UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 __________________
 
 FORM
10-Q
 (Mark
One)
 x
                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
quarterly period ended March 31, 2009
 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  x
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 Large
      Accelerated filer  o
              Accelerated
      Filer  o
              Non-Accelerated
      Filer  o
              Smaller
      Reporting Company  x
  Indicate
by check mark whether the registrant is a shell company (as determined in Rule
12b-2 of the Exchange Act). Yes   o   No   x
  As of
March 31, 2009, the Registrant had 21,136,392 shares of Common Stock
outstanding.
 
 
 
 ENERGROUP
HOLDINGS CORPORATION
 
 FORM
10-Q
 
 INDEX
 
 Page
      NumberPART
      I. Financial Information
              1Item
      1.
              Financial
      Statements
              1Consolidated
      Balance Sheets
              3-4Consolidated
      Statements of Operations
              5Consolidated
      Statements of Changes in Shareholders’ Equity
              6Consolidated
      Statements of Cash Flows
              7-8Notes
      to Consolidated Financial Statements
              9-28Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              29Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              39Item
      4T.
              Controls
      and Procedures
              40PART
      II. Other Information
              41Item
      1.
              Legal
      Proceedings
              41Item
      1A.
              Risk
      Factors
              41Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              41Item
      3.
              Defaults
      Upon Senior Securities
              41Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              41Item
      5.
              Other
      Information
              41Item
      6.
              Exhibits
              41Signatures
              
              42
 
 i
 
 PART
I.  FINANCIAL INFORMATION
 
 ITEM
      1.
              FINANCIAL
      STATEMENTS
  1
 
 Board of
Directors and Stockholders
 Energroup
Holdings Corporation
 
 Report of Registered
Independent Public Accounting Firm
 
 We have
reviewed the accompanying consolidated balance sheets of Energroup Holdings
Corporation as of March 31, 2009 and December 31, 2008, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the three-month periods ended March 31, 2009 and 2008.  These interim
consolidated financial statements are the responsibility of the Company’s
management.
 
 We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting
matters.  It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole.  Accordingly, we do not express such an
opinion.
 
 Based on
our review, we are not aware of any material modifications that should be made
to the accompanying interim consolidated financial statements for them to be in
conformity with U.S. generally accepted accounting principles.
  
 South
      San Francisco, California
              Samuel
      H. Wong & Co., LLPApril
      24, 2009
              Certified
      Public Accountants
  2
 
  Energroup
Holdings Corporation
 Consolidated
Balance Sheets
 At
March 31, 2009 and December 31, 2008
 (Stated
in US Dollars)
  Notes
                    
                    
                    At
                    
                    
                    AtMarch
      31,
                    
                    
                    December
      31,ASSETS
                    
                    
                    
                    
                    2009
                    
                    
                    2008Current
      AssetsCash
                    
                    2(D)
                    
                    
                    $
                    4,138,898
                    
                    
                    $
                    5,695,798Restricted
      Cash
                    
                    3
                    
                    
                    
                    2,174,484
                    
                    
                    
                    2,177,091Accounts
      Receivable
                    
                    2(E),4
                    
                    
                    
                    16,589,324
                    
                    
                    
                    18,661,065Other
      Receivable
                    
                    
                    
                    
                    
                    
                    2,151,917
                    
                    
                    
                    2,162,412Related
      Party Receivable
                    
                    5
                    
                    
                    
                    17,846,965
                    
                    
                    
                    10,919,777Inventory
                    
                    2(F),6
                    
                    
                    
                    5,893,860
                    
                    
                    
                    6,051,109Advance
      to Suppliers
                    
                    2(G)
                    
                    
                    
                    1,574,308
                    
                    
                    
                    1,453,861Prepaid
      Expenses
                    
                    
                    
                    
                    
                    
                    396,848
                    
                    
                    
                    62,734Prepaid
      Taxes
                    
                    
                    
                    
                    
                    
                    206,626
                    
                    
                    
                    334,413Deferred
      Tax Asset
                    
                    2(Q)
                    
                    
                    
                    644,417
                    
                    
                    
                    643,609Total
      Current Assets
                    
                    
                    
                    
                    
                    
                    51,617,647
                    
                    
                    
                    48,161,869Non-Current
      AssetsProperty,
      Plant & Equipment, net
                    
                    2(H),7
                    
                    
                    
                    25,337,388
                    
                    
                    
                    25,794,151Land
      Use Rights, net
                    
                    2(I),8
                    
                    
                    
                    13,381,433
                    
                    
                    
                    13,430,435Construction
      in Progress
                    
                    2(J)
                    
                    
                    
                    6,635,061
                    
                    
                    
                    3,262,146Other
      Assets
                    
                    
                    
                    
                    
                    
                    34,852
                    
                    
                    
                    34,807Total
      Assets
                    
                    
                    
                    
                    
                    $
                    97,006,381
                    
                    
                    $
                    90,683,408LIABILITIES
      & STOCKHOLDERS' EQUITYCurrent
      LiabilitiesBank
      Loans
                    
                    9(A)
                    
                    
                    $
                    10,809,863
                    
                    
                    $
                    6,419,422Accounts
      Payable
                    
                    
                    
                    
                    
                    
                    3,915,369
                    
                    
                    
                    7,695,208Taxes
      Payable
                    
                    
                    
                    
                    
                    
                    3,126,867
                    
                    
                    
                    2,341,971Other
      Payable
                    
                    
                    
                    
                    
                    
                    2,129,765
                    
                    
                    
                    2,318,142Accrued
      Liabilities
                    
                    
                    
                    
                    
                    
                    2,607,695
                    
                    
                    
                    1,724,266Customer
      Deposits
                    
                    2(L)
                    
                    
                    
                    3,575,945
                    
                    
                    
                    3,258,752Total
      Current Liabilities
                    
                    
                    
                    
                    
                    
                    26,165,504
                    
                    
                    
                    23,757,761Long
      Term Liabilities
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      Liabilities
                    
                    
                    
                    
                    $
                    26,165,504
                    
                    
                    $
                    23,757,761
  See Notes
to Financial Statements and Accountant’s Report
  3
 
  Energroup
Holdings Corporation
 Consolidated
Balance Sheets
 At
March 31, 2009 and December 31, 2008
 (Stated
in US Dollars)
 
 
 At
              
              
              AtNotes
              
              
              March
      31,
              
              
              December
      31,Stockholders'
      Equity
              
              
              
              
              2009
              
              
              2008Preferred
      Stock - $0.001 Par Value 10,000,000
      Shares Authorized; 0
      Shares Issued & Outstanding at March 31, 2009 and December 31, 2008,
      respectively.
              
              
              
              
              
              $
              -
              
              
              $
              -Common
      Stock - $0.001 Par Value 21,739,130 Shares Authorized; 21,136,392 Shares
      Issued & Outstanding at March 31, 2009 and December 31, 2008,
      respectively.
              
              10
              
              
              
              21,137
              
              
              
              21,137Additional
      Paid in Capital
              
              
              
              
              
              
              29,564,489
              
              
              
              26,062,337Statutory
      Reserve
              
              2(M),11
              
              
              
              2,077,488
              
              
              
              2,077,488Retained
      Earnings
              
              
              
              
              
              
              35,687,478
              
              
              
              35,275,457Accumulated
      Other Comprehensive Income
              
              2(N)
              
              
              
              3,490,285
              
              
              
              3,489,228Total
      Stockholders' Equity
              
              
              
              
              
              
              70,840,877
              
              
              
              66,925,647Total
      Liabilities & Stockholders' Equity
              
              
              $
              97,006,381
              
              
              $
              90,683,408
     4
  Energroup
Holdings Corporation
 Consolidated
Statements of Operations
 For
the three months ended March 31, 2009 and 2008
 (Stated
in US Dollars)
 For
      three
              
              
              For
      threeMonths
      ended
              
              
              Months
      endedNote
              
              
              March
      31,
              
              
              March
      31,2009
              
              
              2008Sales
              
              2(O)
              
              
              $
              40,893,923
              
              
              $
              43,507,098Cost
      of Sales
              
              2(P)
              
              
              
              (35,169,469
              )
              
              
              (36,474,424
              )Gross
      Profit
              
              
              
              
              
              
              5,724,454
              
              
              
              7,032,674Operating
      ExpensesSelling
      Expenses
              
              2(Q)
              
              
              
              864,959
              
              
              
              1,825,277General
      & Administrative Expenses
              
              2(R)
              
              
              
              559,113
              
              
              
              492,974Total
      Operating Expense
              
              
              
              
              
              
              1,424,072
              
              
              
              2,318,251Operating
      Income/(Loss)
              
              
              
              
              
              
              4,300,382
              
              
              
              4,714,423Other Income
      (Expenses)Other
      Income
              
              
              
              
              
              
              44,606
              
              
              
              24,269Interest
      Income
              
              
              
              
              
              
              113,235
              
              
              
              3,985Other
      Expenses
              
              
              
              
              
              
              (46,623
              )
              
              
              (28,650
              )Interest
      Expense
              
              
              
              
              
              
              (217,219
              )
              
              
              (306,465
              )Release
      of Escrowed Make Good Shares
              
              
              
              
              
              
              (3,502,152
              )
              
              
              -Total
      Other Income (Loss) and Expense
              
              
              
              
              
              
              (3,608,153
              )
              
              
              (306,861
              )Earnings
      before Tax
              
              
              
              
              
              
              692,229
              
              
              
              4,407,562(Income
      Tax Expense)/Deferred Tax Benefit
              
              2(V),13
              
              
              
              (280,208
              )
              
              
              (166,345
              )Net
      Income
              
              
              
              
              
              $
              412,021
              
              
              $
              4,241,217Earnings
      Per Share
              
              2(Z),16- 
      Basic
              
              
              
              
              
              $
              0.024
              
              
              $
              0.25- 
      Diluted
              
              
              
              
              
              $
              0.019
              
              
              $
              0.20Weighted
      Average Shares Outstanding-
       Basic
              
              
              
              
              
              
              17,272,756
              
              
              
              17,272,756- 
      Diluted
              
              
              
              
              
              
              21,136,392
              
              
              
              21,182,756
     5
  Energroup
Holdings Corporation
 Consolidated
Statements of Changes in Stockholders’ Equity
 At
March 31, 2009 and December 31, 2008
 (Stated
in US Dollars)
 AccumulatedCommon
                
                
                Additional
                
                
                
                
                
                
                
                
                ComprehensiveShares
                
                
                
                
                
                Paid
      in
                
                
                Statutory
                
                
                Retained
                
                
                OtherOutstanding
                
                
                Amount
                
                
                Capital
                
                
                Reserve
                
                
                Earnings
                
                
                Income
                
                
                TotalBalance,
      January 1, 2008
                
                $
                21,136,392
                
                
                $
                21,137
                
                
                $
                15,440,043
                
                
                $
                751,444
                
                
                $
                29,764,236
                
                
                $
                2,960,951
                
                
                $
                48,937,811Release
      of Shares Placed in Escrow
                
                
                -
                
                
                
                -
                
                
                
                10,622,294
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,622,294Net
      Income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,837,265
                
                
                
                -
                
                
                
                6,837,265Appropriations
      of Retained Earnings
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,326,044
                
                
                
                (1,326,044
                )
                
                
                -
                
                
                
                -Foreign
      Currency Translation Adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                528,277
                
                
                
                528,277Balance,
      December 31, 2008
                
                $
                21,136,392
                
                
                $
                21,137
                
                
                $
                26,062,337
                
                
                $
                2,077,488
                
                
                $
                35,275,457
                
                
                $
                3,489,228
                
                
                $
                66,925,647Balance,
      January 1, 2009
                
                $
                21,136,392
                
                
                $
                21,137
                
                
                $
                26,062,337
                
                
                $
                2,077,488
                
                
                $
                35,275,457
                
                
                $
                3,489,228
                
                
                $
                66,925,647Release
      of Shares Placed in Escrow
                
                
                -
                
                
                
                -
                
                
                
                3,502,152
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,502,152Net
      Income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                412,021
                
                
                
                -
                
                
                
                412,021Appropriations
      of Retained Earnings
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Foreign
      Currency Translation Adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,057
                
                
                
                1,057Balance,
      March 31, 2009
                
                $
                21,136,392
                
                
                $
                21,137
                
                
                $
                29,564,489
                
                
                $
                2,077,488
                
                
                $
                35,687,478
                
                
                $
                3,490,285
                
                
                $
                70,840,877
   At
              
              
              AtMarch
      31,
              
              
              December
      31,
              
              
              AccumulatedComprehensive
      Income
              
              2009
              
              
              2008
              
              
              TotalsNet
      Income
              
              $
              412,021
              
              
              $
              6,837,265
              
              
              $
              7,249,286Other
      Comprehensive Income:Foreign
      Currency Translation Adjustment
              
              
              1,057
              
              
              
              528,277
              
              
              
              529,334$
              413,078
              
              
              $
              7,365,542
              
              
              $
              7,778,620
   
 6
 
  Energroup
Holdings Corporation
 Consolidated
Statements of Cash Flows
 For
the three months ended March 31, 2009 and 2008
 (Stated
in US Dollars)
 
 
 For
      three
              
              
              For
      threeMonths
      ended
              
              
              Months
      endedMarch
      31,
              
              
              March
      31,2009
              
              
              2008Cash
      Flow from Operating ActivitiesCash
      Received from Customers
              
              $
              36,366,161
              
              
              $
              29,071,645Cash
      Paid to Suppliers & Employees
              
              
              (39,601,549
              )
              
              
              (47,912,070
              )Interest
      Received
              
              
              113,235
              
              
              
              3,985Interest
      Paid (net of amount capitalized)
              
              
              645,353
              
              
              
              (1,075,461
              )Income
      Tax Paid
              
              
              (19,360
              )
              
              
              (191,861
              )Miscellaneous
      Receipts
              
              
              44,606
              
              
              
              24,269Cash
      Sourced/(Used) in Operating Activities
              
              
              (2,451,554
              )
              
              
              (20,079,493
              )Cash
      Flows from Investing ActivitiesEscrowed
      Funds from Private Placement Placed in Restricted Cash
              
              
              2,607
              
              
              
              2,092,169Payments
      for Purchases of Equipment & Construction of Plant
              
              
              (3,481,309
              )
              
              
              (1,623,365
              )Payments
      for Purchases of Land Use Rights
              
              
              (18,100
              )
              
              
              (261,294
              )Payments
      for Deposits
              
              
              (43
              )
              
              
              (1,356
              )Cash
      Sourced/(Used) in Investing Activities
              
              
              (3,496,845
              )
              
              
              206,154Cash
      Flows from Financing ActivitiesFinancing
      Transaction - Proceeds Allocated toAccrued
      Liabilities for Liquidated Damages
              
              
              -
              
              
              
              1,700,000Proceeds
      from Bank Borrowings
              
              
              4,390,442
              
              
              
              18,223,009Repayment
      of Bank Loans
              
              
              -
              
              
              
              (10,724,727
              )Cash
      Sourced/(Used) in Financing Activities
              
              
              4,390,442
              
              
              
              9,198,282Net
      Increase/(Decrease) in Cash & Cash Equivalents for the
      Period
              
              
              (1,557,957
              )
              
              
              (10,675,057
              )Effect
      of Currency Translation
              
              
              1,057
              
              
              
              3,682,295Cash
      & Cash Equivalents at Beginning of Period
              
              
              5,695,798
              
              
              
              14,031,851Cash
      & Cash Equivalents at End of Period
              
              $
              4,138,898
              
              
              $
              7,039,089Non-Cash Financing
      Activity:Release
      of shares held in escrow
              
              $
              3,502,152
              
              
              $
              -
     7
 
  Energroup
Holdings Corporation
 Reconciliation
of Net Income to Cash Provided/(Used) in Operating Activities
 For
the three months ended March 31, 2009 and 2008
 (Stated
in US Dollars)
 For
      three
              
              
              For
      threeMonths
      ended
              
              
              Months
      endedMarch
      31,
              
              
              March
      31,2009
              
              
              2008Net
      Income
              
              $
              412,021
              
              
              $
              4,241,217Adjustments
      to Reconcile Net Income to Net Cash Provided by Cash
      Activities:Non
      Cash Expense Recorded for the Release of Escrowed Shares
              
              
              3,502,152
              
              
              
              -Liquidated
      Damages Included in Accrued Liabilities
              
              
              -
              
              
              
              (1,700,000
              )Amortization
              
              
              67,102
              
              
              
              (208,889
              )Depreciation
              
              
              565,157
              
              
              
              667,821Provision
      for Bad Debt
              
              
              (99
              )
              
              
              3,522Decrease/(Increase)
      in Accounts Receivable
              
              
              2,071,840
              
              
              
              (2,385,252
              )Decrease/(Increase)
      in Other Receivable
              
              
              10,494
              
              
              
              (569,194
              )Decrease/(Increase)
      in Related Party Receivable
              
              
              (6,927,188
              )
              
              
              (11,542,409
              )Decrease/(Increase)
      in Inventory
              
              
              157,249
              
              
              
              (1,549,996
              )Decrease/(Increase)
      in Advance to Suppliers
              
              
              (120,446
              )
              
              
              (7,556,671
              )Decrease/(Increase)
      in Prepaid Taxes
              
              
              127,788
              
              
              
              (88,049
              )Decrease/(Increase)
      in Prepaid Expenses
              
              
              (334,114
              )
              
              
              28,530Decrease/(Increase)
      in Deferred Tax Benefit
              
              
              (809
              )
              
              
              (25,516
              )Increase/(Decrease)
      in Accounts Payable
              
              
              (3,779,839
              )
              
              
              (119,434
              )Increase/(Decrease)
      in Taxes Payable
              
              
              784,896
              
              
              
              420,563Increase/(Decrease)
      in Other Payable
              
              
              (188,377
              )
              
              
              (12,455
              )Increase/(Decrease)
      in Accrued Liabilities
              
              
              883,429
              
              
              
              258,839Increase/(Decrease)
      in Customer Advances
              
              
              317,190
              
              
              
              57,880Total
      of all adjustments
              
              
              (2,863,575
              )
              
              
              (24,320,710
              )Net
      Cash Provided by/(Used in) Operating Activities
              
              $
              (2,451,554
              )
              
              $
              (20,079,493
              )
 
    8
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
  
 1.
              The
      Company and Principal Business
Activities
 
 Energroup
Holdings Corporation (the “Company”) (OTCBB: ENHD) is a holding company
incorporated in the state of Nevada in the United States of America whose
primary business operations are conducted through its three operating
subsidiaries: (1) Dalian Chuming Processed Foods Company Ltd., (“Food Company”)
(2) Dalian Chuming Slaughter and Packaging Pork Company Ltd. (“Meat Company”),
and (3) Dalian Chuming Sales Company Ltd. (“Sales Company”), which are
incorporated in the People’s Republic of China (“PRC”).  The Company
is headquartered in the City of Dalian, Liaoning Province of China.
 
 The three
operating subsidiaries were spun-off constituents of the former parent company,
Dalian Chuming Group Co. Ltd (“Group”).  The Company indirectly holds
the three operating subsidiary companies through its wholly owned intermediary
subsidiaries: (A) Precious Sheen Investments Limited (“PSI”), a British Virgin
Islands corporation, and (B) Dalian Chuming Precious Sheen Investments
Consulting Co., Ltd., (“Chuming”), a wholly foreign owned enterprise
incorporated in the PRC.
 
 The
Company’s primary business activities are the production and packing of fresh
pork and also production of processed meat products for distribution and sale to
clients throughout the PRC and Russia.
 
 Corporate
Reorganization
 
 PRC law
currently has limits on foreign ownership of certain companies.  To
enable Chuming to raise equity capital from investors outside of China, it
established an offshore holding company by incorporating Precious Sheen
Investments Limited in the British Virgin Islands in May 2007.  On
September 26, 2007, Chuming entered into share transfer agreements with Dalian
Chuming Group Co., Ltd., under which Dalian Chuming Group Co., Ltd. agreed to
transfer ownership of three operating subsidiaries (collectively known as
“Chuming Operating Subsidiaries”) to Chuming.  On October 23, 2007,
Chuming completed all required registrations to complete the share transfer, and
became the 100% owner of the Chuming Operating Subsidiaries.  On
November 14, 2007 the Dalian Commerce Bureau approved the transfer of Dalian
Chuming Group Co., Ltd’s 68% interest in Chuming to PSI, and upon this transfer,
Chuming became a wholly foreign owned enterprise, with PSI as the 100% owner of
Chuming (including its subsidiaries). On December 13, 2007, the PRC government
authorities issued Chuming a business license formally recognizing it as a
wholly foreign owned enterprise, of which PSI is the sole
shareholder.
 
 The
following is a description of the Chuming Operating Subsidiaries: -
 
 A. Dalian
Chuming Slaughter and Packaging Pork Company Ltd., whose primary business
activity is acquiring, slaughtering, and packaging of pork and
cattle;
 
 B. Dalian
Chuming Processed Foods Company Ltd., whose primary business activity is the
processing of raw and cooked meat products; and
 
 C. Dalian
Chuming Sales Company Ltd., which is responsible for Chuming’s sales, marketing,
and distribution operations.
 
 Share
Exchange Transaction
 
 On
December 31, 2007, the Company acquired all of the outstanding shares of PSI in
exchange for the issuance of 16,850,000 restricted shares of our common stock to
the shareholders of PSI, which represented approximately 97.55% of the
then-issued and outstanding common stock of the Company (excluding the shares
issued in the Financing). As a result of that transaction, PSI became our wholly
owned subsidiary and we acquired the business and operations of the three
operation subsidiaries.
 
 The share
exchange transaction has been accounted for as a recapitalization of PSI where
the Company (the legal acquirer) is considered the accounting acquiree and PSI
(the legal acquiree) is considered the accounting acquirer.  As a
result of this transaction, the Company is deemed to be a continuation of the
business of PSI.
  9
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 Accordingly,
the financial data included in the accompanying consolidated financial
statements for all periods prior to December 31, 2007 is that of the accounting
acquirer (PSI).  The historical stockholders’ equity of the accounting
acquirer prior to the share exchange has been retroactively restated as if the
share exchange transaction occurred as of the beginning of the first period
presented.
 
 2.
              Summary
      of Significant Accounting Policies
 
 (A)
              Method of
      Accounting
 
 The
Company maintains its general ledger and journals with the accrual method
accounting for financial reporting purposes.  The financial statements
and notes are representations of management.  Accounting policies
adopted by the Company conform to generally accepted accounting principles in
the United States of America and have been consistently applied in the
presentation of financial statements, which are compiled on the accrual basis of
accounting.
 
 (B)
              Principles of
      Consolidation
 
 The
consolidated financial statements, which include the Company and its
subsidiaries, are compiled in accordance with generally accepted accounting
principles in the United States of America.  All significant
inter-company accounts and transactions have been eliminated.  The
consolidated financial statements include 100% of assets, liabilities, and net
income or loss of those wholly-owned subsidiaries.
 
 The
Company owned the three operating subsidiaries since its
inception.  The Company also owns two intermediary holdings
companies.  As of March 31, 2009, the detailed identities of the
consolidating subsidiaries are as follows: -
 
 Name
      of Company
              
              Place
                of
      Incorporation
              
              Attributable
      Equity
                Interest
              
              Registered
      CapitalPrecious
      Sheen Investments Limited
              
              BVI
              
              100%
              
              USD
      10,000Dalian
      Chuming Precious Sheen Investment Consulting Co., Ltd.
              
              PRC
              
              100%
              
              RMB
      91,009,955Dalian
      Chuming Slaughtering & Pork Packaging  Co.
    Ltd.
              
              PRC
              
              100%
              
              RMB
      10,000,000Dalian
      Chuming Processed Foods Co. Ltd.
              
              PRC
              
              100%
              
              RMB
      5,000,000Dalian
      Chuming Sales Co. Ltd.
              
              PRC
              
              100%
              
              RMB
      5,000,000
 
 The
consolidation of these operating subsidiaries into a newly formed holding
company i.e. “the Company” is permitted by United States GAAP: ARB51 paragraph
22 and 23.
 
 (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.
  10
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 
 (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
 
 (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.
  11
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 (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
      Deposits
 
 Customer
Deposits represents money the Company has received in advance for purchases of
pork and pork products.  The Company considers customer deposits as a
liability until products have been shipped and revenue is earned.
 
 The
Company collects a damage deposit (as a deterrent) recorded in Other Payable
from showcase store operators as a means of enforcing proper use of the
Company’s trademarks.  These are not fees, but deposits that are
carried as current liabilities until and unless an operator violates the
Company’s policies (e.g. misuse of Company brand names, or sale of substandard
or counterfeit products, or unacceptably poor customer service), or if the
proprietor ceases to operate the showcase store.  If no violations
have been committed by the showcase store operator, the deposit is returned to
the operator.  The Company carries the amount of these deposits as a
current liability because the Company will return the deposit immediately to the
operator when the Company ceases to conduct business with the
operator.
 
 (M)
              Statutory
      Reserve
 
 Statutory
reserve refer to the amount appropriated from the net income in accordance with
laws or regulations, which can be used to recover losses and increase capital,
as approved, and, are to be used to expand production or
operations.  PRC laws prescribe that an enterprise operating at a
profit, must appropriate, on an annual basis, from its earnings, an amount to
the statutory reserve to be used for future company development.  Such
an appropriation is made until the reserve reaches a maximum equalling 50% of
the enterprise’s capital.
 
 (N)
              Other Comprehensive
      Income
 
 Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners.  Among other
disclosures, all items that are required to be recognized under current
accounting standards as components of comprehensive income are required to be
reported in a financial statement that is presented with the same prominence as
other financial statements.  The Company’s current component of other
comprehensive income is the foreign currency translation
adjustment.
 
 (O)
              Recognition of
      Revenue
 
 Revenue
from the sale of pork products, etc., is recognized on the transfer of risks and
rewards of ownership, which generally coincides with the time when the goods are
delivered to customers and the title has passed.
  12
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 The
Company supplies pork products, equipment, uniforms, and technical support to
the proprietors of showcase stores, who are granted the right to use the
Company’s trademarks to sell pork products.  Start-up fees relating to
uniforms are immaterial and are charged to the showcase store operators merely
to recoup setup costs.  Any funds collected from store operators in
conjunction with initial startup and operation is minimal and
immaterial.  The Company does not charge any fees for providing
equipment to the showcase stores.  The Company provides equipment at
its own cost, and the Company owns all such equipment.  Considering
the foregoing, the Company takes the position that any amount it receives from
the store operators is not material in accordance with Rule 5-03.1 of Regulation
S-X.  In addition, since the Company does not receive any material
franchise fee revenue, SFAS 45 is not applicable.
 
 (P)
              Cost of
      Sales
 
 The
Company’s cost of sales is comprised of raw materials, factory worker salaries
and related benefits, machinery supplies, maintenance supplies, depreciation,
utilities, inbound freight, purchasing and receiving costs, inspection and
warehousing costs
 
 (Q)
              Selling
      Expense
 
 Selling
expenses are comprised of outbound freight, salary for the sales force, client
entertainment, commissions, depreciation, advertising, and travel and lodging
expenses.
 
 (R)
              General &
      Administrative
 
 General
and administrative costs include executive compensation, quality control, and
general overhead such as the finance department, administrative staff, and
depreciation and amortization expense.
 
 (S)
              Shipping and
      handling
 
 All
shipping and handling are expensed as incurred and are included as a component
of cost of sales.
 
 (T)
              Advertising
      Expense
 
 Costs
related to advertising and promotion expenditures are expensed as incurred
during the year.  Advertising costs are charged to selling
expense.
 
 (U)
              Retirement
      Benefits
 
 Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to the statement of operations as
incurred.
 
 (V)
              Income
      Taxes
 
 The
Company uses the accrual method of accounting to determine and report its
taxable reduction of income taxes for the year in which they are available. The
Company has implemented Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. Income tax liabilities computed according to
the United States and People’s Republic of China (PRC) tax laws are provided for
the tax effects of transactions reported in the financial statements and
consists of taxes currently due plus deferred taxes related primarily to
differences between the basis of fixed assets and intangible assets for
financial and tax reporting. The deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will be either
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are available to
offset future income taxes. A valuation allowance is created to evaluate
deferred tax assets if it is more likely than not that these items will either
expire before the Company is able to realize that tax benefit, or that future
realization is uncertain.
  13
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 In
respect of the Company’s subsidiaries domiciled and operated in
China:
 
 §
              Chuming
      and Chuming Operating Subsidiaries are located in the PRC and PSI is
      located in the British Virgin Islands; all of these entities are subject
      to the relevant tax laws and regulations of the PRC and British Virgin
      Islands in which the related entity domiciled.  The maximum tax
      rates of the subsidiaries pursuant to the countries in which they domicile
      are: -
 
 Subsidiary
              Country of
      Domicile
              Income Tax
      RateChuming
      and Chuming Subsidiaries
              PRC
              25.00%PSI
              British
      Virgin Islands
              0.00%
 
 §
              Effective
      January 1, 2008, PRC government implements a new 25% tax rate across the
      board for all enterprises regardless of whether domestic or foreign
      enterprise without any tax holiday which is defined as “two-year exemption
      followed by three-year half exemption” hitherto enjoyed by tax payers. As
      a result of the new tax law of a standard 25% tax rate, tax holidays
      terminated as of December 31, 2007. However, PRC government has
      established a set of transition rules to allow enterprises already started
      tax holidays before January 1, 2008, to continue enjoying the tax holidays
      until being fully utilized.
 
 §
              The
      Company is subject to United States Tax according to Internal Revenue Code
      Sections 951 and 957. Corporate income tax is imposed on progressive rates
      in the range of: -
 
 Taxable
      IncomeRate
              
              Over
              
              But Not
      Over
              
              Of Amount
      Over15%
              
              0
              
              50,000
              
              025%
              
              50,000
              
              75,000
              
              50,00034%
              
              75,000
              
              100,000
              
              75,00039%
              
              100,000
              
              335,000
              
              100,00034%
              
              335,000
              
              10,000,000
              
              335,00035%
              
              10,000,000
              
              15,000,000
              
              10,000,00038%
              
              15,000,000
              
              18,333,333
              
              15,000,00035%
              
              18,333,333
              
              -
              
              -
 
 Since
Energroup Holdings Corporation is primarily a holding company without any
business activities in the United States, the Company shall not be subject to
income tax.
 
 (W)
              Economic and Political
      Risks
 
 The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
 
 (X)
              Foreign Currency
      Translation
 
 The
Company maintains its financial statements in the functional
currency.  The functional currency of the Company is the Renminbi
(RMB).  Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet dates. Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchanges rates prevailing at the dates of the
transaction.  Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income for the respective
periods.
  14
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 For
financial reporting purposes, the financial statements of the Company which are
prepared using the functional currency have been translated into United States
dollars.  Assets and liabilities are translated at the exchange rates
at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and stockholders’ equity is translated at historical
exchange rates.  Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders’
equity.
 
 Exchange
      Rates
              
              3/31/2009
              
              
              12/31/2008Period
      end RMB : US$ exchange rate
              
              
              6.8456
              
              
              
              6.85420Average
      period RMB : US$ exchange rate
              
              
              6.8466
              
              
              
              6.96225
 
 RMB is
not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions.  No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at the rates used in translation.
 
 (Y)
              Earnings Per
      Share
 
 The
Company computes earnings per share (“EPS”) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per share” (“SFAS No. 128”),
and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires
companies with complex capital structures to present basic and diluted EPS.
Basic EPS is measured as the income or loss available to common shareholders
divided by the weighted average common shares outstanding for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per
share basis of potential common shares (e.g., contingent shares, convertible
securities, options, and warrants) as if they had been converted at the
beginning of the periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted
EPS.)
 
 (Z)
              Recent Accounting
      Pronouncements
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”).
SFAS 161 applies to all derivative instruments and related hedged items
accounted for under SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (“SFAS 133”). SFAS 161 requires entities to provide greater
transparency about (a) how and why an entity uses derivative instruments, (b)
how derivative instruments and related hedged items are accounted for under SFAS
133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity’s financial position, results of
operations and cash flows. SFAS 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15,
2008.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). Statement 162 will become effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.”
  15
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 
 In May
2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis.
 
 The
Company is currently evaluating the potential impact, if any, of the adoption of
the above recent accounting pronouncements on its consolidated results of
operations and financial condition.
 
 3.
              Restricted
      Cash
 
 The
restricted cash reflects funds received from the financing transaction described
in Note 18 that is held in an escrow with US Bank in the United
States.  These funds are restricted until the Company has fulfilled
the following criteria: (1) the hiring of a Chief Financial Officer that meets
the approval of the investors, at such point the Company will release $1.5
million from restriction, the Company must satisfy this requirement within 90
days of the closing of the financing transaction, (2) the Company appoints a
Board of Directors that has majority of independent members, at such point $2.0
million will be released from restriction, and (3) appoint a successor auditor,
at which point $500,000 will be released from restriction.  There is
$250,000 in the escrow account that has already been earmarked for investor
relations purposes.
 
 At
December 31, 2008, the Company has yet to fulfill requirement
(3).  The Company has requested bids for consideration from auditing
firms that were on an approved list submitted by, Pinnacle Fund, whom was the
lead investor in the Company’s financing transaction in December 2007, detailed
in Note 18 – Financing
Transaction.
 
 4.
              Accounts
      Receivable
 
 Accounts
Receivable at March 31, 2009 and December 31, 2008 consisted of the following:
-
 
 At
              
              
              AtMarch
      31,
              
              
              December
      31,2009
              
              
              2008Accounts
      Receivable – Trade
              
              $
              16,777,721
              
              
              $
              18,849,560Less: Allowance for
      Doubtful Accounts
              
              
              (188,397
              )
              
              
              (188,495
              )Net
      Accounts Receivable
              
              $
              16,589,324
              
              
              $
              18,661,065
 
 At
              
              
              AtMarch
      31,
              
              
              December
      31,Allowance for Bad
      Debts
              
              2009
              
              
              2008Beginning
      Balance
              
              $
              (188,495
              )
              
              $
              (84,723
              )Allowance
      Provided
              
              
              -
              
              
              $
              (103,772
              )Reverse
              
              
              98
              
              
              
              -Ending
      Balance
              
              $
              (188,397
              )
              
              $
              (188,495
              )
 
 During
the second quarter of the 2008 fiscal year, management revised the Company’s
credit policy.  Based on management’s review, the Company began
extending more favorable credit terms to its top tier
customers.  Those customers that qualified as top tier were extended
approximately 45 to 60 days of credit.  The Company previously
extended one to two days of credit.  As of March 31, 2009, the Company
has not had any receivables that were unrecoverable.
  16
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 
 Accounts
receivable aging analysis
 
 As of
March 31, 2009
 
 1-30 Days
              
              
              30-60 Days
              
              
              61-90 Days
              
              
              91-120 Days
              
              
              121-365 Days
              
              
              Over 365 Days
              
              
              Total11,081,468
              
              
              
              4,488,286
              
              
              
              652,698
              
              
              
              179,636
              
              
              
              170,629
              
              
              
              16,607
              
              
              
              16,589,324
 
 5.
              Related
      Party Receivable
 
 In the
normal course of business which includes the purchases of hogs and other raw
materials, sale of pork and pork products, the Company conducts transactions
with the following related parties: Dalian Chuming Group Co., Ltd (“Group”) and
the Group subsidiaries, that are not consolidated into Energroup Holdings or
Energroup’s subsidiary, Dalian Chuming Precious Sheen Investments Consulting Co.
Ltd. (Chuming): (1) Dalian Chuming Industrial Development Co., Ltd.,
(“Industrial Development Co.”) (2) Dalian Chuming Trading Co., Ltd, (“Trading
Co.”) (3) Dalian Mingxing Livestock Product Co. Ltd., (“Mingxing”) (4) Dalian
Chuming Stockbreeding Combo Development Co., Ltd., (“Combo Development Co.”) (5)
Dalian Chuming Fodder Co., Ltd. (“Fodder Co.”), and (6) Dalian Chuming
Biological Technology Co., Ltd., (“Biological Co.”) and (7) Dalian Huayu Seafood
Food Co., Ltd. (“Huayu”).  The Company and the aforementioned related
parties share common beneficial ownership.  All transactions with
related parties are generally performed at arm’s length.
 
 In the
event that the Company has both receivables from, and payables to the Group it
will, in accordance with FIN 39, setoff the balances in order to arrive at a
single balance that is either due from, or due to the Group.  The
Company’s net receivable balance of $17,846,965at March 31, 2009 is
shown in the following table.
 
 Ref.
              
              Subsidiary
                Due to:
              
              Nature of Balance
              
              Related Party
              
              Balance
              
              Description of
  TransactionA
              
              Food
              
              Sale
      of Products resulting in Trade Receivable from
              
              Dalian
      Mingxing Livestock Product Co. Ltd.,
              
              
              234,989
              
              Food
      Co. sold cooked food to Mingxing dating back to 1/2007.Subtotal
      of Related Party Sales
              
              $
              234,989B
              
              Food
              
              Loan
      Receivable from
              
              Dalian
      Huayu Seafood Co., Ltd.
              
              
              7,303,962
              
              Huayu
      borrowed loan from Food Co. back to 11/2008C
              
              Food
              
              Loan
      Receivable from
              
              Dalian
      Chuming Fodder Co., Ltd.
              
              
              3,651,980
              
              Mingxing
      borrowed loan from Fodder Co. back to 1/2009D
              
              Meat
              
              Loan
      Receivable from
              
              Dalian
      Chuming Fodder Co., Ltd.
              
              
              90,296
              
              Meat
      Co. paid utility fees for Fodder Co. dating back to
  7/2008.E
              
              Meat
              
              Loan
      Receivable from
              
              Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
              
              
              8,854,015
              
              Prepayment
      to Group for Purchase of hogs dating back to 7/2008.F
              
              Meat
              
              Loan
      Receivable from
              
              Dalian
      Chuming Group Co., Ltd.
              
              
              55,714
              
              Meat
      Co. purchased office supplies on behalf of the Group dating back to
      11/2005G
              
              Food
              
              Loan
      Receivable from
              
              Dalian
      Chuming Industrial Development Co., Ltd.
              
              
              2,921,585
              
              Food
      Co. paid bank loan principal and interest on behalf of Industrial Co.
      dating back to 1/2008H
              
              Sales
              
              Loan
      Receivable from
              
              Dalian
      Huayu Seafood Co., Ltd.
              
              
              1,553,791
              
              Sales
      Co. paid Huayu to help it buy materials dating back to
    9/2008.I
              
              Sales
              
              Loan
      Receivable from
              
              Dalian
      Chuming Group Co., Ltd.
              
              
              9,840,256
              
              Sales
      Co. paid the Group to help it buy materials dating back to
      7/2008.J
              
              Sales
              
              Loan
      Receivable from
              
              Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
              
              
              13,750,237
              
              Sales
      Co. paid for Stockbreeding to buy hogs from farmer dating back
      7/2008K
              
              Sales
              
              Loan
      Receivable from
              
              Dalian
      Chuming Fodder Co., Ltd.
              
              
              8,172,818
              
              Sales
      Co. paid for feeding materials on behalf of Fodder  dating back
      to 9/2008.Subtotal
      of Loans to Related Parties
              
              $
              56,194,654Gross
      Related Party Receivable
              
              $
              56,429,643
  17
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 Subsidiary
                  Due from:
                
                Nature of Balance
                
                Related Party
                
                Balance
                
                Description of
  TransactionL
                
                Meat
                
                Purchase
      of Raw Materials resulting in Trade Payable to
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                1,112,987
                
                Group
      purchased raw materials for Meat Co. dating back to
    12/1/2004.M
                
                Meat
                
                Purchase
      of Raw Materials resulting in Trade Payable to
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                3,752,393
                
                Purchase
      of hogs from Group dating back to 7/2008.N
                
                Food
                
                Purchase
      of Raw Materials resulting in Trade Payable to
                
                Dalian
      Huayu Seafood Food Co., Ltd
                
                
                4,180,850
                
                Advance
      from Huaya for the purchase of product dating back to
    12/2007.Subtotal
      of Purchases from Related Parties
                
                $
                9,046,230O
                
                Food
                
                Loan
      Payable to
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                604,074
                
                Group
      paid for salaries and other G&A expenses on behalf of Food dating back
      to 1/2004.P
                
                Meat
                
                Loan
      Payable to
                
                Dalian
      Chuming Fodder Co., Ltd.
                
                
                609,438
                
                Fodder
      paid G&A expense for Meat Co. dating back to 1/2009Q
                
                Meat
                
                Loan
      Payable to
                
                Dalian
      Chuming Group Co., Ltd.
                
                
                12,493,512
                
                Group
      made the hog purchase payment for Meat Co. dating back to
      12/2008R
                
                Sales
                
                Loan
      Payable to
                
                Dalian
      Mingxing Livestock Product Co. Ltd.,
                
                
                914,182
                
                Sales
      Co. collected bank loans on behalf of Mingxing dating back to
      8/2008S
                
                Meat
                
                Loan
      Payable to
                
                Dalian
      Huayu Seafood Food Co., Ltd
                
                
                542,419
                
                Huayu
      lent funds to Meat Co. for necessary operation activities dating
      12/2008T
                
                Food
                
                Loan
      Payable to
                
                Dalian
      Mingxing Livestock Product Co. Ltd.,
                
                
                2,190,606
                
                Food
      Co. borrowed funds from Mingxing for operations purpose dating back to
      12/2008U
                
                WFOE
                
                Loan
      Payable to
                
                Dalian
      Chuming Group Co.
                
                
                12,182,217
                
                Group
      loaned funds to WFOE (incl. funds transferred from Meat for US
      RTO.Subtotal
      of Loans from Related Parties
                
                $
                29,536,448Gross
      Related Party Payable
                
                $
                38,582,678Setoff Related Party
      Receivable (Receivables have been setoff against
      payables)
                
                $
                17,846,965
  18
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 
 
 A.
              The
      Food Co. sold USD 235 thousand (RMB 1.6 million) cooked food to Mingxing
      Co. on credit. This transaction had impact on statement of income. By
      applying 17% valued added tax, the Food Co., generated USD 200 thousand
      (RMB 1.4 million) sales revenue.
 
 B.
              Food
      Co. issued loans of USD 7.3 million (RMB 50 million) to Huayu in November
      2008.
 
 C.
              Food
      Co. issued loans of USD 3.6 million (RMB 25 million) to Fodder in January
      2009.
 
 D.
              The
      Meat Co. paid USD 90 thousand (RMB 618 thousand) utility fees for Fodder
      Co.
 
 E.
              The
      prepayment of USD 8.8 (RMB 60.6 million) from Meat Co. to the Group was
      for the purchase of hogs.
 
 F.
              The
      balance of USD 55 thousand (RMB 381,401 thousand) office supplies payment
      made by Meat Co. for the Group was still outstanding as of March 31,
      2009
 
 G.
              The
      balance of USD 2.9 million (RMB 20 million) which Food Co., paid bank loan
      principal and interest on behalf of Industrial Co. was still outstanding
      as of March 31, 2009
 
 H.
              The
      Sales Co. paid USD 1.5 million (RMB10.6 million) in advance to Huayu Co.
      for the purchase of raw materials.
 
 I.
              The
      balance of USD 9.8 million (RMB 67 million) receivable from Group to Sales
      Co. was payment made by Sales Co. for the Group to buy
      materials.
 
 J.
              Sales
      Co. help the Group to pay USD 13.7 million (RMB 94.1 million) to local
      farmers for the purchase of hogs.
 
 K.
              The
      receivable of USD 8.1 million (RMB55.9 million) due from Fodder Co. to
      Sales Co. consisted of following transactions: USD 2.6 million (RMB 17.7
      million) was paid to buy feeding materials and USD 5.6 million (RMB 38.2
      million) was paid for bank loan principal and
  interest.
 
 L.
              The
      balance of USD 1.1 million (RMB 7.6 million) payment owed by the Company
      to the Group was for the purchase of raw
  materials.
 
 M.
              The
      Group sold the hogs to Meat Co. for 3.7 million (RMB 25.7
      million).
 
 N.
              The
      USD 4.2 million (RMB 28.6 million) deposits owed to Huayu was still
      outstanding at March 31, 2009.
 
 O.
              The
      Group has paid USD 604 thousand (RMB 4.1 million) salaries and general
      administrative expense on behalf of Food
Co.
  19
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 
 P.
              Fodder
      paid USD 609 thousand (RMB 4.2 million) salaries on behalf of Meat Co. in
      January 2009.
 
 Q.
              The
      balance owed of USD 12.5 million (RMB 85.5 million) by Meat Co. to Group
      was for the purchase of hogs.
 
 R.
              Sales
      Co. collected bank loans on behalf of Mingxing dating back to
      8/2008
 
 S.
              Meat
      Co. borrowed USD 542 thousand (RMB 3.7 million) operation funds from Huayu
      in December 2008.
 
 T.
              Food
      Co. borrowed USD 2.2 million (RMB 15 million) from Mingxing in December
      2008.
 
 U.
              The
      outstanding payable balance of USD 12.2 million (RMB 83.2 million) due to
      the Group has been transferred to the books of
  Chuming.
 
 The
related party receivable balance detailed above, and the related transactions
that comprise that balance were integral and material to the Company’s
operations.  The Company was reliant on transactions with the above
related parties in order to conduct its business normally.  The
Company acknowledges that it has the responsibility to comply with paragraph c
of SFAS 57 which calls for the dollar amounts of transactions for each of the
periods for which income statements are presented and the effects of any change
in the method of establishing the terms from that used in the preceding
period.  The Company’s accounting system in the past was manual and
accordingly is not able to, from a cost benefit perspective, summarize and
provide further detail on the related party transactions.  Also, the
Company’s current accounting department does not have sufficient staff in order
to perform and exercise to further detail the related party payables and
receivables beyond what has been provided above; however the Company is taking
steps to update its accounting systems and methods to provide fuller detail
regarding these transactions for future periods.  The Company does
represent that the balances disclosed above are both accurate and reliable
within acceptable thresholds of materiality.
 
 The
Company’s related party receivables and payables in the period presented were in
the form of either short-term loans bearing no interest, or trade payables and
receivables relating to the purchase of raw materials, supplies or products for
which payment was due within a short period of time.  Management
believes that the net receivables from related parties are fully
recoverable.
 
 Of the
$17,846,965 netreceivable owed by the
Group to the Company, $15,338,320 has been securitized by bank drafts issued by
the bank on behalf of subsidiaries of the Group to the Company.  These
notes are collateralized by deposits at the bank by those particular
subsidiaries of the Group.  The drafts can be endorsed and discounted
to the bank for cash; however the Company currently intends to hold these drafts
until maturity.  The following table summarizes the amounts of each
draft.
 
 Subsidiary
      of the Group
              
              AmountHuayu
              
              $
              7,303,962Group
              
              
              5,843,169Mingxing
              
              
              2,191,189$
              15,338,320
 
 6.
              Inventory
 
 At
              
              
              AtMarch
      31,
              
              
              December
      31,2009
              
              
              2008Raw
      Materials
              
              $
              737,975
              
              
              $
              867,549Work
      in Progress
              
              
              169,102
              
              
              
              241,738Finished
      Goods
              
              
              4,986,783
              
              
              
              4,941,822$
              5,893,860
              
              
              $
              6,051,109
  20
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 
 7.
              Property,
      Plant & Equipment
 
 At
              
              
              
              
              AccumulatedMarch
      31, 2009:
              
              Cost
              
              
              Depreciation
              
              
              NetBuildings
              
              $
              21,591,328
              
              
              $
              (3,507,576
              )
              
              $
              18,083,752Manufacturing
      Equipment
              
              
              9,872,093
              
              
              
              (3,491,884
              )
              
              
              6,380,209Office
      Equipment
              
              
              246,058
              
              
              
              (162,942
              )
              
              
              83,117Vehicles
              
              
              948,345
              
              
              
              (563,707
              )
              
              
              384,639Furniture
      & Fixture
              
              
              749,915
              
              
              
              (344,244
              )
              
              
              405,672$
              33,407,740
              
              
              $
              (8,070,352
              )
              
              $
              25,337,388
  At
              
              
              
              
              AccumulatedDecember
      31, 2008:
              
              Cost
              
              
              Depreciation
              
              
              NetBuildings
              
              $
              21,604,325
              
              
              $
              (3,607,219
              )
              
              $
              17,997,105Manufacturing
      Equipment
              
              
              10,061,608
              
              
              
              (3,132,725
              )
              
              
              6,928,883Office
      Equipment
              
              
              195,577
              
              
              
              (150,670
              )
              
              
              44,907Vehicles
              
              
              913,816
              
              
              
              (477,265
              )
              
              
              436,551Furniture
      & Fixture
              
              
              524,020
              
              
              
              (137,315
              )
              
              
              386,705$
              33,299,346
              
              
              $
              (7,505,196
              )
              
              $
              25,794,151
 
 8.
              Land
      Use Right
 
 The
Company had the following intangible assets outstanding at March 31, 2009 and
December 31, 2008, respectively:
  At
              
              
              AtMarch
      31,
              
              
              December
      31,2009
              
              
              2008Land
      Use Rights, at Cost
              
              $
              14,425,602
              
              
              $
              14,407,503Less: Accumulated
      Amortization
              
              
              (1,044,169
              )
              
              
              (977,068
              )$
              13,381,433
              
              
              $
              13,430,435
 
 9.
              Bank
      Loans
 
 (A)
              Short Term Bank
      Loans
 
 At March
31, 2009, the Company had the following short term loans
outstanding:
 
 Bank
              
              Interest
      Rate
              
              Due
      Date
              
              AmountBank
      of China
              
              
              6.1586
              %
              10/26/2009
              
              $
              4,382,377Bank
      of Huaxie
              
              
              6.372
              %
              3/3/2010
              
              
              4,382,377Bank
      of China
              
              
              7.326
              %
              10/17/2009
              
              
              2,045,109$
              10,809,863
 
 The loan
provided by the Bank of China is secured by the Meat Company’s land use rights,
which have been appraised at a fair market value of $5,605,611 (RMB
41,000,000).
  21
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 10.
              Capitalization
 
 As a
result of a reverse-merger on December 31, 2007 that was consummated via a share
exchange, and a concurrent equity financing, in the form of a private placement
by issuing common stock to ten accredited investors, the Company’s
capitalization is now reflected by the table shown below:
 
 Name
      of Shareholder
              
              Number
      of Shares
              
              
              Common
      Stock Capital
              
              
              Additional
      Paid in Capital
              
              
              Equity
      %Operating
      Companies Founders
              
              
              14,688,948
              
              
              $
              14,689
              
              
              $
              2,396,079
              
              
              
              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
              
              
              $
              15,440,043
              
              
              
              100.00
              %
 
 11.
              Commitments
      of Statutory Reserve
 
 In
compliance with PRC laws, the Company is required to appropriate a portion of
its net income to its statutory reserve up to a maximum of 50% of an
enterprise’s registered capital in the PRC.  The Company had future
unfunded commitments, as provided below.
 
 At
              
              
              AtMarch
      31,
              
              
              December
      31,2009
              
              
              2008PRC
      Registered Capital
              
              
              15,566,849
              
              
              
              15,566,849-
      Statutory Reserve Ceilingbased
      on 50% ofRegistered
      Capital
              
              
              7,783,424
              
              
              
              7,783,424Less: - Retained
      Earningsappropriated
      toStatutory
      Reserve
              
              
              (2,077,488
              )
              
              
              (2,077,488
              )Reserve
      CommitmentOutstanding
              
              $
              5,705,936
              
              
              $
              5,705,936
 
 12.
              Advertising
      Costs
 
 Advertising
expenses were $47,124 and $542,233 for the three months ended March 31, 2009 and
2008, respectively.
 
 13.
              Income
      Taxes
 
 The
Company’s different operating subsidiaries are subject to different income tax
regulations under PRC law.
 
 The
operating subsidiary, Meat, has been given special tax-free status by the PRC
government because of the Company standing as leader in its industry in Dalian;
therefore, no provision for income tax in the PRC was made for period ended
March 31, 2009.
 
 The
Company’s operating subsidiary, Food, has made provision for income taxes in
year 2008 of $508,844.
 
 22
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
  The
Company’s operating subsidiary, Sales, has not made provision for income tax in
year 2008 as it has incurred operating losses for those respective
years.  The Company has determined that deferred tax assets arising
from net operating losses in prior years may not realized, accordingly, the
company has recognized a tax expense to the income statement in the amount of
$11,246.
 
 After
adjusting for special tax-free status and net operating loss, the consolidated
taxable earnings were determined, and the results were as follows:
-
  i.
                2007
                Tax
      expense
                (520,089)ii.
                2006
                Tax
      expense
                (967,539)iii.
                2005
                Tax
      benefit
                1,609
 Beginning
December 31, 2007, the Company’s foreign subsidiaries became subject to U.S.
income tax liability; however, the tax is deferred until foreign source income
is repatriated to the Company and the Company has not currently determined when
foreign source income will be repatriated.  Accordingly, the company
has not made any provisions for U.S. income tax liability.
 
 On March
16, 2007, the PRC government passed new tax legislation that repealed
preferential tax treatment for foreign investment enterprises in the PRC and
enacted new tax regulations.  Under such regulations, with certain
exceptions, both domestic and foreign enterprises will be taxed at a standard
enterprise income tax rate of 25%.  The Company’s two operating
subsidiaries, Food, and Sales are subject to the 25% income tax rate beginning
January 1, 2008.  Based on current PRC legislation, Meat should be
expected to continue benefiting from a tax holiday.
 
 14.
              Commitments
 
 It is
company policy to develop plant facilities based on availability of cash
resources without incurring capital commitments.  Therefore, the
Company did not have any capital commitments existing at March 31,
2009.
 
 On
December 19, 2007, the Company entered into a hog purchase agreement whereby the
Dalian Chuming Group Co., Ltd will provide at fair market price a minimum number
of hogs to the Company.  At March 31, 2009, the Company expects
minimum quantities of hogs detailed in the following table:
 
 Year
              
              Hogs
              
              
              Price
      Per Hog
              
              
              Amount2009
      (April to December)
              
              
              658,148
              
              
              $
              187.13
              
              
              $
              123,159,2352010
              
              
              800,000
              
              
              $
              205.84
              
              
              
              164,674,737$
              287,833,972
 
 The
Company believes that the fair market price of the hogs will increase by 10%
each year.  The assumption of 10% reflects that Company expectations
in regards to inflation, and the rising costs of inputs in breeding
livestock.
 
 15.
              Operating
      Segments
 
 The
Company individually tracks the performance of its three operating subsidiaries
Meat Company, Food Company, and Sales Company. Meat Company is primarily engaged
in the slaughter and processing of pork livestock for wholesale and retail
distribution.  Food Company is primarily engaged in the production of
pork-based food products, such as sausages and cured meats, for retail
distribution.  Sales Company is primarily engaged in the sale and
distribution of products produced by Food Company and Meat Company.
 
 The chief
operating decision maker is the Chief Executive Officer of the
Company.  He evaluates each operating segment on the following
measures of profit or loss: gross profit, operating income, and earnings before
taxes, and net income.  When he makes decisions on the strategic plans
of each operating segment, he considers the foregoing measures of profit or loss
and their impact on the overall performance of the Company as a
whole.
  23
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 Below is
a presentation of the Company’s results of operations and financial position for
its operating subsidiaries at March 31, 2009 and 2008 and for the periods then
ended.  The Company has also provided reconciling adjustments with the
Company and its intermediate holding companies Dalian Chuming Precious Sheen
Investments Consulting Ltd. (“Chuming WFOE”) and Precious Sheen Investments Ltd
(PSI).
 
 Results
      of Operations
              
              
              
              
              
              
              
              
              
              
              WFOE,For
      the period ended
              
              Meat
              
              
              Food
              
              
              Sales
              
              
              PSI,
      &March
      31, 2009
              
              Company
              
              
              Company
              
              
              Company
              
              
              Eliminations
              
              
              TotalSales
              
              $
              39,423,641
              
              
              $
              5,387,671
              
              
              $
              12,366,527
              
              
              $
              (16,283,916
              )
              
              $
              40,893,923Cost
      of Sales
              
              
              (34,409,997
              )
              
              
              3,968,091
              
              
              
              (13,075,296
              )
              
              
              (16,283,916
              )
              
              
              (35,169,469
              )Gross
      Profit
              
              
              5,013,643
              
              
              
              1,419,580
              
              
              
              (708,769
              )
              
              
              -
              
              
              
              5,724,454Operating
      (Loss)/Profit
              
              
              4,763,599
              
              
              
              1,244,811
              
              
              
              (1,586,117
              )
              
              
              (121,911
              )
              
              
              4,300,382Other
      Income (Expense)
              
              
              (24,620
              )
              
              
              (63,141
              )
              
              
              (18,676
              )
              
              
              (3,501,716
              )
              
              
              (3,608,153
              )Earnings
      before Tax
              
              
              4,738,979
              
              
              
              1,181,670
              
              
              
              (1,604,793
              )
              
              
              (3,623,628
              )
              
              
              692,229(Income
      Tax Expense)
              
              
              -
              
              
              
              (280,208
              )
              
              
              -
              
              
              
              -
              
              
              
              (280,208
              )Extraordinary
      Expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      Income
              
              $
              4,738,979
              
              
              $
              901,462
              
              
              $
              (1,604,793
              )
              
              $
              (3,623,628
              )
              
              $
              412,021
 
 Eliminated
      Intercompany Sales of Products SoldSold
      From:
              Sold
      To:
              
              AmountFood
      Company
              Sales
      Company
              
              $
              2,741,755Meat
      Company
              Sales
      Company
              
              
              1,953,126Meat
      Company
              Food
      Company
              
              
              11,589,035$
              16,283,916
 
 
 Financial
      Position
              
              
              
              
              
              
              
              
              
              
              WFOE,At
              
              Meat
              
              
              Food
              
              
              Sales
              
              
              PSI,
      &March
      31, 2009
              
              Company
              
              
              Company
              
              
              Company
              
              
              Eliminations
              
              
              TotalCurrent
      Assets
              
              $
              82,456,443
              
              
              $
              24,561,336
              
              
              $
              42,244,075
              
              
              $
              (97,644,208
              )
              
              $
              51,617,647Non
      Current Assets
              
              
              25,728,775
              
              
              
              19,356,004
              
              
              
              302,866
              
              
              
              1,090
              
              
              
              45,388,734Total
      Assets
              
              $
              108,185,218
              
              
              $
              43,917,340
              
              
              
              42,546,941
              
              
              
              (97,643,118
              )
              
              
              97,006,381Current
      Liabilities
              
              
              48,331,659
              
              
              
              37,107,715
              
              
              
              47,752,659
              
              
              
              (107,026,530
              )
              
              
              26,165,504Total
      Liabilities
              
              
              48,331,659
              
              
              
              37,107,715
              
              
              
              47,752,659
              
              
              
              (107,026,530
              )
              
              
              26,165,504Net
      Assets
              
              
              59,853,559
              
              
              
              6,809,625
              
              
              
              (5,205,718
              )
              
              
              9,383,412
              
              
              
              70,840,877Total
      Liabilities
                &
      Net Assets
              
              $
              108,185,218
              
              
              $
              43,917,340
              
              
              $
              42,546,941
              
              
              $
              (97,643,118
              )
              
              $
              97,006,381
  24
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
  
 Results
      of Operations
              
              
              
              
              
              
              
              
              
              
              WFOE,For
      the period ended
              
              Meat
              
              
              Food
              
              
              Sales
              
              
              PSI,
      &March
      31, 2008
              
              Company
              
              
              Company
              
              
              Company
              
              
              Eliminations
              
              
              TotalSales
              
              $
              41,207,696
              
              
              $
              4,744,501
              
              
              $
              8,259,335
              
              
              $
              (10,704,434
              )
              
              $
              43,507,098Cost
      of Sales
              
              
              (35,775,600
              )
              
              
              (3,311,044
              )
              
              
              (8,092,214
              )
              
              
              10,704,434
              
              
              
              (36,474,424
              )Gross
      Profit
              
              
              5,432,096
              
              
              
              1,433,457
              
              
              
              167,121
              
              
              
              -
              
              
              
              7,032,674Operating
      (Loss)/Profit
              
              
              (1,239,863
              )
              
              
              (588,697
              )
              
              
              (434,210
              )
              
              
              (55,481
              )
              
              
              (2,318,251
              )Other
      Income (Expense)
              
              
              4,192,233
              
              
              
              844,760
              
              
              
              (267,089
              )
              
              
              (55,481
              )
              
              
              4,714,423Earnings
      before Tax
              
              
              (112,149
              )
              
              
              (179,382
              )
              
              
              (17,845
              )
              
              
              2,515
              
              
              
              (306,861
              )(Income
      Tax Expense)
              
              
              4,080,084
              
              
              
              665,378
              
              
              
              (284,934
              )
              
              
              (52,966
              )
              
              
              4,407,562Extraordinary
      Expense
              
              
              -
              
              
              
              (166,345
              )
              
              
              -
              
              
              
              -
              
              
              
              (166,345
              )Net
      Income
              
              $
              4,080,084
              
              
              $
              499,033
              
              
              $
              (284,934
              )
              
              $
              (52,966
              )
              
              $
              4,241,217
 
 
 Eliminated
      Intercompany Sales of Products SoldSold
      From:
              Sold
      To:
              
              AmountFood
      Company
              Sales
      Company
              
              $
              1,330,545Meat
      Company
              Sales
      Company
              
              $
              6,663,303Meat
      Company
              Food
      Company
              
              $
              2,710,586$
              10,704,434
 
 Financial
      Position
              
              
              
              
              
              
              
              
              
              
              WFOE,At
              
              Meat
              
              
              Food
              
              
              Sales
              
              
              PSI,
      &December
      31, 2008
              
              Company
              
              
              Company
              
              
              Company
              
              
              Eliminations
              
              
              TotalCurrent
      Assets
              
              
              74,713,237
              
              
              
              21,126,826
              
              
              
              41,826,291
              
              
              
              (89,504,485
              )
              
              
              48,161,869Non
      Current Assets
              
              
              22,624,642
              
              
              
              19,570,329
              
              
              
              325,480
              
              
              
              1,088
              
              
              
              42,521,539Total
      Assets
              
              $
              97,337,879
              
              
              $
              40,697,155
              
              
              $
              42,151,771
              
              
              $
              (89,503,397
              )
              
              $
              90,683,408Current
      Liabilities
              
              
              42,293,137
              
              
              
              34,796,536
              
              
              
              45,747,946
              
              
              
              (99,079,858
              )
              
              
              23,757,761Total
      Liabilities
              
              
              42,293,137
              
              
              
              34,796,536
              
              
              
              45,747,946
              
              
              
              (99,079,858
              )
              
              
              23,757,761Net
      Assets
              
              
              55,044,742
              
              
              
              5,900,619
              
              
              
              (3,596,176
              )
              
              
              9,576,462
              
              
              
              66,925,647Total
      Liabilities
                &
      Net Assets
              
              $
              97,337,879
              
              
              $
              40,697,155
              
              
              $
              42,151,770
              
              
              $
              (89,503,396
              )
              
              $
              90,683,408
  25
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 16.
              Earnings
      Per Share
 
 Components
of basic and diluted earnings per share were as follows: -
 
 For
      three
              
              
              For
      threemonths
      ended
              
              
              months
      endedMarch
      31,
              
              
              March
      31,2009
              
              
              2008Net
      Income (A)
              
              $
              412,021
              
              
              $
              4,241,217Basic
      Weighted Average Shares Outstanding (B)
              
              
              17,272,756
              
              
              
              17,272,756Dilutive
      Shares:-Addition to Common Stock from Exercise of Placement
      Warrants
              
              
              -
              
              
              
              46,364-  Addition to Common Stock from Contingent Shares Held in Escrow
      (Please refer to Note 18)
              
              
              3,863,636
              
              
              
              3,863,636Diluted
      Weighted Average Shares Outstanding: (C)
              
              
              21,136,392
              
              
              
              21,182,756Earnings
      Per Share:-  Basic (A)/(B)
              
              $
              0.024
              
              
              $
              0.25-  Diluted (A)/(C)
              
              $
              0.019
              
              
              $
              0.20Weighted
      Average Shares Outstanding:-  Basic
              
              
              17,272,756
              
              
              
              17,272,756-  Diluted
              
              
              21,136,392
              
              
              
              21,182,756
 
 17.
              Concentration
      of Risk
 
 (A)
              Demand
    risk
 
 The
Company had concentrations of risk in demand for its products because its sales
were made to a small number of customers.
 
 (B)
              Supply
    Risk
 
 The
Company is subject to concentration of supply shortage risk because it purchases
its materials for resale from a few select vendors. The Company’s availability
of supply is correlated with the few select vendors’ ability to meet the market
demand.  In 2007, the entire industry in the PRC faced a shortage in
the supply of hogs.
 
 18.
              Financing
      Transaction
 
 On
December 31, 2007, the Company, a Nevada corporation (“Energroup” or the
“Company”), acquired Precious Sheen Investments Ltd. (“PSI”) in a reverse
take-over transaction, by executing a Share Exchange Agreement (“Exchange
Agreement”) by and among Energroup, PSI, and all of the shareholders of PSI’s
issued and outstanding share capital (the “PSI Shareholders”). PSI owned 100% of
the equity in Chuming WFOE. Chuming WFOE is a holding company for the following
three operating subsidiaries: (i) Meat Company, (ii) Food Company, and (iii)
Sales Company, each of which is a limited liability company headquartered in,
and organized under the laws of, China (also referred to elsewhere as the
“Chuming Operating Subsidiaries”).
  26
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
  As a
result of the reverse take-over transaction, PSI’s Shareholders became
Energroup’s controlling shareholders and PSI became Energroup’s wholly-owned
subsidiary. As a result of PSI becoming Energroup’s wholly-owned subsidiary,
Energroup acquired the business and operations of Chuming and the Chuming
Operating Subsidiaries.
 
 Under the
Exchange Agreement, Energroup completed the acquisition of all of the issued and
outstanding shares of PSI through the issuance of 16,850,000 restricted shares
of common stock of Energroup to PSI’s Shareholders. Immediately prior to the
Exchange Agreement transaction, the Company had 422,756 shares of common stock
issued and outstanding. Immediately after the issuance of the shares to PSI’s
Shareholders, the Company had 17,272,756 shares of common stock issued and
outstanding. The 422,756 shares of PSI were cancelled and 17,272,756 shares of
Energroup were issued to reflect this reverse take-over
transaction.
 
 Concurrently
with the Exchange Agreement, Energroup also entered into a Securities Purchase
Agreement (the “Purchase Agreement”) pursuant to which Energroup agreed to issue
and sell 3,863,635 shares of its common stock to ten accredited investors for an
aggregate purchase price of $17,000,000 or $4.40 per share (the “Financing”).
The closing of the Financing coincided with the Closing of the reverse take-over
transaction.
 
 In
connection with the sales of securities to accredited investors under the
securities purchase agreement, Hunter Wise Financial Group, LLC (the “Placement
Agent”), was compensated with a commission of $1,190,000 which is equal to 7.00%
of the aggregate purchase price and a warrant to purchase the 386,364 shares of
the Company’s common stock at an exercise price of $4.40 per
share.  At December 31, 2007, the Company had adequate authorized
capital to issue common shares upon the exercise of the warrant.
 
 At March
31, 2009, the total number of shares outstanding, on a fully diluted basis, is
shown in the following table:
 
 i.
              
              Common
      shares outstanding prior to offering of securities
              
              
              17,272,756ii.
              
              Common
      shares issued under securities purchase agreement
              
              
              3,863,636iii.
              
              Common
      shares issuable upon exercise of placement agent warrants
              
              
              -21,136,392
 
 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 states a maximum penalty of $1.70 million or
10% of the financing amount.  At December 31, 2007, the Company
accounted for the liability under the registration rights agreement in
accordance with FASB Staff Position No. EITF 00-19-2 Accounting for Registration Payment
Arrangements.  Under such accounting treatment, the liquidated
damages are accounted for as a reduction of the proceeds.  In
asserting the most conservative position, the Company has accrued the maximum
liability of $1.7 million and is carrying that balance in the accrued
liabilities account.  In the event that the registration becomes
effective in a timeframe that is earlier than February 15, 2009, the portion
that is not legally owed, or in the event that investors waive any liquidating
damages, the accrual will be reversed and the funds will be added back to the
Company’s additional paid in capital.
  27
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of March 31, 2009 and December 31, 2008
 
 In
connection with a make good agreement related to the financing transaction on
December 31, 2007, the Company’s Chairman and CEO, Mr. Shi Huashan placed in
escrow 3,863,636 shares, which were beneficially owned by him.  These
shares are to be released back to him if the Company meets the following
earnings targets of $15.9 million, and $20.9 million in after-tax net income for
the years ended December 31, 2008, and 2009 respectively.  In the
event that the Company does not meet the aforementioned financial targets, the
escrowed shares will be released, on a pro-rata basis, to the investors in the
financing transaction.  In accordance with SFAS 128, Earnings per Share, for the
sake of calculating the Company’s earnings per share, the Company has accounted
for the 3,863,636 escrowed shares as contingently issuable shares as such they
are not included in the weighted average basic shares outstanding but are
included in the weighted average diluted shares outstanding.  Please
refer to Note 16.
 
 In
accordance with Topic 5.T of the Staff Accounting Bulletins (SAB 79), the
Company expects to record a compensatory expense for the shares upon their
release from escrow.  Whether the shares are released to the
accredited investors or released to Mr. Shi the Company will record an expense
with a corresponding credit to the Company’s contributed paid in
capital.  The Company anticipates that compensatory expense to be
recognized in future operating periods could be in a range between $17.0 million
to $29.2 million.  The Company approximates this range based on the
per share offering price of $4.40 at December 31, 2007 and a potential future
stock price of $7.57 based on a $20.0 million net income (short of the target of
$20.9 million net income) with a price-to-earnings ratio of 8.0, which is
comparable to the valuation used in the offering at December 31,
2007.
 
 For the
year ended December 31, 2008, the Company recorded an expense for the expected
release of shares deposited in the escrow account.  The Company
expects that 1,931,818 shares will be released.  The amount of expense
recorded was $10,622,294.  The impact on earnings per share, on a
basic and diluted basis, was $0.61 and $0.50, respectively. Simultaneously, for
the three months ended March 31, 2009, the Company expects that 482,955 shares
will be released and have recorded the expense of $3,502,152. The impact on
earnings per share, on a basic and diluted basis, was $0.20 and $0.17,
respectively.
  28
 
 ITEM
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS
 
 Note
Regarding Forward-Looking Statements
 
 This
quarterly report on Form 10-Q and other reports filed by Registrant from time to
time with the Securities and Exchange Commission (collectively the “Filings”)
contain or may contain forward-looking statements and information that are based
upon beliefs of, and information currently available to, Registrant’s management
as well as estimates and assumptions made by Registrant’s management. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which are only predictions and speak only as of the date hereof. When used in
the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”,
“intend”, “plan”, or the negative of these terms and similar expressions as they
relate to Registrant or Registrant’s management identify forward-looking
statements. Such statements reflect the current view of Registrant with respect
to future events and are subject to risks, uncertainties, assumptions, and other
factors (including the risks contained in the section of this report entitled
“Risk Factors”) relating to Registrant’s industry, Registrant’s operations and
results of operations, and any businesses that Registrant may acquire. Should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended, or
planned.
 
 Although
Registrant believes that the expectations reflected in the forward-looking
statements are reasonable, Registrant cannot guarantee future results, levels of
activity, performance, or achievements. Except as required by applicable law,
including the securities laws of the United States, the Registrant does not
intend to update any of the forward-looking statements to conform these
statements to actual results. Readers are urged to carefully review and consider
the various disclosures made throughout the entirety of this quarterly report,
which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations, and
prospects.
 
 In
this Form 10-Q, references to “we”, “our”, “us”, “our company”, “Energroup” or
the “Registrant” refer to Energroup Holdings Corporation, a Nevada
corporation.
 
 OVERVIEW
 
 Headquartered
in the City of Dalian, Liaoning Province of the People’s Republic of China (the
“PRC” or “China”), we are a meat processing company primarily involved in the
slaughtering, processing, packaging and distribution of pork and pork products.
We also process and sell seafood, such as minced fillet products, which
accounted for a small portion of our revenue (approximately 7%) in the first
quarter of 2009.
 
 We are
the first pork producer in China to receive “Green Food” certification from
China’s Ministry of Agriculture. Green Food is an innovative certification
program unique to China that is awarded to food processors who produce using
environmentally sustainable methods and meet certain high technical standards of
quality control, safety, and product quality, and generate low levels of
pollution. The Green Food certification is based on standards defined by the
Codex Alimentarius Commission (“CAC”), a joint body of the United Nations Food
and Agriculture Organization and the World Health Organization. We also received
ISO 9001:2000 certification that covers our production, research and development
and sales activities.
 
 Currently
we have a wholesale and retail distribution network and sell either directly or
indirectly across northeast China, including supermarkets and
hypermarkets.
 
 As of
March 31, 2009, we had 697 employees, of whom 376 were operating personnel, 234
were sales personnel, 35 were research and development personnel and 52 were
administrative personnel.
 
 Dalian
Precious Sheen Investments Consulting Co., Ltd., or Chuming WFOE, is our holding
company established in China for our three PRC operating subsidiaries,
collectively referred to elsewhere in this report as the “Chuming Operating
Subsidiaries”:
 
 1.
              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.
  29
  The
Chuming Operating Subsidiaries are spin-off constituents of a former parent
company, Dalian Chuming Group Co., Ltd., or the “Group.” Our primary business
activities are the production and packing of fresh pork and production of
processed meat products for distribution and sale to clients throughout the
PRC.  Chuming WFOE was incorporated in China as wholly foreign owned
enterprise on in December 2007. Chuming WFOE is 100% owned by Precious Sheen
Investments Limited (“PSI”), a holding company established in the British Virgin
Islands in May 2007.
 
 Pork is
widely regarded as China’s most important source of meat and is consumed at a
much higher rate than other categories of meat. Accordingly to a U.S. Department
of Agriculture report, China, which is the largest pork-consuming nation in the
world, consumed a total of 42.7 million metric tons in 2007, and the preliminary
estimate for 2008 is 44.9 million metric tons. 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 18,512 tons in the first quarter of
2009, 18,007 tons in the fourth quarter of 2008, and 17,513 tons for the
first quarter of 2008.
 
 Due to a
shortage in supply, live hog prices rose significantly in 2008. Retail pork
prices are an important component of China’s Consumer Price Index (CPI), a key
inflation indicator. In order to moderate increases in the CPI and maintain the
living standard of its lower-income population, the Chinese government (as it
pertains to the pork industry) has implemented a number of policies to encourage
pork production. These policies have now taken effect, and as a result, the
price of pork to consumers has stabilized temporarily at lower levels. We expect
pork prices to continue to remain stable, or perhaps trend lower, potentially
through the first quarter of 2010.
 
 In China,
the pork processing industry remains fragmented, and we believe, inefficient. As
smaller players experience pressure from margin compression and stricter
government regulations, we believe scaled pork processors, like ourselves, will
be positioned to make acquisitions on favorable terms in order to capture market
share, gain scale, secure raw material, and access more customers. We expect
that the combined factors of stricter hygiene regulations, increasing
competition from well-financed players, and struggling meat suppliers, will
induce industry consolidation in the coming years. We believe we are in a strong
position to continue to take advantage of the Chinese government’s support for
leading pork producers, these market consolidation trends, and the emerging hog
supply situation. Management believes that this is a long-term
trend.
 
 Given the
current competitive market conditions, we constantly strive to impose strict
quality control in our products and utilize state-of-art slaughtering and
cutting lines (which are imported from Stork Co. of the Netherlands), to ensure
our product quality, increase awareness of our brand and develop customer
loyalty. Our research suggests that consumers in China are increasingly
conscious of food safety and nutrition, and they 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.
  30
  Management
believes that we need to broaden our geographic sales network and diversify our
customer base. Currently our distribution network is principally located in
Liaoning Province, especially Dalian city. We have however expanded our sales
network for processed food products to almost all large and medium cities in
northeast China. In the near future we need to further extend this network and
penetrate all the northeast provinces of China with all our products. A broader
customer base can not only mitigate our reliance on certain big customers, but
also bring us more opportunities. We believe a broader market for our products
can increase demand for our products, reduce our vulnerability to market
changes, and provide additional areas of growth in the future.
 
 Our top
five customers accounted for 37.2% for our total sales for the quarter ended
March 31, 2009. We plan to position our business to diversify our customer base,
which is expected to lower this percentage gradually in the future.
 
 Management
presently anticipates continued growth in volume of sales. Nevertheless, our
ability to meet increased customer demand and maintain profitability will
however continue to depend on factors such as our production capacity,
availability of working capital, input costs, as well as the other factors
described throughout this report.
 
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
 
 Our
management’s discussion and analysis of our financial condition and results of
operations are based on our combined financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
 
 While our
significant accounting policies are more fully described in Note 2 to our
combined financial statements included in this report, we believe that the
following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and
analysis:
 
 Method
of Accounting
 
 We
maintain our general ledger and journals with the accrual method accounting for
financial reporting purposes. The financial statements and notes are
representations of management. Accounting policies adopted by us conform to
generally accepted accounting principles in the United States of America and
have been consistently applied in the presentation of financial statements,
which are compiled on the accrual basis of accounting.
 
 Principles
of Consolidation
 
 The
consolidated financial statements, which include the Company and its
subsidiaries, are compiled in accordance with generally accepted accounting
principles in the United States of America. All significant inter-company
accounts and transactions have been eliminated. The consolidated financial
statements include 100% of assets, liabilities, and net income or loss of those
wholly-owned subsidiaries.
  31
  Our
founders have directly or indirectly owned the three operating subsidiaries
since their inception. We also own two intermediary holding companies. As of
March 31, 2009, the detailed identities of the consolidating subsidiaries are as
follows:
 
 Name
      of Company
              
              Place
      of
                Incorporation
              
              Attributable
                Equity
                Interest
              
              Registered
      CapitalPrecious
      Sheen Investments Limited
              
              BVI
              
              100
              %
              USD
      10,000Dalian
      Chuming Precious Sheen Investment Consulting Co., Ltd.
              
              PRC
              
              100
              %
              RMB
      91,009,955Dalian
      Chuming Slaughtering & Pork Packaging Co. Ltd.
              
              PRC
              
              100
              %
              RMB
      10,000,000Dalian
      Chuming Processed Foods Co. Ltd.
              
              PRC
              
              100
              %
              RMB
      5,000,000Dalian
      Chuming Sales Co. Ltd.
              
              PRC
              
              100
              %
              RMB
      5,000,000
 
 The
consolidation of these operating subsidiaries into a newly formed holding
company i.e. “the Company” is permitted by United States GAAP: ARB51 paragraph
22 and 23.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could
differ materially from these estimates.
 
 Accounts
Receivable
 
 We extend
unsecured, non-interest bearing credit to our customers; accordingly, we carry
an allowance for doubtful accounts, which is an estimate, made by management.
Management makes its estimate based on prior experience rates and assessment of
specific outstanding customer balances.  Management may extend credit
to new customers who have met the criteria of our revised credit
policy.
 
 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
  32
  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” (“SFAS No. 128”), and SEC
Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies
with complex capital structures to present basic and diluted EPS. Basic EPS is
measured as the income or loss available to common shareholders divided by the
weighted average common shares outstanding for the period. Diluted EPS is
similar to basic EPS but presents the dilutive effect on a per share basis of
potential common shares (e.g., contingent shares, convertible securities,
options, and warrants) as if they had been converted at the beginning of the
periods presented, or issuance date, if later. Potential common shares that have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.
 
 Recent
Accounting Pronouncements
 
 See Note
2(Z) to the consolidated financial statements included in Item 1 of this
Quarterly Report of Form 10-Q for discussions on recently issued accounting
announcements. We are currently evaluating the potential impact, if any, of the
adoption of the above recent accounting pronouncements on our consolidated
results of operations and financial condition.
  RESULTS
OF OPERATIONS
 
 Comparison
of Three Months Ended March 31, 2009 and March 31, 2008.
 
 The
following table sets forth the results of our operations for the periods
indicated as a percentage of net sales:
 
 March
      31,
              
              
              %
      of
              
              
              March
      31,
              
              
              %
      of2009
              
              
              Sales
              
              
              2008
              
              
              SalesSales
              
              $
              40,893,923
              
              
              
              100.00
              %
              
              $
              43,507,098
              
              
              
              100.00
              %Cost
      of Sales
              
              
              (35,169,469
              )
              
              
              86.00
              %
              
              
              (36,474,424
              )
              
              
              83.84
              %Gross
      Profit
              
              
              5,724,454
              
              
              
              14.00
              %
              
              
              7,032,674
              
              
              
              16.16
              %Selling
      Expenses
              
              
              864,959
              
              
              
              2.12
              %
              
              
              1,825,277
              
              
              
              4.20
              %General
      & Administrative Expenses
              
              
              559,113
              
              
              
              1.37
              %
              
              
              492,973
              
              
              
              1.13
              %Total
      Operating Expense
              
              
              1,424,072
              
              
              
              3.48
              %
              
              
              2,318,250
              
              
              
              5.33
              %Operating
      Income / (Loss)
              
              
              4,300,382
              
              
              
              10.52
              %
              
              
              4,714,423
              
              
              
              10.84
              %Other
      Income (Expense)
              
              
              (3,608,153
              )
              
              
              8.82
              %
              
              
              (306,465
              )
              
              
              0.70
              %Earnings
      Before Tax
              
              
              692,229
              
              
              
              1.69
              %
              
              
              4,407,562
              
              
              
              10.13
              %(Income
      Tax Expense) / Deferred Tax Benefit
              
              
              (280,208
              )
              
              
              0.69
              %
              
              
              (166,345
              )
              
              
              0.38
              %Net
      Income
              
              $
              412,021
              
              
              
              1.00
              %
              
              $
              4,241,217
              
              
              
              9.75
              %Earnings
      Per ShareBasic
              
              $
              0.024
              
              
              
              
              
              
              $
              0.25Diluted
              
              
              0.019
              
              
              
              
              
              
              
              0.20Weighted
      Average Shares OutstandingBasic
              
              
              17,272,756
              
              
              
              
              
              
              
              17,272,756Diluted
              
              
              21,136,392
              
              
              
              
              
              
              
              21,182,756
  33
  Sales. Our sales include
revenues from sales of our fresh pork, frozen pork, and processed food products.
During the quarter ended March 31, 2009, we had sales of $40,893,923 as compared
to sales of $43,507,098 for the quarter ended March 31, 2008, a decrease of
approximately 6%. Our sales for our various product categories in the first
quarter of 2009 are summarized as follows:
 
 Sales
      by product category, in dollars:
              
              First
      Quarter 2009 (amount)
              
              
              %
      of Total Sales
              
              
              First
      Quarter
                2008
      (amount)
              
              
              %
      of
                Total
      Sales
              
              
              %
      of increase
                from
                2008
      to 2009Fresh
      Pork
              
              $
              31,550,154
              
              
              
              77.15
              %
              
              $
              36,384,986
              
              
              
              83.63
              %
              
              
              -13.29
              %Frozen
      Pork
              
              
              3,956,106
              
              
              
              9.67
              %
              
              
              2,358,085
              
              
              
              5.42
              %
              
              
              67.78
              %Processed
      Food Products
              
              
              5,387,663
              
              
              
              13.17
              %
              
              
              4,764,027
              
              
              
              10.95
              %
              
              
              13.09
              %Total
      Sales
              
              $
              40,893,293
              
              
              
              100
              %
              
              
              43,507,098
              
              
              
              100
              %
              
              
              -6.01
              %
 
 Sales
      by product category, by weight of product (metric
    tons):
              
              First
      Quarter
                  2009
                  (Weight
      in tons)
              
              
              %
      of
                  Total
      Sales
              
              
              First
      Quarter
                  2008
                  (Weight
      in tons)
              
              
              %
      of
                  Total
      Sales
              
              
              %
      of change
                  from
                  2008
      to 2009Fresh
      Pork
              
              
              14,245
              
              
              
              76.95
              %
              
              
              13,997
              
              
              
              79.92
              %
              
              
              1.77
              %Frozen
      Pork
              
              
              2,581
              
              
              
              13.94
              %
              
              
              1,086
              
              
              
              6.20
              %
              
              
              137.66
              %Processed
      Food Products
              
              
              1,686
              
              
              
              9.11
              %
              
              
              2430
              
              
              
              13.88
              %
              
              
              -30.62
              %Total
      Sales
              
              
              18,512
              
              
              
              100
              %
              
              
              17,513
              
              
              
              100
              %
              
              
              5.70
              %
 
 In the
first quarter of 2009, we raised our average per-kilogram sale price for
processed food products and decreased our average per-kilogram sale prices for
fresh pork and frozen pork to our customers. These changes were inline with
changes in the market price for these products. In the first quarter of 2009,
our sales volume of fresh pork and frozen pork (by weight) increased, with the
frozen pork category experiencing the highest growth in sales volume both by
weight and in terms of sales revenue. We also increased our sales of fresh pork
by weight, in the first quarter of 2009 as compared with the same period in the
prior year. Our sales revenue for fresh pork decreased due to a reduction in the
average per-kilogram price.  For processed food products, our sales by
weight decreased by 30.62%, but because of higher per-kilogram prices, our sales
revenue for this product category increased by 13.09%. Management attributes the
increases in sales revenue in our product categories to the continuing strength
in consumer demand for our products in the periods presented.
 
 The
following table shows the change in the average price per kilogram for our
product to consumers in the quarter ending March 31, 2009, as compared to the
same quarter last year:
 
 Average
      Per-Kilogram Price to Customers (in $US)First
      Quarter of 2009
              
              
              First
      Quarter of 2008
              
              %
      change
              
              
              Change
      in PriceFresh
      Pork
              
              $
              2.21
              
              
              $
              2.59
              
              
              
              -14.76
              %
              
              $
              -0.38Frozen
      Pork
              
              $
              1.53
              
              
              $
              2.17
              
              
              
              -29.49
              %
              
              $
              -0.64Processed
      Food Products
              
              $
              3.20
              
              
              $
              1.96
              
              
              
              63.27
              %
              
              $
              1.24
  34
  Although
we also sell our products through sales agents, our principal sales channels
consist of Chuming-branded showcase stores, supermarkets and restaurants and
canteens. The following table summarizes the changes in the number of
participants within these sales channels:
 
 Sales
      ChannelsAs
      of March 31,
              
              Showcase
                Stores
              
              
              Supermarkets
              
              
              Restaurants
      and
                Canteens2008
              
              
              635
              
              
              
              122
              
              
              
              3,1912009
              
              
              873
              
              
              
              345
              
              
              
              4,726
 
 As shown
in the table above, as of March 31, 2009, as compared to March 31, 2008, we
significantly increased the number of participants in all three of these sales
channels. We believe the sales from supermarkets and hypermarkets are likely to
continue to yield higher profit margins. Their orders tend to be large and
stable in quantity, and they usually have better credit. The increase in the
number of these participants has resulted in increased sales
volume.
 
 Cost of Sales. Cost of sales
for the first quarter of 2009 decreased by $1,304,955 or approximately 3.58%,
from $36,474,424 for the three months ended March 31, 2008 to $35,169,469 for
the three months ended March 31, 2009. The decrease was principally attributable
to the decrease in the average cost of live pigs in the first quarter
of 2009 as compared to the same period in the prior year. Our cost of sales for
our various product categories in the first quarter of each of 2009 and 2008 is
summarized and shown as a percentage of overall cost of sales in the following
chart:
 
 Cost
      of Sales
                First
      Quarter
              
              
              %
      of
                Overall
      Cost of
              
              
              Cost
      of Sales First Quarter
              
              
              %
      of
                Overall
      Cost of
              
              
              %
      of increase
                fromProduct
      Category
              
              2009
              
              
              Sales
              
              
              2008
              
              
              Sales
              
              
              2008
      to 2009Fresh
      Pork
              
              $
              27,779,537
              
              
              
              78.99
              %
              
              $
              31,371,652
              
              
              
              86.01
              %
              
              
              -11.45
              %Frozen
      Pork
              
              
              3,426,644
              
              
              
              9.74
              %
              
              
              1,794,542
              
              
              
              4.92
              %
              
              
              90.95
              %Processed
      Food Products
              
              
              3,963,288
              
              
              
              11.27
              %
              
              
              3,308,230
              
              
              
              9.07
              %
              
              
              19.80
              %Total
      Cost of Sales
              
              $
              35,169,469
              
              
              
              100
              %
              
              $
              36,474,424
              
              
              
              100
              %
              
              
              -3.58
              %
 
 The
following table shows our cost of sales in the first quarter of each of 2009 and
2008 as a percentage of sales within each product group.
 
 Product
      Category:
              
              Cost
      of Sales First Quarter 2009
              
              
              %
      of Product Group Sales
              
              
              Cost
      of Sales First Quarter 2008
              
              
              %
      of Product Group Sales
              
              
              %
      Change Product
                  Group
      SalesFresh
      Pork
              
              $
              27,779,537
              
              
              
              88.05
              %
              
              $
              31,371,652
              
              
              
              86.22
              %
              
              
              -1.83
              %Frozen
      Pork
              
              
              3,426,644
              
              
              
              86.62
              %
              
              
              1,794,542
              
              
              
              76.10
              %
              
              
              10.52
              %Processed
      Food Products
              
              
              3,963,288
              
              
              
              73.56
              %
              
              
              3,308,230
              
              
              
              69.44
              %
              
              
              4.12
              %Total
      Cost of Sales
              
              $
              35,169,469
              
              
              
              86.00
              %
              
              $
              36,474,424
              
              
              
              83.84
              %
              
              
              2.16
              %
 
 Our cost
of sales of fresh pork products decreased by 11.45% and by 1.83% as a percentage
of sales of fresh pork products, in each case as compared to the first quarter
of 2008. This change resulted principally from a decrease in the average cost of
our live pigs of US$0.39 from US$2.29 per kilogram in the first quarter of 2008
to US$1.90 per kilogram in the first quarter of 2009. Our cost of sales of
frozen pork products increased by 90.95% and by 10.52% as a percentage of
sales of frozen pork products, in each case as compared to the first quarter of
2008, because production and sales of this product increased over the respective
periods. During the first quarter of 2009, the cost of sales of processed food
products increased by 19.80% and 4.12% as a percentage of sales of processed
food products, in each case as compared to the same period last year. A
contributing factor to this increase was the higher transportation and delivery
cost associated with an expanded sales range of this product period over
period.
  35
  The
following table shows the estimated average per-kilogram price we paid for live
pigs in 2008 and 2007:
 
 Average
                Unit
      Price Per Kilogram in 2008
                (in
      $US)
              
              
              Average
                Unit
      Price Per Kilogram in 2007
                (in
      $US)
              
              
              Price
      Increase
                (in
      $US)
              
              
              %
      Increase from 2007 to 2008First
      Quarter
              
              
              2.2936
              
              
              
              1.0579
              
              
              
              1.1357
              
              
              
              107.35
              %Second
      Quarter
              
              
              2.2578
              
              
              
              1.3535
              
              
              
              0.9043
              
              
              
              66.81
              %Third
      Quarter
              
              
              2.2513
              
              
              
              1.8104
              
              
              
              0.4409
              
              
              
              24.35
              %Fourth
      Quarter
              
              
              2.105
              
              
              
              1.8656
              
              
              
              0.2394
              
              
              
              12.83
              %Average
      for Year to Date
              
              
              2.2676
              
              
              
              1.5219
              
              
              
              0.7457
              
              
              
              49.00
              %
 
 The most
rapid increase in live pig prices occurred in the third and fourth quarters of
2007, for the highest grades of live pigs. However, live pig prices dropped from
their highs in the second quarter of 2008 and have been stable since the third
quarter of 2008. We believe that live pig prices will continue to remain stable,
or perhaps trend lower, potentially through the first quarter of 2010. We
believe this trend of lower, stable prices to be temporary.
 
 Gross Profit. Gross profit
was $5,724,454 for the three months ended March 31, 2009 as compared to
$7,032,674 for the same period in 2008, representing a decrease of $1,308,220,
or approximately 18.60%. Management attributes the decrease in gross profit to
lower pricing to customers of our fresh and frozen pork products. We were able
to partially offset this effect through the lower cost of live pigs, increased
sales volume of frozen pork products, and increased pricing on processed pork
products. Our gross profit as a percentage of sales was 14.00% in the first
quarter of 2009 as compared to 16.16% for the same period in 2008.
 
 The
following table presents our gross profit for the three months ended March 31,
2009 and 2008. The table below also shows the percentage of gross profit for
each of our product groups, as a percentage of sales for that product
group.
 
 Product
      Group
              
              Gross
      Profit
                First
      Quarter
                of
      2009
              
              
              %
      of Product
                Group
      Sales
              
              
              Gross
      Profit
                First
      Quarter
                of
      2008
              
              
              %
      of Product
                Group
      Sales
              
              
              %
      of increase from First Quarter of 2008 to First
                Quarter
      of 2009Fresh
      Pork
              
              $
              3,770,617
              
              
              
              11.95
              %
              
              $
              5,036,292
              
              
              
              13.84
              %
              
              
              -25.13
              %Frozen
      Pork
              
              
              529,462
              
              
              
              13.38
              %
              
              
              556,052
              
              
              
              23.58
              %
              
              
              -4.78
              %Processed
      Food Products
              
              
              1,424,375
              
              
              
              26.44
              %
              
              
              1,440,330
              
              
              
              30.23
              %
              
              
              -1.11
              %Total
      Gross Profit
              
              $
              5,724,454
              
              
              
              14.00
              %
              
              $
              7,032,674
              
              
              
              16.16
              %
              
              
              -18.60
              %
 
 In the
first quarter of 2009, the gross profit of each of the fresh pork and frozen
pork segments fell by 25.13% and 4.78% respectively as compared to the same
period last year principally due to lower average-per-kilogram prices to
customers which offset sales volume increases in each segment. The processed
food products segment continued to yield period over period a gross profit
amount that was the highest among all the product groups as a percentage of
product group sales. Because of the high margins and increased prices to
consumers of this product, we were able to maintain
a stable amount of gross profit in dollar terms for this product period over
period despite a decrease in sales volume.
  36
  Selling Expenses. Selling
expenses totaled $864,959 for the three months ended March 31, 2009, as compared
to $1,825,277 for the same period in 2008, a decrease of $960,318 or 52.61%.
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 $559,113 for the
three months ended March 31, 2009 as compared to $492,974 for the same period in
2008, an increase of $66,139 or 13.42%. This change is primarily attributable to
increased outside legal fees and audit fees, and increased staff.
 
 Other income (Expense).Our
other income (expense) consists of interest income, other expenses, and interest
expense.  In the first quarter of 2009, we had total other expenses of
$106,001, excluding a compensatory expense arising from the expected release of
482,955 of our shares from an escrow arrangement entered into as part of a
private equity financing consummated by us in December 2007.  See Note
18 of the consolidated financial statements included in Item 1 of this Quarterly
Report on Form 10-Q.  Excluding this compensatory expense, our total
other expenses in the first quarter of 2009 decreased by $200,860, or 64.46% as
compared to the same period in 2008.  This decrease in total other
expenses is primarily attributable to a decrease in interest expense on bank
indebtedness and the receipt of a subsidy from the Dalian government during the
period of $62,659.
 
 Net Income. Excluding a
compensatory expense relating to release of the shares from the escrow
arrangement described above, net income for the three months ended March 31,
2009 was $3,914,173 as compared to $4,241,217 for the same period in 2008, a
decrease of $327,044 or 7.71%. This decrease in net income is attributable to
the factors described above, but also generally from the decrease in sales price
per unit of fresh pork and frozen pork products as compared to the same period
in 2008.  Sales volume of these products actually increased period
over period.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Cash
Flows
 
 Three
Months Ended March 31, 2009
 
 As of
March 31, 2009, we had cash and cash equivalents of $4,138,898, other current
assets of $47,478,749 and current liabilities of $26,165,504. At March 31. 2008,
we had $7,039,089 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 $2,451,554 for the three months ended March 31,
2009, while net cash flow used from operating activities was $20,079,493 in the
same period of 2008. This is primarily attributable to the fact
that of 2008, in order to expand our sales, we began offering payment terms
to accommodate our best customers.  Beginning in the first quarter of
2008, we revised our customer credit policy and began offering extended payment
terms to some of our quality long term clients with good credit (up to two
months), where previously we required payment within 1-2 days of delivery of
goods. This practice caused a decrease in, and some delay in collection of, our
incoming cash.
 
 Net cash
used in investing activities was $3,496,845 for the three months ended March 31,
2009, compared to cash sourced from investing activities of $206,154 in the same
period of 2008. This change is primarily due to amounts used for plant
improvements in the first quarter of 2009.
 
 Net cash
sourced from financing activities was $4,390,442 for the three months ended
March 31, 2008, as compared to net cash sourced from financing activities of
$9,198,282 in the same period of 2008.  This decrease resulted
principally from a decrease in our borrowings from banks during the first
quarter of 2009 as compared to the same period of 2008.
  37
  Capital
Commitments
 
 In the
first quarter of 2008, we relaxed our credit policy for certain of our major
customers, permitting them up to a two-month grace period for payment for goods,
where previously no such grace period was provided. Management expects that in
the short term, this revised credit policy will result in an increase in
accounts receivable, and a corresponding reduction in our cash position.
Management does not anticipate that this change in our credit policy will result
in any deficiency of working capital.
 
 Uses
of Liquidity
 
 Our cash
requirements through the end of fiscal 2009 will be primarily to fund daily
operations for the growth of our business. Management will consider acquiring
additional manufacturing capacity for processed foods in the future to
strengthen and stabilize our manufacturing base.
 
 Sources
of Liquidity
 
 Our
primary sources of liquidity for our short-term cash needs are expected to be
from cash flows generated from operations and cash and cash equivalents
currently on hand. We believe that we will be able to borrow additional funds if
needed.
 
 We
believe our cash flow from operations together with our cash and cash
equivalents currently on hand will be sufficient to meet our needs for working
capital, capital expenditure and other commitments through the end of 2009. For
our long-term cash needs, we may consider a number of alternative financing
opportunities, which may include debt and equity financing. No assurance can be
made that such financing will be available to us, and adequate funds may not be
available on terms acceptable to us. If additional funds are raised through the
issuance of equity securities, dilution to existing shareholders may result. If
funding is insufficient at any time in the future, we will develop or enhance
our products or services and expand our business through our own cash flows from
operations.
 
 As of
March 31, 2009, we had outstanding $6,427,486 in aggregate borrowings from the
Bank of China under two loans, in the principal amounts of $4,382,377 and
$2,045,109, and on which we pay interest at rates of 6.1586% and 7.3260% per
annum respectively. As of March 31, 2009, we also had outstanding one loan from
the Bank of Huaxie in the principal amount of $4,382,377 and on which we pay
interest at a rate of 6.3720% per annum.  As of March 31, 2009, we did
not have any standby letters of credit or standby repurchase
obligations.
 
 Foreign
Currency Translation Risk
 
 Our
operations are, for the most part, located in the PRC, and we earn our revenue
in Chinese RMB. However, we report our financial results in U.S. Dollars using
the closing rate method. As a result, fluctuations in the exchange rates between
Chinese RMB and the U.S. Dollar will affect our reported financial results. The
balance sheet items are translated into U.S. dollars using the exchange rates at
the respective balance sheet dates. The capital and various reserves are
translated at historical exchange rates prevailing at the time of the
transactions while income and expenses items are translated at the average
exchange rate for the period. All exchange differences are recorded within
equity. The foreign currency translation adjustment for the three months ended
March 31, 2009 and 2008, which was in each instance a gain, was $1,057 and
$3,682,295, respectively.
 
 During
2003 and 2004 the exchange rate of RMB to the dollar remained constant at 8.26
RMB to the dollar. On July 21, 2005, the Chinese government adjusted the
exchange rate from 8.26 to 8.09 RMB to the dollar. In 2008, the RMB continued to
appreciate against the U.S. dollar. As of March 31, 2009, the market foreign
exchanges rate was increased to 6.8456 RMB to one U.S. dollar. As a result, the
ongoing appreciation of RMB to U.S. dollar negatively impacted our gross margins
for the three months ended March 31, 2009.
  38
  Contractual
Obligations and Off-Balance Sheet Arrangements
 
 Contractual
Obligations
 
 We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash
flows.
 
 The
following tables summarize our contractual obligations as of March 31, 2009, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.
 
 Payments
      Due by PeriodLess
      than 1
              
              
              1-3
              
              
              3-5
              
              
              5Total
              
              
              Year
              
              
              Years
              
              
              Years
              
              
              Years
      +Contractual
      Obligations:Bank
      Indebtedness
              
              $
              10,809,863
              
              
              $
              10,809,863
              
              
              $
              _
              
              
              $
              _
              
              
              $
              _Other
      Indebtedness
              
              $
              _
              
              
              $
              _
              
              
              $
              _
              
              
              $
              _
              
              
              $
              _Capital
      Lease Obligations
              
              $
              _
              
              
              $
              _
              
              
              $
              _
              
              
              $
              _
              
              
              $
              _Operating
      Leases
              
              $
              _
              
              
              $
              _
              
              
              $
              _
              
              
              $
              _
              
              
              $
              _Purchase
      Obligations
              
              $
              287,833,972
              
              
              $
              123,159,235
              
              
              $
              164,674,737
              
              
              $
              _
              
              
              $
              _Total
      Contractual Obligations:
              
              $
              298,643,835
              
              
              $
              133,969,098
              
              
              $
              164,674,737
              
              
              $
              _
              
              
              $
              _
 
 As
indicated in the table, as of March 31, 2009 we had $287,833,972 in purchase
obligations, which relates to our agreement for the purchase and sale of
hogs.  On December 19, 2007, the Company entered into a hog purchase
agreement whereby the Dalian Chuming Group Co., Ltd will provide at fair market
price a minimum number of hogs to the Company.  At March 31, 2009, the
Company expects minimum quantities of hogs detailed in the following
table:
 
 Year
              
              Hogs
              
              
              Price
      Per Hog
              
              
              Amount2009
      (April to December)
              
              
              658,148
              
              
              $
              187.13
              
              
              $
              123,159,2352010
              
              
              800,000
              
              
              $
              205.84
              
              
              
              164,674,737$
              287,833,972
 
 The
Company believes that the fair market price of the hogs will increase by 10%
each year.  The assumption of 10% reflects the Company’s expectations
in regards to inflation, and the rising costs of inputs in breeding
livestock.
 
 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.
  39
  Interest
Rates. Our exposure to market risk for changes in interest rates relates
primarily to our short-term investments and short-term obligations; thus,
fluctuations in interest rates would not have a material impact on the fair
value of these securities. At March 31, 2009, we had approximately $4,138,898 in
cash and cash equivalents. A hypothetical 10% increase or decrease in interest
rates would not have a material impact on our earnings or loss, or the fair
market value or cash flows of these instruments.
 
 Foreign
Exchange Rates. All of our sales and inputs are transacted in Renminbi (“RMB”).
As a result, changes in the relative values of U.S. dollars and RMB affect our
reported levels of revenues and profitability as the results are translated into
U.S. dollars for reporting purposes. However, since we conduct our sales and
purchase inputs in RMB, fluctuations in exchange rates are not expected to
significantly affect our financial stability or gross and net profit margins. We
do not currently expect to incur significant foreign exchange gains or losses,
or gains or losses associated with any foreign operations.
 
 Our
exposure to foreign exchange risk primarily relates to currency gains or losses
resulting from timing differences between the signing of sales contracts and the
settling of these contracts. Furthermore, we translate monetary assets and
liabilities denominated in other currencies into RMB, the functional currency of
our operating business. Our results of operations and cash flow are translated
at average exchange rates during the period, and assets and liabilities are
translated at the unified exchange rate as quoted by the People’s Bank of China
at the end of the period. Translation adjustments resulting from this process
are included in accumulated other comprehensive income in our statement of
stockholders’ equity. We recorded net foreign currency gains of $1,057 and
$3,682,295 in the first quarter of 2009 and 2008, respectively. We have not used
any forward contracts, currency options or borrowings to hedge our exposure to
foreign currency exchange risk. We cannot predict the impact of future exchange
rate fluctuations on our results of operations and may incur net foreign
currency losses in the future. As our sales denominated in foreign currencies,
such as RMB, continue to grow, we may consider using arrangements to hedge our
exposure to foreign currency exchange risk.
 
 Our
financial statements are expressed in U.S. dollars, but the functional currency
of our operating subsidiaries is RMB. The value of an investment in our stock
will be affected by the foreign exchange rate between U.S. dollars and RMB. A
decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar
equivalent amounts of our financial results, the value of an investment in our
company and the dividends we may pay in the future, if any, all of which may
have a material adverse effect on the price of our stock.
 
 ITEM
      4T.
              CONTROLS
      AND PROCEDURES
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including its chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
 
 As of
March 31, 2009, we carried out an evaluation, under the supervision and with the
participation of our management, including our chief executive officer and our
chief financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our chief executive
officer and chief financial officer concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) were effective at the reasonable assurance
level.
 
 There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended) during the quarter ended March 31, 2009 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
  40
 
 PART
II. OTHER
INFORMATION
 
 
 ITEM
      1.
              LEGAL
      PROCEEDINGS
 
 We are
not aware of any material existing or pending legal proceedings against us, nor
are we involved as a plaintiff in any material proceeding or pending litigation.
There are no proceedings in which any of our current directors, officers or
affiliates, or any registered or beneficial shareholder, is an adverse party or
has a material interest adverse to us.
 
 ITEM
      1A.
              RISK
      FACTORS
 
 The risk
factors included in our annual report on Form 10-K for the fiscal year ended
December 31, 2008 have not materially changed as of March 31, 2009.
 
 ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
 
 None.
 
 ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES
 
 None.
 
 ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 None.
 
 ITEM
      5.
              OTHER
      INFORMATION
 
 None.
 
 ITEM
      6.
              EXHIBITS
 
 The
following exhibits are included in this report or incorporated by reference into
this report:
 
 Exhibit
                Number
              
              Description2.1
              
              Share
      Exchange Agreement by and among the Energroup Holdings Corporation, PSI
      and PSI and Energroup Shareholders dated December 31, 2007
    (1)2.2
              
              Articles
      and Plan of Merger (change in domicile from Utah to Nevada)
      (2)3.1
              
              Articles
      of Incorporation of Great Lakes Funding, Inc. (Utah)
(1)3.2
              
              Bylaws
      of Great Lakes Funding, Inc. (1)3.3
              
              Articles
      of Amendment to Articles of Incorporation of Great Lakes Funding, Inc.
      (Name Change) (1)3.4
              
              Articles
      of Amendment to Articles of Incorporation of Energroup Technologies, Inc.
      (Reverse Split) (2)3.5
              
              Articles
      of Incorporation of Energroup Holdings Corporation (Nevada)
      (2)3.6
              
              Bylaws
      of Energroup Holdings Corporation (2)3.7
              
              Certificate
      of Amendment to Articles of Incorporation of Energroup Holdings
      Corporation (3)4.1
              
              Registration
      Rights Agreement dated December 2007 among Energroup and the investors
      signatory thereto (1)4.2
              
              Common
      Stock Purchase Warrant issued to Placement Agent (December 2007)
      (2)31.1
              
              Rule
      13a-14(a) / 15d-14(a)(4) Certification by the Company’s Chief Executive
      Officer.*31.2
              
              Rule
      13a-14(a) / 15d-14(a)(4) Certification by the Company’s Chief Financial
      Officer.*32.1
              
              Section
      1350 Certification by the Company’s Chief Executive
    Officer.*32.2
              
              Section
      1350 Certification by the Company’s Chief Financial
    Officer.**
              
              Filed
      herewith.(1)
              
              Previously
      filed with our Current Report on Form 8-K on January 7, 2008 and
      incorporated herein by reference.(2)
              
              Previously
      filed with our Current Report on Form 8-K on August 22, 2007 and
      incorporated herein by reference.(3)
              
              Previously
      filed with our Current Report on Form 8-K on December 14, 2007 and
      incorporated herein by reference.
 
 41
 
 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:  May
      15, 2009
              By:
              /s/
      Shi HuashanShi
      HuashanPresident
      and Chief Executive Officer(Principal
      Executive Officer)Dated:  May
      15, 2009
              By:
              /s/
      Wang ShuWang
      ShuChief
      Financial Officer(Principal
      Financial and Accounting Officer)
 
 42