UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


__________________





FORM
10-Q


(Mark
One)





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




For the
quarterly period ended June 30, 2009




 ̈
            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
            
            N/ADalian
      City, Liaoning Province, PRC 116039(Address
      of principal executive offices)
            
            (Zip
      Code)





+86
411 867 166 96


(Registrant’s
telephone number, including area code)




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


Yes  x  No   ̈




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








ENERGROUP
HOLDINGS CORPORATION





FORM
10-Q





INDEX





Page
      NumberPART
      I. Financial Information
                1Item
      1.
                Financial
      Statements
                1Consolidated
      Balance Sheets
                4-5Consolidated
      Statements of Income
                6Consolidated
      Statements of Changes in Stockholders’ Equity
                7Consolidated
      Statements of Cash Flows
                8Notes
      to Consolidated Financial Statements
                9-32Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                33-48Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                48Item
      4T.
                Controls
      and Procedures
                48PART
      II. Other Information
                49Item
      1.
                Legal
      Proceedings
                49Item
      1A.
                Risk
      Factors
                49Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                49Item
      3.
                Defaults
      Upon Senior Securities
                49Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                49Item
      5.
                Other
      Information
                49Item
      6.
                Exhibits
                49Signatures
                
                50








PART
I.  FINANCIAL INFORMATION





ITEM 1.
            FINANCIAL
      STATEMENTS




1





Energroup
Holdings Corporation




Contents
                    PageReport
      of Registered Independent Public Accounting Firm
                    3Consolidated
      Balance Sheets
                    4 -
      5Consolidated
      Statements of Income
                    6Consolidated
      Statements of Changes in Stockholders’ Equity
                    7Consolidated
      Statements of Cash Flows
                    8Notes
      to Consolidated Financial Statements
                    9 –
      32


2





To:
            Board
      of Directors and Stockholders


Energroup
Holdings Corporation





Report of Registered
Independent Public Accounting Firm





We have
reviewed the accompanying interim consolidated Balance Sheets of Energroup
Holdings Corporation (the “Company”) as of June 30, 2009 and December 31, 2008,
and the related statements of income, stockholders’ equity, and cash flows for
the three-month and six-month periods ended June 30, 2009 and 2008. These
interim consolidated financial statements are the responsibility of the
Company's management.





We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.





Based on
our review, we are not aware of any material modifications that should be made
to the accompanying interim consolidated financial statements for them to be in
conformity with U.S. generally accepted accounting principles.





South
      San Francisco, California
                Samuel
      H. Wong & Co., LLPJuly
      17, 2009
                Certified
      Public Accountants





3





Energroup
Holdings Corporation


Consolidated
Balance Sheets


As
of June 30, 2009 and December 31, 2008


(Stated
in US Dollars)





At
                          
                          
                          AtJune 30,
                          
                          
                          December 31,Note
                          
                          2009
                          
                          
                          2008ASSETSCurrent
      AssetsCash
                          
                          
                          
                          $
                          22,946,069
                          
                          
                          $
                          5,695,798Restricted
      Cash
                          
                          2(D),3
                          
                          
                          2,175,127
                          
                          
                          
                          2,177,091Accounts
      Receivable
                          
                          2(E),4
                          
                          
                          14,567,491
                          
                          
                          
                          18,661,065Other
      Receivable
                          
                          
                          
                          
                          1,175,840
                          
                          
                          
                          2,162,412Related
      Party Receivable
                          
                          5
                          
                          
                          12,292,485
                          
                          
                          
                          10,919,777Inventory
                          
                          2(F),6
                          
                          
                          5,108,055
                          
                          
                          
                          6,051,109Purchase
      Deposit
                          
                          2(G)
                          
                          
                          1,596,497
                          
                          
                          
                          1,453,861Prepaid
      Expenses
                          
                          
                          
                          
                          30,422
                          
                          
                          
                          62,734Prepaid
      Taxes
                          
                          
                          
                          
                          366,399
                          
                          
                          
                          334,413Deferred
      Tax Asset
                          
                          
                          
                          
                          644,492
                          
                          
                          
                          643,609Total
      Current Assets
                          
                          
                          
                          
                          60,902,877
                          
                          
                          
                          48,161,869Non-Current
      AssetsProperty,
      Plant & Equipment, net
                          
                          2(H),7
                          
                          
                          24,782,354
                          
                          
                          
                          25,794,151Land
      Use Rights, net
                          
                          2(I),8
                          
                          
                          13,317,115
                          
                          
                          
                          13,430,435Construction
      in Progress
                          
                          2(J)
                          
                          
                          6,638,758
                          
                          
                          
                          3,262,146Other
      Assets
                          
                          
                          
                          
                          -
                          
                          
                          
                          34,807TOTAL
      ASSETS
                          
                          
                          
                          $
                          105,641,105
                          
                          
                          $
                          90,683,408LIABILITIESCurrent
      LiabilitiesBank
      Loans & Notes
                          
                          9
                          
                          $
                          10,811,127
                          
                          
                          $
                          6,419,422Accounts
      Payable
                          
                          
                          
                          
                          4,016,253
                          
                          
                          
                          7,695,208Accrued
      Liabilities
                          
                          
                          
                          
                          2,311,431
                          
                          
                          
                          1,724,266Taxes
      Payable
                          
                          
                          
                          
                          4,259,519
                          
                          
                          
                          2,341,971Other
      Payable
                          
                          
                          
                          
                          2,454,734
                          
                          
                          
                          2,318,142Customer
      Deposits
                          
                          2(L)
                          
                          
                          3,974,547
                          
                          
                          
                          3,258,752Total
      Current Liabilities
                          
                          
                          
                          
                          27,827,610
                          
                          
                          
                          23,757,761TOTAL
      LIABILITIES
                          
                          
                          
                          $
                          27,827,610
                          
                          
                          $
                          23,757,761





See
Accompanying Notes to the Consolidated Financial Statements





4





Energroup
Holdings Corporation


Consolidated
Balance Sheets


As
of June 30, 2009 and December 31, 2008


(Stated
in US Dollars)





At
                        
                        
                        AtJune 30,
                        
                        
                        December 31,Note
                        
                        2009
                        
                        
                        2008STOCKHOLDERS' EQUITYPreferred
      Stock - $0.001 par value 10,000,000 shares authorized; 0 shares issued
      & outstanding at June 30, 2009 and December 31, 2008,
      respectively.
                        
                        
                        
                        $
                        -
                        
                        
                        $
                        -Common
      Stock $0.001 par value 21,739,130 shares authorized; 21,136,392 shares
      issued & outstanding at June 30, 2009 and December 31, 2008,
      respectively.
                        
                        
                        
                        
                        21,137
                        
                        
                        
                        21,137Additional
      Paid in Capital
                        
                        
                        
                        
                        34,280,564
                        
                        
                        
                        26,062,337Statutory
      Reserve
                        
                        2(M),11
                        
                        
                        2,077,488
                        
                        
                        
                        2,077,488Retained
      Earnings
                        
                        
                        
                        
                        36,242,323
                        
                        
                        
                        35,275,457Accumulated
      Other Comprehensive Income
                        
                        2(N)
                        
                        
                        5,191,984
                        
                        
                        
                        3,489,228TOTAL
      STOCKHOLDERS' EQUITY
                        
                        
                        
                        77,813,495
                        
                        
                        
                        66,925,647TOTAL
      LIABILITIES ANDSTOCKHOLDERS'
      EQUITY
                        
                        
                        $
                        105,641,105
                        
                        
                        $
                        90,683,408





See
Accompanying Notes to the Consolidated Financial Statements





5





Energroup
Holdings Corporation


Consolidated
Statements of Income


For
the three and six months ended June 30, 2009 and 2008


(Stated
in US Dollars)





3 months
                      
                      
                      3 months
                      
                      
                      6 months
                      
                      
                      6 monthsended
                      
                      
                      ended
                      
                      
                      ended
                      
                      
                      endedNote
                      
                      June 30, 2009
                      
                      
                      June 30, 2008
                      
                      
                      June 30, 2009
                      
                      
                      June 30, 2008Sales
                      
                      2(O)
                      
                      $
                      48,137,671
                      
                      
                      $
                      43,076,524
                      
                      
                      $
                      89,031,594
                      
                      
                      $
                      86,583,622Cost
      of Sales
                      
                      2(P)
                      
                      
                      41,200,068
                      
                      
                      
                      36,600,428
                      
                      
                      
                      76,369,536
                      
                      
                      
                      73,074,852Gross
      Profit
                      
                      
                      
                      
                      6,937,604
                      
                      
                      
                      6,476,097
                      
                      
                      
                      12,662,058
                      
                      
                      
                      13,508,771Selling
      Expenses
                      
                      2(Q)
                      
                      
                      (507,404
                      )
                      
                      
                      (759,778
                      )
                      
                      
                      (1,372,363
                      )
                      
                      
                      (2,585,055
                      )General
      & Administrative Expenses
                      
                      2(R)
                      
                      
                      (711,732
                      )
                      
                      
                      (653,187
                      )
                      
                      
                      (1,270,845
                      )
                      
                      
                      (1,146,161
                      )Operating
      Income
                      
                      
                      
                      
                      5,718,467
                      
                      
                      
                      5,063,132
                      
                      
                      
                      10,018,850
                      
                      
                      
                      9,777,555Other
      Income
                      
                      
                      
                      
                      -
                      
                      
                      
                      358,850
                      
                      
                      
                      28,348
                      
                      
                      
                      383,119Interest
      Income
                      
                      
                      
                      
                      4,330
                      
                      
                      
                      631,707
                      
                      
                      
                      117,565
                      
                      
                      
                      635,692Other
      Expenses
                      
                      
                      
                      
                      (33,343
                      )
                      
                      
                      (72,085
                      )
                      
                      
                      (63,709
                      )
                      
                      
                      (100,735
                      )Interest
      Expense
                      
                      
                      
                      
                      (85,376
                      )
                      
                      
                      (300,613
                      )
                      
                      
                      (302,595
                      )
                      
                      
                      (607,078
                      )Government
      Subsidy Income
                      
                      
                      
                      
                      141,820
                      
                      
                      
                      -
                      
                      
                      
                      141,820
                      
                      
                      
                      -Release
      of Make Good Shares
                      
                      
                      
                      
                      (4,716,074
                      )
                      
                      
                      -
                      
                      
                      
                      (8,218,227
                      )
                      
                      
                      -Earnings
      before Tax
                      
                      
                      
                      
                      1,029,823
                      
                      
                      
                      5,680,991
                      
                      
                      
                      1,722,052
                      
                      
                      
                      10,088,553Income
      Tax
                      
                      2(V),13
                      
                      
                      (474,978
                      )
                      
                      
                      (66,023
                      )
                      
                      
                      (755,186
                      )
                      
                      
                      (232,368
                      )Net
      Income
                      
                      
                      
                      $
                      554,845
                      
                      
                      $
                      5,614,968
                      
                      
                      $
                      966,866
                      
                      
                      $
                      9,856,185Earnings
      Per Share
                      
                      2(Y),16Basic
                      
                      
                      
                      $
                      0.032
                      
                      
                      $
                      0.325
                      
                      
                      $
                      0.056
                      
                      
                      $
                      0.571Diluted
                      
                      
                      
                      $
                      0.026
                      
                      
                      $
                      0.265
                      
                      
                      $
                      0.046
                      
                      
                      $
                      0.465Weighted
      Average Shares OutstandingBasic
                      
                      
                      
                      
                      17,272,756
                      
                      
                      
                      17,272,756
                      
                      
                      
                      17,272,756
                      
                      
                      
                      17,272,756Diluted
                      
                      
                      
                      
                      21,136,392
                      
                      
                      
                      21,182,756
                      
                      
                      
                      21,136,392
                      
                      
                      
                      21,182,756





See
Accompanying Notes to the Consolidated Financial Statements





6




Energroup
Holdings Corporation


Consolidated
Statements of Changes in Stockholders’ Equity


As
of June 30, 2009 and December 31, 2008


(Stated
in US Dollars)





AccumulatedCommon Stock
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  
                  
                  
                  OtherShares
                  
                  
                  
                  
                  
                  Paid in
                  
                  
                  Statutory
                  
                  
                  Retained
                  
                  
                  ComprehensiveOutstanding
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Reserve
                  
                  
                  Earnings
                  
                  
                  Income
                  
                  
                  TotalBalance,
      January 1, 2008
                  
                  
                  21,136,392
                  
                  
                  $
                  21,137
                  
                  
                  $
                  15,440,043
                  
                  
                  $
                  751,444
                  
                  
                  $
                  29,764,236
                  
                  
                  $
                  2,960,951
                  
                  
                  $
                  48,937,811Release
      of Shares Placed in Escrow
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,622,294
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,622,294Net
      Income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,837,265
                  
                  
                  
                  -
                  
                  
                  
                  6,837,265Appropriations
      of Retained Earnings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,326,044
                  
                  
                  
                  (1,326,044
                  )
                  
                  
                  -
                  
                  
                  
                  -Foreign
      Currency Translation Adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  528,277
                  
                  
                  
                  528,277Balance,
      December 31, 2008
                  
                  
                  21,136,392
                  
                  
                  $
                  21,137
                  
                  
                  $
                  26,062,337
                  
                  
                  $
                  2,077,488
                  
                  
                  $
                  35,275,457
                  
                  
                  $
                  3,489,228
                  
                  
                  $
                  66,925,647Balance,
      January 1, 2009
                  
                  
                  21,136,392
                  
                  
                  $
                  21,137
                  
                  
                  $
                  26,062,337
                  
                  
                  $
                  2,077,488
                  
                  
                  $
                  35,275,457
                  
                  
                  $
                  3,489,228
                  
                  
                  $
                  66,925,647Release
      of Shares Placed in Escrow
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,218,227
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,218,227Net
      Income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  966,866
                  
                  
                  
                  -
                  
                  
                  
                  966,866Appropriations
      of Retained Earnings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Foreign
      Currency Translation Adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,702,756
                  
                  
                  
                  1,702,756Balance,
      June 30, 2009
                  
                  
                  21,136,392
                  
                  
                  $
                  21,137
                  
                  
                  $
                  34,280,564
                  
                  
                  $
                  2,077,488
                  
                  
                  $
                  36,242,323
                  
                  
                  $
                  5,191,984
                  
                  
                  $
                  77,813,495





Note
                          
                          12 months
                          
                          
                          6 monthsended
                          
                          
                          endedDecember 31, 2008
                          
                          
                          June 30, 2009
                          
                          
                          TotalComprehensive Income
                          
                          2(M)Net
      Income
                          
                          
                          
                          $
                          6,837,265
                          
                          
                          $
                          966,866
                          
                          
                          $
                          7,804,131Other Comprehensive IncomeForeign
      Currency Translation Adjustment
                          
                          
                          
                          
                          528,277
                          
                          
                          
                          1,702,756
                          
                          
                          
                          2,231,033Total
      Comprehensive Income
                          
                          
                          
                          $
                          7,365,542
                          
                          
                          $
                          2,669,622
                          
                          
                          $
                          10,035,165





See
Accompanying Notes to the Consolidated Financial Statements





7





Energroup
Holdings Corporation


Consolidated
Statements of Cash Flows


For
the three and six months ended June 30, 2009 and 2008


(Stated
in US Dollars)





3
      months
                
                
                3
      months
                
                
                6
      months
                
                
                6
      monthsended
                
                
                ended
                
                
                ended
                
                
                endedJune 30, 2009
                
                
                June 30, 2008
                
                
                June 30, 2009
                
                
                June 30, 2008Cash
      Flow from Operating ActivitiesNet
      Income
                
                $
                554,845
                
                
                $
                5,614,968
                
                
                $
                966,866
                
                
                $
                9,856,185Non
      Cash Expense Recorded for the Release of Escrow Shares
                
                
                4,716,074
                
                
                
                -
                
                
                
                8,218,227
                
                
                
                -Amortization
                
                
                357,504
                
                
                
                92,630
                
                
                
                424,606
                
                
                
                185,260Depreciation
                
                
                594,746
                
                
                
                739,953
                
                
                
                1,159,903
                
                
                
                1,407,774Decrease/(Increase)
      in Accounts & Other Receivables
                
                
                8,552,388
                
                
                
                (2,925,264
                )
                
                
                3,707,436
                
                
                
                (17,418,597
                )Decrease/(Increase)
      in Inventory & Purchase Deposit
                
                
                763,616
                
                
                
                6,384,900
                
                
                
                800,418
                
                
                
                (2,721,767
                )Decrease/(Increase)
      in Prepaid Taxes & Expenses
                
                
                206,579
                
                
                
                (64,415
                )
                
                
                (556
                )
                
                
                (149,450
                )Increase/(Decrease)
      Accounts, Taxes & Other Payables
                
                
                1,558,503
                
                
                
                4,989,385
                
                
                
                (1,624,816
                )
                
                
                5,278,059Increase/(Decrease)
      in Accrued Liabilities
                
                
                (296,264
                )
                
                
                (105,365
                )
                
                
                587,165
                
                
                
                153,474Increase
      in Customer Deposits
                
                
                398,604
                
                
                
                1,612,260
                
                
                
                715,795
                
                
                
                1,670,140Cash
      Sourced/(Used) in Operating Activities
                
                
                17,406,597
                
                
                
                16,339,051
                
                
                
                14,955,043
                
                
                
                (1,738,923
                )Cash
      Flows from Investing ActivitiesFunds
      Released from/(Interest Earned in) Escrow Account
                
                
                (643
                )
                
                
                (72,836
                )
                
                
                1,964
                
                
                
                2,019,333Purchases
      of Property, Equipment, and Construction of Plants
                
                
                (43,409
                )
                
                
                (291,927
                )
                
                
                (3,524,718
                )
                
                
                (646,814
                )Purchase
      of Land Use Rights
                
                
                (293,186
                )
                
                
                -
                
                
                
                (311,286
                )
                
                
                -Payments/(Withdraw)
      of Deposits
                
                
                34,852
                
                
                
                (58,952
                )
                
                
                34,808
                
                
                
                (60,308
                )Cash
      Sourced/(Used) in Investing Activities
                
                
                (302,387
                )
                
                
                (423,715
                )
                
                
                (3,799,233
                )
                
                
                1,312,211Cash
      Flows from Financing ActivitiesProceeds
      from Bank Borrowings
                
                
                1,263
                
                
                
                -
                
                
                
                4,391,705
                
                
                
                7,605,795Repayment
      of Bank Loans
                
                
                -
                
                
                
                (8,585,910
                )
                
                
                -
                
                
                
                (8,585,910
                )Cash
      Sourced/(Used) in Financing Activities
                
                
                1,263
                
                
                
                (8,585,910
                )
                
                
                4,391,705
                
                
                
                (980,115
                )Net
      Increase/(Decrease) in Cash & Cash Equivalents for the
      Period
                
                
                17,105,473
                
                
                
                7,329,427
                
                
                
                15,547,515
                
                
                
                (1,406,826
                )Effect
      of Currency Translation
                
                
                1,701,699
                
                
                
                (3,097,786
                )
                
                
                1,702,756
                
                
                
                (1,354,295
                )Cash
      & Cash Equivalents at Beginning of Period
                
                
                4,138,898
                
                
                
                7,039,089
                
                
                
                5,695,798
                
                
                
                14,031,851Cash
      & Cash Equivalents at End of Period
                
                $
                22,946,069
                
                
                $
                11,270,730
                
                
                $
                22,946,069
                
                
                $
                11,270,730Supplementary
      information:Interest
      Received
                
                $
                4,330
                
                
                $
                631,707
                
                
                $
                117,565
                
                
                $
                635,692Interest
      Paid
                
                
                182,607
                
                
                
                86,435
                
                
                
                365,214
                
                
                
                557,582Income
      Tax Paid
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -





See
Accompanying Notes to the Consolidated Financial Statements





8





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





1.
            The Company and
      Principal Business
Activities





Energroup
Holdings Corporation (the “Company”) (OTCBB: ENHD) is a holding company
incorporated in the state of Nevada in the United States of America whose
primary business operations are conducted through its three operating
subsidiaries: (1) Dalian Chuming Processed Foods Company Ltd., (“Food Company”)
(2) Dalian Chuming Slaughter and Packaging Pork Company Ltd. (“Meat Company”),
and (3) Dalian Chuming Sales Company Ltd. (“Sales Company”), which are
incorporated in the People’s Republic of China (“PRC”).   The
Company is headquartered in the City of Dalian, Liaoning Province of
China.





The three
operating subsidiaries were spun-off constituents of the former parent company,
Dalian Chuming Group Co., Ltd. (“Group”).  The Company indirectly
holds the three operating subsidiary companies through its wholly owned
intermediary subsidiaries: (A) Precious Sheen Investments Limited (“PSI”), a
British Virgin Islands corporation, and (B) Dalian Chuming Precious Sheen
Investments Consulting Co., Ltd., (“Chuming”), a wholly foreign owned enterprise
incorporated in the PRC.





The
Company’s primary business activities are the production and packing of fresh
pork and also production of processed meat products for distribution and sale to
clients throughout the PRC and Russia.





Corporate
Reorganization





PRC law
currently has limits on foreign ownership of certain companies.  To
enable Chuming to raise equity capital from investors outside of China, it
established an offshore holding company by incorporating Precious Sheen
Investments Limited in the British Virgin Islands in May 2007.  On
September 26, 2007, Chuming entered into share transfer agreements with Dalian
Chuming Group Co., Ltd., under which Dalian Chuming Group Co., Ltd. agreed to
transfer ownership of three operating subsidiaries (collectively known as
“Chuming Operating Subsidiaries”) to Chuming.  On October 23, 2007,
Chuming completed all required registrations to complete the share transfer, and
became the 100% owner of the Chuming Operating Subsidiaries.  On
November 14, 2007 the Dalian Commerce Bureau approved the transfer of Dalian
Chuming Group Co., Ltd’s 68% interest in Chuming to PSI, and upon this transfer,
Chuming became a wholly foreign owned enterprise, with PSI as the 100% owner of
Chuming (including its subsidiaries). On December 13, 2007, the PRC government
authorities issued Chuming a business license formally recognizing it as a
wholly foreign owned enterprise, of which PSI is the sole
shareholder.





The
following is a description of the Chuming Operating Subsidiaries: -





A. Dalian
Chuming Slaughter and Packaging Pork Company Ltd., whose primary business
activity is acquiring, slaughtering, and packaging of pork and
cattle;





B. Dalian
Chuming Processed Foods Company Ltd., whose primary business activity is the
processing of raw and cooked meat products; and





C. Dalian
Chuming Sales Company Ltd., which is responsible for Chuming’s sales, marketing,
and distribution operations.





9





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





Share
Exchange Transaction





On
December 31, 2007, the Company acquired all of the outstanding shares of PSI in
exchange for the issuance of 16,850,000 restricted shares of our common stock to
the shareholders of PSI, which represented approximately 97.55% of the
then-issued and outstanding common stock of the Company (excluding the shares
issued in the Financing). As a result of that transaction, PSI became our wholly
owned subsidiary and we acquired the business and operations of the three
operation subsidiaries.





The share
exchange transaction has been accounted for as a recapitalization of PSI where
the Company (the legal acquirer) is considered the accounting acquiree and PSI
(the legal acquiree) is considered the accounting acquirer.  As a
result of this transaction, the Company is deemed to be a continuation of the
business of PSI.





Accordingly,
the financial data included in the accompanying consolidated financial
statements for all periods prior to December 31, 2007 is that of the accounting
acquirer (PSI).  The historical stockholders’ equity of the accounting
acquirer prior to the share exchange has been retroactively restated as if the
share exchange transaction occurred as of the beginning of the first period
presented.





2.
            Summary of Significant
      Accounting Policies





(A)
            Method
      of Accounting





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





(B)
            Principles
      of Consolidation





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





The
Company owned the three operating subsidiaries since its
inception.  The Company also owns two intermediary holdings
companies.   As of June 30, 2009, the detailed identities of the
consolidating subsidiaries are as follows: -





10





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





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.





(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.





11





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





(G)
            Purchase
      Deposit





Purchase
deposit represents the cash paid in advance for purchasing raw materials. The
purchase deposit is interest free and unsecured.





(H)
            Property,
      Plant, and Equipment





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





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





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





(I)
            Land
      Use Rights





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





(J)
            Construction
      in Progress





Construction
in progress represents the direct costs of design, acquisition, and construction
of buildings, building improvements, and land improvements. These costs are
capitalized in the Construction-in-Progress account until substantially all
activities necessary to prepare the assets for their intended use are completed.
At such point, the Construction-in-Progress account is closed and the
capitalized costs are transferred to their appropriate asset
classification.  No depreciation is provided until the assets are
completed and ready for their intended use.





(K)
            Accounting
      for Impairment of Assets





The
      Company reviews the recoverability of its long-lived assets, such as
      property and equipment, when events or changes in circumstances occur that
      indicate the carrying value of the asset group may not be
      recoverable.  The assessment of possible impairment is based on
      the Company’s ability to recover the carrying value of the asset from the
      expected future cash flows, undiscounted and without interest charges, of
      the related operations.  If these cash flows are less than the
      carrying value of such assets, an impairment loss is recognized for the
      difference between estimated fair value and carrying value.  The
      measurement of impairment requires management to estimate future cash
      flows and the fair value of long-lived
assets.





12





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





(L)
            Customer
      Deposits





Customer
Deposits represents money the Company has received in advance for purchases of
pork and pork products.  The Company considers customer deposits as a
liability until products have been shipped and revenue is earned.





The
Company collects a damage deposit (as a deterrent) recorded in Other Payable
from showcase store operators as a means of enforcing proper use of the
Company’s trademarks.  These are not fees, but deposits that are
carried as current liabilities until and unless an operator violates the
Company’s policies (e.g. misuse of Company brand names, or sale of substandard
or counterfeit products, or unacceptably poor customer service), or if the
proprietor ceases to operate the showcase store.  If no violations
have been committed by the showcase store operator, the deposit is returned to
the operator.  The Company carries the amount of these deposits as a
current liability because the Company will return the deposit immediately to the
operator when the Company ceases to conduct business with the
operator.





(M)
            Statutory
      Reserve





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





(N)
            Other
      Comprehensive Income





Comprehensive
      income is defined to include all changes in equity except those resulting
      from investments by owners and distributions to owners.  Among
      other disclosures, all items that are required to be recognized under
      current accounting standards as components of comprehensive income are
      required to be reported in a financial statement that is presented with
      the same prominence as other financial statements.  The
      Company’s current component of other comprehensive income is the foreign
      currency translation adjustment.





(O)
            Recognition
      of Revenue





Revenue
from the sale of pork products, etc., is recognized on the transfer of risks and
rewards of ownership, which generally coincides with the time when the goods are
delivered to customers and the title has passed.





13





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 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.





14





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





(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.





In
respect of the Company’s subsidiaries domiciled and operated in
China:





·
            Chuming
      and Chuming Operating Subsidiaries are located in the PRC and PSI is
      located in the British Virgin Islands; all of these entities are subject
      to the relevant tax laws and regulations of the PRC and British Virgin
      Islands in which the related entity domiciled.  The maximum tax
      rates of the subsidiaries pursuant to the countries in which they domicile
      are: -





Subsidiary
                        
                        Country of Domicile
                        
                        Income Tax
                          RateChuming
      and Chuming Subsidiaries
                        
                        PRC
                        
                        
                        25.00
                        %PSI
                        
                        British
      Virgin Islands
                        
                        
                        0.00
                        %





·
            Effective
      January 1, 2008, PRC government implements a new 25% tax rate across the
      board for all enterprises regardless of whether domestic or foreign
      enterprise without any tax holiday which is defined as "two-year exemption
      followed by three-year half exemption" hitherto enjoyed by tax payers. As
      a result of the new tax law of a standard 25% tax rate, tax holidays
      terminated as of December 31, 2007. However, PRC government has
      established a set of transition rules to allow enterprises already started
      tax holidays before January 1, 2008, to continue enjoying the tax holidays
      until being fully utilized.





·
            Since
      Energroup Holdings Corporation is primarily a holding company without any
      business activities in the United States, the Company shall not be subject
      to income tax.





(W)
            Economic
      and Political Risks





The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.





15





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





(X)
            Foreign
      Currency Translation





The
Company maintains its financial statements in the functional
currency.  The functional currency of the Company is the Renminbi
(RMB).  Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet dates. Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchanges rates prevailing at the dates of the
transaction.  Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income for the respective
periods.





For
financial reporting purposes, the financial statements of the Company which are
prepared using the functional currency have been translated into United States
dollars.  Assets and liabilities are translated at the exchange rates
at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and stockholders’ equity is translated at historical
exchange rates.  Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders’
equity.





Exchange Rates
                  
                  6/30/2009
                  
                  
                  12/31/2008
                  
                  
                  6/30/2008Period
      end RMB : US$ exchange rate
                  
                  
                  6.8448
                  
                  
                  
                  6.8542
                  
                  
                  
                  6.8718Average
      period RMB : US$ exchange rate
                  
                  
                  6.8432
                  
                  
                  
                  6.9623
                  
                  
                  
                  7.0726





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.





16





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 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."





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 June
30, 2009, the Company has yet to fulfill requirement (3).  The Company
has requested bids for consideration from auditing firms that were on an
approved list submitted by, Pinnacle Fund, whom was the lead investor in the
Company’s financing transaction in December 2007, detailed in Note 18 – Financing
Transaction.





17





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





4.
              Accounts
      Receivable





Accounts Receivable at June 30, 2009
and December 31, 2008 consisted of the following: -





At
                      
                      
                      AtJune 30,
                      
                      
                      December 31,2009
                      
                      
                      2008Accounts
      Receivable – Trade
                      
                      $
                      14,714,638
                      
                      
                      $
                      18,849,560Less:
      Allowance for Doubtful Accounts
                      
                      
                      (147,147
                      )
                      
                      
                      (188,495
                      )Net
      Accounts Receivable
                      
                      $
                      14,567,491
                      
                      
                      $
                      18,661,065





At
                  
                  
                  AtJune 30,
                  
                  
                  December 31,Allowance for Bad Debts
                  
                  2009
                  
                  
                  2008Beginning
      Balance
                  
                  $
                  (188,495
                  )
                  
                  $
                  (84,723
                  )Allowance
      Provided
                  
                  
                  -
                  
                  
                  $
                  (103,772
                  )Reverse
                  
                  
                  41,348
                  
                  
                  
                  -Ending
      Balance
                  
                  $
                  (147,174
                  )
                  
                  $
                  (188,495
                  )





During
the second quarter of the 2008 fiscal year, management revised the Company’s
credit policy.  Based on management’s review, the Company began
extending more favorable credit terms to its top tier customers. Those customers
that qualified as top tier were extended approximately 45 to 60 days of
credit.  The Company previously extended one to two days of credit. As
of June 30, 2009, the Company has not had any receivables that were
unrecoverable.





Accounts
receivable aging analysis at June 30, 2009: -





1-30 Days
                                
                                $
                                13,307,40930-60 Days
                                
                                
                                332,15161-90 Days
                                
                                
                                72,60191-120 Days
                                
                                
                                5,581121-365 Days
                                
                                
                                696,499Over 365 Days
                                
                                
                                153,250Total
                                
                                $
                                14,567,491





18





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





5.
              Related Party
      Receivable





In the
normal course of business which includes the purchases of hogs and other raw
materials, sale of pork and pork products, the Company conducts transactions
with the following related parties: Dalian Chuming Group Co., Ltd (“Group”) and
the Group subsidiaries, that are not consolidated into Energroup Holdings or
Energroup’s subsidiary, Dalian Chuming Precious Sheen Investments Consulting Co.
Ltd. (Chuming): (1) Dalian Chuming Industrial Development Co., Ltd.,
(“Industrial Development Co.”) (2) Dalian Chuming Trading Co., Ltd, (“Trading
Co.”) (3) Dalian Mingxing Livestock Product Co. Ltd., (“Mingxing”) (4) Dalian
Chuming Stockbreeding Combo Development Co., Ltd., (“Combo Development Co.”) (5)
Dalian Chuming Fodder Co., Ltd. (“Fodder Co.”), and (6) Dalian Chuming
Biological Technology Co., Ltd., (“Biological Co.”) and (7) Dalian Huayu Seafood
Food Co., Ltd. (“Huayu”).  The Company and the aforementioned related
parties share common beneficial ownership.  All transactions with
related parties are generally performed at arm’s length.





In the
event that the Company has both receivables from, and payables to the Group it
will, in accordance with FIN 39, setoff the balances in order to arrive at a
single balance that is either due from, or due to the Group.  The
Company’s net receivable balance of $12,292,485at June 30, 2009 is
shown in the following table.





Ref.
                                
                                Subsidiary
                                  Due to:
                                
                                Nature of Balance
                                
                                Related Party
                                
                                Balance
                                
                                Description of
                                  TransactionA
                                
                                Food
                                
                                Sale
      of Products resulting in Trade Receivable from
                                
                                Dalian
      Mingxing Livestock Product Co. Ltd.,
                                
                                
                                235,016
                                
                                Food
      Co. sold cooked food to Mingxing dating back to 1/2007.Subtotal
      of Related Party Sales
                                
                                $
                                235,016B
                                
                                Food
                                
                                Loan
      Receivable from
                                
                                Dalian
      Huayu Seafood Co., Ltd.
                                
                                
                                283,427
                                
                                Huayu
      borrowed loan from Food Co. back to 11/2008C
                                
                                Meat
                                
                                Loan
      Receivable from
                                
                                Dalian
      Chuming Industrial Development Co., Ltd.
                                
                                
                                20,804,891
                                
                                Meat
      Co. paid bank loan principal and interest on behalf of Industrial Co.
      dating back to 4/2009D
                                
                                Meat
                                
                                Loan
      Receivable from
                                
                                Dalian
      Chuming Fodder Co., Ltd.
                                
                                
                                139,161
                                
                                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.
                                
                                
                                3,218,164
                                
                                Prepayment
      to Stockbreeding Combo for Purchase of hogs dating back to
      7/2008.F
                                
                                Meat
                                
                                Loan
      Receivable from
                                
                                Dalian
      Chuming Group Co., Ltd.
                                
                                
                                9,838,657
                                
                                Meat
      Co. advanced payments to Group for the purchase of hogs dating back to
      4/2009G
                                
                                Food
                                
                                Loan
      Receivable from
                                
                                Dalian
      Chuming Industrial Development Co., Ltd.
                                
                                
                                10,948,559
                                
                                Food
      Co. paid bank loan principal and interest on behalf of Industrial Co.
      dating back to
1/2008




19





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





H
                                      
                                      Sales
                                      
                                      Loan
      Receivable from
                                      
                                      Dalian
      Huayu Seafood Co., Ltd.
                                      
                                      
                                      2,613,571
                                      
                                      Sales
      Co. paid Huayu to help it buy materials dating back to
    9/2008.I
                                      
                                      Sales
                                      
                                      Loan
      Receivable from
                                      
                                      Dalian
      Chuming Group Co., Ltd.
                                      
                                      
                                      8,621,598
                                      
                                      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.
                                      
                                      
                                      20,354,486
                                      
                                      Sales
      Co. paid for Stockbreeding to buy hogs from farmer dating back
      7/2008K
                                      
                                      Sales
                                      
                                      Loan
      Receivable from
                                      
                                      Dalian
      Chuming Industrial Development Co., Ltd.
                                      
                                      
                                      5,587,869
                                      
                                      Sales
      Co. paid the Industrial Co. to help it buy materials dating back to
      5/2009Subtotal
      of Loans to Related Parties
                                      
                                      $
                                      82,410,383Gross
      Related Party Receivable
                                      
                                      $
                                      82,645,399





Subsidiary
                                    Due from:
                                  
                                  Nature of Balance
                                  
                                  Related Party
                                  
                                  Balance
                                  
                                  Description of
                                    TransactionL
                                  
                                  Meat
                                  
                                  Purchase
      of Raw Materials resulting in Trade Payable to
                                  
                                  Dalian
      Mingxing Livestock Product Co. Ltd.,
                                  
                                  
                                  609,697
                                  
                                  Mingxing
      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.
                                  
                                  
                                  8,295,662
                                  
                                  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
                                  
                                  
                                  2,866,472
                                  
                                  Advance
      from Huaya for the purchase of product dating back to
    12/2007.Subtotal
      of Purchases from Related Parties
                                  
                                  $
                                  11,771,831


O
                                  
                                  Food
                                  
                                  Loan
      Payable to
                                  
                                  Dalian
      Chuming Group Co., Ltd.
                                  
                                  4,804,074
                                  
                                  Food
      borrowed from Group to purchase materials dating back to
      4/2009.P
                                  
                                  Meat
                                  
                                  Loan
      Payable to
                                  
                                  Dalian
      Chuming Fodder Co., Ltd.
                                  
                                  6,462,323
                                  
                                  Group
      advanced payments for Meat Co. for the purchase of hogs dating back to
      6/2009Q
                                  
                                  Meat
                                  
                                  Loan
      Payable to
                                  
                                  Dalian
      Chuming Group Co., Ltd.
                                  
                                  11,687,705
                                  
                                  Group
      loaned to Meat Co. dating back to
4/2009




20





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008





R
                                          
                                          Sales
                                          
                                          Loan
      Payable to
                                          
                                          Dalian
      Mingxing Livestock Product Co. Ltd.,
                                          
                                          
                                          906,073
                                          
                                          Sales
      Co. collected bank loans on behalf of Mingxing dating back to
      8/2008S
                                          
                                          Meat
                                          
                                          Loan
      Payable to
                                          
                                          Dalian
      Chuming Industrial Development Co., Ltd.
                                          
                                          
                                          18,916,658
                                          
                                          Industrial
      Co. lent funds to Meat Co. for necessary operation activities dating
      4/2009T
                                          
                                          Food
                                          
                                          Loan
      Payable to
                                          
                                          Dalian
      Mingxing Livestock Product Co. Ltd.,
                                          
                                          
                                          2,149
                                          
                                          Food
      Co. borrowed funds from Mingxing for operations purpose dating back to
      12/2008U
                                          
                                          WFOE
                                          
                                          Loan
      Payable to
                                          
                                          Dalian
      Chuming Group Co.
                                          
                                          
                                          12,183,641
                                          
                                          Group
      loaned funds to WFOE (incl. funds transferred from Meat for US
      RTO.V
                                          
                                          Sales
                                          
                                          Loan
      Payable to
                                          
                                          Dalian
      Chuming Fodder Co., Ltd.
                                          
                                          
                                          2,864,606
                                          
                                          Fodder
      Co. bought materials on behalf of Sales Co. dating back to
      4/2009W
                                          
                                          Food
                                          
                                          Loan
      Payable to
                                          
                                          Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                                          
                                          
                                          753,854
                                          
                                          Stockbreeding
      bought raw materials on behalf of Food Co. dating back to
      4/2009Subtotal
      of Loans from Related Parties
                                          
                                          $
                                          58,581,083Gross
      Related Party Payable
                                          
                                          $
                                          70,352,914Setoff Related Party
      Receivable (Receivables have been set-off against
      payables)
                                          
                                          $
                                          12,292,485




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 238 thousand (RMB 1.9 million) to Huayu in
      November 2008.





C.
            Meat
      Co. paid loans of USD 20.8 million (RMB 142 million) for Industrial
      Co.





D.
            The
      Meat Co. paid USD 139 thousand (RMB 952 thousand) utility fees for Fodder
      Co.





E.
            The
      prepayment of USD 3.2 million (RMB 22 million) from Meat Co. to the
      Stockbreeding Combo was for the purchase of
  hogs.





F.
            The
      balance of USD 9.8 million (RMB 67 million) was hog  payment
      made by Meat Co. to the Group.





21


Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2009 and December 31, 2008


G.
            The
      balance of USD 10.9 million (RMB 74.9 million) which Food Co., paid bank
      loan principal and interest on behalf of Industrial Co. was still
      outstanding as of June 30, 2009





H.
            The
      Sales Co. paid USD 2.6 million (RMB17.8 million) in advance to Huayu Co.
      for the purchase of raw materials.





I.
            The
      balance of USD 8.6 million (RMB 59 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 20 million (RMB 140 million) to local
      farmers for the purchase of
hogs.


K.
              The
      receivable of USD 5.6 million (RMB39 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 3 million (RMB 20
      million) was paid for bank loan principal and
  interest.





L.
            The
      balance of USD 609 thousand (RMB 4.2 million) payment owed by the Meat Co.
      to the Group was for the purchase of raw
  materials.





M.
            The
      Group sold the hogs to Meat Co. for 8.2 million (RMB 55
      million).





N.
            The
      USD 2.8 million (RMB 19 million) deposits owed to Huayu was still
      outstanding at June 30, 2009.





O.
            Food
      Co. borrowed USD 4.8 million (RMB 33 million) from Group to purchase
      materials.





P.
            Group
      paid USD 6.4 million (RMB 43 million) for Meat Co. to purchase
      hogs.





Q.
            The
      balance owed of USD 11.6 million (RMB 80 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 18.9 million (RMB 133 million) operation funds from
      Group.





T.
            Food
      Co. borrowed USD 2 thousand (RMB 14 thousand) 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.





V.
            Fodder
      Co. bought USD 2.9 million (RMB 20 million) materials on behalf of Sales
      Co.




W.
            Stockbreeding
      Co. bought raw materials for Food Co. dating back to
    4/2009.




22





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008




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
$12,292,485 netreceivable owed by the
Group to the Company, $4,382,889 has been securitized by bank drafts issued by
the bank on behalf of Chuming Stockbreeding Combo. Development Co., Ltd. of the
Group to the Company.  These notes are collateralized by deposits at
the bank by Chuming Stockbreeding Combo.  The drafts can be endorsed
and discounted to the bank for cash; however the Company currently intends to
hold these drafts until maturity.





6.
              Inventory





At
                              
                              
                              AtJune
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008Raw
      Materials
                              
                              $
                              690,718
                              
                              
                              $
                              867,549Work
      in Progress
                              
                              
                              15,795
                              
                              
                              
                              241,738Finished
      Goods
                              
                              
                              4,401,542
                              
                              
                              
                              4,941,822$
                              5,108,055
                              
                              
                              $
                              6,051,109




23


Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2009 and December 31, 2008


7.
            Property, Plant &
      Equipment





AccumulatedAt
      June 30, 2009:
                                                
                                                Cost
                                                
                                                
                                                Depreciation
                                                
                                                
                                                NetBuildings
                                                
                                                $
                                                21,623,071
                                                
                                                
                                                $
                                                3,789,303
                                                
                                                
                                                $
                                                17,833,767Manufacturing
      Equipment
                                                
                                                
                                                9,879,240
                                                
                                                
                                                
                                                3,726,939
                                                
                                                
                                                
                                                6,152,302Office
      Equipment
                                                
                                                
                                                286,100
                                                
                                                
                                                
                                                218,239
                                                
                                                
                                                
                                                67,682Vehicles
                                                
                                                
                                                959,502
                                                
                                                
                                                
                                                609,628
                                                
                                                
                                                
                                                349,874Furniture
      & Fixture
                                                
                                                
                                                699,539
                                                
                                                
                                                
                                                320,989
                                                
                                                
                                                
                                                378,550$
                                                33,447,452
                                                
                                                
                                                $
                                                8,665,098
                                                
                                                
                                                $
                                                24,782,354AccumulatedAt
      December 31, 2008:
                                                
                                                Cost
                                                
                                                
                                                Depreciation
                                                
                                                
                                                NetBuildings
                                                
                                                $
                                                21,604,325
                                                
                                                
                                                $
                                                (3,607,219
                                                )
                                                
                                                $
                                                17,997,105Manufacturing
      Equipment
                                                
                                                
                                                10,061,608
                                                
                                                
                                                
                                                (3,132,725
                                                )
                                                
                                                
                                                6,928,883Office
      Equipment
                                                
                                                
                                                195,577
                                                
                                                
                                                
                                                (150,670
                                                )
                                                
                                                
                                                44,907Vehicles
                                                
                                                
                                                913,816
                                                
                                                
                                                
                                                (477,265
                                                )
                                                
                                                
                                                436,551Furniture
      & Fixture
                                                
                                                
                                                524,020
                                                
                                                
                                                
                                                (137,315
                                                )
                                                
                                                
                                                386,705$
                                                33,299,346
                                                
                                                
                                                $
                                                (7,505,196
                                                )
                                                
                                                $
                                                25,794,151





Depreciation expense for the six months
ended June 30, 2009 was 1,159,903.





8.
            Land Use
      Right





The
Company had the following intangible assets outstanding at June 30, 2009 and
December 31, 2008, respectively:-





At
                          
                          
                          AtJune
      30,
                          
                          
                          December
      31,2009
                          
                          
                          2008Land
      Use Rights, at Cost
                          
                          $
                          14,718,789
                          
                          
                          $
                          14,407,503Less: Accumulated
      Amortization
                          
                          
                          (1,401,674
                          )
                          
                          
                          (977,068
                          )$
                          13,317,115
                          
                          
                          $
                          13,430,435




24


Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2009 and December 31, 2008


9.
            Bank
      Loans





At June
30, 2009, the Company had the following short-term loans
outstanding:-





Bank
                                      
                                      InterestRate
                                      
                                      Due
      Date
                                      
                                      AmountBank
      of China
                                      
                                      
                                      6.1586
                                      %
                                      10/26/2009
                                      
                                      $
                                      4,382,889Bank
      of Huaxie
                                      
                                      
                                      6.372
                                      %
                                      3/3/2010
                                      
                                      
                                      4,382,889Bank
      of China
                                      
                                      
                                      7.326
                                      %
                                      10/17/2009
                                      
                                      
                                      2,045,349$
                                      10,811,127





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).





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
                          
                          
                          $
                          21,236,600
                          
                          
                          
                          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
                          
                          
                          $
                          34,280,564
                          
                          
                          
                          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.




25





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008  
 At
                                      
                                      
                                      AtJune
      30,
                                      
                                      
                                      December
      31,2009
                                      
                                      
                                      2008PRC
      Registered Capital
                                      
                                      $
                                      15,566,849
                                      
                                      
                                      $
                                      15,566,849-
      Statutory Reserve Ceilingbased
      on 50% ofRegistered
      Capital
                                      
                                      
                                      7,783,424
                                      
                                      
                                      
                                      7,783,424Less: - Retained
      Earningsappropriated
      toStatutory
      Reserve
                                      
                                      
                                      (2,077,488
                                      )
                                      
                                      
                                      (2,077,488
                                      )Reserve
      CommitmentOutstanding
                                      
                                      $
                                      5,705,936
                                      
                                      
                                      $
                                      5,705,936


12.
            Advertising
      Costs





Advertising
expenses were $48,374 and $50,313 for the six months ended June 30, 2009 and
2008, respectively.





13.
            Income
      Taxes





The
Company’s different operating subsidiaries are subject to different income tax
regulations under PRC law.





The
operating subsidiary, Meat, has been given special tax-free status by the PRC
government because of the Company standing as leader in its industry in Dalian;
therefore, no provision for income tax in the PRC was made for period ended June
30, 2009.





The
Company’s operating subsidiary, Food, has made provision for income taxes for
the six months ended June 30, 2009 of $755,186.





The
Company’s operating subsidiary, Sales, has not made provision for income tax in
2009 as it has incurred operating losses during the six months
period.





After
adjusting for special tax-free status and net operating loss, the consolidated
taxable earnings were determined, and the results were as follows:
-





i.
                        
                        2008
                        
                        Tax
      expense
                        
                        
                        (520,089
                        )ii.
                        
                        2007
                        
                        Tax
      expense
                        
                        
                        (967,539
                        )iii.
                        
                        2006
                        
                        Tax
      benefit
                        
                        
                        1,609





Beginning
December 31, 2007, the Company’s foreign subsidiaries became subject to U.S.
income tax liability; however, the tax is deferred until foreign source income
is repatriated to the Company and the Company has not currently determined when
foreign source income will be repatriated.  Accordingly, the company
has not made any provisions for U.S. income tax liability.




26


Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2009 and December 31, 2008


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 June 30,
2009.





On
December 19, 2007, the Company entered into a hog purchase agreement whereby the
Dalian Chuming Group Co., Ltd will provide at fair market price a minimum number
of hogs to the Company.  At June 30, 2009, the Company expects minimum
quantities of hogs detailed in the following table:-





Year
                                  
                                  Hogs
                                  
                                  
                                  Price
      Per Hog
                                  
                                  
                                  Amount2009
      (July to December)
                                  
                                  
                                  522,794
                                  
                                  
                                  $
                                  187.13
                                  
                                  
                                  $
                                  97,830,4412010
                                  
                                  
                                  800,000
                                  
                                  
                                  $
                                  205.84
                                  
                                  
                                  
                                  164,674,737$
                                  262,505,178





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




15.
              Operating
      Segments





The
Company individually tracks the performance of its three operating subsidiaries
Meat Company, Food Company, and Sales Company. Meat Company is primarily engaged
in the slaughter and processing of pork livestock for wholesale and retail
distribution. Food Company is primarily engaged in the production of pork-based
food products, such as sausages and cured meats, for retail distribution. Sales
Company is primarily engaged in the sale and distribution of products produced
by Food Company and Meat Company.





The chief
operating decision maker is the Chief Executive Officer of the
Company.  He evaluates each operating segment on the following
measures of profit or loss: gross profit, operating income, and earnings before
taxes, and net income. When he makes decisions on the strategic plans of each
operating segment, he considers the foregoing measures of profit or loss and
their impact on the overall performance of the Company as a whole.





Below is
a presentation of the Company’s results of operations and financial position for
its operating subsidiaries at June 30, 2009 and 2008 and for the periods then
ended. The Company has also provided reconciling adjustments with the Company
and its intermediate holding companies Dalian Chuming Precious Sheen Investments
Consulting Ltd. (“Chuming WFOE”) and Precious Sheen Investments Ltd
(PSI).




27


Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2009 and December 31, 2008


Results of
      Operations
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        WFOE,For
      the period ended
                        
                        Meat
                        
                        
                        Food
                        
                        
                        Sales
                        
                        
                        PSI,
      &June
      30, 2009
                        
                        Company
                        
                        
                        Company
                        
                        
                        Company
                        
                        
                        Eliminations
                        
                        
                        TotalSales
                        
                        $
                        84,722,300
                        
                        
                        $
                        12,730,112
                        
                        
                        $
                        21,340,072
                        
                        
                        $
                        (29,760,890
                        )
                        
                        $
                        89,031,594Cost
      of Sales
                        
                        
                        73,893,709
                        
                        
                        
                        9,174,006
                        
                        
                        
                        23,062,712
                        
                        
                        
                        (29,760,890
                        )
                        
                        
                        76,369,536Gross
      Profit
                        
                        
                        10,828,591
                        
                        
                        
                        3,556,107
                        
                        
                        
                        (1,722,640
                        )
                        
                        
                        -
                        
                        
                        
                        12,662,058Operating
      Expense
                        
                        
                        (538,643
                        )
                        
                        
                        (455,499
                        )
                        
                        
                        (1,413,639
                        )
                        
                        
                        (235,427
                        )
                        
                        
                        (2,643,208
                        )Operating
      (Loss)/Profit
                        
                        
                        10,289,947
                        
                        
                        
                        3,100,608
                        
                        
                        
                        (3,136,279
                        )
                        
                        
                        (235,427
                        )
                        
                        
                        10,018,850Other
      Income (Expense)
                        
                        
                        24,948
                        
                        
                        
                        (74,089
                        )
                        
                        
                        (30,528
                        )
                        
                        
                        (8,217,128
                        )
                        
                        
                        (8,296,798
                        )Earnings
      before Tax
                        
                        
                        10,314,895
                        
                        
                        
                        3,026,519
                        
                        
                        
                        (3,166,807
                        )
                        
                        
                        (8,452,555
                        )
                        
                        
                        1,722,052(Income
      Tax Expense)
                        
                        
                        -
                        
                        
                        
                        (755,186
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (755,186
                        )Net
      Income
                        
                        $
                        10,314,895
                        
                        
                        $
                        2,271,333
                        
                        
                        $
                        (3,166,807
                        )
                        
                        $
                        (8,452,555
                        ))
                        
                        $
                        966,866





Eliminated
      Intercompany Sales of Products SoldSold
      From:
                                      
                                      Sold
      To:
                                      
                                      AmountFood
      Company
                                      
                                      Sales
      Company
                                      
                                      $
                                      3,852,759Meat
      Company
                                      
                                      Sales
      Company
                                      
                                      
                                      19,209,953Meat
      Company
                                      
                                      Food
      Company
                                      
                                      
                                      6,698,178$
                                      29,760,890





Financial
      Position
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        WFOE,At
                                                                        
                                                                        Meat
                                                                        
                                                                        
                                                                        Food
                                                                        
                                                                        
                                                                        Sales
                                                                        
                                                                        
                                                                        PSI,
      &June
      30, 2009
                                                                        
                                                                        Company
                                                                        
                                                                        
                                                                        Company
                                                                        
                                                                        
                                                                        Company
                                                                        
                                                                        
                                                                        Eliminations
                                                                        
                                                                        
                                                                        TotalCurrent
      Assets
                                                                        
                                                                        $
                                                                        116,451,431
                                                                        
                                                                        
                                                                        $
                                                                        32,351,523
                                                                        
                                                                        
                                                                        $
                                                                        42,938,287
                                                                        
                                                                        
                                                                        $
                                                                        (130,838,363
                                                                        )
                                                                        
                                                                        $
                                                                        60,902,877Non
      Current Assets
                                                                        
                                                                        
                                                                        25,407,925
                                                                        
                                                                        
                                                                        
                                                                        19,052,099
                                                                        
                                                                        
                                                                        
                                                                        277,864
                                                                        
                                                                        
                                                                        
                                                                        340
                                                                        
                                                                        
                                                                        
                                                                        44,738,228Total
      Assets
                                                                        
                                                                        
                                                                        141,859,356
                                                                        
                                                                        
                                                                        
                                                                        51,403,621
                                                                        
                                                                        
                                                                        
                                                                        43,216,151
                                                                        
                                                                        
                                                                        
                                                                        (130,838,023
                                                                        )
                                                                        
                                                                        
                                                                        105,641,105Current
      Liabilities
                                                                        
                                                                        
                                                                        76,426,537
                                                                        
                                                                        
                                                                        
                                                                        43,224,097
                                                                        
                                                                        
                                                                        
                                                                        49,983,332
                                                                        
                                                                        
                                                                        
                                                                        (141,806,355
                                                                        )
                                                                        
                                                                        
                                                                        27,827,610Total
      Liabilities
                                                                        
                                                                        
                                                                        76,426,537
                                                                        
                                                                        
                                                                        
                                                                        43,224,097
                                                                        
                                                                        
                                                                        
                                                                        49,983,332
                                                                        
                                                                        
                                                                        
                                                                        (141,806,355
                                                                        )
                                                                        
                                                                        
                                                                        27,827,610Net
      Assets
                                                                        
                                                                        
                                                                        65,432,819
                                                                        
                                                                        
                                                                        
                                                                        8,179,525
                                                                        
                                                                        
                                                                        
                                                                        (6,767,181
                                                                        )
                                                                        
                                                                        
                                                                        10,968,332
                                                                        
                                                                        
                                                                        
                                                                        77,813,495Total
      Liabilities&
      Net Assets
                                                                        
                                                                        $
                                                                        141,859,356
                                                                        
                                                                        
                                                                        $
                                                                        51,403,621
                                                                        
                                                                        
                                                                        $
                                                                        43,216,151
                                                                        
                                                                        
                                                                        $
                                                                        (130,838,023
                                                                        )
                                                                        
                                                                        $
                                                                        105,641,105




28





Energroup
Holdings Corporation


Notes
to Consolidated Financial Statements


As
of June 30, 2009 and December 31, 2008




Results
      of Operations
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        WFOE,For
      the period ended
                                                                        
                                                                        Meat
                                                                        
                                                                        
                                                                        Food
                                                                        
                                                                        
                                                                        Sales
                                                                        
                                                                        
                                                                        PSI,
      &June
      30, 2008
                                                                        
                                                                        Company
                                                                        
                                                                        
                                                                        Company
                                                                        
                                                                        
                                                                        Company
                                                                        
                                                                        
                                                                        Eliminations
                                                                        
                                                                        
                                                                        TotalSales
                                                                        
                                                                        $
                                                                        86,094,320
                                                                        
                                                                        
                                                                        $
                                                                        10,710,188
                                                                        
                                                                        
                                                                        $
                                                                        32,809,947
                                                                        
                                                                        
                                                                        $
                                                                        (43,030,832
                                                                        )
                                                                        
                                                                        $
                                                                        86,583,622Cost
      of Sales
                                                                        
                                                                        
                                                                        75,193,539
                                                                        
                                                                        
                                                                        
                                                                        8,612,897
                                                                        
                                                                        
                                                                        
                                                                        32,299,248
                                                                        
                                                                        
                                                                        
                                                                        (43,030,832
                                                                        )
                                                                        
                                                                        
                                                                        73,074,852Gross
      Profit
                                                                        
                                                                        
                                                                        10,900,781
                                                                        
                                                                        
                                                                        
                                                                        2,097,291
                                                                        
                                                                        
                                                                        
                                                                        510,699
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        13,508,771Operating
      Expense
                                                                        
                                                                        
                                                                        (1,561,818
                                                                        )
                                                                        
                                                                        
                                                                        (809,103
                                                                        )
                                                                        
                                                                        
                                                                        (1,243,301
                                                                        )
                                                                        
                                                                        
                                                                        (116,994
                                                                        )
                                                                        
                                                                        
                                                                        (3,731,216
                                                                        )Operating
      (Loss)/Profit
                                                                        
                                                                        
                                                                        9,338,963
                                                                        
                                                                        
                                                                        
                                                                        1,288,188
                                                                        
                                                                        
                                                                        
                                                                        (732,602
                                                                        )
                                                                        
                                                                        
                                                                        (116,994
                                                                        )
                                                                        
                                                                        
                                                                        9,777,555Other
      Income (Expense)
                                                                        
                                                                        
                                                                        601,323
                                                                        
                                                                        
                                                                        
                                                                        (494,618
                                                                        )
                                                                        
                                                                        
                                                                        124,143
                                                                        
                                                                        
                                                                        
                                                                        80,150
                                                                        
                                                                        
                                                                        
                                                                        310,998Earnings
      before Tax
                                                                        
                                                                        
                                                                        9,940,286
                                                                        
                                                                        
                                                                        
                                                                        793,570
                                                                        
                                                                        
                                                                        
                                                                        -608,460
                                                                        
                                                                        
                                                                        
                                                                        -36,843
                                                                        
                                                                        
                                                                        
                                                                        10,088,553(Income
      Tax Expense)
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        232,368
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        232,368Net
      Income
                                                                        
                                                                        $
                                                                        9,940,286
                                                                        
                                                                        
                                                                        $
                                                                        561,202
                                                                        
                                                                        
                                                                        $
                                                                        (608,460
                                                                        )
                                                                        
                                                                        $
                                                                        (36,843
                                                                        )
                                                                        
                                                                        $
                                                                        9,856,185


Eliminated
      Intercompany Sales of Products SoldSold
      From:
                        
                        Sold
      To:
                        
                        AmountFood
      Company
                        
                        Sales
      Company
                        
                        $
                        7,133,567Meat
      Company
                        
                        Sales
      Company
                        
                        
                        28,633,827Meat
      Company
                        
                        Food
      Company
                        
                        
                        7,263,438$
                        43,030,832





Financial
      Position
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          WFOE,At
                                          
                                          Meat
                                          
                                          
                                          Food
                                          
                                          
                                          Sales
                                          
                                          
                                          PSI,
      &December
      31, 2008
                                          
                                          Company
                                          
                                          
                                          Company
                                          
                                          
                                          Company
                                          
                                          
                                          Eliminations
                                          
                                          
                                          TotalCurrent
      Assets
                                          
                                          $
                                          74,713,237
                                          
                                          
                                          $
                                          21,126,826
                                          
                                          
                                          $
                                          41,826,291
                                          
                                          
                                          $
                                          (89,504,485
                                          )
                                          
                                          $
                                          48,161,869Non
      Current Assets
                                          
                                          
                                          22,624,642
                                          
                                          
                                          
                                          19,570,329
                                          
                                          
                                          
                                          325,480
                                          
                                          
                                          
                                          1,088
                                          
                                          
                                          
                                          42,521,539Total
      Assets
                                          
                                          
                                          97,337,879
                                          
                                          
                                          
                                          40,697,155
                                          
                                          
                                          
                                          42,151,771
                                          
                                          
                                          
                                          (89,503,397
                                          )
                                          
                                          
                                          90,683,408Current
      Liabilities
                                          
                                          
                                          42,293,137
                                          
                                          
                                          
                                          34,796,536
                                          
                                          
                                          
                                          45,747,946
                                          
                                          
                                          
                                          (99,079,858
                                          )
                                          
                                          
                                          23,757,761Total
      Liabilities
                                          
                                          
                                          42,293,137
                                          
                                          
                                          
                                          34,796,536
                                          
                                          
                                          
                                          45,747,946
                                          
                                          
                                          
                                          (99,079,858
                                          )
                                          
                                          
                                          23,757,761Net
      Assets
                                          
                                          
                                          55,044,742
                                          
                                          
                                          
                                          5,900,619
                                          
                                          
                                          
                                          (3,596,175
                                          )
                                          
                                          
                                          9,576,462
                                          
                                          
                                          
                                          66,925,647Total
      Liabilities&
      Net Assets
                                          
                                          $
                                          97,337,879
                                          
                                          
                                          $
                                          40,697,155
                                          
                                          
                                          $
                                          42,151,771
                                          
                                          
                                          $
                                          (89,503,396
                                          )
                                          
                                          $
                                          90,683,408




29


Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2009 and December 31, 2008





16.
            Earnings Per
      Share





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





For
      six
                    
                    
                    For
      sixmonths
      ended
                    
                    
                    months
      endedJune
      30,
                    
                    
                    June
      30,2009
                    
                    
                    2008Net
      Income (A)
                    
                    $
                    966,866
                    
                    
                    $
                    9,856,185Basic
      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)
                    
                    $
                    0.056
                    
                    
                    $
                    0.571-
      Diluted
      (A)/(C)
                    
                    $
                    0.046
                    
                    
                    $
                    0.465Weighted
      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.





30


Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2009 and December 31, 2008


18.
            Financing
      Transaction





On
December 31, 2007, the Company, a Nevada corporation (“Energroup” or the
“Company”), acquired Precious Sheen Investments Ltd. (“PSI”) in a reverse
take-over transaction, by executing a Share Exchange Agreement (“Exchange
Agreement”) by and among Energroup, PSI, and all of the shareholders of PSI’s
issued and outstanding share capital (the “PSI Shareholders”). PSI owned 100% of
the equity in Chuming WFOE. Chuming WFOE is a holding company for the following
three operating subsidiaries: (i) Meat Company, (ii) Food Company, and (iii)
Sales Company, each of which is a limited liability company headquartered in,
and organized under the laws of, China (also referred to elsewhere as the
“Chuming Operating Subsidiaries”).





As a
result of the reverse take-over transaction, PSI’s Shareholders became
Energroup’s controlling shareholders and PSI became Energroup’s wholly-owned
subsidiary. As a result of PSI becoming Energroup’s wholly-owned subsidiary,
Energroup acquired the business and operations of Chuming and the Chuming
Operating Subsidiaries.





Under the
Exchange Agreement, Energroup completed the acquisition of all of the issued and
outstanding shares of PSI through the issuance of 16,850,000 restricted shares
of common stock of Energroup to PSI’s Shareholders. Immediately prior to the
Exchange Agreement transaction, the Company had 422,756 shares of common stock
issued and outstanding. Immediately after the issuance of the shares to PSI’s
Shareholders, the Company had 17,272,756 shares of common stock issued and
outstanding. The 422,756 shares of PSI were cancelled and 17,272,756 shares of
Energroup were issued to reflect this reverse take-over
transaction.





Concurrently
with the Exchange Agreement, Energroup also entered into a Securities Purchase
Agreement (the “Purchase Agreement”) pursuant to which Energroup agreed to issue
and sell 3,863,635 shares of its common stock to ten accredited investors for an
aggregate purchase price of $17,000,000 or $4.40 per share (the “Financing”).
The closing of the Financing coincided with the Closing of the reverse take-over
transaction.





In
connection with the sales of securities to accredited investors under the
securities purchase agreement, Hunter Wise Financial Group, LLC (the “Placement
Agent”), was compensated with a commission of $1,190,000 which is equal to 7.00%
of the aggregate purchase price and a warrant to purchase the 386,364 shares of
the Company’s common stock at an exercise price of $4.40 per
share.  At December 31, 2007, the Company had adequate authorized
capital to issue common shares upon the exercise of the warrant.





At June
30, 2009, the total number of shares outstanding, on a fully diluted basis, is
shown in the following table:





i.
                    
                    Common
      shares outstanding prior to offering of securities
                    
                    
                    17,272,756ii.
                    
                    Common
      shares issued under securities purchase agreement
                    
                    
                    3,863,636iii.
                    
                    Common
      shares issuable upon exercise of placement agent warrants
                    
                    
                    -21,136,392




31


Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of June 30, 2009 and December 31, 2008


Concurrent
with the Company’s financing transaction, the Company agreed to register for
resale the common shares that were sold under the securities purchase
agreement.  Pursuant to filing a Form S-1 registration statement with
the U.S. Securities and Exchange Commission, the Company entered into a
Registration Rights Agreement with the Investors.  The agreement calls
for liquidated damages to be paid by the Company, if in the event the
registration statement is not declared effective within 135 days of the closing
of the financing transaction.  The liquidated damages will be 1% of
the total financing amount in cash per month for each month after the 135 days
period.  The agreement states a maximum penalty of $1.70 million or
10% of the financing amount. At December 31, 2007, the Company accounted for the
liability under the registration rights agreement in accordance with FASB Staff
Position No. EITF 00-19-2 Accounting for Registration Payment
Arrangements.  Under such accounting treatment, the liquidated
damages are accounted for as a reduction of the proceeds.  In
asserting the most conservative position, the Company has accrued the maximum
liability of $1.7 million and is carrying that balance in the accrued
liabilities account. In the event that the registration becomes effective in a
timeframe that is earlier than February 15, 2009, the portion that is not
legally owed, or in the event that investors waive any liquidating damages, the
accrual will be reversed and the funds will be added back to the Company’s
additional paid in capital.





In
connection with a make good agreement related to the financing transaction on
December 31, 2007, the Company’s Chairman and CEO, Mr. Shi Huashan placed in
escrow 3,863,636 shares, which were beneficially owned by him.  These
shares are to be released back to him if the Company meets the following
earnings targets of $15.9 million, and $20.9 million in after-tax net income for
the years ended December 31, 2008, and 2009 respectively. In the event that the
Company does not meet the aforementioned financial targets, the escrowed shares
will be released, on a pro-rata basis, to the investors in the financing
transaction.  In accordance with SFAS 128, Earnings per Share, for the
sake of calculating the Company’s earnings per share, the Company has accounted
for the 3,863,636 escrowed shares as contingently issuable shares as such they
are not included in the weighted average basic shares outstanding but are
included in the weighted average diluted shares outstanding.  Please
refer to Note 16.





In
accordance with Topic 5.T of the Staff Accounting Bulletins (SAB 79), the
Company expects to record a compensatory expense for the shares upon their
release from escrow.  Whether the shares are released to the
accredited investors or released to Mr. Shi the Company will record an expense
with a corresponding credit to the Company’s contributed paid in
capital.  The Company anticipates that compensatory expense to be
recognized in future operating periods could be in a range between $17.0 million
to $29.2 million.  The Company approximates this range based on the
per share offering price of $4.40 at December 31, 2007 and a potential future
stock price of $7.57 based on a $20.0 million net income (short of the target of
$20.9 million net income) with a price-to-earnings ratio of 8.0, which is
comparable to the valuation used in the offering at December 31,
2007.





For the
year ended December 31, 2008, the Company recorded an expense for the expected
release of shares deposited in the escrow account. The Company expects that
1,931,818 shares will be released.  The amount of expense recorded was
$10,622,294.  The impact on earnings per share, on a basic and diluted
basis, was $0.61 and $0.50, respectively. Simultaneously, for the six months
ended June 30, 2009, the Company expects that 965,910 shares will be released
and have recorded the expense of $8,218,227. The impact on earnings per share,
on a basic and diluted basis, was $0.48 and $0.39, respectively.





32




ITEM 2.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL
      CONDITION ANDRESULTS 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 7.5%) in the second
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.


33





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





As of
June 30, 2009, we had 705 employees, of whom 374 were operating personnel, 246
were sales personnel, 36 were research and development personnel and 49 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;
  and


3.
              Dalian Chuming Sales Company Ltd.
      (“Sales Company”), which is responsible for our sales, marketing and
      distribution
operations.




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





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





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





Our
total sales volume was 27,697 metric tons in the second quarter of
2009, 18,512 metric tons in the first quarter of 2009, 18,007 metric tons
in the fourth quarter of 2008, and 17,513 metric 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.  The average pork price has declined somewhat from
the first quarter of 2009, mainly because of perceptions arising from the
appearance of swine flu in late April and early May.  In June 2009,
the Chinese government purchased and placed in storage large quantities of pork
products in order to adjust the pork price in an effort to cause it to rebound
to a reasonable level.  As a result of this action, the prices of pork
have been rising since July 2009, and have risen to a level higher than the
prices seen during the first quarter of 2009.  The prices are
continuing to trend higher.


34





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.





Management
believes that we need to broaden our geographic sales network and diversify our
customer base. Currently our distribution network is principally located in
Liaoning Province, especially Dalian city. We have however expanded our sales
network for fresh and processed food products to almost all large and medium
cities in the three most northeast province of China. In the near future we need
to further extend this network and penetrate all the northeast provinces of
China with all our products. A broader customer base can not only mitigate our
reliance on certain big customers, but also bring us more opportunities. We
believe a broader market for our products can increase demand for our products,
reduce our vulnerability to market changes, and provide additional areas of
growth in the future.





Our top
five customers accounted for 36.30% for our total sales for the quarter ended
June 30, 2009. We plan to position our business to diversify our customer base,
which is expected to lower this percentage gradually in the future.





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





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





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





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


35


Method
of Accounting





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





Principles
of Consolidation





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




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





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





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





Use
of Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could
differ materially from these estimates.





Accounts
Receivable





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


36


Inventory
Carrying Value





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





Property,
Plant, and Equipment





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





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





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




Land
Use Rights





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





Customer
Deposits





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





Statutory
Reserve





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


37


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 June 30, 2009 and June 30, 2008.





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





Quarter Ended
                        June 30,
                      
                      
                      % of
                      
                      
                      Quarter Ended
                        June 30,
                      
                      % of2009
                      
                      
                      Sales
                      
                      
                      2008
                      
                      SalesSales
                      
                      $
                      48,137,671
                      
                      
                      
                      100.00
                      %
                      
                      $
                      43,076,524
                      
                      100.00
                      %Cost
      of Sales
                      
                      
                      (41,200,068
                      )
                      
                      
                      85.59
                      %
                      
                      
                      (36,600,428
                      )
                      84.97
                      %Gross
      Profit
                      
                      
                      6,937,604
                      
                      
                      
                      14.41
                      %
                      
                      
                      6,476,097
                      
                      15.03
                      %Selling
      Expenses
                      
                      
                      (507,404
                      )
                      
                      
                      1.05
                      %
                      
                      
                      (759,778
                      )
                      1.76
                      %General
      & Administrative Expenses
                      
                      
                      (711,732
                      )
                      
                      
                      1.48
                      %
                      
                      
                      (653,187
                      )
                      1.52
                      %Total
      Operating Expense
                      
                      
                      (1,219,136
                      )
                      
                      
                      2.53
                      %
                      
                      
                      (1,322,965
                      )
                      3.07
                      %Operating
      Income / (Loss)
                      
                      
                      5,718,467
                      
                      
                      
                      11.88
                      %
                      
                      
                      5,063,132
                      
                      11.75
                      %Other
      Income (Expense)
                      
                      
                      
                      
                      
                      
                      0.00
                      %
                      
                      
                      358,850
                      
                      0.83
                      %Earnings
      Before Tax
                      
                      
                      1,029,823
                      
                      
                      
                      2.14
                      %
                      
                      
                      5,680,991
                      
                      13.19
                      %(Income
      Tax Expense) / Deferred Tax Benefit
                      
                      
                      (474,978
                      )
                      
                      
                      0.99
                      %
                      
                      
                      (66,023
                      )
                      0.15
                      %Net
      Income
                      
                      $
                      554,845
                      
                      
                      
                      1.15
                      %
                      
                      $
                      5,614,968
                      
                      13.03
                      %Earnings
      Per ShareBasic
                      
                      $
                      0.032
                      
                      
                      
                      
                      
                      
                      $
                      0.325Diluted
                      
                      
                      0.026
                      
                      
                      
                      
                      
                      
                      
                      0.265Weighted
      Average Shares OutstandingBasic
                      
                      
                      17,272,756
                      
                      
                      
                      
                      
                      
                      
                      17,272,756Diluted
                      
                      
                      21,136,392
                      
                      
                      
                      
                      
                      
                      
                      21,182,756


Sales. Our sales include
revenues from sales of our fresh pork, frozen pork, and processed food products.
During the quarter ended June 30, 2009, we had sales of $48,137,671 as compared
to sales of $43,076,524 for the quarter ended June 30, 2008, an increase of
approximately 11.75%. Our sales for our various product categories in the second
quarter of 2009 are summarized as follows:


38




Sales by product category, in
                  dollars:
                
                Second
                  Quarter
                  2009
                  (amount)
                
                
                % of Total
                  Sales
                
                
                Second
                  Quarter
                  2008
                  (amount)
                
                
                % of
                  Total Sales
                
                
                % of
                  increase
                  from
                  2008 to 2009Fresh
      Pork
                
                $
                36,298,849
                
                
                
                75.41
                %
                
                $
                35,361,296
                
                
                
                82.09
                %
                
                
                2.65
                %Frozen
      Pork
                
                
                4,485,295
                
                
                
                9.32
                %
                
                
                2,334,238
                
                
                
                5.42
                %
                
                
                92.15
                %Processed
      Food Products
                
                
                7,353,527
                
                
                
                15.28
                %
                
                
                5,380,990
                
                
                
                12.49
                %
                
                
                36.66
                %Total
      Sales
                
                $
                48,137,671
                
                
                
                100
                %
                
                
                43,076,524
                
                
                
                100
                %
                
                
                11.75
                %





Sales by product category, by
                  weight of product (metric tons):
                
                Second
                  Quarter
                  2009
                  (Weight in
                  tons)
                
                
                % of
                  Total Sales
                
                
                Second
                  Quarter
                  2008
                  (Weight in
                  tons)
                
                
                % of
                  Total Sales
                
                
                % of change
                  from
                  2008 to 2009Fresh
      Pork
                
                
                21,904
                
                
                
                79.08
                %
                
                
                15,445
                
                
                
                81.10
                %
                
                
                41.82
                %Frozen
      Pork
                
                
                2,986
                
                
                
                10.78
                %
                
                
                1,173
                
                
                
                6.16
                %
                
                
                154.56
                %Processed
      Food Products
                
                
                2,807
                
                
                
                10.13
                %
                
                
                2,426
                
                
                
                12.74
                %
                
                
                15.70
                %Total
      Sales
                
                
                27,697
                
                
                
                100
                %
                
                
                19,044
                
                
                
                100
                %
                
                
                45.44
                %





In the
second 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 second quarter of 2009,
our sales volume of fresh pork and frozen pork (by weight) increased as compared
to the second quarter of 2008, with the frozen pork category continuing
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
second quarter of 2009 as compared with the same period in the prior year.
  For processed food products, our sales by weight increased by
15.70%, but because of higher per-kilogram prices, our sales revenue for this
product category increased by 36.66%. 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 June 30, 2009, as compared to the
same quarter last year:





Average Per-Kilogram Price to Customers (in $US)Second
                  quarter of
                  2009
                
                
                Second
                  quarter of
                  2008
                
                % change
                
                
                Change in
                  PriceFresh
      Pork
                
                $
                1.66
                
                
                $
                2.29
                
                
                
                -0.28
                %
                
                $
                -0.63Frozen
      Pork
                
                $
                1.50
                
                
                $
                1.99
                
                
                
                -0.25
                %
                
                $
                -0.49Processed
      Food Products
                
                $
                2.62
                
                
                $
                2.22
                
                
                
                0.18
                %
                
                $
                0.40




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 June 30,
                  
                  Showcase
                    Stores
                  
                  
                  Supermarkets
                  
                  
                  Restaurants
                    and
                    Canteens2008
                  
                  
                  682
                  
                  
                  
                  140
                  
                  
                  
                  3,1722009
                  
                  
                  906
                  
                  
                  
                  546
                  
                  
                  
                  4,983


39


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





Cost of Sales. Cost of sales
for the second quarter of 2009 increased by $4,599,640 or approximately 12.57%,
from $36,600,428 for the three months ended June 30, 2008 to $41,200,068 for the
three months ended June 30, 2009. The increase was principally attributable to
the concession on the sales price of the products to our sales agents
on the condition that the sales agents assume marketing expenses in selling
our products starting in the third quarter of 2008. Our cost of sales for our
various product categories in the second 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
                  Second
                  quarter
                
                
                % of
                  Overall Cost
                  of
                
                
                Cost of Sales
                  Second
                  quarter
                
                
                % of
                  Overall Cost
                  of
                
                
                % of
                  Change
                  fromProduct
      Category
                
                2009
                
                
                Sales
                
                
                2008
                
                
                Sales
                
                
                2008
      to 2009Fresh
      Pork
                
                $
                31,905,635
                
                
                
                77.44
                %
                
                $
                30,442,496
                
                
                
                83.18
                %
                
                
                4.81
                %Frozen
      Pork
                
                
                3,885,010
                
                
                
                9.43
                %
                
                
                1,960,760
                
                
                
                5.36
                %
                
                
                98.14
                %Processed
      Food Products
                
                
                5,409,423
                
                
                
                13.13
                %
                
                
                4,197,172
                
                
                
                11.47
                %
                
                
                28.88
                %Total
      Cost of Sales
                
                $
                41,200,068
                
                
                
                100
                %
                
                $
                36,600,428
                
                
                
                100
                %
                
                
                12.57
                %





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





Product Category:
                
                Cost of Sales
                  Second
                  quarter
                  2009
                
                
                % of
                  Product
                  Group Sales
                
                
                Cost of Sales
                  Second
                  quarter
                  2008
                
                
                % of
                  Product
                  Group Sales
                
                
                % Change
                  Product
                  Group SalesFresh
      Pork
                
                $
                31,905,635
                
                
                
                87.90
                %
                
                $
                30,442,496
                
                
                
                86.09
                %
                
                
                1.81
                %Frozen
      Pork
                
                
                3,885,010
                
                
                
                86.62
                %
                
                
                1,960,760
                
                
                
                84.00
                %
                
                
                2.62
                %Processed
      Food Products
                
                
                5,409,423
                
                
                
                73.56
                %
                
                
                4,197,172
                
                
                
                78.00
                %
                
                
                -4.44
                %Total
      Cost of Sales
                
                $
                41,200,068
                
                
                
                85.59
                %
                
                $
                36,600,428
                
                
                
                84.97
                %
                
                
                0.62
                %





Our cost
of sales of fresh pork products increased by 4.81% and by 1.81% as a percentage
of sales of fresh pork products, in each case as compared to the second quarter
of 2008. This change resulted principally from the concession on the sales price
of the products to our sales agents on the condition that the sales agents
assume marketing expenses in selling our products starting in the third quarter
of 2008. Our cost of sales of frozen pork products increased by 98.14%
and by 2.62% as a percentage of sales of frozen pork products, in each case
as compared to the second quarter of 2008, because production and sales of this
product increased over the respective periods. During the second quarter of
2009, the cost of sales of processed food products increased by 28.88% and
decreased by 4.44% 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 of cost of sales was the higher transportation and delivery cost
associated with an expanded sales range of this product period over
period.





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


40





Average
                  Unit
                  Price Per
                  Kilogram
                  in 2009
                  (in $US)
                
                
                Average
                  Unit
                  Price Per
                  Kilogram
                  in 2008
                  (in $US)
                
                
                PriceIncrease
                  (in $US)
                
                
                %Increase
                  from 2008 to 2009First
      Quarter
                
                
                1.7652
                
                
                
                2.2936
                
                
                
                -0.5284
                
                
                
                -23.03
                %Second
      Quarter
                
                
                1.5032
                
                
                
                2.2578
                
                
                
                -0.7546
                
                
                
                -33.42
                %Third
      Quarter
                
                
                N/A
                
                
                
                2.2513
                
                
                
                N/A
                
                
                
                N/AFourth
      Quarter
                
                
                N/A
                
                
                
                2.105
                
                
                
                N/A
                
                
                
                N/A





Gross Profit. Gross profit
was $6,937,604 for the three months ended June 30, 2009 as compared to
$6,476,097 for the same period in 2008, representing an increase of $461,507, or
approximately 7.13%. Management attributes the increase in gross profit to
increased sales volume of all three product groups and increased pricing on
processed pork products. Our gross profit as a percentage of sales was 14.41% in
the second quarter of 2009 as compared to 15.03% for the same period in
2008.





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





Product Group
                
                Gross
                  Profit
                  Second
                  quarter
                  of 2009
                
                
                % of
                  Product
                  Group
                  Sales
                
                
                Gross
                  Profit
                  Second
                  quarter
                  of 2008
                
                
                % of
                  Product
                  Group
                  Sales
                
                
                % of
                  increase
                  from
                  Second
                  quarter of
                  2008 to
                  Second
                  Quarter of
                  2009Fresh
      Pork
                
                $
                4,393,214
                
                
                
                12.10
                %
                
                $
                4,918,801
                
                
                
                13.91
                %
                
                
                -10.69
                %Frozen
      Pork
                
                
                600,285
                
                
                
                13.38
                %
                
                
                373,478
                
                
                
                16.00
                %
                
                
                60.73
                %Processed
      Food Products
                
                
                1,944,104
                
                
                
                26.44
                %
                
                
                1,183,818
                
                
                
                22.00
                %
                
                
                64.22
                %Total
      Gross Profit
                
                $
                6,937,604
                
                
                
                14.41
                %
                
                $
                6,476,097
                
                
                
                15.03
                %
                
                
                7.13
                %





In the
second quarter of 2009, the gross profit of the fresh pork segment fell by
10.69% as compared to the same period last year principally due to lower
average-per-kilogram prices to customers which offset sales volume increases in
this segment.  The gross profit of the frozen pork products segment
increased by 60.73% as compared to the same period last year primarily due to
the dramatic increase of the sales volume in this segment despite a lower
per-kilogram unit price to customers. The processed food products segment
continued to yield period over period a gross profit amount that was the highest
among all the product groups as a percentage of product group sales.
Because of the high margins and increased prices to consumers of this product,
we were able to maintain a stable amount of gross profit in dollar terms
for this product period over period.




Selling Expenses. Selling
expenses totaled $507,404 for the three months ended June 30, 2009, as compared
to $759,778 for the same period in 2008, a decrease of $252,374 or 33.22%. 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 $711,732 for the
three months ended June 30, 2009 as compared to $653,187 for the same period in
2008, an increase of $58,545 or 8.96%. This change is primarily attributable to
increased outside legal fees and audit fees, and increased
staff.


41


Other income (Expense).Our
other income (expense) consists of interest income, other expenses, and interest
expense.  In the second quarter of 2009, we had no other income
(expenses); however, we did have income of $141,820 from a government
subsidy.  Our total other income  in the second quarter of
2009 decreased by $358,850, or 100% as compared to the same period in
2008.  This decrease in other income is primarily attributable to the
decrease of rental income from our frozen storage facility and the exclusion of
the government subsidy that was part of other income in prior
periods.





Net Income. Net income for
the three months ended June 30, 2009 was $554,845 as compared to $5,614,968 for
the same period in 2008, a decrease of $5,060,123 or 90.12%. This decrease in
net income is attributable to a compensatory expense arising from the expected
release of 965,910 of our shares from an escrow arrangement entered into as part
of a private equity financing consummated by us in December 2007.  See
note 18 of the consolidated financial statements included in Item 1 of this
Quarterly Report on Form 10-Q.





Comparison
of Six Months Ended June 30, 2009 and June 30, 2008.





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





Six
                    Months Ended
                    June 30,
                  
                  
                  % of
                  
                  
                  Six
                    Months Ended
                    June 30,
                  
                  % of2009
                  
                  
                  Sales
                  
                  
                  2008
                  
                  SalesSales
                  
                  $
                  89,031,594
                  
                  
                  
                  100.00
                  %
                  
                  $
                  86,583,622
                  
                  100.00
                  %Cost
      of Sales
                  
                  
                  (76,369,536
                  )
                  
                  
                  85.78
                  %
                  
                  
                  (73,074,852
                  )
                  84.40
                  %Gross
      Profit
                  
                  
                  12,662,058
                  
                  
                  
                  14.22
                  %
                  
                  
                  13,508,771
                  
                  15.60
                  %Selling
      Expenses
                  
                  
                  (1,372,363
                  )
                  
                  
                  1.54
                  %
                  
                  
                  (2,585,055
                  )
                  2.99
                  %General
      & Administrative Expenses
                  
                  
                  (1,270,845
                  )
                  
                  
                  1.43
                  %
                  
                  
                  (1,146,161
                  )
                  1.32
                  %Total
      Operating Expense
                  
                  
                  (2,643,208
                  )
                  
                  
                  2.97
                  %
                  
                  
                  (3,731,216
                  )
                  4.31
                  %Operating
      Income / (Loss)
                  
                  
                  10,018,850
                  
                  
                  
                  11.25
                  %
                  
                  
                  9,777,555
                  
                  11.29
                  %Other
      Income (Expense)
                  
                  
                  28,348
                  
                  
                  
                  0.03
                  %
                  
                  
                  383,119
                  
                  0.44
                  %Earnings
      Before Tax
                  
                  
                  1,722,052
                  
                  
                  
                  1.93
                  %
                  
                  
                  10,088,553
                  
                  11.65
                  %(Income
      Tax Expense) / Deferred Tax Benefit
                  
                  
                  (755,186
                  )
                  
                  
                  0.85
                  %
                  
                  
                  (232,368
                  )
                  0.27
                  %Net
      Income
                  
                  $
                  966,866
                  
                  
                  
                  1.09
                  %
                  
                  $
                  9,856,185
                  
                  11.38
                  %Earnings
      Per ShareBasic
                  
                  $
                  0.056
                  
                  
                  
                  
                  
                  
                  $
                  0.571Diluted
                  
                  
                  0.046
                  
                  
                  
                  
                  
                  
                  
                  0.465Weighted
      Average Shares OutstandingBasic
                  
                  
                  17,272,756
                  
                  
                  
                  
                  
                  
                  
                  17,272,756Diluted
                  
                  
                  21,136,392
                  
                  
                  
                  
                  
                  
                  
                  21,182,756




Sales. Our sales include
revenues from sales of our fresh pork, frozen pork, and processed food products.
During the first half year of 2009, we had sales of $89,031,594 as compared to
sales of $86,583,622 for the first half year of 2008, an increase of
approximately 2.83%. Our sales for our various product categories in the first
half year of 2009 are summarized as follows:


42





Sales by product category, in
                  dollars:
                
                Six Months
                  Ended June
                  30, 2009
                  (amount)
                
                
                % of Total
                  Sales
                
                
                Six Months
                  Ended June
                  30, 2008
                  (amount)
                
                
                % of
                  Total Sales
                
                
                % of
                  increase
                  from
                  2008 to 2009Fresh
      Pork
                
                $
                67,849,003
                
                
                
                76.21
                %
                
                $
                71,746,282
                
                
                
                82.86
                %
                
                
                -5.43
                %Frozen
      Pork
                
                
                8,441,401
                
                
                
                9.48
                %
                
                
                4,692,323
                
                
                
                5.42
                %
                
                
                79.90
                %Processed
      Food Products
                
                
                12,741,190
                
                
                
                14.31
                %
                
                
                10,145,017
                
                
                
                11.72
                %
                
                
                25.59
                %Total
      Sales
                
                $
                89,031,594
                
                
                
                100
                %
                
                
                86,583,622
                
                
                
                100
                %
                
                
                2.83
                %





Sales by product category, by
                  weight of product (metric tons):
                
                Six Months
                  Ended June
                  30,2009
                  (Weight in
                  tons)
                
                
                % of
                  Total Sales
                
                
                Six Months
                  Ended June
                  30,2008
                  (Weight in
                  tons)
                
                
                % of
                  Total Sales
                
                
                % of change
                  from
                  2008 to 2009Fresh
      Pork
                
                
                36,149
                
                
                
                78.23
                %
                
                
                29,442
                
                
                
                80.54
                %
                
                
                22.78
                %Frozen
      Pork
                
                
                5,567
                
                
                
                12.05
                %
                
                
                2,259
                
                
                
                6.18
                %
                
                
                146.44
                %Processed
      Food Products
                
                
                4,493
                
                
                
                9.72
                %
                
                
                4,856
                
                
                
                13.28
                %
                
                
                -7.48
                %Total
      Sales
                
                
                46,209
                
                
                
                100
                %
                
                
                36,557
                
                
                
                100
                %
                
                
                26.40
                %





In the
first half year 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 half year of 2009,
our sales volume of fresh pork and frozen pork (by weight) increased, with the
frozen pork category continuing 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 half year 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 7.48%, but because of higher
per-kilogram prices, our sales revenue for this product category increased by
25.59%. 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 first half year of 2009, as compared to the same
period last year:





Average Per-Kilogram Price to Customers (in $US)Six
      Months
                  Ended
      June
                  30,
      2009
                
                
                Six
      Months
                    Ended
      June
                  30,
      2008
                
                % change
                
                
                Change in
                  PriceFresh
      Pork
                
                $
                1.88
                
                
                $
                2.44
                
                
                
                -0.23
                %
                
                $
                -0.56Frozen
      Pork
                
                $
                1.52
                
                
                $
                2.08
                
                
                
                -0.27
                %
                
                $
                -0.56Processed
      Food Products
                
                $
                2.84
                
                
                $
                2.09
                
                
                
                0.36
                %
                
                $
                0.75






Cost of Sales. Cost of sales
for the first half year of 2009 increased by $3,294,684 or approximately 4.51%,
from $73,074,852 for the first half year of 2008 to $76,369,536 for the first
half year of 2009. The increase was principally attributable to the concession
on the sales price of the products to sales agents on a condition that sales
agent assumes marketing expenses in selling our products, starting in the third
quarter of 2008. Our cost of sales for our various product categories in the
first half year of each of 2009 and 2008 is summarized and shown as a percentage
of overall cost of sales in the following chart:





Six
      Months
                          Ended
                          June
      30,
                    
                    
                    % of
                      Overall
                      Cost of
                    
                    
                    Six
      Months
                        Ended
                        June
      30,
                    
                    
                    % of
                      Overall Cost
                      of
                    
                    
                    % of
                      increase
                      fromProduct
      Category
                    
                    2009
                    
                    
                    Sales
                    
                    
                    2008
                    
                    
                    Sales
                    
                    
                    2008
      to 2009Fresh
      Pork
                    
                    $
                    59,685,172.07
                    
                    
                    
                    78.15
                    %
                    
                    $
                    61,814,148
                    
                    
                    
                    84.59
                    %
                    
                    
                    -3.44
                    %Frozen
      Pork
                    
                    
                    7,311,653.76
                    
                    
                    
                    9.57
                    %
                    
                    
                    3,755,302
                    
                    
                    
                    5.14
                    %
                    
                    
                    94.70
                    %Processed
      Food Products
                    
                    
                    9,372,711.16
                    
                    
                    
                    12.27
                    %
                    
                    
                    7,505,402
                    
                    
                    
                    10.27
                    %
                    
                    
                    24.88
                    %Total
      Cost of Sales
                    
                    $
                    76,369,536.00
                    
                    
                    
                    100
                    %
                    
                    $
                    73,074,852
                    
                    
                    
                    100
                    %
                    
                    
                    4.51
                    %


43





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





Product Category:
                
                Cost of Sales
                  Six
      Months
                      Ended
                      June
      30,2009
                
                
                % of
                  Product
                  Group
                  Sales
                
                
                Cost of Sales
                    Six
      Months
                        Ended
                        June
      30,2008
                
                
                % of
                  Product
                  Group
                  Sales
                
                
                % Change
                  Product
                  Group
                  SalesFresh
      Pork
                
                $
                59,685,172.07
                
                
                
                87.97
                %
                
                $
                61,814,148
                
                
                
                86.16
                %
                
                
                1.81
                %Frozen
      Pork
                
                
                7,311,653.76
                
                
                
                86.62
                %
                
                
                3,755,302
                
                
                
                80.03
                %
                
                
                6.56
                %Processed
      Food Products
                
                
                9,372,711.16
                
                
                
                73.56
                %
                
                
                7,505,402
                
                
                
                73.98
                %
                
                
                -0.42
                %Total
      Cost of Sales
                
                $
                76,369,537.00
                
                
                
                85.78
                %
                
                $
                73,074,852
                
                
                
                84.40
                %
                
                
                1.38
                %





Our cost
of sales of fresh pork products decreased by 3.44% and increased by 1.81% as a
percentage of sales of fresh pork products, in each case as compared to the
first half year of 2008. This change resulted principally from the concession on
the sales price of the products to our sales agents on the condition that
the sales agents assume marketing expenses in selling our products starting
in the third quarter of 2008. Our cost of sales of frozen pork products
increased by 94.70% and by 6.56% as a percentage of sales of frozen pork
products, in each case as compared to the first half year of 2008, because
production and sales of this product increased over the respective periods.
During the first half year of 2009, the cost of sales of processed food products
increased by 24.88% and decreased by 0.42% 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.




Gross Profit. Gross profit
was $12,662,058 for the first half year of 2009 as compared to $13,508,771 for
the same period in 2008, representing a decrease of $846,713, or approximately
6.27%. 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 fresh and frozen pork products, and increased pricing on processed pork
products. Our gross profit as a percentage of sales was 14.22% in the first half
year of 2009 as compared to 15.60% for the same period in 2008.





The
following table presents our gross profit for the first half year of 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
                  Six
      Months
                      Ended
                      June
      30,
                  2009
                
                
                % of
                  Product
                  Group
                  Sales
                
                
                Gross
                  Profit
                  Six
      Months

                    Ended
                    June
      30,2008
                
                
                % of
                  Product
                  Group
                  Sales
                
                
                % of
                  Change
                  from 2008
                  to 2009Fresh
      Pork
                
                $
                8,163,831
                
                
                
                12.03
                %
                
                $
                9,932,134
                
                
                
                13.84
                %
                
                
                -17.80
                %Frozen
      Pork
                
                
                1,129,747
                
                
                
                13.38
                %
                
                
                937,021
                
                
                
                19.97
                %
                
                
                20.57
                %Processed
      Food Products
                
                
                3,368,479
                
                
                
                26.44
                %
                
                
                2,639,615
                
                
                
                26.02
                %
                
                
                27.61
                %Total
      Gross Profit
                
                $
                12,662,057
                
                
                
                14.22
                %
                
                $
                13,508,770
                
                
                
                15.60
                %
                
                
                -6.27
                %





In the
first half year of 2009, the gross profit of the fresh pork segment fell by
17.80% as compared to the same period last year principally due to lower
average-per-kilogram price to customers which offset sales volume increases in
this segment. The gross profit of the frozen port products increased by 20.57%
as compared to the same period last year primarily due to the dramatically
increase of sales volume despite the lower average per-kilogram price to
customers.  The processed food products segment continued to yield
period over period a gross profit amount that was the highest among all the
product groups as a percentage of product group sales. Because of the high
margins and increased prices to consumers of this product, we were able
to maintain a stable amount of gross profit in dollar terms for this
product period over period despite a decrease in sales volume.




44




Selling Expenses. Selling
expenses totaled $1,372,363 for the first half year of 2009, as compared to
$2,585,055 for the same period in 2008, a decrease of $1,212,692 or 46.91%. This
decease is due to a reduction in our advertising expenses. We continued to
increase sales made through sales agents, who assumed certain marketing expenses
in selling our fresh pork products.





General and Administrative
Expenses. General and administrative expenses totaled $1,270,845 for the
first half year of 2009 as compared to $1,146,161 for the same period in 2008,
an increase of $124,684 or 10.88%. 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 half year of 2009, we had total other income of
$28,348 and we did have income of $141,820 from a government
subsidy.  Our total other income in the first half year of 2009
decreased by $354,771, or 92.60% as compared to the same period in
2008.  This decrease in total other income is primarily attributable
to the decrease of rental income from our frozen storage facility and the
exclusion of the government subsidy that was part of other income in prior
periods.





Net Income. Net income for
the first half year of 2009 was $966,866 as compared to $9,856,185 for the same
period in 2008, a decrease of $8,889,319 or 90.19%. This decrease in net income
is attributable to a compensatory expense arising from the expected release of
965,910 of our shares from an escrow arrangement entered into as part of a
private equity financing consummated by us in December 2007.  See note
18 of the consolidated financial statements included in Item 1 of this Quarterly
Report on Form 10-Q.





LIQUIDITY
AND CAPITAL RESOURCES





Cash
Flows





Six
Months Ended June 30, 2009





As of
June 30, 2009, we had cash and cash equivalents of $22,946,069, other current
assets of $37,956,808 and current liabilities of $27,827,610. At June 30. 2008,
we had $11,270,730 in cash and cash equivalents.  We presently finance
our operations primarily with cash flows from our operations, and we anticipate
that this will continue to be our primary source of funds to finance our
short-term cash needs. If we require additional capital to expand or enhance our
existing facilities, we will consider debt or equity offerings or institutional
borrowings as potential means of financing.





Net cash
sourced in operating activities was $14,955,043 for the first half year of 2009,
while net cash flow used in operating activities was $1,738,923 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 $3,799,233 for the first half year of 2009,
compared to cash sourced from investing activities of $1,312,211 in the same
period of 2008. This change is primarily due to amounts used for
improvements for one of our fresh food plants in the first half year of
2009.





Net cash
sourced from financing activities was $4,391,705 for the first half year of
2009, as compared to net cash used from financing activities of $980,115 in the
same period of 2008.  This increase resulted principally from an
increase in our borrowings from banks during the first half year of 2009 as
compared to the same period of 2008.


45




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
June 30, 2009, we had outstanding $6,428,238 in aggregate borrowings from the
Bank of China under two loans, in the principal amounts of $4,382,889 and
$2,045,349, and on which we pay interest at rates of 6.1586% and 7.3260% per
annum respectively. As of June 30, 2009, we also had outstanding one loan from
the Bank of Huaxie in the principal amount of $4,382,889 and on which we pay
interest at a rate of 6.3720% per annum.  As of June 30, 2009, we did
not have any standby letters of credit or standby repurchase
obligations.





Foreign
Currency Translation Risk





Our
operations are, for the most part, located in the PRC, and we earn our revenue
in Chinese RMB. However, we report our financial results in U.S. Dollars using
the closing rate method. As a result, fluctuations in the exchange rates between
Chinese RMB and the U.S. Dollar will affect our reported financial results. The
balance sheet items are translated into U.S. dollars using the exchange rates at
the respective balance sheet dates. The capital and various reserves are
translated at historical exchange rates prevailing at the time of the
transactions while income and expenses items are translated at the average
exchange rate for the period. All exchange differences are recorded within
equity. The foreign currency translation adjustment for the first half year of
2009 was $1,702,756, which was a gain; and for the first half year of 2008,
$1,354,295 as a loss.





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 June 30, 2009, the market foreign
exchanges rate was increased to 6.8448 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 first half year of 2009.


46


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 June 30, 2009, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.





Payments Due by PeriodLess than 1
                                                      
                                                      
                                                      1-3
                                                      
                                                      
                                                      3-5
                                                      
                                                      
                                                      5Total
                                                      
                                                      
                                                      Year
                                                      
                                                      
                                                      Years
                                                      
                                                      
                                                      Years
                                                      
                                                      
                                                      Years +Contractual Obligations:Bank
      Indebtedness
                                                      
                                                      $
                                                      10,811,127
                                                      
                                                      
                                                      $
                                                      10,811,127
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _Other
      Indebtedness
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _Capital
      Lease Obligations
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _Operating
      Leases
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _Purchase
      Obligations
                                                      
                                                      $
                                                      262,505,178
                                                      
                                                      
                                                      $
                                                      97,830,441
                                                      
                                                      
                                                      $
                                                      164,674,737
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _Total
      Contractual Obligations:
                                                      
                                                      $
                                                      273,316,305
                                                      
                                                      
                                                      $
                                                      108,741,568
                                                      
                                                      
                                                      $
                                                      164,674,737
                                                      
                                                      
                                                      $
                                                      _
                                                      
                                                      
                                                      $
                                                      _





As
indicated in the table, as of June 30, 2009 we had $262,505,178 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 June 30, 2009, the
Company expects minimum quantities of hogs detailed in the following
table:





Year
                    
                    Hogs
                    
                    
                    Price
      Per Hog
                    
                    
                    Amount2009
      (July to December)
                    
                    
                    522,794
                    
                    
                    $
                    187.13
                    
                    
                    $
                    97,830,4412010
                    
                    
                    800,000
                    
                    
                    $
                    205.84
                    
                    
                    
                    164,674,737$
                    262,505,178





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.


47


ITEM
    3.
              QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK





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





Interest
Rates. Our exposure to market risk for changes in interest rates relates
primarily to our short-term investments and short-term obligations; thus,
fluctuations in interest rates would not have a material impact on the fair
value of these securities. At June 30, 2009, we had approximately $22,946,069 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 $1,701,699 and
$3,097,786 in the second 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.


48


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





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





PART
II.   OTHER INFORMATION





ITEM
    1.
            LEGAL
      PROCEEDINGS





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





ITEM 1A.
            RISK
    FACTORS





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





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





None.





ITEM 3.
            DEFAULTS UPON SENIOR
      SECURITIES





None.





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





None.





ITEM 5.
            OTHER
      INFORMATION





None.





ITEM 6.
            EXHIBITS





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)





49





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





SIGNATURES





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





ENERGROUP
      HOLDINGS CORPORATIONDated:  August
      14, 2009
            By:
            /s/
      Shi HuashanShi
      HuashanPresident
      and Chief Executive Officer(Principal
      Executive Officer)Dated:  August
      14, 2009
            By:
            /s/
      Wang ShuWang
      ShuChief
      Financial Officer(Principal
      Financial and Accounting
Officer)


50