
                
                
                December
      31,2010
                
                
                20091-30
      Days
                
                $
                16,295,539
                
                
                $
                17,757,22330-60
      Days
                
                
                11,913,554
                
                
                
                12,643,46661-90
      Days
                
                
                11,569,251
                
                
                
                5,004,37091-120
      Days
                
                
                2,214,046
                
                
                
                4,833,711121-365
      Days
                
                
                3,236,517
                
                
                
                40,206Over 365
      Days
                
                
                -
                
                
                
                -Total
                
                $
                45,228,907
                
                
                $
                40,278,976
  The
Company believes it has provided adequate provisions for doubtful
accounts.  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.
  18
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 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 receivable balance of $25,899,355at June 30, 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.
                
                $
                5,538,576
                
                Food
      Co. sold cooked food to Huayu dating back to 1/2007.Subtotal
      of Related Party Sales
                
                
                5,538,576B
                
                Food
                
                Loan
      Receivable from
                
                Dalian
      Fodder Co., Ltd.
                
                
                15,411
                
                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.
                
                
                184,026
                
                Food
      Co. purchased material on behalf of Mingxing Dating back to
      6/2009D
                
                Food
                
                Loan
      Receivable from
                
                Dalian
      Chuming Industrial Development Co., Ltd.
                
                
                22,051,625
                
                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
                
                
                8,224,892
                
                Food
      Co. paid material on behalf of Trading Co. dating back to
      3/2010F
                
                Meat
                
                Loan
      Receivable from
                
                Dalian
      Chuming Industrial Development Co., Ltd.
                
                
                28,699,968
                
                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.
                
                
                8,138,284
                
                Prepayment
      to Stockbreeding Combo for Purchase of hogs dating back to
      7/2008.H
                
                Meat
                
                Loan
      Receivable from
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                48,789,235
                
                Chuming
      Group borrowed loan from Meat Co. dating back to 1/2008I
                
                Meat
                
                Loan
      Receivable from
                
                Dalian
      Chuming Trading Co., Ltd
                
                
                6,827,516
                
                Trading
      Co. borrowed loan from Meat Co. dating back to 4/2010J
                
                Sales
                
                Loan
      Receivable from
                
                Dalian
      Huayu Seafood Co., Ltd.
                
                
                2,727,173
                
                Sales
      Co. help Huayu purchase materials dating back to
9/2008.K
                
                Sales
                
                Loan
      Receivable from
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                847,730
                
                Sales
      Co. purchased hogs and paid general and administrative expenses on behalf
      of Group dating back to 7/2008.L
                
                Sales
                
                Loan
      Receivable from
                
                Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                
                
                15,991,337
                
                Sales
      Co. paid for Stockbreeding to buy hogs from farmer dating back
      7/2008M
                
                Sales
                
                Loan
      Receivable from
                
                Dalian
      Chuming Industrial Development Co., Ltd.
                
                
                5,617,578
                
                Sales
      Co. purchased materials for Industrial Co. dating back to
      7/2009Subtotal
      loans to related parties
                
                
                148,114,775Gross
      related party receivables
                
                $
                153,653,351
  19
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 Ref.
                
                Subsidiary Due from:
                
                Nature of Balance
                
                Related Party
                
                Balance
                
                Description of
  TransactionN
                
                Meat
                
                Purchase
      of Raw Materials resulting in Trade Payable to
                
                Dalian Chuming
      Stockbreeding Combo Development Co., Ltd.
                
                $
                17,855,550
                
                Meat
      Co. purchased of hogs from Stockbreeding Combo dating back to
      12/2009O
                
                Meat
                
                Purchase
      of Raw Materials resulting in Trade Payable to
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                48,209,065
                
                Purchase
      of hogs from Group dating back to 7/2008.Subtotal
      of Purchases from Related Parties
                
                $
                66,064,615P
                
                Food
                
                Loan
      Payable to
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                2,405,957
                
                Food
      borrowed from Group to purchase materials dating back to
      4/2009.Q
                
                Food
                
                Loan
      Payable to
                
                Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                
                
                9,107,599
                
                Stockbreeding
      Combo bought raw materials on behalf of Food Co. dating back to
      4/2009R
                
                Food
                
                Loan
      Payable to
                
                Dalian
      Huayu Seafood Co., Ltd.
                
                
                8,459,944
                
                Food
      Company collected customer deposits on behalf of Huayu Co. dating back to
      7/2009S
                
                Meat
                
                Loan
      Payable to
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                20,562,230
                
                Group
      loaned to Meat Co. dating back to 4/2009T
                
                Meat
                
                Loan
      Payable to
                
                Dalian
      Huayu Seafood Co., Ltd.
                
                
                2,962,897
                
                Huayu
      Co. loaned to Meat Co. dating back to 7/2009U
                
                Meat
                
                Loan
      Payable to
                
                Dalian
      Chuming Fodder Co., Ltd.
                
                
                1,245,520
                
                Fodder
      Co. paid the fodder materials on behalf of Meat dating back to
      3/2010V
                
                Sales
                
                Loan
      Payable to
                
                Dalian
      Mingxing Livestock Product Co. Ltd.,
                
                
                8,260
                
                Sales
      Co. collected bank loans on behalf of Mingxing dating back to
      8/2008W
                
                Sales
                
                Loan
      Payable to
                
                Dalian
      Chuming Fodder Co., Ltd.
                
                
                6,362,110
                
                Fodder
      Co. bought materials on behalf of Sales Co. dating back to
      4/2009X
                
                WFOE
                
                Loan
      Payable to
                
                Dalian
      Chuming Group Co.
                
                
                10,574,864
                
                Group
      loaned funds to WFOE (includes funds transferred from Meat for US
      RTO.)Subtotal
      of Loans from Related Parties
                
                
                61,689,381Gross
      Related Party Payable
                
                
                127,753,996Setoff Related Party
      Payable (Receivables have been set-off againstPayables)
                
                $
                25,899,355
  20
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 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 15 thousand (RMB 105 thousand) to Fodder Company in
      third quarter of 2009 for the purchase of raw
  materials.
 
 C.
                Food
      Co. purchased material USD 184 thousand(RMB 1.2 Million) on behalf of
      Mingxing dating back to 6/2009
 
 D.
                Food
      Company paid USD 22 million (RMB 150 million) bank loan principal and
      interest on behalf of Industrial Development
  Company.
 
 E.
                Food
      Co. paid USD 8 million (RMB 56 million) for materials on behalf of Trading
      Company.
 
 F.
                Meat
      Co. paid USD 28.70 million (RMB 195 million) bank loan principal and
      interest on behalf Industrial Development
  Company.
 
 G.
                The
      prepayment of USD 8.14 million (RMB 55.3 million) from Meat Company to the
      Stockbreeding Combo Development Company was for the purchase of
      hogs.
 
 H.
                Meat
      Co. lent USD 48.8 million (RMB 332 million) to Chuming
    Group.
 
 I.
                Trading
      Co. borrowed USD 6.8 million (RMB 46.5 million) from Meat
      Company.
 
 J.
                Sales
      Company bought USD 2.7 million (RMB 18.6 million) raw materials on behalf
      of Huayu Seafood Company.
 
 K.
                The
      balance of USD 847 thousand (RMB 5.8 million) receivable from Chuming
      Group to Sales Company was for the payments of hogs and operation
      expense.
 
 L.
                Sales
      Company help the Combo Development Company to pay USD 15.9 million (RMB
      109 million) to local farmers for the purchase of
  hogs.
 
 M.
                  Sales
      Company purchased USD 5.6 million (RMB 38 million) materials for
      Industrial Development
Company.
 
 N.
                The
      balance of USD 17.8 million (RMB 121.6 million) payment owed by the Meat
      Company to Chuming Stockbreeding Combo Development Company was for the
      purchase of hogs.
 
 O.
                The
      Group sold hogs to Meat Co. for 48 million (RMB 328
    million).
 
 P.
                Food
      borrowed  USD 2.4 million(RMB16.4 million) from Group to
      purchase materials
 
 Q.
                Stockbreeding
      Combo Development Company purchased USD 9.1 million (RMB 62 million) for
      Food Company.
  21
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 R.
                Food
      Company collected USD 8.5 million (RMB 57.6 million) customer deposits on
      behalf of Huayu Seafood Company.
 
 S.
                Meat
      Company borrowed USD 20.5 million (RMB 140 million) operation funds from
      Chuming Group.
 
 T.
                Meat
      Company borrowed USD 2.9 million (RMB 20 million) operation funds from
      Huayu Seafood Company.
 
 U.
                Fodder
      Co. paid USD 1.2 million (RMB 8.4 million) the fodder materials on behalf
      of Meat Company.
 
 V.
                Sales
      Company collected USD 8 thousand (RMB 56 thousand) bank loans on behalf of
      Mingxing Livestock Company.
 
 W.
                  Fodder
      Company bought USD 6.3 million (RMB 40 million) materials on behalf of
      Sales Company.
 
 X.
                The
      outstanding payable balance of USD 10.6 million (RMB 70 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 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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 6. Inventory
 At
                
                
                AtJune
      30,
                
                
                December
      31,2010
                
                
                2009Raw
      Materials
                
                $
                678,346
                
                
                $
                1,479,197Work
      in Progress
                
                
                176,099
                
                
                
                95,051Finished
      Goods
                
                
                2,691,836
                
                
                
                2,109,741$
                3,546,281
                
                
                $
                3,683,989
  7.
                Property, Plant &
      Equipment
  At
                
                
                
                
                AccumulatedJune
      30, 2010:
                
                Cost
                
                
                Depreciation
                
                
                NetBuildings
                
                $
                21,849,924
                
                
                $
                (4,907,251
                )
                
                $
                16,942,673Manufacturing
      Equipment
                
                
                10,085,691
                
                
                
                (4,724,117
                )
                
                
                5,361,574Office
      Equipment
                
                
                484,483
                
                
                
                (428,178
                )
                
                
                56,305Vehicles
                
                
                912,665
                
                
                
                (712,376
                )
                
                
                200,289Furniture
      & Fixture
                
                
                527,530
                
                
                
                (238,468
                )
                
                
                289,062$
                33,860,293
                
                
                $
                11,010,390
                
                
                $
                22,849,903
  At
                
                
                
                
                
                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
  8.
                Land Use
      Right
 
 The
Company had the following intangible assets outstanding at December
31:
 
 At
                
                
                AtJune
      30,
                
                
                December
      31,2010
                
                
                2009Land
      Use Rights, at Cost
                
                $
                14,797,046
                
                
                $
                14,735,150Less: Accumulated
      Amortization
                
                
                (1,710,883
                )
                
                
                (1,559,591
                )$
                13,086,163
                
                
                $
                13,175,559
  23
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
  9.
                  Bank
      Loans
  (A)
                  Short
      Term Bank Loans
 At June
30, 2010 and December 31 2009, the Company had the following short-term loans
outstanding:
 
 AtJune
      30,Bank
                
                Interest
      Rate
                
                
                Due
      Date
                
                2010Bank
      of China - Liaoning Branch
                
                
                5.841
                %
                
                12/12/2010
                
                $
                4,406,192Bank
      of China - Liaoning Branch
                
                
                5.841
                %
                
                10/27/2010
                
                
                2,056,223Shanghai
      Pudong Development Bank - Dalian Branch
                
                
                5.841
                %
                
                11/25/2010
                
                
                4,406,192Huaxia
      Bank - Dalian Branch
                
                
                5.576
                %
                
                1/6/2011
                
                
                7,343,654Bank
      of East Asia - Dalian Branch
                
                
                5.45
                %
                
                10/22/2010
                
                
                2,203,096China
      Minsheng Banking Corp., Ltd.
                
                
                5.841
                %
                
                4/12/2011
                
                
                4,406,192$
                24,821,549
 
 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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 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.
 
 10.
                Notes
      Payable
 
 Notes
payable consisted of the followings:-
  AtJune
      30,Notes
      to
                  
                  Due
      Date
                  
                  2010Shanghai
      Pudong Development Bank - Liaoning Branch
                  
                  11/18/2010
                  
                  $
                  7,343,654Huaxia
      Bank
                  
                  7/22/2010
                  
                  
                  4,406,192$
                  11,749,846
 
 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.
 
 11.
                Capitalization
 
 As a
result of a reverse-merger on December 31, 2007 that was consummated via a share
exchange, and a concurrent equity financing, in the form of a private placement
by issuing common stock to ten accredited investors, the Company’s
capitalization is now reflected by the table shown below:
  Name
      of Shareholder
                
                Number
      of Shares
                
                
                Common
      Stock Capital
                
                
                Additional
      Paid in Capital
                
                
                Equity
      %Operating
      Companies Founders
                
                
                14,688,948
                
                
                $
                14,689
                
                
                $
                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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 12.
                  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
                
                
                AtJune,
                
                
                December
      31,2010
                
                
                2009PRC
      Registered Capital
                
                
                15,566,849
                
                
                
                15,566,849-
      Statutory Reserve Ceilingbased
      on 50% ofRegistered
      Capital
                
                
                7,783,424
                
                
                
                7,783,424Less: - Retained
      Earningsappropriated
      toStatutory
      Reserve
                
                
                (2,077,488
                )
                
                
                (2,077,488
                )Reserve
      CommitmentOutstanding
                
                $
                5,705,936
                
                
                $
                5,705,936
  13.
                Advertising
      Costs
 
 Advertising
expenses were $71,599 and $48,374 for the six-month periods ended June 30, 2010
and 2009, respectively.
 
 14.
                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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 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 six-month periods
ended  June 30, 2010 and 2009.
 
 Dalian
Chuming Processed Foods Co. Ltd has provided for income taxes for the six-month
periods ended June 30, 2010 and 2009 in the amounts of $880,517 and $755,186,
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
                
                
                (880,517
                )ii.
                
                2009
                Tax
      expense
                
                
                (755,186
                )
  15.
                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 June 30, 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 June 30, 2010, the Company expects minimum
quantities of hogs detailed in the following table:
  Year
                
                Hogs
                
                
                Price
      Per Hog
                
                
                Amount2010
      (July to Dec)
                
                
                508,042
                
                
                $
                205.84
                
                
                
                104,575,365
  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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 16.
                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 financial position for its operating
subsidiaries at June 30, 2010 and December 31, 2009, and for the Company’s
result of operation for the six-month periods then ended. The Company has also
provided reconciling adjustments with the Company and its intermediate holding
companies Dalian Chuming Precious Sheen Investments Consulting Ltd. (“Chuming
WFOE”) and Precious Sheen Investments Ltd (PSI).
  Results
      of Operations
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      WFOE,For
      the period ended
                      
                      Meat
                      
                      
                      Food
                      
                      
                      Sales
                      
                      
                      PSI,
      &June
      30, 2009
                      
                      Company
                      
                      
                      Company
                      
                      
                      Company
                      
                      
                      Eliminations
                      
                      
                      TotalSales
                      
                      $
                      84,864,119
                      
                      
                      $
                      12,730,113
                      
                      
                      $
                      21,340,072
                      
                      
                      $
                      (29,760,890
                      )
                      
                      $
                      89,173,413Cost
      of Sales
                      
                      
                      73,893,709
                      
                      
                      
                      9,174,006
                      
                      
                      
                      23,062,712
                      
                      
                      
                      (29,760,890
                      )
                      
                      
                      76,369,536Gross
      Profit
                      
                      
                      10,970,410
                      
                      
                      
                      3,556,107
                      
                      
                      
                      (1,722,640
                      )
                      
                      
                      -
                      
                      
                      
                      12,803,877Operating
      (Loss)/Profit
                      
                      
                      10,431,767
                      
                      
                      
                      3,100,608
                      
                      
                      
                      (3,136,279
                      )
                      
                      
                      (235,427
                      )
                      
                      
                      10,160,669Other
      Income (Expense)
                      
                      
                      (116,872
                      )
                      
                      
                      (74,089
                      )
                      
                      
                      (30,528
                      )
                      
                      
                      (8,217,128
                      )
                      
                      
                      (8,438,617
                      )Earnings
      before Tax
                      
                      
                      10,314,895
                      
                      
                      
                      3,026,519
                      
                      
                      
                      (3,166,807
                      )
                      
                      
                      (8,452,555
                      )
                      
                      
                      1,722,052(Income
      Tax Expense)
                      
                      
                      -
                      
                      
                      
                      (755,186
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (755,186
                      )Extraordinary
      Expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      Income
                      
                      $
                      10,314,895
                      
                      
                      $
                      2,271,333
                      
                      
                      $
                      (3,166,807
                      )
                      
                      $
                      (8,452,555
                      )
                      
                      $
                      966,866
 
 Eliminated
      Intercompany Sales of Products SoldSix-month
      periods ended June 30, 2009Sold
      From:
                
                Sold
      To:
                
                
                AmountFood
      Company
                
                Sales
      Company
                
                
                $
                3,852,759Meat
      Company
                
                Sales
      Company
                
                
                
                19,209,953Meat
      Company
                
                Food
      Company
                
                
                
                6,698,178$
                29,760,890
  28
 Energroup
Holdings Corporation  Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 Results
      of Operations
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      WFOE,For
      the period ended
                      
                      Meat
                      
                      
                      Food
                      
                      
                      Sales
                      
                      
                      PSI,
      &June
      30, 2010
                      
                      Company
                      
                      
                      Company
                      
                      
                      Company
                      
                      
                      Eliminations
                      
                      
                      TotalSales
                      
                      $
                      103,258,509
                      
                      
                      $
                      14,670,857
                      
                      
                      $
                      8,873,872
                      
                      
                      $
                      (17,008,661
                      )
                      
                      $
                      109,794,577Cost
      of Sales
                      
                      
                      90,637,493
                      
                      
                      
                      10,692,006
                      
                      
                      
                      8,713,688
                      
                      
                      
                      (17,008,661
                      )
                      
                      
                      93,034,526Gross
      Profit
                      
                      
                      12,621,016
                      
                      
                      
                      3,978,851
                      
                      
                      
                      160,184
                      
                      
                      
                      -
                      
                      
                      
                      16,760,051Operating
      (Loss)/Profit
                      
                      
                      11,809,785
                      
                      
                      
                      3,620,850
                      
                      
                      
                      (463,270
                      )
                      
                      
                      (237,629
                      )
                      
                      
                      14,729,737Other
      Income (Expense)
                      
                      
                      (666,155
                      )
                      
                      
                      (94,219
                      )
                      
                      
                      23,060
                      
                      
                      
                      (1,857
                      )
                      
                      
                      (739,172
                      )Earnings
      before Tax
                      
                      
                      11,143,630
                      
                      
                      
                      3,526,631
                      
                      
                      
                      (440,210
                      )
                      
                      
                      (239,486
                      )
                      
                      
                      13,990,565(Income
      Tax Expense)
                      
                      
                      -
                      
                      
                      
                      (880,516
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (880,516
                      )Extraordinary
      Expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      Income
                      
                      $
                      11,143,630
                      
                      
                      $
                      2,646,115
                      
                      
                      $
                      (440,210
                      )
                      
                      $
                      (239,486
                      )
                      
                      $
                      13,110,048
 
 Eliminated
      Intercompany Sales of Products SoldSix-month
      periods ended June 30, 2010Sold
      From:
                
                Sold
      To:
                
                AmountFood
      Company
                
                Sales
      Company
                
                $
                3,929,542Meat
      Company
                
                Sales
      Company
                
                
                4,625,729Meat
      Company
                
                Food
      Company
                
                
                8,453,390$
                17,008,661
  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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 Financial
      Position
                
                
                
                
                
                
                
                
                
                
                WFOE,At
                
                Meat
                
                
                Food
                
                
                Sales
                
                
                PSI,
      &June
      30, 2010
                
                Company
                
                
                Company
                
                
                Company
                
                
                Eliminations
                
                
                TotalCurrent
      Assets
                
                $
                199,210,041
                
                
                $
                79,460,222
                
                
                $
                34,684,068
                
                
                $
                (194,175,480
                )
                
                $
                119,178,852Non
      Current Assets
                
                
                24,246,686
                
                
                
                18,230,859
                
                
                
                189,238
                
                
                
                295
                
                
                
                42,667,079Total
      Assets
                
                
                223,456,727
                
                
                
                97,691,081
                
                
                
                34,873,306
                
                
                
                (194,175,185
                )
                
                
                161,845,931Current
      Liabilities
                
                
                135,822,533
                
                
                
                83,325,220
                
                
                
                42,805,809
                
                
                
                (206,567,064
                )
                
                
                55,386,498Total
      Liabilities
                
                
                135,822,533
                
                
                
                83,325,220
                
                
                
                42,805,809
                
                
                
                (206,567,064
                )
                
                
                55,386,498Net
      Assets
                
                
                87,634,194
                
                
                
                14,365,861
                
                
                
                (7,932,503
                )
                
                
                12,391,879
                
                
                
                106,459,433Total
      Liabilities&
      Net Assets
                
                $
                223,456,727
                
                
                $
                97,691,081
                
                
                $
                34,873,306
                
                
                $
                (194,175,185
                )
                
                $
                161,845,931
 
 30
 Energroup
Holdings Corporation  Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 17.
                Earnings Per
      Share
 
 Components
of basic and diluted earnings per share were as follows: -
 
 For
      the
                
                
                For
      theSix
      months
                
                
                Six
      monthsJune
      30,
                
                
                June
      30,2010
                
                
                2009Net
      Income (A)
                
                $
                13,110,048
                
                
                $
                966,866Basic
      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)
                
                $
                0.62
                
                
                $
                0.06-Diluted
      (A)/(C)
                
                $
                0.62
                
                
                $
                0.05Weighted
      Average Shares Outstanding:-Basic
                
                
                21,136,392
                
                
                
                17,272,756-Diluted
                
                
                21,136,392
                
                
                
                21,136,392
  18.
                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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 19.
                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 June 30, 2010, the Company had adequate authorized capital
to issue common shares upon the exercise of the warrant.
 
 At June
30, 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
                
                
                -21,136,392
  32
 Energroup
Holdings Corporation  Notes
to Consolidated Financial Statements
 As
of June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 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 six months end June 30, 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 six months ended
June 30, 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
$8,218,227 for the six months ended June 30, 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.
  20.
                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 June 30, 2010 and December 31, 2009
 And
for the six months ended June 30, 2010 and 2009
 (Stated
in US Dollars)
 The
Company believes it has satisfied all of the criteria set forth in the
settlement agreement described above as of July 25, 2010.
 
 21.
                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 two quarters sales was
$109,794,577 of which $4,012,515 (RMB 27,424,338), representing 3.65% of total
sales, consisted of fresh pork sold to the Chinese National Pork
Reserve.
 
 34


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





Note
Regarding Forward-Looking Statements





This
quarterly report on Form 10-Q and other reports filed by the Company 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, The Company’s
management as well as estimates and assumptions made by the Company’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 the Company or the Company ’s
management identify forward-looking statements. Such statements reflect the
current view of the Company 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 the
Company’s industry, the Company’s operations and results of operations, and any
businesses that the Company 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
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company 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 Company  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 “Company” 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 approximately 5.7% of our revenue in the first six
months 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.





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




35





As of
June 30, 2010, we had 754 employees, of whom 392 were operating personnel, 271
were sales personnel, 37 were research and development personnel and 54 were
administrative personnel.





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





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




The
Chuming Operating Subsidiaries are spin-off constituents of a former parent
company, Dalian Chuming Group Co., Ltd., or the “Group” Chuming WFOE was
incorporated in China as a wholly foreign owned enterprise in December 2007.
Chuming WFOE is 100% owned by Precious Sheen Investments Limited (“PSI”), a
holding company established in the British Virgin Islands in May
2007.





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





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





Our
total sales volume was 35,356 metric tons in the second quarter of
2010 and 27,697 metric tons in the second 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 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
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. In the first six months of 2010, pork
prices trended lower to levels similar to the second quarter of 2009, but
since the end of the second quarter, prices have begun to trend higher, we
expect this upward trend to continue through the end of the
year.





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.




36





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 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 fresh and processed food products to almost all large and medium
cities in the three most northeast provinces of 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 42.16% for our total sales for the quarter ended
June 30, 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 consolidated financial statements.





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.




37





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 has owned the three operating subsidiaries since December 31, 2007 as a
result of a reverse merger consummated via share exchange. Control of our
operating subsidiaries (through the Company, its subsidiaries, predecessors
or other entities) was consistently held prior to and after the reverse merger.
We also own two intermediary holding companies. As of June 30, 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.





Accounts
Receivable





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




38





Inventory
Carrying Value





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





Property,
Plant, and Equipment





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





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





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





Land
Use Rights





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





Customer
Deposits





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





Statutory
Reserve





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





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. 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.




39





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.





Related
Party Receivable and Payable





In the normal course of business which
includes the purchase of hogs and other raw materials, and the sale of pork and
pork products, the Company conducts transactions with certain related parties
that are not consolidated into the Company. The Company and these related
parties share common beneficial ownership. All transactions with related parties
are generally performed at arm’s length. In the event that we have both
receivables from, and payables to these related parties, we will set off the
balances in order to arrive at a single balance that is either due from, or due
to these related parties.





RESULTS
OF OPERATIONS





Comparison
of Three Months Ended June 30, 2010 and June 30, 2009.





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





Three Months ended
                        June 30,
                        2010
                      
                      
                      % of Sales
                      
                      
                      Three Months ended
                        June 30,
                        2009
                      
                      
                      % of SalesSales
                      
                      $
                      54,284,455
                      
                      
                      
                      100
                      %
                      
                      $
                      48,279,491
                      
                      
                      
                      100.00
                      %Cost
      of Sales
                      
                      
                      (45,821,654
                      )
                      
                      
                      84.41
                      %
                      
                      
                      (41,200,068
                      )
                      
                      
                      85.34
                      %Gross
      Profit
                      
                      
                      8,462,801
                      
                      
                      
                      15.58
                      %
                      
                      
                      7,079,423
                      
                      
                      
                      14.66
                      %Selling
      Expenses
                      
                      
                      (293,294
                      )
                      
                      
                      0.54
                      %
                      
                      
                      (507,404
                      )
                      
                      
                      1.05
                      %General
      & Administrative Expenses
                      
                      
                      (819,634
                      )
                      
                      
                      1.51
                      %
                      
                      
                      (711,732
                      )
                      
                      
                      1.47
                      %Total
      Operating Expense
                      
                      
                      (1,112,928
                      )
                      
                      
                      2.05
                      %
                      
                      
                      (1,219,136
                      )
                      
                      
                      2.53
                      %Operating
      Income / (Loss)
                      
                      
                      7,349,873
                      
                      
                      
                      13.54
                      %
                      
                      
                      5,860,287
                      
                      
                      
                      12.14
                      %Other
      Income (Expense)
                      
                      
                      (324,662
                      )
                      
                      
                      0.6
                      %
                      
                      
                      (4,830,464
                      )
                      
                      
                      10.01
                      %Earnings
      Before Tax
                      
                      
                      7,025,211
                      
                      
                      
                      12.94
                      %
                      
                      
                      1,029,823
                      
                      
                      
                      2.13
                      %(Income
      Tax Expense) / Deferred Tax Benefit
                      
                      
                      (428,769
                      )
                      
                      
                      0.79
                      %
                      
                      
                      (474,978
                      )
                      
                      
                      0.98
                      %Net
      Income
                      
                      $
                      6,596,442
                      
                      
                      
                      12.15
                      %
                      
                      $
                      554,845
                      
                      
                      
                      1.15
                      %Earnings
      Per ShareBasic
                      
                      $
                      0.31
                      
                      
                      
                      
                      
                      
                      $
                      0.03Diluted
                      
                      
                      0.31
                      
                      
                      
                      
                      
                      
                      
                      0.03Weighted
      Average Shares OutstandingBasic
                      
                      
                      21,136,392
                      
                      
                      
                      
                      
                      
                      
                      17,272,756Diluted
                      
                      
                      21,136,392
                      
                      
                      
                      
                      
                      
                      
                      21,136,392




40




Sales. Our sales include
revenues from sales of our fresh pork, frozen pork, and processed food products.
During the quarter ended June 30, 2010, we had sales of $54,284,455, as compared
to the sales of $48,279,491 for the quarter ended June 30, 2009, an increase of
approximately 12.44%. Our sales for our various product categories in the second
quarter of 2010 are summarized as follows:





Sales
      by product category, in dollars:
            
            Second
      Quarter 2010 (amount)
            
            
            %
      of Total Sales
            
            
            Second
      Quarter
              2009
      (amount)
            
            
            %
      of
              Total
      Sales
            
            
            %
      increase
              from
              2009
      to 2010Fresh
      Pork
            
            $
            43,700,238
            
            
            
            80.50
            %
            
            $
            36,402,736
            
            
            
            75.40
            %
            
            
            20.05
            %Frozen
      Pork
            
            
            3,407,836
            
            
            
            6.28
            %
            
            
            4,499,649
            
            
            
            9.32
            %
            
            
            (24.26)
            %Processed
      Food Products
            
            
            7,176,381
            
            
            
            13.22
            %
            
            
            7,377,106
            
            
            
            15.28
            %
            
            
            (2.72)
            %Total
      Sales
            
            $
            54,284,455
            
            
            
            100
            %
            
            $
            48,279,491
            
            
            
            100
            %
            
            
            12.44
            %








Sales
      by product category, by weight of product (metric tons):
            
            Second
      Quarter
              2010
              (Weight
      in tons)
            
            
            %
      of
              Total
      Sales
            
            
            Second
      Quarter
              2009
              (Weight
      in tons)
            
            
            %
      of
              Total
      Sales
            
            
            %
      change
              from
              2009
      to 2010Fresh
      Pork
            
            
            29,851
            
            
            
            84.43
            %
            
            
            21,904
            
            
            
            79.08
            %
            
            
            36.28
            %Frozen
      Pork
            
            
            2,581
            
            
            
            7.30
            %
            
            
            2,986
            
            
            
            10.78
            %
            
            
            (13.56)
            %Processed
      Food Products
            
            
            2,924
            
            
            
            8.27
            %
            
            
            2,807
            
            
            
            10.13
            %
            
            
            4.17
            %Total
      Sales
            
            
            35,356
            
            
            
            100
            %
            
            
            27,697
            
            
            
            100
            %
            
            
            27.65
            %





We
believe that the increases in sales revenue and sales volume in fresh pork and
processed pork 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 by
extending sales discounts to them. Furthermore, there has been continuing
strength in consumer demand for fresh pork products in the periods
presented. For frozen pork, our sales revenue decreased by 24.26% in the first
quarter of 2010 and our sales volume for this product category decreased 13.56%
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.





In the
second quarter of 2010, we decreased our average per-kilogram sales price for
all our product categories. These changes were in-line with changes in the
market price for these products. In the second quarter of 2010, our sales volume
by weight of fresh pork increased as compared to the second quarter of 2009 by
36.28%.  Our revenue for fresh pork, however, increased by a lower
20.05%, given lower average per kilogram product prices. Similarly, for
processed food products, our sales by weight increased by 4.17%, but because of
lower average per-kilogram prices to customers, our sales revenue for this
product category decreased by 2.72%.




41





The
following table shows the change in the average price per kilogram for our
product to consumers in the quarter ending June 30, 2010, as compared to the
same quarter last year:





Average
      Per-Kilogram Price to Customers (in US$)Second
      quarter of 2010
            
            
            Second
      quarter of 2009
            
            %
      change
            
            
            Change
      in PriceFresh
      Pork
            
            $
            1.46
            
            
            $
            1.66
            
            
            
            (12.04)
            %
            
            $
            (0.20)Frozen
      Pork
            
            $
            1.32
            
            
            $
            1.50
            
            
            
            (12.00)
            %
            
            $
            (0.18)Processed
      Food Products
            
            $
            2.45
            
            
            $
            2.62
            
            
            
            (6.49)
            %
            
            $
            (0.17)





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





Sales
      ChannelsAs
      of June 30,
            
            Showcase
              Stores
            
            
            Supermarkets
            
            
            Restaurants
      and
              Canteens2010
            
            
            956
            
            
            
            594
            
            
            
            5,2132009
            
            
            906
            
            
            
            546
            
            
            
            4,983





As shown
in the table above, as of June 30, 2010, as compared to June 30, 2009, we
significantly increased the number of participants in all three of these sales
channels. We believe the sales from supermarkets  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 contributed to our increased sales volume in
our fresh pork category.





Cost of Sales. Cost of sales
for the second quarter of 2010 increased by $4,621,586 or approximately
11.22%, from $41,200,068 for the three months ended June 30, 2009 to $45,821,654
for the three months ended June 30, 2010. The increase was principally
attributable to the increase in the sales and sales volume for fresh
pork in the second quarter of 2010 as compared to the same period in the
prior year. Our cost of sales for our various product categories in the second
quarter of each of 2010 and 2009 is summarized and shown as a percentage of
overall cost of sales in the following chart:





Cost
      of Sales
              Second
      quarter
            
            
            %
      of
              Overall
      Cost
            
            
            Cost
      of Sales Second quarter
            
            
            %
      of
              Overall
      Cost
            
            
            %
      Change
              fromProduct
      Category
            
            2010
            
            
            of
      Sales
            
            
            2009
            
            
            of
      Sales
            
            
            2009
      to 2010Fresh
      Pork
            
            $
            37,759,764
            
            
            
            82.41
            %
            
            $
            31,905,635
            
            
            
            77.44
            %
            
            
            18.35
            %Frozen
      Pork
            
            
            2,793,917
            
            
            
            6.10
            %
            
            
            3,885,010
            
            
            
            9.43
            %
            
            
            (28.08)
            %Processed
      Food Products
            
            
            5,267,973
            
            
            
            11.50
            %
            
            
            5,409,423
            
            
            
            13.13
            %
            
            
            (2.61)
            %Total
      Cost of Sales
            
            $
            45,821,654
            
            
            
            100
            %
            
            $
            41,200,068
            
            
            
            100
            %
            
            
            11.22
            %





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





Product
      Category:
            
            Cost
      of Sales Second quarter
              2010
            
            
            %
      of Product Group Sales
            
            
            Cost
      of Sales Second quarter
              2009
            
            
            %
      of Product Group Sales
            
            
            %
      Change in Product
              Group
      SalesFresh
      Pork
            
            $
            37,759,264
            
            
            
            86.41
            %
            
            $
            31,905,635
            
            
            
            87.90
            %
            
            
            (1.49)
            %Frozen
      Pork
            
            
            2,793,917
            
            
            
            81.99
            %
            
            
            3,885,010
            
            
            
            86.62
            %
            
            
            (4.63)
            %Processed
      Food Products
            
            
            5,267,973
            
            
            
            73.41
            %
            
            
            5,409,423
            
            
            
            73.56
            %
            
            
            (0.15)
            %Total
      Cost of Sales
            
            $
            45,821,654
            
            
            
            84.41
            %
            
            $
            41,200,068
            
            
            
            85.59
            %
            
            
            1.18
            %





42




Our cost
of sales of fresh pork products increased by 18.35% and decreased by 1.49% as a
percentage of sales of fresh pork products, in each case as compared to the
second quarter of 2009. This change resulted from the period over period
increase in sales volume. Our cost of sales of frozen pork products decreased by
28.08% and by 4.63% as a percentage of sales of frozen pork products,
compared to the second quarter of 2009.  This large decrease in cost of
sales of this product resulted primarily from the period over period decrease in
sales volume. During the second quarter of 2010, the cost of sales of processed
food products decreased by 2.61% and 0.15% as a percentage of sales of processed
food products, in each case as compared to the same period last
year.





The
following table shows the estimated average per-kilogram price we paid for live
pigs in the first and second quarters of 2010 and 2009 and the third and fourth
quarter of 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
            
            
            1.54
            
            
            
            1.50
            
            
            
            0.04
            
            
            
            2.67
            %Third
      Quarter
            
            
            N/A
            
            
            
            1.75
            
            
            
            N/A
            
            
            
            N/A
            %Fourth
      Quarter
            
            
            N/A
            
            
            
            1.70
            
            
            
            N/A
            
            
            
            N/A
            %





Gross Profit. Gross profit
was $8,462,801 for the three months ended June 30, 210 as compared to $7,079,423
for the three months ended June 30, 2009 , representing an increase of
$1,383,378, or approximately 19.54%. Management attributes the increase in gross
profit to the lower average cost of live pigs and increased sales volume fresh
pork products. Our gross profit as a percentage of sales was 15.59% in the
second quarter of 2010, as compared to 14.66% in the second quarter of
2009.





The
following table presents our gross profit for the three months ended June 30,
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
      Profit
              Second
      quarterof
              2010
            
            
            %
      of Product
              Group
      Sales
            
            
            Gross
      Profit
              Second
      quarterof
              2009
            
            
            %
      of Product
              Group
      Sales
            
            
            %
      increase from Second quarter of 2009 to Second
              quarter
      of 2010Fresh
      Pork
            
            $
            5,940,474
            
            
            
            13.59
            %
            
            $
            4,497,101
            
            
            
            12.35
            %
            
            
            32.10
            %Frozen
      Pork
            
            
            613,919
            
            
            
            18.01
            %
            
            
            614,639
            
            
            
            13.66
            %
            
            
            (0.12)
            %Processed
      Food Products
            
            
            1,908,408
            
            
            
            26.59
            %
            
            
            1,967,683
            
            
            
            26.67
            %
            
            
            (3.79)
            %Total
      Gross Profit
            
            $
            8,462,801
            
            
            
            15.59
            %
            
            $
            7,079,423
            
            
            
            14.66
            %
            
            
            19.54
            %





In the
second quarter of 2010, the gross profit of fresh pork increased by 32.10% as
compared to the same period last year, principally due to lower average
cost of live pigs and increased sales volume of fresh pork. Processed food
products continued to yield a gross profit margin that was the highest among
all the product groups. The gross profit of the frozen pork products
segment decreased by 0.12% as compared to the same period last year. Primarily
due to 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.




43





Selling
Expenses.  Selling expenses totaled $293,294 for the three
months ended June 30, 2010 as  compared to $507,404 for the three
months ended June 30, 2009, a decrease of $214,110 or 42.20%. This
decrease is due to a reduction in our advertising expenses. We
continued to increase sales made through sales agents, who assumed certain
marketing expenses in selling our fresh pork products.





General and Administrative
Expenses. General and administrative expenses totaled $819,634 for the
three months ended June 30, 2010 as compared to $711,732 for the three months
ended for the same period in 2009, an increase of $107,902 or 15.16%. 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 second quarter of 2010, we had total other income of
$324,662, as compared to $114,390 for the second quarter of 2009, excluding
a compensatory expense in the amount of $4,716,074 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. Our total other income in the
second quarter of 2010 increased by $210,272, or 183.82% as compared to the same
period in 2009.  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 June 30, 2010 was $ 6,596,442 as compared to $554,845 for
the same period in 2009, an increase of $ 6,041,597 or 1088.88%.  This
increase in net income is attributable to the compensatory expense in the
comparable quarter for 2009 described above.





Comparison
of Six Months Ended June 30, 2010 and June 30, 2009.





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





Six Months
      ended
                      June
      30,
                      2010
                    
                    
                    %
      ofSales
                    
                    
                    Six Months ended
                      June 30,
                      2009
                    
                    
                    % ofSalesSales
                    
                    $
                    109,794,577
                    
                    
                    
                    100.00
                    %
                    
                    $
                    89,173,413
                    
                    
                    
                    100.00
                    %Cost
      of Sales
                    
                    
                    (93,034,52
                    )
                    
                    
                    84.74
                    %
                    
                    
                    (76,369,536
                    )
                    
                    
                    85.64
                    %Gross
      Profit
                    
                    
                    16,760,051
                    
                    
                    
                    15.26
                    %
                    
                    
                    12,803,877
                    
                    
                    
                    14.36
                    %Selling
      Expenses
                    
                    
                    (634,310
                    )
                    
                    
                    0.58
                    %
                    
                    
                    (1,372,363
                    )
                    
                    
                    1.54
                    %General
      & Administrative Expenses
                    
                    
                    (1,396,004
                    )
                    
                    
                    1.27
                    %
                    
                    
                    (1,270,845
                    )
                    
                    
                    1.43
                    %Total
      Operating Expense
                    
                    
                    (2,030,314
                    )
                    
                    
                    1.85
                    %
                    
                    
                    (2,643,208
                    )
                    
                    
                    2.96
                    %Operating
      Income / (Loss)
                    
                    
                    14,729,737
                    
                    
                    
                    13.42
                    %
                    
                    
                    10,160,669
                    
                    
                    
                    11.39
                    %Other
      Income (Expense)
                    
                    
                    (739,172
                    )
                    
                    
                    0.68
                    %
                    
                    
                    (8,218,227
                    )
                    
                    
                    9.22
                    %Earnings
      Before Tax
                    
                    
                    13,990,565
                    
                    
                    
                    12.74
                    %
                    
                    
                    1,722,052
                    
                    
                    
                    1.93
                    %(Income
      Tax Expense) / Deferred Tax Benefit
                    
                    
                    (880,517
                    )
                    
                    
                    0.8
                    %
                    
                    
                    (755,186
                    )
                    
                    
                    0.85
                    %Net
      Income
                    
                    $
                    13,110,048
                    
                    
                    
                    11.94
                    %
                    
                    $
                    966,866
                    
                    
                    
                    1.08
                    %Earnings
      Per ShareBasic
                    
                    $
                    0.62
                    
                    
                    
                    
                    
                    
                    $
                    0.06Diluted
                    
                    
                    0.62
                    
                    
                    
                    
                    
                    
                    
                    0.05Weighted
      Average Shares OutstandingBasic
                    
                    
                    21,136,392
                    
                    
                    
                    
                    
                    
                    
                    17,272,756Diluted
                    
                    
                    21,136,392
                    
                    
                    
                    
                    
                    
                    
                    21,136,392




44





Sales. During the first six
months of 2010, we had sales of $109,794,577 as compared to $89,173,413 for the
first six months of 2009, an increase of approximately 23.12%. Our sales for our
various product categories in the first six months of 2010 and 2009 are
summarized as follows:





Sales
      by product category, in dollars:
            
            Six
      Months ended
              June
      30,
              2010
            
            
            %
      of Total Sales
            
            
            Six
      Months ended
              June
      30,
              2009
            
            
            %
      of
              Total
      Sales
            
            
            %
      increase
              from
              2009
      to 2010Fresh
      Pork
            
            $
            88,529,029
            
            
            
            80.63
            %
            
            $
            67,959,058
            
            
            
            76.21
            %
            
            
            30.26
            %Frozen
      Pork
            
            
            6,570,763
            
            
            
            5.98
            %
            
            
            8,453,640
            
            
            
            9.48
            %
            
            
            (22.27)
            %Processed
      Food Products
            
            
            14,694,785
            
            
            
            13.38
            %
            
            
            12,760,715
            
            
            
            14.31
            %
            
            
            15.16
            %Total
      Sales
            
            $
            109,794,577
            
            
            
            100
            %
            
            
            89,173,413
            
            
            
            100
            %
            
            
            23.12
            %




Sales
      by product category, by weight of product (metric tons):
            
            Six
      Months ended
              June
      30,
              2010
              (Weight
      in tons)
            
            
            %
      of
              Total
      Sales
            
            
            Six
      Months ended
              June
      30,
              2009
              (Weight
      in tons)
            
            
            %
      of
              Total
      Sales
            
            
            %
      change
              from
              2009
      to 2010Fresh
      Pork
            
            
            50,861
            
            
            
            83.28
            %
            
            
            36,149
            
            
            
            78.23
            %
            
            
            40.70
            %Frozen
      Pork
            
            
            4,943
            
            
            
            8.09
            %
            
            
            5,567
            
            
            
            12.05
            %
            
            
            (11.21)
            %Processed
      Food Products
            
            
            5,265
            
            
            
            8.62
            %
            
            
            4,493
            
            
            
            9.72
            %
            
            
            17.18
            %Total
      Sales
            
            
            61,069
            
            
            
            100
            %
            
            
            46,209
            
            
            
            100
            %
            
            
            32.16
            %





In the first
six months of 2010, we decreased our average per-kilogram sale price for fresh
pork, frozen pork and processed food products to our customers. These changes
were in line with changes in the market price for these products. In the first
six months of 2010, our sales volume of fresh pork increased, with the fresh
pork category continuing to experience significant growth in sales volume both
by weight and in terms of sales revenue. Our sales revenue for frozen pork
decreased due to reductions in the average per-kilogram price and a correct
consumer trend away from frozen pork products to fresh pork products. For
processed food products, our sales by weight increased by 17.18%, but because of
lower per-kilogram prices, our sales revenue for this product category increased
by a lower 15.16%. Management believes that changes in sales revenue in our
product categories reflects consumer demand for our products in the periods
presented.





The
following table shows the change in the average price per kilogram for our
product to consumers in the first six months of 2010, as compared to the same
period last year:





Average
      Per-Kilogram Price to Customers (in US$)Six
      Months ended
              June
      30,
              2010
            
            
            Six
      Months ended
              June
      30,
              2009
            
            %
      change
            
            
            Change
      in PriceFresh
      Pork
            
            $
            1.74
            
            
            $
            1.88
            
            
            
            (7.45)
            %
            
            $
            (0.14)Frozen
      Pork
            
            $
            1.33
            
            
            $
            1.52
            
            
            
            (12.50)
            %
            
            $
            (0.19)Processed
      Food Products
            
            $
            2.79
            
            
            $
            2.84
            
            
            
            (1.76)
            %
            
            $
            (0.05)




45




Cost of Sales. Cost of sales
for the first six months of 2010 increased by $16,664,990 or approximately
21.82%, from $76,369,536 for the first six months of 2009 to $93,034,526 for the
first six months of 2010. The increase was principally attributable to the
increase in the sales volume of fresh pork and processed pork for the first six
months of 2010 as compared to the same period in 2009. Our cost of sales for our
various product categories in the first six months of each of 2010 and 2009 is
summarized and shown as a percentage of overall cost of sales in the following
chart:





Product
      Category
              
              Cost of SalesSix Months
      ended
                June
      30,
                2010
              
              
              %
      of
                Overall
      Cost
                ofSales
              
              
              Cost of SalesSix Months
      ended
                June
      30,
                2009
              
              
              %
      of
                Overall
      Cost
                ofSales
              
              
              %
      increase
                From
      2009 to 2010Fresh
      Pork
              
              $
              76,909,644
              
              
              
              82.67
              %
              
              $
              59,685,172
              
              
              
              78.15
              %
              
              
              28.86
              %Frozen
      Pork
              
              
              5,405,622
              
              
              
              5.81
              %
              
              
              7,311,653
              
              
              
              9.57
              %
              
              
              (26.07)
              %Processed
      Food Products
              
              
              10,719,260
              
              
              
              11.52
              %
              
              
              9,372,711
              
              
              
              12.27
              %
              
              
              14.37
              %Total
      Cost of Sales
              
              $
              93,034,526
              
              
              
              100
              %
              
              $
              76,369,536
              
              
              
              100
              %
              
              
              21.82
              %





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





Product
      Category:
            
            Cost
      of Sales
              Six
      Months ended
              June
      30,
              2010
            
            
            %
      of Product Group Sales
            
            
            Cost
      of Sales
              Six
      Months ended
              June
      30,
              2009
            
            
            %
      of Product Group Sales
            
            
            %
      Change in Product
              Group
      SalesFresh
      Pork
            
            $
            76,909,644
            
            
            
            86.88
            %
            
            $
            59,685,172
            
            
            
            87.97
            %
            
            
            1.09
            %Frozen
      Pork
            
            
            5,405,622
            
            
            
            82.27
            %
            
            
            7,311,654
            
            
            
            86.62
            %
            
            
            (4.35)
            %Processed
      Food Products
            
            
            10,719,260
            
            
            
            72.95
            %
            
            
            9,372,711
            
            
            
            73.56
            %
            
            
            0.61
            %Total
      Cost of Sales
            
            $
            93,034,526
            
            
            
            84.74
            %
            
            $
            76,369,537.00
            
            
            
            85.78
            %
            
            
            1.04
            %





As
compared to our increase in the cost of sales of our fresh pork and processed
products of 28.86% and 14.37% , respectively, our cost of sales of frozen pork
products decreased by 26.07% as compared to the first quarter of
2009. This large decrease in cost of sales of this product resulted
primarily from the period over period decrease in sales volume.




Gross Profit. Gross profit
was $16,760,051 for the six months of 2010 as compared to $12,803,877 for the
first six months of 2009, representing an increase of $3,956,174, or
approximately 30.90%. Our gross profit as a percentage of sales was 15.26% for
the first six months of 2010 as compared to 14.36% in the first six months of
2009.





The
following table presents our gross profit and gross profit margin for each of
our product groups for the first six months of 2010 and 2009:





Product
      Group
            
            Gross
      Profit Six Months ended
              June
      30,
              2010
            
            
            %
      of Product
              Group
      Sales
            
            
            Gross
      Profit
              Six
      Months ended
              June
      30,
              2009
            
            
            %
      of Product
              Group
      Sales
            
            
            %
      Change from 2009 to 2010Fresh
      Pork
            
            $
            11,619,385
            
            
            
            13.12
            %
            
            $
            8,273,886
            
            
            
            12.17
            %
            
            
            40.43
            %Frozen
      Pork
            
            
            1,165,141
            
            
            
            17.73
            %
            
            
            1,141,987
            
            
            
            13.51
            %
            
            
            2.03
            %Processed
      Food Products
            
            
            3,975,525
            
            
            
            27.05
            %
            
            
            3,388,004
            
            
            
            26.40
            %
            
            
            17.34
            %Total
      Gross Profit
            
            $
            16,760,051
            
            
            
            15.26
            %
            
            $
            12,803,877
            
            
            
            14.36
            %
            
            
            30.90
            %




46




In the
first six months of 2010, the gross profit of fresh pork and processed food
increased by 40.43% and 17.34%, respectively, as compared to the same period
last year. The processed food products segment continued to yield a gross profit
margin that was the highest among all the product groups. We were able
to increase gross profit in dollar terms for this product period over
period despite a slight decrease in price to customers.





Selling Expenses. Selling
expenses totaled $634,310 for the first six months of 2010 as compared to
$1,372,363 for the first six months of 2009, a decrease of $738,053 or
53.78%.This decease is due to
a reduction in our advertising expenses. We continued to increase sales
made through sales agents, who assumed certain marketing expenses in selling our
fresh pork products.





General and Administrative
Expenses. General and administrative expenses totaled $1,396,004 for the
first six months of 2010 as compared to $1,270,845 for the first six months of
2009, an increase of $125,159 or 9.85%. 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 six months of 2010, we had total other income
of $739,172 as compared to $220,390 for the first six months of 2009,
excluding a compensatory expense in the amount of $8,218,227 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. Our total
other income in the first six months of 2010 increased by $ 518,782, or
235.39% as compared to the same period in 2009, excluding the compensatory
expense.





Net Income. Net income for
the first six months of 2010 was $13,110,048 as compared to $966,866 for the
same period in 2009, a increase of $12,143,182 or 1255.93%.  This
increase in net income is attributable to the 2009 compensatory expense, which
is not present in 2010, as well as the 2010 increase in the sales volume of
fresh pork and processed food products.





LIQUIDITY
AND CAPITAL RESOURCES





Cash
Flows





Six
Months Ended June 30, 2010




As of June 30, 2010, we had cash and
cash equivalents of $13,530,309, other current assets of $105,648,543 and
current liabilities of  $55,386,498. At June 30, 2009, we had
$22,946,069 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 $10,905,261 for the first six months of 2010 as
compared to net cash sourced from operating activities of $14,955,043 for the
first six months of 2009. This is primarily attributable to the fact that we
continue to expand the number of clients receiving extended payment terms. Since
2008, we have been offering extended payment terms to certain high quality, long
term clients with good credit (up to 75 days), where previously we required
payment within 1-2 days of delivery of goods. As we increase implementation of
this policy, there is a decrease in, and some delay in collection of, our
incoming cash.





Net cash
used in investing activities was $26,853,018 for the first six months of 2010 as
compared to $3,799,233 for the first six months of 2009. 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.




47





Net cash
sourced from financing activities was $8,879,352 for the first six months of
2010 as compared to $4,391,705 for the first six months of 2009.  This
increase resulted principally from an increase in our borrowings from banks
during the first six months of 2010 as compared to the same period of
2009.  These additional borrowings are short-term loans, and were used
for operational purposes.





Capital
Commitments





We have
been following a policy of relaxing our credit policy for an increasing number
of our major customers, permitting them up to a 75-days 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 six months of
2010, however, accounts receivable increased from $39,876,187 to $44,776,618.
This increase was primarily due to the increase of sales.





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 2010For
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 product or services and expand our business through our own cash flows from
operations.





As of June 30, 2010, we had outstanding
$24,821,549 in aggregate borrowings from Bank of China, Shanghai Pudong
Development Bank, Huaxia Bank, Bank of East Asia and China Minsheng Banking
Corp., Ltd. under short-term loans, on which we pay interest at average rates of
5.73% per annum. As of June 30, 2010, we did not have any standby letters
of credit or standby repurchase obligations.





Foreign
Currency Translation Risk





Our
operations are, for the most part, located in the PRC, and we earn our revenue
in Chinese Renminbi (“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 first six months of
2010 was $425,134, as compared to $1,702,756 for the first six months of 2009,
both of which were gains.




48





During
2003 and 2004 the exchange rate of RMB to the dollar remained constant at 8.26
RMB to the dollar. On July 21, 2005, the People’s Bank of China announced that
the exchange rate of U.S. dollar to RMB would be adjusted from $1 to RMB8.27 to
$1 to RMB8.11, and it ceased to peg the RMB to the U.S. dollar. Instead, the RMB
would be pegged to a basket of currencies, whose components would be adjusted
based on changes in market supply and demand under a set of systematic
principles. On September 23, 2005, the PRC government widened the daily trading
band for RMB against non-U.S. dollar currencies from 1.5% to 3.0% to improve the
flexibility of the new foreign exchange system. Since the adoption of these
measures, the value of RMB against the U.S. dollar has fluctuated on a daily
basis within narrow ranges, but overall has further strengthened against the
U.S. dollar. There remains significant international pressure on the PRC
government to further liberalize its currency policy, which could result in a
further and more significant appreciation in the value of the RMB against the
U.S. dollar. The RMB may be revalued further against the U.S. dollar or other
currencies, or may be permitted to enter into a full or limited free float,
which may result in an appreciation or depreciation in the value of the RMB
against the U.S. dollar or other currencies. 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.





Off-Balance
Sheet Arrangements





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





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT
  MARKET  RISK





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




Interest
Rates. Our exposure to market risk for changes in interest rates relates
primarily to our short-term investments and short-term obligations; thus,
fluctuations in interest rates would not have a material impact on the fair
value of these securities. At June 30, 2010, we had approximately $13,530,309 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 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 $410,872 and
$1,701,699 in the second quarter 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.




49





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
      4.
            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
June 30, 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) as of the end of the period covered
by this Quarterly Report on Form 10-Q. 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.




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 June 30, 2010 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.




As of
June 30, 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 June
30, 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.




50




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
June 30, 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
June 30, 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.




Implementation Plan: The
Company will establish an internal audit department.





As of
June 30, 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.




51




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
June 30, 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.





52




PART
II.    OTHER INFORMATION




ITEM
      6.
            EXHIBITS





The
exhibits listed on the Exhibit Index are filed with this report.





53





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:  August
      16, 2010
              By:
              /s/
      Shi HuashanShi
      HuashanPresident
      and Chief Executive Officer(Principal
      Executive Officer)


Dated:  August
      16, 2010
              By:
              /s/
      Sharon TangSharon
      TangChief
      Financial Officer(Principal
      Financial and Accounting Officer)




54




EXHIBIT
INDEX




31.1
            Certification
      of Principal Executive Officer31.2
            Certification
      of Principal Financial Officer32
            Certification
      of Principal Executive Officer and Principal Financial
    Officer





55