**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

----

 

**FORM 10-Q**

 

**(MarkOne)**

 

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

 

**For the quarterly period ended September 30, 2010**

 

**o****         TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the transition period from                 to                 **

 

**Commission File Number 000-32873**

 

**ENERGROUPHOLDINGS CORPORATION**

(Exact name of registrant as specified in its charter)

 

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

 

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

 

**+86 411 867 166 96**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  x  No  o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files.)  Yes  o  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting 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 |

 

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

 

Asof September 30, 2010, the Registrant had 21,136,392 shares of CommonStock outstanding.

 

 

 

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**ENERGROUP HOLDINGS CORPORATION**

 

**FORM 10-Q**

 

**INDEX**

 
| ** **                          | ** **                                                          | **Page  Number** |
|-------------------------------------|---------------------------------------------------------------------|------------------|
|                                |                                                                |             |
| PART I.  FINANCIAL INFORMATION | 3                                                                   |
|                                |                                                                |             |
| ITEM 1.                             | FINANCIAL STATEMENTS                                                | 3                |
|                                |                                                                |             |
| ITEM 2.                             | MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF  OPERATIONS | 35               |
|                                |                                                                |             |
| ITEM 3.                             | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK          | 49               |
|                                |                                                                |             |
| ITEM 4T.                            | CONTROLS AND  PROCEDURES                                            | 50               |
|                                |                                                                |             |
| PART II. OTHER INFORMATION     | 52                                                                  |
|                                |                                                                |             |
| ITEM 1.                             | LEGAL PROCEEDINGS                                                   | 52               |
|                                |                                                                |             |
| ITEM 1A.                            | RISK FACTORS                                                        | 52               |
|                                |                                                                |             |
| ITEM 2.                             | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS         | 52               |
|                                |                                                                |             |
| ITEM 3.                             | DEFAULTS UPON SENIOR SECURITIES                                     | 52               |
|                                |                                                                |             |
| ITEM 4.                             | OTHER INFORMATION                                                   | 52               |
|                                |                                                                |             |
| ITEM 5.                             | EXHIBITS                                                            | 52               |

 

2

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**PART I.FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

**Energroup Holdings Corporation**

 

**Reviewed Consolidated Financial Statements**

 

**September 30, 2010 and December 31, 2009**

 

**(Stated in US Dollars)**

 

3

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**EnergroupHoldings Corporation**

 
| ** **                                                       | ** ** | **Pages** |
|------------------------------------------------------------------|------------|-----------|
|                                                             |       |      |
| **Contents**                                                     |       |      |
|                                                             |       |      |
| Report of Registered Public Accounting Firm                      |       | 5         |
|                                                             |       |      |
| Consolidated Balance Sheets                                      |       | 6 - 7     |
|                                                             |       |      |
| Consolidated Statements of Income                                |       | 8         |
|                                                             |       |      |
| Consolidated Statements of Changes in  Stockholders’ Equity |       | 9         |
|                                                             |       |      |
| Consolidated Statements of Cash Flows                            |       | 10        |
|                                                             |       |      |
| Notes to Consolidated Financial Statements                       |       | 11 - 34   |

 

4

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Boardof Directors and Stockholders

EnergroupHoldings Corporation

 

**Reportof Registered Independent Public Accounting Firm**

 

We have reviewed the accompanying interimconsolidated Balance Sheets of Energroup HoldingsCorporation (the “Company”) as of September 30,2010 and December 31, 2009, and the related statements of income,stockholders’ equity, and cash flows for the three-month and nine-month periodsended September 30, 2010 and 2009. These interim consolidated financialstatements are the responsibility of the Company’s management.

 

Weconducted our review in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). A review of interim financialinformation consists principally of applying analytical procedures and makinginquiries of persons responsible for financial and accounting matters. It issubstantially less in scope than an audit conducted in accordance with thestandards of the Public Company Accounting Oversight Board, the objective ofwhich is the expression of an opinion regarding the financial statements takenas a whole. Accordingly, we do not express such an opinion.

 

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

 
| San  Mateo, California |   | Samuel H. Wong & Co., LLP |
|------------------------|--------|------------------------------------|
| October 26,  2010 |   | Certified Public Accountants       |

 

5

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**EnergroupHoldings Corporation**

**ConsolidatedBalance Sheets**

**As ofSeptember 30, 2010 and December 31, 2009**

**(Statedin US Dollars)**

 
| ** **                                            | ** **   | **Notes**  | ** ** | **At  September 30,  2010** | ** **      | **At  December 31,****2009** | ** ** |
|-------------------------------------------------------|--------------|------------|------------|----------------------------------|-----------------|-----------------------------------|------------|
| **ASSETS**                                            | *** *** | ** ** | ** ** | ** **                       | ** **      | ** **                        | ** ** |
| **Current Assets**                                    | *** *** | ** ** | ** ** | ** **                       | ** **      | ** **                        | ** ** |
| Cash                                                  |         | 2*(D)*     |       | $                                | 23,993,544      |                              | $          | 41,984,101 |   |
| Restricted Cash                                       |         | 3          |       | 21,647,930                       |            | 2,176,224                         |       |
| Accounts Receivable                                   |         | 2*(E),*4   |       | 40,858,902                       |            | 39,876,187                        |       |
| Other Receivable                                      | * *     |       |       | 343,651                          |            | 591,025                           |       |
| Related Party Receivable                              |         | 5          |       | 41,071,360                       |            | —                            |       |
| Inventory                                             |         | 2*(F),*6   |       | 9,857,403                        |            | 3,683,989                         |       |
| Advance to Suppliers                                  |         | 2*(G)*     |       | 653,524                          |            | 844,964                           |       |
| Prepaid Expenses                                      | * *     |       |       | 19,730                           |            | 30,103                            |       |
| Prepaid Taxes                                         | * *     |       |       | 1,248,149                        |            | 231,568                           |       |
| Deferred Tax Asset                                    |         | 2*(Q)*     |       | 478,660                          |            | 468,922                           |       |
| Total Current Assets                                  | * *     |       |       | 140,172,853                      |            | 89,887,082                        |       |
|                                                  |         |       |       |                             |            |                              |       |
| **Non-Current Assets**                                | *** *** | ** ** | ** ** | ** **                       | ** **      | ** **                        | ** ** |
| Property, Plant & Equipment, *net*           |         | 2*(H),*7   |       | 22,688,930                       |            | 23,727,484                        |       |
| Land Use Rights, *net*                                |         | 2*(I),*8   |       | 13,228,484                       |            | 13,175,559                        |       |
| Construction in Progress                              |         | 2*(J)*     |       | 6,842,058                        |            | 6,692,837                         |       |
| Total Assets                                          |         | ** ** | ** ** | **$**                            | **182,932,325** | ** **                        | **$**      | **133,482,962** | ** ** |
|                                                  |         |       |       |                             |            |                              |       |
| **LIABILITIES &  STOCKHOLDERS’ EQUITY** |         |       |       |                             |            |                              |       |
|                                                  |         |       |       |                             |            |                              |       |
| **Current Liabilities**                               | ** **   | ** ** | ** ** | ** **                       | ** **      | ** **                        | ** ** |
| Bank Loans                                            | * *     | *9(A)*     |       | $                                | 43,410,072      |                              | $          | 15,942,197 |   |
| Notes Payable                                         |         | 11         |       | 7,464,803                        |            | 7,312,935                         |       |
| Accounts Payable                                      | * *     |       |       | 3,234,400                        |            | 3,272,626                         |       |
| Taxes Payable                                         | * *     |       |       | 9,689,005                        |            | 6,987,848                         |       |
| Other Payable                                         | * *     |       |       | 1,936,176                        |            | 2,096,958                         |       |
| Accrued Liabilities                                   | * *     |       |       | 196,275                          |            | 1,922,103                         |       |
| Customer Deposits                                     |         | 2*(L)*     |       | 2,765,786                        |            | 2,416,615                         |       |
| Related Party Payable                                 |         | 5          |       | —                           |            | 2,307,429                         |       |
| Total Current Liabilities                             | * *     |       |       | 68,696,517                       |            | 42,258,711                        |       |
|                                                  |         |       |       |                             |            |                              |       |
| **Long Term Liabilities**                             | *** *** | ** ** | ** ** | ** **                       | ** **      | ** **                        | ** ** |
| Bank Loans                                            | * *     | *9(B)*     |       | —                           |            | —                            |       |
|                                                  |         |       |       |                             |            |                              |       |
| Total Liabilities                                     |         |       |       | $                                | 68,696,517      |                              | $          | 42,258,711 |   |

 

See Notes to FinancialStatements and Accountant’s Report

 

6

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**Energroup HoldingsCorporation**

**Consolidated BalanceSheets**

**As of September 30,2010 and December 31, 2009**

**(Stated in US Dollars)**

 
| ** **                                                                                                                                                             | ** ** | **Notes** | ** ** | **At  September 30,  2010** | ** **      | **At  December 31,****2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------------------------------|-----------------|-----------------------------------|------------|
| Stockholders’ Equity                                                                                                                                              |       |      | ** ** | ** **                       | ** **      | ** **                        | ** ** |
|                                                                                                                                                                   |       |      |       |                             |            |                              |       |
| Preferred Stock - $0.001 Par Value10,000,000  Shares Authorized; 0 Shares Issued & Outstanding at  September 30, 2010 and December 31, 2009.        |       |      |       | $                                | —          |                              | $          | — |   |
|                                                                                                                                                                   |       |      |       |                             |            |                              |       |
| Common Stock - $0.001 Par Value 21,739,130 Shares  Authorized; 21,136,392 Shares Issued & Outstanding at  September 30, 2010 and December 31, 2009. |       |      |       | 21,137                           |            | 21,137                            |       |
|                                                                                                                                                                   |       |      |       |                             |            |                              |       |
| Additional Paid in Capital                                                                                                                                             |       |      |       | 44,230,331                       |            | 42,530,331                        |       |
| Statutory Reserve                                                                                                                                                      |       | 2*(M),*12 |       | 2,077,488                        |            | 2,077,488                         |       |
| Retained Earnings                                                                                                                                                      | * *   | * *  |       | 60,417,426                       |            | 41,329,899                        |       |
| Accumulated Other Comprehensive Income                                                                                                                                 |       | 2*(N)*    |       | 7,489,426                        |            | 5,265,396                         |       |
|                                                                                                                                                                   |       |      |       |                             |            |                              |       |
| Total Stockholders’ Equity                                                                                                                                        |       |      |       | 114,235,808                      |            | 91,224,251                        |       |
|                                                                                                                                                                   |       |      |       |                             |            |                              |       |
| Total Liabilities & Stockholders’ Equity                                                                                                                 |       |      | ** ** | **$**                            | **182,932,325** | ** **                        | **$**      | **133,482,962** | ** ** |

 

See Notes to FinancialStatements and Accountant’s Report

 

7

----

 

**Energroup HoldingsCorporation**

**Consolidated Statements ofIncome**

**For the three-month andnine-month periods ended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 
| ** **                                 | ** ** | **Note**   | ** ** | **3 months  ended****September ****30,  2010** | ** **    | **3 months  ended****September ****30,  2009** | ** ** | **9 months  ended****September ****30,  2010** | ** ** | **9 months  ended****September ****30,  2009** | ** **     |
|--------------------------------------------|------------|------------|------------|----------------------------------------------------------|---------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|----------------|
| Sales                                      | * *   | *2(O),20*  |       | $                                                        | 55,701,960    |                                                     | $          | 67,821,080                                               |       | $                                                        | 165,496,536    |   | $ | 156,852,674 |   |
| Cost of Sales                              | * *   | *2(P)*     |       | (47,934,479                                              | )             | (57,246,206                                              | )          | (140,969,005                                             | )          | (133,615,742                                             | )              |
| Gross Profit                               | * *   |       |       | 7,767,481                                                |          | 10,574,874                                               |       | 24,527,531                                               |       | 23,236,932                                               |           |
|                                       |       |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Selling Expenses                           | * *   | *2(Q)*     |       | (491,412                                                 | )             | (706,664                                                 | )          | (1,125,722                                               | )          | (2,079,027                                               | )              |
| General & Administrative Expenses | * *   | *2(R)*     |       | (538,382                                                 | )             | (614,806                                                 | )          | (1,934,387                                               | )          | (1,885,651                                               | )              |
| Total Operating Expense                    | * *   |       |       | (1,029,794                                               | )             | (1,321,470                                               | )          | (3,060,109                                               | )          | (3,964,678                                               | )              |
|                                       |       |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Operating Income                           | * *   |       |       | 6,737,687                                                |          | 9,253,405                                                |       | 21,467,422                                               |       | 19,272,254                                               |           |
|                                       |       |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Other Income                               | * *   |       |       | 197,646                                                  |          | 7,204                                                    |       | 227,939                                                  |       | 35,552                                                   |           |
| Interest Income                            | * *   |       |       | 50,703                                                   |          | 13,574                                                   |       | 126,352                                                  |       | 131,139                                                  |           |
| Other Expenses                             | * *   |       |       | (25,609                                                  | )             | (8,270                                                   | )          | (34,030                                                  | )          | (71,978                                                  | )              |
| Interest Expense                           | * *   |       |       | (664,848                                                 | )             | (206,869                                                 | )          | (1,501,539                                               | )          | (509,464                                                 | )              |
| Government Subsidy Income                  | * *   |       |       | —                                                   |          | 14                                                       |       | —                                                   |       | 141,834                                                  |           |
| Release of Make Good Shares                | * *   |       |       | —                                                   |          | (4,619,816                                               | )          | —                                                   |       | (12,838,043                                              | )              |
| Total Other  Income/(expense)              | * *   |       |       | (442,108                                                 | )             | (4,814,163                                               | )          | (1,181,278                                               | )          | (13,110,960                                              | )              |
|                                       |       |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Earnings before Tax                        | * *   |       |       | 6,295,579                                                |          | 4,439,242                                                |       | 20,286,144                                               |       | 6,161,294                                                |           |
|                                       |       |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Income Tax                                 | * *   | *2(V),14*  |       | (318,101                                                 | )             | (686,232                                                 | )          | (1,198,617                                               | )          | (1,441,418                                               | )              |
|                                       |       |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| **Net Income**                             |       | ** ** | ** ** | **$**                                                    | **5,977,478** | ** **                                               | **$**      | **3,753,010**                                            | ** ** | **$**                                                    | **19,087,527** | ** ** | **$** | **4,719,876** | ** ** |
|                                       |       |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Earnings Per Share                         | * *   | *2(Y),17*  |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Basic                                      | ** ** |       |       | $                                                        | 0.29          |                                                     | $          | 0.22                                                     |       | $                                                        | 0.90           |   | $ | 0.27 |   |
| Diluted                                    | ** ** |       |       | $                                                        | 0.29          |                                                     | $          | 0.18                                                     |       | $                                                        | 0.90           |   | $ | 0.22 |   |
|                                       |       |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Weighted Average Shares Outstanding        | ** ** |       |       |                                                     |          |                                                     |       |                                                     |       |                                                     |           |
| Basic                                      | ** ** |       |       | 21,136,392                                               |          | 17,272,756                                               |       | 21,136,392                                               |       | 17,272,756                                               |           |
| Diluted                                    | ** ** |       |       | 21,136,392                                               |          | 21,136,392                                               |       | 21,136,392                                               |       | 21,136,392                                               |           |

 

See Notes to FinancialStatements and Accountant’s Report

 

8

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**Energroup HoldingsCorporation**

**Consolidated Statements ofChanges in Stockholders’ Equity**

**As of September 30,2010 and December 31, 2009**

**And for the nine-monthended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 
| ** **                                | ** ** | **Common**              | ** ** | **Additional** | ** ** | ** **                | ** ** | ** **             | ** ** | **Accumulated  Comprehensive** | ** ** | ** **        | ** ** |
|-------------------------------------------|------------|-------------------------|------------|----------------|------------|---------------------------|------------|------------------------|------------|--------------------------------|------------|-------------------|------------|
| ** **                                | ** ** | **Shares  Outstanding** | ** ** | **Amount**     | ** ** | **Paid in  Capital** | ** ** | **Statutory  Reserve** | ** ** | **Retained  Earnings**         | ** ** | **Other  Income** | ** ** | **Total** | ** ** |
|                                      |       |                    |       |           |       |                      |       |                   |       |                           |       |              |       |   |   |
| Balance at  January 1, 2009          |       | 21,136,392              |       | $              | 21,137     |                      | $          | 26,062,337             |       | $                              | 2,077,488  |              | $          | 35,275,457 |   | $ | 3,489,228 |   | $ | 66,925,647 |   |
| Release of Shares  Placed in Escrow       |       | —                  |       | —         |       | 16,467,994                |       | —                 |       | —                         |       | —            |       | 16,467,994 |   |
| Net Income                                |       | —                  |       | —         |       | —                    |       | —                 |       | 6,054,442                      |       | —            |       | 6,054,442 |   |
| Appropriations of  Retained Earnings      |       | —                  |       | —         |       | —                    |       | —                 |       | —                         |       | —            |       | — |   |
| Foreign Currency  Translation Adjustment  |       | —                  |       | —         |       | —                    |       | —                 |       | —                         |       | 1,776,168         |       | 1,776,168 |   |
| Balance at  December 31, 2009        |       | 21,136,392              |       | $              | 21,137     |                      | $          | 42,530,331             |       | $                              | 2,077,488  |              | $          | 41,329,899 |   | $ | 5,265,396 |   | $ | 91,224,251 |   |
|                                      |       |                    |       |           |       |                      |       |                   |       |                           |       |              |       |   |   |
| Balance at  January 1, 2010          |       | 21,136,392              |       | $              | 21,137     |                      | $          | 42,530,331             |       | $                              | 2,077,488  |              | $          | 41,329,899 |   | $ | 5,265,396 |   | $ | 91,224,251 |   |
| Reversal of liquidation  damage deduction |       | —                  |       | —         |       | 1,700,000                 |       | —                 |       | —                         |       | —            |       | 1,700,000 |   |
| Net Income                                |       | —                  |       | —         |       | —                    |       | —                 |       | 19,087,527                     |       | —            |       | 19,087,527 |   |
| Appropriations of  Retained Earnings      |       | —                  |       | —         |       | —                    |       | —                 |       | —                         |       | —            |       | — |   |
| Foreign Currency  Translation Adjustment  |       | —                  |       | —         |       | —                    |       | —                 |       | —                         |       | 2,224,030         |       | 2,224,030 |   |
| Balance at September 30, 2010             |       | 21,136,392              |       | $              | 21,137     |                      | $          | 44,230,331             |       | $                              | 2,077,488  |              | $          | 60,417,426 |   | $ | 7,489,426 |   | $ | 114,235,808 |   |

 
| **Comprehensive Income**            | ** ** | **For the  year ended  December 31,****2009** | ** ** | **For nine  Months Ended****September**** 30,****2010** | ** ** | **Accumulated  Totals** | ** ** |
|------------------------------------------|------------|--------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-------------------------|------------|
| Net Income                               |       | $                                                            | 6,054,442  |                                                                   | $          | 19,087,527              |       | $ | 25,141,969 |   |
| Other Comprehensive  Income              |       |                                                         |       |                                                                   |       |                    |       |
| Foreign Currency  Translation Adjustment |       | 1,776,168                                                    |       | 2,224,030                                                              |       | 4,000,198               |       |
|                                     |       | $                                                            | 7,830,610  |                                                                   | $          | 21,311,557              |       | $ | 29,142,167 |   |

 

See Notes to Financial Statementsand Accountant’s Report

 

9

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**Energroup HoldingsCorporation**

**Consolidated Statements ofCash Flows**

**For the three-month andnine-month ended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 
| ** **                                                                      | ** ** | **3 months**                | ** **     | **3 months**                | ** ** | **9 months**                | ** ** | **9 months**                | ** **     |
|---------------------------------------------------------------------------------|------------|----------------------------------|----------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|----------------|
| ** **                                                                      | ** ** | **ended**                        | ** **     | **ended**                        | ** ** | **ended**                        | ** ** | **ended**                        | ** **     |
| ** **                                                                      | ** ** | **September ****30,  2010** | ** **     | **September ****30,  2009** | ** ** | **September ****30,  2010** | ** ** | **September ****30,  2009** | ** **     |
| **Cash Flow from Operating  Activities**                                        |       |                             |           |                             |       |                             |       |                             |           |
| Net Income                                                                      | ** ** | **$**                            | **5,977,478**  | ** **                       | **$**      | **3,753,010**                    | ** ** | **$**                            | **19,087,527** | ** ** | **$** | **4,719,876** | ** ** |
| Non Cash Expense  Recorded for the Release of Escrow Shares                     |       | —                           |           | 4,619,816                        |       | —                           |       | 12,838,043                       |           |
| Reversal of liquidation damage deduction                                        |       |                             |           | —                           |       | 1,700,000                        |       |                             |           |
| Amortization                                                                    |       | 101,789                          |           | 67,427                           |       | 253,080                          |       | 492,033                          |           |
| Depreciation                                                                    |       | 728,773                          |           | 584,736                          |       | 1,895,276                        |       | 1,744,638                        |           |
| Decrease/(Increase) in Accounts & Other  Receivables                   |       | (11,225,441                      | )              | (26,369,063                      | )          | (41,806,703                      | )          | (22,661,628                      | )              |
| Decrease/(Increase) in Inventory &  Purchase Deposit                   |       | (6,264,214                       | )              | (799,372                         | )          | (5,981,973                       | )          | (254,276                         | )              |
| Decrease/(Increase) in Prepaid Taxes &  Expenses                       |       | (33,431                          | )              | 84,893                           |       | (1,015,946                       | )          | 339,659                          |           |
| Increase/(Decrease) Accounts, Taxes &  Other Payables                  |       | (5,424,049                       | )              | 3,513,652                        |       | 346,588                          |       | 1,888,836                        |           |
| Increase/(Decrease) in Accrued Liabilities                                      |       | (18,338                          | )              | 133,405                          |       | (1,725,830                       | )          | 720,570                          |           |
| Increase in Customer Deposits                                                   |       | 163,884                          |           | 337,783                          |       | 349,171                          |       | 1,053,579                        |           |
| Cash Sourced/(Used) in Operating Activities                                     |       | (15,993,549                      | )              | (14,073,713                      | )          | (26,898,810                      | )          | 881,330                          |           |
|                                                                            |       |                             |           |                             |       |                             |       |                             |           |
| **Cash Flows from Investing  Activities**                                       |       |                             |           |                             |       |                             |       |                             |           |
| Decrease/(Increase) Funds in Restricted Cash  Account                           |       | 6,992,319                        |           | (548                             | )          | (19,471,706                      | )          | 1,461                            |           |
| Purchases of Property, Equipment, and Construction  of Plants                   |       | (678,843                         | )              | (117,482                         | )          | (1,005,940                       | )          | (3,642,200                       | )              |
| Increase of Land Use Rights                                                     |       | (244,110                         | )              | (15,499                          | )          | (306,006                         | )          | (326,785                         | )              |
| Payments/(Withdraw) of Deposits                                                 |       | —                           |           | —                           |       | —                           |       | 34,808                           |           |
| Cash Sourced/(Used) in Investing Activities                                     |       | 6,069,366                        |           | (133,529                         | )          | (20,783,652                      | )          | (3,932,762                       | )              |
|                                                                            |       |                             |           |                             |       |                             |       |                             |           |
| **Cash Flows from Financing  Activities**                                       |       |                             |           |                             |       |                             |       |                             |           |
| Proceeds from Bank Borrowings                                                   |       | 18,588,522                       |           | 5,861,390                        |       | 27,467,874                       |       | 10,253,095                       |           |
| Cash Sourced/(Used) in Financing Activities                                     |       | 18,588,522                       |           | 5,861,390                        |       | 27,467,874                       |       | 10,253,095                       |           |
|                                                                            |       |                             |           |                             |       |                             |       |                             |           |
| **Net Increase/(Decrease) in  Cash & Cash Equivalents for the Period** |       | 8,664,339                        |           | (8,345,852                       | )          | (20,214,588                      | )          | 7,201,663                        |           |
| Effect of Currency  Translation                                                 |       | 1,798,896                        |           | 70,720                           |       | 2,224,030                        |       | 1,773,476                        |           |
| Cash & Cash  Equivalents at Beginning of Period                        |       | 13,530,309                       |           | 22,946,069                       |       | 41,984,102                       |       | 5,695,798                        |           |
| **Cash & Cash Equivalents  at End of Period**                          | ** ** | **$**                            | **23,993,544** | ** **                       | **$**      | **14,670,937**                   | ** ** | **$**                            | **23,993,544** | ** ** | **$** | **14,670,937** | ** ** |
| ** **                                                                      | ** ** | ** **                       | ** **     | ** **                       | ** ** | ** **                       | ** ** | ** **                       | ** **     |
| **Supplementary information:**                                                  | ** ** | ** **                       | ** **     | ** **                       | ** ** | ** **                       | ** ** | ** **                       | ** **     |
| Interest Received                                                               |       | $                                | 50,703         |                             | $          | 13,574                           |       | $                                | 126,352        |   | $ | 131,139 |   |
| Interest Paid                                                                   |       | 674,164                          |           | 149,325                          |       | 1,551,532                        |       | 105,637                          |           |
| Income Tax Paid                                                                 |       | 68,531                           |           | 2,233                            |       | 84,777                           |       | 3,388                            |           |

 

10

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

1.             The Company andPrincipal Business Activities

 

EnergroupHoldings Corporation (the “Company”) (OTCBB: ENHD) is a holding companyincorporated in the state of Nevada in the United States of America whoseprimary business operations are conducted through its three operatingsubsidiaries: (1) Dalian Chuming Processed Foods Company Ltd., (“FoodCompany”) (2) Dalian Chuming Slaughter and Packaging Pork Company Ltd. (“MeatCompany”), 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, LiaoningProvince of China.

 

Thethree operating subsidiaries were spun-off constituents of the former parentcompany, Dalian Chuming Group Co. Ltd (“Group”).  The Company indirectly holds the threeoperating subsidiary companies through its wholly owned intermediarysubsidiaries: (A) Precious Sheen Investments Limited (“PSI”), a BritishVirgin Islands (“BVI”) corporation, and (B) Dalian Chuming Precious SheenInvestments Consulting Co., Ltd., (“Chuming”), a wholly foreign ownedenterprise incorporated in the PRC.

 

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

 

*CorporateReorganization*

 

PRC law currently has limitson foreign ownership of certain companies. To enable Chuming to raise equity capital from investors outside ofChina, it established an offshore holding company by incorporating PreciousSheen Investments Limited in the British Virgin Islands in May 2007.  On September 26, 2007, Chuming enteredinto share transfer agreements with Dalian Chuming Group Co., Ltd., underwhich Dalian Chuming Group Co., Ltd. agreed to transfer ownership of threeoperating 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 CommerceBureau approved the transfer of Dalian Chuming Group Co., Ltd’s 68% interest inChuming to PSI, and upon this transfer, Chuming became a wholly foreign ownedenterprise, with PSI as the 100% owner of Chuming (including its subsidiaries).On December 13, 2007, the PRC government authorities issued Chuming abusiness license formally recognizing it as a wholly foreign owned enterprise,of which PSI is the sole shareholder.

 

The following is adescription of the Chuming Operating Subsidiaries: -

 

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

 

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

 

C. Dalian Chuming SalesCompany Ltd., which is responsible for Chuming’s sales, marketing, anddistribution operations.

 

11

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

*ShareExchange Transaction*

 

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

 

Theshare exchange transaction has been accounted for as a recapitalization of PSIwhere the Company (the legal acquirer) is considered the accounting acquireeand PSI (the legal acquiree) is considered the accounting acquirer.  As a result of this transaction, the Companyis deemed to be a continuation of the business of PSI.

 

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

 

2.             Summary ofSignificant Accounting Policies

 

*(A)**                             **Methodof Accounting*

 

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

 

*(B)**                             **Principlesof Consolidation*

 

The consolidated financial statements, whichinclude the Company and its subsidiaries, are compiled in accordance withgenerally accepted accounting principles in the United States of America.  All significant inter-company accounts andtransactions have been eliminated.  Theconsolidated financial statements include 100% of assets, liabilities, and netincome or loss of those wholly-owned subsidiaries.

 

The Company owned the three operatingsubsidiaries since its inception.  TheCompany also owns two intermediary holdings companies.  As of September 30, 2010, the detailed identities of theconsolidating subsidiaries are as follows: -

 
| **Name of Company**                                       | ** ** | **Place  of  Incorporation** | ** ** | **Attributable  Equity  Interest** | ** ** | **Registered  Capital** | ** **  |
|---------------------------------------------------------------------|------------|------------------------------|------------|------------------------------------|------------|-------------------------|-------------|
|                                                                |       |                         |       |                               |       |                    |        |
| Precious Sheen  Investments Limited                                 |       | BVI                          |       | 100                                | %          | USD                     | 10,000      |   |
| Dalian Chuming Precious  Sheen Investment Consulting Co., Ltd. |       | PRC                          |       | 100                                | %          | RMB                     | 105,241,234 |   |
| Dalian Chuming Slaughtering &  Pork Packaging Co. Ltd.     |       | PRC                          |       | 100                                | %          | RMB                     | 10,000,000  |   |
| Dalian Chuming  Processed Foods Co. Ltd.                            |       | PRC                          |       | 100                                | %          | RMB                     | 5,000,000   |   |
| Dalian Chuming Sales  Co. Ltd.                                      |       | PRC                          |       | 100                                | %          | RMB                     | 5,000,000   |   |

 

12

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

The consolidation of these operatingsubsidiaries into a newly formed holding company i.e. “the Company” ispermitted by United States GAAP: ARB51 paragraph 22 and 23 (FASB ASC 810 *Consolidation*).

 

*(C)**                            **Useof Estimates*

 

The preparation of financial statements in conformity with generallyaccepted accounting principles in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Management makes these estimates using the bestinformation available at the time the estimates are made; however, actualresults could differ materially from these estimates.

 

*(D)**                            **CashEquivalents*

 

For purposes of the statement of cash flows, the Company considers allhighly liquid equity or debt instruments purchased with a maturity of threemonths or less to be cash equivalents.

 

*(E)**                             **AccountsReceivable*

 

The Company extends unsecured, non-interest bearing credit to itscustomers; 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 andassessment of specific outstanding customer balances.  Management may extend credit to new customerswho have met the criteria of the Company’s credit policy.

 

*(F)**                             **InventoryCarrying Value*

 

Inventory, consistingof raw materials in the form of livestock, work in progress, and finishedproducts, is stated at the lower of cost or market value.  Finished products are comprised of directmaterials, direct labor and an appropriate proportion of overhead.  Periodic evaluation is madeby management to identify if inventory needs to be written down because ofdamage, or spoilage.  Cost is computedusing the weighted average method.

 

*(G)**                            **Purchase Deposit*

 

Purchase depositrepresents the cash paid in advance for purchasing raw materials.  The purchase deposit is interest free andunsecured.

 

*(H)**                            **Property,Plant, and Equipment*

 

Property, Plant, and Equipment are stated at cost.  Repairs and maintenance to these assets arecharged to expense as incurred; major improvements enhancing the functionand/or useful life are capitalized.  Whenitems are sold or retired, the related cost and accumulated depreciation areremoved from the accounts and any gains or losses arising from suchtransactions are recognized.

 

Property and equipment aredepreciated using the straight-line method over their estimated useful lifewith a 5% salvage value.  Their usefullives are as follows: -

 

13

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 
| **Fixed Asset Classification**      | ** ** | **Useful Life** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|
| Land Improvements                             |       | 10 years             |       |
| Buildings                                     |       | 20 years             |       |
| Building Improvements                         |       | 10 years             |       |
| Manufacturing  Machinery & Equipment |       | 10 years             |       |
| Office Equipment                              |       | 5 years              |       |
| Furniture &  Fixtures                |       | 5 years              |       |
| Vehicles                                      |       | 5 years              |       |

 

*(I)**                                 **LandUse Rights*

 

Land Use Rights are statedat cost less accumulated amortization. Amortization is provided over its useful life, using the straight-linemethod.  The useful life of the land useright is 50 years.

 

*(J)**                               **Constructionin Progress*

 

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

 

*(K)**                            **Accounting for**Impairmentof Assets*

 

The Company reviews the recoverability of its long-lived assets, suchas property and equipment, when events or changes in circumstances occur thatindicate the carrying value of the asset group may not be recoverable.  The assessment of possible impairment isbased on the Company’s ability to recover the carrying value of the asset fromthe expected future cash flows, undiscounted and without interest charges, ofthe related operations.  If these cashflows are less than the carrying value of such assets, an impairment loss isrecognized for the difference between estimated fair value and carryingvalue.  The measurement of impairmentrequires management to estimate future cash flows and the fair value oflong-lived assets.

 

*(L)**                              **Customer Deposit*

 

Customer deposit represents money the Company has received in advancefor purchases of pork and pork products. The Company considers customer deposits as a liability until productshave been shipped and revenue is earned.

 

*(M)**                          **Statutory Reserve*

 

Statutory reserverefer to the amount appropriated from the net income in accordance with laws orregulations, which can be used to recover losses and increase capital, asapproved, and, are to be used to expand production or operations.  PRC laws prescribe that an enterpriseoperating at a profit, must appropriate, on an annual basis, from its earnings,an amount to the statutory reserve to be used for future companydevelopment.  Such an appropriation ismade until the reserve reaches a maximum equalling 50% of the enterprise’scapital.

 

14

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

* *

*(N)**                            **Other Comprehensive Income*

 

Comprehensiveincome is defined to include all changes in equity except those resulting frominvestments by owners and distributions to owners. Among other disclosures, allitems that are required to be recognized under current accounting standards ascomponents of comprehensive income are required to be reported in a financialstatement that is presented with the same prominence as other financialstatements.  The Company’s currentcomponent of other comprehensive income is the foreign currency translationadjustment.

 

*(O)**                            **Recognitionof Revenue*

 

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

 

Beginning in March 2008, the Company encouraged its independent salesagents to share the cost in marketing Chuming pork products.  The Company encouraged such behavior byoffering to its agents: (1) favorable credit terms, such as 45 to 60 daysunsecured credit and (2) more significant discount.  The Company recognizes the sales revenuedirectly based on the dollar amount sold to independent sales agents.  In accordance to 605-50-45-2, discountsoffered to independent sales agent are accounted for as reductions in revenue.

 

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

 

*(P)**                             **Cost of Sales*

 

The Company’s cost of salesis comprised of raw materials, factoryworker salaries and related benefits, machinery supplies, maintenance supplies,depreciation, utilities, inbound freight, purchasing and receivingcosts, inspection and warehousing costs

 

*(Q)**                            **Selling Expense*

 

Sellingexpenses are comprised of outbound freight, salary for the sales force, cliententertainment, commissions, depreciation, advertising, and travel and lodgingexpenses.  Selling expense, in absolutedollars, and as a percentage of revenue, has decreased because of thecoordinated effort with independent sales agents to gain higher return onmarketing efforts.  Refer to Note 2*(O) *for further details.

 

*(R)**                             **General & Administrative*

 

Generaland administrative costs include executive compensation, quality control, andgeneral overhead such as the finance department, administrative staff, anddepreciation and amortization expense.

 

15

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

*(S)**                              **Shipping and handling*

 

All shipping and handling are expensed as incurredand are included as a component of cost of sales.

 

*(T)**                              **AdvertisingExpense*

 

Costs related to advertising and promotion expenditures are expensed asincurred during the year.  Advertisingcosts are charged to selling expense.

 

*(U)**                            **Retirement Benefits*

 

Retirementbenefits in the form of contributions under defined contribution retirementplans to the relevant authorities are charged to the statement of operations asincurred.

 

*(V)**                             **IncomeTaxes*

 

The Company usesthe accrual method of accounting to determine and report its taxable reductionof income taxes for the year in which they are available. The Company has implementedStatement of Financial Accounting Standards (SFAS) No. 109 (FASB ASC 740),Accounting for Income Taxes. Income tax liabilities computed according to theUnited States and People’s Republic of China (PRC) tax laws are provided forthe tax effects of transactions reported in the financial statements andconsists of taxes currently due plus deferred taxes related primarily todifferences between the basis of fixed assets and intangible assets forfinancial and tax reporting. The deferred tax assets and liabilities representthe future tax return consequences of those differences, which will be eithertaxable or deductible when the assets and liabilities are recovered or settled.Deferred taxes also are recognized for operating losses that are available tooffset future income taxes. A valuation allowance is created to evaluatedeferred tax assets if it is more likely than not that these items will eitherexpire before the Company is able to realize that tax benefit, or that futurerealization is uncertain.

 

*(W)**                           **Economic and Political Risks*

 

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

 

*(X)**                             **Foreign Currency Translation*

 

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

 

For financial reporting purposes, the financial statements of theCompany which are prepared using the functional currency have been translatedinto United States dollars.  Assets andliabilities are translated at the exchange rates at the balance sheet dates andrevenue and

 

16

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

expenses are translated at the average exchange rates and stockholders’equity is translated at historical exchange rates.  Any translation adjustments resulting are notincluded in determining net income but are included in foreign exchangeadjustment to other comprehensive income, a component of stockholders’ equity.

 
| **Exchange Rates**                    | ** ** | **9/30/2010** | ** ** | **12/31/2009** | ** ** | **9/30/2009** | ** ** |
|--------------------------------------------|------------|---------------|------------|----------------|------------|---------------|------------|
| Period end RMB:US$ exchange rate      |       | 6.6981        |       | 6.8372         |       | 6.8376        |       |
| Average period RMB: US$ exchange rate |       | 6.8164        |       | 6.8409         |       | 6.8425        |       |

 

RMB is not freelyconvertible into foreign currency and all foreign exchange transactions musttake place through authorized institutions. No representation is made that theRMB amounts could have been, or could be, converted into US$ at the rates usedin translation.

 

*(Y)**                              **EarningsPer Share*

 

The Company computes earnings per share (“EPS”) inaccordance with Statement of Financial Accounting Standards No. 128, “Earningsper share” (FASB ASC 260), and SEC Staff Accounting Bulletin No. 98 (“SAB98”). SFAS No. 128 requires companies with complex capital structures topresent basic and diluted EPS. Basic EPS is measured as the income or lossavailable to common shareholders divided by the weighted average common sharesoutstanding for the period. Diluted EPS is similar to basic EPS but presentsthe dilutive effect on a per share basis of potential common shares (e.g., contingent shares, convertiblesecurities, options, and warrants) as if they had been converted at thebeginning of the periods presented, or issuance date, if later. Potentialcommon shares that have an anti-dilutive effect (i.e., those that increaseincome per share or decrease loss per share) are excluded from the calculationof diluted EPS.

 

*(Z)**                              **RecentAccounting Pronouncements*

 

InJune 2009, FASB issued ASC 860, *Transfers and Servicing*,and ASC 810, *Consolidation, a revision to FASBInterpretation No. 46 (Revised December 2003), Consolidation ofVariable Interest Entities (FASB ASC 810 Consolidation)*.  The Company has adopted the new accountingpolicies and has determined that there is no material impact to the financialstatements presented herein.

 

OnJune 30, 2009, FASB issued ASC 105, *Accounting StandardsCodification (FASB ASC 105 Generally Accepted Accounting Principles) areplacement of FASB Statement No. 162 the Hierarchy of Generally AcceptedAccounting Principles*. On the effective date of this standard, ASCbecame the source of authoritative U.S. accounting and reporting standards fornongovernmental entities, in addition to guidance issued by the SEC. Thisstatement is effective for financial statements issued for interim and annualperiods ending after September 15, 2009. If an accounting change results from the application of this guidance,an entity should disclose the nature and reason for the change in accountingprinciple in their financial statements. This new standard categorizes the US GAAP hierarchy to two levels: onethat is authoritative (in ASC) and one that is non-authoritative (not in ASC).Exceptions include all rules and interpretive releases of the SEC underthe authority of federal securities laws, which are sources of authoritativeUS GAAP for SEC registrants, and certain grandfathered guidance having aneffective date before March 15, 1992. Statement No. 168 is the final standard that will be issued by FASBin that form.  There will no longer be,for example, accounting standards in the form of statements, staff positions,Emerging Issues

 

17

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

TaskForce (“EITF”) abstracts, or AICPA Accounting Statements of Position. TheCompany has adopted and implemented the new accounting policy.

 

In October 2009, the FASB issued ASU No. 2009-13“Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - AConsensus of the FASB Emerging Issues Task Force”. This update providesapplication guidance on whether multiple deliverables exist, how thedeliverables should be separated and how the consideration should be allocatedto one or more units of accounting. This update establishes a selling pricehierarchy for determining the selling price of a deliverable. The selling priceused for each deliverable will be based on vendor-specific objective evidence,if available, third-party evidence if vendor-specific objective evidence is notavailable, or estimated selling price if neither vendor-specific or third-partyevidence is available. The Company will be required to apply this guidanceprospectively for revenue arrangements entered into or materially modifiedafter January 1, 2011; however, earlier application is permitted. Themanagement is in the process of evaluating the impact of adopting this ASU onthe Company’s financial statements.

 

TheFASB issued ASU-2010-09 (Topic 855) to amend guidance on subsequent events toremove the requirement for SEC filers (as defined in ASU 2010-09) to disclosethe date through which an entity has evaluated subsequent events. This changealleviates potential conflicts with current SEC guidance. An SEC filer is stillrequired to evaluate subsequent events through the date financial statementsare issued, but disclosure of that date is no longer required. The amendmentsin ASU 2010-09 became effective upon issuance of the guidance. Managementadopted this pronouncement as of July 1, 2010.

 

18

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

3.                                      Restricted Cash

 

The restricted cash of $21,647,930 represents compensatingbalances held at banks to partially secure banking facilities in the form ofnotes payable. The imposed restrictions dictate that funds cannot be withdrawnwhen there are outstanding notes payable, and the funds are only allowed to beused to settle bank indebtedness. The funds deposited as compensating balancesare interest bearing.

 

4.                                      AccountsReceivable

 

Accounts Receivable at September 30, 2010 and December 31,2009 consisted of the following: -

 
| ** **                              | ** ** | **At**                     | ** ** | **At**                | ** ** |
|-----------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **September ****30,** | ** ** | **December 31,** | ** ** |
| ** **                              | ** ** | **2010**                   | ** ** | **2009**              | ** ** |
| Accounts Receivable —  Trade       |       | $                          | 41,271,618 |                  | $          | 40,278,976 |   |
| *Less:* Allowance for Doubtful Accounts |       | (412,716                   | )          | (402,789              | )          |
| Net Accounts Receivable                 |       | $                          | 40,858,902 |                  | $          | 39,876,187 |   |

 
| ** **                 | ** ** | **At**                     | ** ** | **At**                | ** ** |
|----------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **September ****30,** | ** ** | **December 31,** | ** ** |
| ** **                 | ** ** | **2010**                   | ** ** | **2009**              | ** ** |
| *Allowance  for Bad Debts* |       |                       |       |                  |       |   |   |
| Beginning Balance          |       | $                          | (402,789   | )                     | $          | (188,495 | ) |
| Allowance Provided         |       | (9,927                     | )          | (214,294              | )          |
| Charged Against  Allowance |       | —                     |       | —                |       |
| Reversal*                  |       | —                     |       | —                |       |
| Ending Balance             |       | $                          | (412,716   | )                     | $          | (402,789 | ) |

 

During the second quarter of the 2008 fiscal year, management revisedthe Company’s credit policy.  Based onmanagement’s review, the Company began extending more favorable credit terms toits top tier customers. Those customers that qualified as top tier wereextended approximately 45 to 60 days of credit. As of September 30, 2010, the Company has not had any receivablesthat were unrecoverable.

 

Accounts receivable aging analysis:-

 
| ** **    | ** ** | **At**                     | ** ** | **At**                | ** ** |
|---------------|------------|----------------------------|------------|-----------------------|------------|
| ** **    | ** ** | **September ****30,** | ** ** | **December 31,** | ** ** |
| ** **    | ** ** | **2010**                   | ** ** | **2009**              | ** ** |
| 1-30 Days     |       | $                          | 17,259,056 |                  | $          | 17,757,223 |   |
| 30-60 Days    |       | 14,650,459                 |       | 12,643,466            |       |
| 61-90 Days    |       | 2,115,266                  |       | 5,004,370             |       |
| 91-120 Days   |       | 2,103,373                  |       | 4,833,711             |       |
| 121-365 Days  |       | 2,271,908                  |       | 40,206                |       |
| Over 365 Days |       | 2,871,556                  |       | —                |       |
| Total         |       | $                          | 41,271,618 |                  | $          | 40,278,976 |   |

 

The Company believes it has provided adequate provisions for doubtfulaccounts. In the past, the Company has not experienced any accounts that havebecome uncollectible. As a result of the Company’s position in its industry andthe type of products that it sells, which are considered consumer staples, itcan exert significant influence and bargaining power on it customers, whichincludes, among others, the collection of outstanding accounts.  If in the event that the Company’s customersdo not pay, they will be faced with the consequence that the Company will ceaseto supply its products to them, and that the Company can take legal action torecover losses.

 

19

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

5.                                      Related Party Receivable and Payable

 

In the normal course ofbusiness which includes the purchases of hogs and other raw materials, sale ofpork and pork products, the Company conducts transactions with the followingrelated parties: Dalian Chuming Group Co., Ltd (“Group”) and the Groupsubsidiaries, that are not consolidated into Energroup Holdings or Energroup’ssubsidiary, Dalian Chuming Precious Sheen Investments Consulting Co. Ltd.(Chuming): (1) Dalian Chuming Industrial Development Co., Ltd., (“IndustrialDevelopment Co.”) (2) Dalian Chuming Trading Co., Ltd, (“Trading Co.”) (3) DalianMingxing Livestock Product Co. Ltd., (“Mingxing”) (4) Dalian ChumingStockbreeding Combo Development Co., Ltd., (“Combo Development Co.”) (5) DalianChuming Fodder Co., Ltd. (“Fodder Co.”), and (6) Dalian ChumingBiological Technology Co., Ltd., (“Biological Co.”) and (7) DalianHuayu Seafood Food Co., Ltd. (“Huayu”). The Company and the aforementioned related parties share commonbeneficial ownership.  All transactions with related parties are generally performed at arm’slength.

 

Inthe event that the Company has both receivables from, and payables to the Groupit will, in accordance with FIN 39 (FASB ASC 210-20), setoff the balances inorder to arrive at a single balance that is either due from, or due to theGroup.  The Company’s net receivablebalance of $41,071,360 at September 30,2010 is shown in thefollowing table.

 
| **Ref.** | ** ** | **Subsidiary  Due to:** | ** ** | **Nature of Balance**                      | ** ** | **Related Party**                                         | ** **      | **Balance** | ** ** | **Description of Transaction**                                                           |
|----------|------------|------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------------------|-----------------|-------------|------------|----------------------------------------------------------------------------------------------------|
| A        |       | Food                         |       | Sale  of Products resulting in Trade Receivable from |       | Dalian  Huayu Seafood Food Co., Ltd.                      |            | $           | 5,629,947  |                                                                                               | Food  Co. sold cooked food to Huayu dating back to 1/2007. |
|     |       |                         | ** ** | **Subtotal of Related Party Sales**                  |       | 5,629,947                                                      |            |        |
|     |       |                         |       |                                                 |       |                                                           |            |        |       |                                                                                               |
| B        |       | Food                         |       | Loan  Receivable from                                |       | Dalian  Mingxing Livestock Product Co., Ltd.              |            | 187,061     |       | Food  Co. purchased material on behalf of Mingxing Dating back to 6/2009                           |
| C        |       | Food                         |       | Loan  Receivable from                                |       | Dalian  Chuming Industrial Development Co., Ltd.          |            | 22,415,415  |       | Food  Co. paid bank loan principal and interest on behalf of Industrial Co. dating  back to 1/2008 |
| D        |       | Food                         |       | Loan  Receivable from                                |       | Dalian  Chuming Trading Co., Ltd                               |            | 11,943,685  |       | Food  Co. paid material on behalf of Trading Co. dating back to 3/2010                             |
| E        |       | Meat                         |       | Loan  Receivable from                                |       | Dalian  Chuming Industrial Development Co., Ltd.          |            | 29,173,438  |       | Meat  Co. paid bank loan principal and interest on behalf of Industrial Co. dating  back to 4/2009 |
| F        |       | Meat                         |       | Loan  Receivable from                                |       | Dalian  Chuming Stockbreeding Combo Development Co., Ltd. |            | 2,250,225   |       | Prepayment  to Stockbreeding Combo for Purchase of hogs dating back to 7/2008.                     |
| G        |       | Meat                         |       | Loan  Receivable from                                |       | Dalian  Chuming Group Co., Ltd.                           |            | 66,946,812  |       | Chuming  Group borrowed loan from Meat Co. dating back to 1/2008                                   |
| H        |       | Meat                         |       | Loan  Receivable from                                |       | Dalian  Chuming Trading Co., Ltd                               |            | 43,783,272  |       | Trading  Co. borrowed loan from Meat Co. dating back to 4/2010                                     |
| I        |       | Meat                         |       | Loan  Receivable from                                |       | Dalian  Huayu Seafood Food Co., Ltd.                      |            | 536,364     |       | Meat  Co. purchased material on behalf of Huayu dating back to 7/2010                              |
| J        |       | Meat                         |       | Loan  Receivable from                                |       | Dalian  Chuming Fodder Co., Ltd.                          |            | 2,362,623   |       | Meat  Co. purchase raw materials on behalf of Fodder dating back to 7/2010                         |
| K        |       | Sales                        |       | Loan  Receivable from                                |       | Dalian  Huayu Seafood Co., Ltd.                           |            | 2,376,171   |       | Sales  Co. help Huayu purchase materials dating back to 9/2008.                                    |
| L        |       | Sales                        |       | Loan  Receivable from                                |       | Dalian  Chuming Stockbreeding Combo Development Co., Ltd. |            | 16,255,161  |       | Sales  Co. paid for Stockbreeding to buy hogs from farmer dating back 7/2008                       |
| M        |       | Sales                        |       | Loan  Receivable from                                |       | Dalian  Chuming Industrial Development Co., Ltd.          |            | 5,710,253   |       | Sales  Co. purchased materials for Industrial Co. dating back to 7/2009                            |
|     |       |                         |       | **Subtotal  loans to related parties**               |       | **203,940,480**                                                |            |        |
|     |       |                         |       | **Gross  related party receivables**                 |       | **$**                                                          | **209,570,426** |        |       |

 

20

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 
| **Ref.** | ** ** | **Subsidiary  Due from:** | ** ** | **Nature of Balance**                                                      | ** ** | **Related Party**                                         | ** **      | **Balance** | ** ** | **Description of Transaction**                                              |
|----------|------------|--------------------------------|------------|--------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|-----------------|-------------|------------|---------------------------------------------------------------------------------------|
| N        |       | Meat                           |       | Purchase  of Raw Materials resulting in Trade Payable to                             |       | Dalian  Chuming Stockbreeding Combo Development Co., Ltd. |            | $           | 89,775,342 |                                                                                  | Meat  Co. purchased of hogs from Stockbreeding Combo dating back to 12/2009 |
| O        |       | Meat                           |       | Purchase  of Raw Materials resulting in Trade Payable to                             |       | Dalian  Chuming Group Co., Ltd.                           |            | 33,517,102  |       | Purchase  of hogs from Group dating back to 7/2008.                                   |
|     |       |                           | ** ** | **Subtotal of Purchases from Related Parties**                                       | ** ** | **$**                                                          | **123,292,444** | ** **  | ** ** |
|     |       |                           |       |                                                                                 |       |                                                           |            |        |       |                                                                                  |
| P        |       | Food                           |       | Loan  Payable to                                                                     |       | Dalian  Chuming Group Co., Ltd.                           |            | 1,598,750   |       | Food  Co. borrowed from Group to purchase materials dating back to 4/2009.            |
| Q        |       | Food                           |       | Loan  Payable to                                                                     |       | Dalian  Chuming Stockbreeding Combo Development Co., Ltd. |            | 7,016,915   |       | Stockbreeding  Combo bought raw materials on behalf of Food Co. dating back to 4/2009 |
| R        |       | Food                           |       | Loan  Payable to                                                                     |       | Dalian  Huayu Seafood Co., Ltd.                           |            | 9,314,269   |       | Food  Co. collected customer deposits on behalf of Huayu Co. dating back to 7/2009    |
| S        |       | Food                           |       | Loan  Payable to                                                                     |       | Dalian  Chuming Fodder Co., Ltd.                          |            | 2,897,101   |       | Food  Co. purchased materials on behalf of Fodder dating back to 7/2010               |
| T        |       | Meat                           |       | Loan  Payable to                                                                     |       | Dalian  Chuming Fodder Co., Ltd.                          |            | 1,258,039   |       | Fodder  Co. paid the materials on behalf of Meat dating back to 3/2010                |
| U        |       | Sales                          |       | Loan  Payable to                                                                     |       | Dalian  Mingxing Livestock Product Co. Ltd.,                   |            | 1,560,374   |       | Sales  Co. collected bank loans on behalf of Mingxing dating back to 8/2008           |
| V        |       | Sales                          |       | Loan  Payable to                                                                     |       | Dalian  Chuming Fodder Co., Ltd.                          |            | 9,655,687   |       | Fodder  Co. bought materials on behalf of Sales Co. dating back to 4/2009             |
| W        |       | Sales                          |       | Loan  Payable to                                                                     |       | Dalian  Chuming Group Co., Ltd.                           |            | 3,269,214   |       | Sales  Co. borrowed money from Group dated back to 7/2010                             |
| X        |       | WFOE                           |       | Loan  Payable to                                                                     |       | Dalian  Chuming Group Co.                                      |            | 8,636,273   |       | Group  loaned funds to WFOE (includes funds transferred from Meat for US RTO.)        |
|     |       |                           |       | **Subtotal  of Loans from Related Parties**                                          |       | **45,206,622**                                                 |            |        |
|     |       |                           |       | **Gross Related Party Payable**                                                      |       | **168,499,066**                                                |            |        |
|     |       |                           |       | **Setoff Related Party Receivable** (Payables  have been set-off against receivable) |       | **$**                                                          | **41,071,360**  |        |       |

 

21

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

A.            Food Company sold USD 5.6 million(RMB 37.71 million) cooked food to Huayu Company on credit.

 

B.            Food Company purchasedmaterial USD 187 thousand(RMB 1.2 Million) on behalf of Mingxing dating back to6/2009

 

C.            Food Company paid USD 22million (RMB 150 million) bank loan principal and interest on behalf ofIndustrial Development Company.

 

D.            Food Company paid USD 11.9million (RMB 80 million) for materials on behalf of Trading Company.

 

E.             Meat Company paid USD 29million (RMB 195 million) bank loan principal and interest on behalf IndustrialDevelopment Company.

 

F.              The prepayment of USD 2.25million (RMB 15 million) from Meat Company to the Stockbreeding ComboDevelopment Company was for the purchase of hogs.

 

G.            Meat Company lent USD 67million (RMB 425 million) to Chuming Group.

 

H.           Trading Company borrowed USD44 million (RMB 273 million) from Meat Company.

 

I.                Meat Company purchased USD536 thousand (RMB 3.6 million) thousand materials on behalf of Huayu Company.

 

J.                Meat Company purchased USD2.4 million raw materials on behalf of Fodder Company.

 

K.           Sales Company bought USD 2.4million (RMB 16 million) raw materials on behalf of Huayu Seafood Company.

 

L.             Sales Company help the ComboDevelopment Company to pay USD 16.2 million (RMB 109 million) to local farmersfor the purchase of hogs.

 

M.         Sales Company purchased USD5.7 million (RMB 38 million) materials for Industrial Development Company.

 

N.            The balance of USD 89.7million (RMB 605 million) payment owed by the Meat Company to StockbreedingCombo Development Company was for the purchase of hogs.

 

O.            The Group sold hogs to MeatCo. for 34 million (RMB 302 million).

 

P.              Food borrowed  USD 1.6 million(RMB 10.7 million) from Groupto purchase materials

 

Q.            Stockbreeding ComboDevelopment Company purchased USD 7 million (RMB 67 million) for Food Company.

 

R.            Food Company collected USD9.3 million (RMB 62.3 million) customer deposits on behalf of Huayu SeafoodCompany.

 

22

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

S.              Food Company bought USD 2.8million (RMB 18 million) materials on behalf of Fodder Company.

 

T.             Fodder Co. paid USD 1.2million (RMB 8.4 million) the fodder materials on behalf of Meat Company.

 

U.            Sales Company collected USD1.6 million (RMB 10.88 thousand) bank loans on behalf of Mingxing LivestockCompany.

 

V.            Fodder Company bought USD9.7 million (RMB 65 million) materials on behalf of Sales Company.

 

W.         Sales Company borrowed USD3.3 million (RMB 19 million) from the Group.

 

X.            The outstanding payablebalance of USD 10.6 million (RMB 70 million) due to the Group has beentransferred to the books of Chuming.

 

Therelated party receivable balance detailed above, and the related transactionsthat comprise that balance were integral and material to the Company’soperations.  The Company was reliant ontransactions with the above related parties in order to conduct its businessnormally.  The Company acknowledges thatit has the responsibility to comply with paragraph c of SFAS 57 (FASB ASC 850)which calls for the dollar amounts oftransactions for each of the periods for which income statements are presentedand the effects of any change in the method of establishing the terms from thatused in the preceding period. The Company does represent that the balancesdisclosed above are both accurate and reliable within acceptable thresholds ofmateriality.

 

TheCompany’s related party receivables and payables in the period presented werein the form of either short-term loans bearing no interest, or trade payablesand receivables relating to the purchase of raw materials, supplies or productsfor which payment was due within a short period of time.

 

23

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

6.                                      Inventory

 
| ** **       | ** ** | **At**                     | ** ** | **At**                | ** ** |
|------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **       | ** ** | **September ****30,** | ** ** | **December 31,** | ** ** |
| ** **       | ** ** | **2010**                   | ** ** | **2009**              | ** ** |
| Raw Materials    |       | $                          | 748,146    |                  | $          | 1,479,197 |   |
| Work in Progress |       | 196,591                    |       | 95,051                |       |
| Finished Goods   |       | 8,912,666                  |       | 2,109,741             |       |
|             |       | $                          | 9,857,403  |                  | $          | 3,683,989 |   |

 

7.                                      Property, Plant &Equipment

 
| **At**                                | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** **  | ** ** |
|---------------------------------------|------------|------------|------------|------------------|------------|-------------|------------|
| **September ****30, 2010:** | ** ** | **Cost**   | ** ** | **Depreciation** | ** ** | **Net**     | ** ** |
| Buildings                             |       | $          | 22,212,402 |             | $          | (5,257,677  | )          | $ | 16,954,725 |   |
| Manufacturing Equipment               |       | 10,257,946 |       | (5,043,926       | )          | 5,214,020   |       |
| Office Equipment                      |       | 493,790    |       | (440,558         | )          | 53,232      |       |
| Vehicles                              |       | 927,722    |       | (741,865         | )          | 185,857     |       |
| Furniture &  Fixture         |       | 536,233    |       | (255,137         | )          | 281,096     |       |
|                                  |       | $          | 34,428,093 |             | $          | (11,739,163 | )          | $ | 22,688,930 |   |

 
| **At**                           | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| **December 31, 2009:** | ** ** | **Cost**   | ** ** | **Depreciation** | ** ** | **Net**    | ** ** |
| Buildings                        |       | $          | 21,661,732 |             | $          | (4,341,813 | )          | $ | 17,319,919 |   |
| Manufacturing Equipment          |       | 9,983,958  |       | (4,227,442       | )          | 5,756,516  |       |
| Office Equipment                 |       | 473,623    |       | (397,488         | )          | 76,135     |       |
| Vehicles                         |       | 926,735    |       | (664,628         | )          | 262,107    |       |
| Furniture &  Fixture    |       | 525,323    |       | (212,516         | )          | 312,807    |       |
|                             |       | $          | 33,571,371 |             | $          | (9,843,887 | )          | $ | 23,727,484 |   |

 

8.                                      Land Use Right

 

The Company had the following intangible assets outstanding:-

 
| ** **                          | ** ** | **At**                     | ** ** | **At**                | ** ** |
|-------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **September ****30,** | ** ** | **December 31,** | ** ** |
| ** **                          | ** ** | **2010**                   | ** ** | **2009**              | ** ** |
| Land Use Rights, at  Cost           |       | $                          | 15,041,156 |                  | $          | 14,735,150 |   |
| *Less**:*  Accumulated Amortization |       | (1,812,672                 | )          | (1,559,591            | )          |
|                                |       | $                          | 13,228,484 |                  | $          | 13,175,559 |   |

 

24

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

9.                                      Bank Loans

 

*(A)**           **ShortTerm Bank Loans*

 

At September 30, 2010 and December 31 2009, the Company hadthe following short-term loans outstanding:

 
| ** **                                                 | ** ** | ** **   | ** ** | ** ** | ** ** | **At**                 | ** ** |
|------------------------------------------------------------|------------|--------------|------------|------------|------------|------------------------|------------|
| ** **                                                 | ** ** | **Interest** | ** ** | **Due**    | ** ** | **September 30,** | ** ** |
| **Bank**                                                   | ** ** | **Rate**     | ** ** | **Date**   | ** ** | **2010**               | ** ** |
| Bank of China -  Liaoning Branch                           |       | 5.841        | %          | 10/27/2010 |       | $                      | 2,090,145  |   |
| Bank of China -  Liaoning Branch                           |       | 5.841        | %          | 12/12/2010 |       | 4,478,882              |       |
| Bank of China -  Liaoning Branch                           |       | 5.310        | %          | 09/28/2011 |       | 7,728,311              |       |
| Shanghai Pudong  Development Bank - Dalian Branch          |       | 5.841        | %          | 11/25/2010 |       | 14,929,607             |       |
| Huaxia Bank - Dalian  Branch                               |       | 5.576        | %          | 01/06/2011 |       | 7,464,803              |       |
| Bank of East Asia -  Dalian Branch                         |       | 5.450        | %          | 10/22/2010 |       | 2,239,442              |       |
| China Minsheng Banking  Corp., Ltd. - Shanghai Branch |       | 5.841        | %          | 04/12/2011 |       | 4,478,882              |       |
|                                                       |       |         |       |       |       | $                      | 43,410,072 |   |

 
| ** **                                        | ** ** | ** **   | ** ** | ** ** | ** ** | **At**                | ** ** |
|---------------------------------------------------|------------|--------------|------------|------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **Interest** | ** ** | **Due**    | ** ** | **December 31,** | ** ** |
| **Bank**                                          | ** ** | **Rate**     | ** ** | **Date**   | ** ** | **2009**              | ** ** |
| Bank of China -  Liaoning Branch                  |       | 5.841        | %          | 11/11/2010 |       | $                     | 2,252,384  |   |
| Bank of China -  Liaoning Branch                  |       | 5.841        | %          | 11/18/2010 |       | 2,135,377             |       |
| Bank of China -  Liaoning Branch                  |       | 5.841        | %          | 10/27/2010 |       | 2,047,620             |       |
| Agricultural Bank of  China - Wafangdian Branch   |       | 5.310        | %          | 10/30/2010 |       | 2,925,174             |       |
| Shanghai Pudong  Development Bank - Dalian Branch |       | 5.841        | %          | 07/16/2010 |       | 4,387,761             |       |
| Bank of East Asia -  Dalian Branch                |       | 7.330        | %          | 10/22/2010 |       | 2,193,881             |       |
|                                              |       |         |       |       |       | $                     | 15,942,197 |   |

 

The loans provided by the Bank of China are secured by the Meat Company’sland use rights, which have been appraised at a fair market value of $5,605,611(RMB 41,000,000).  Also, the AgriculturalBank and Shanghai Pudong Development Bank loans have been guaranteed by theDalian Chuming Group Co., Ltd. Both the CEO Mr. Shi Huashan andDalian Chuming Group Co., Ltd. have guaranteed the loan from Bank of EastAsia.

 

*(B)**           **BankLoan through Group*

 

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

 

25

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

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

 

10.                               Notes Payable

 

Notespayable consisted of the followings:-

 
| ** **                                          | ** ** | ** **        | ** ** | **At**                     | ** ** |
|-----------------------------------------------------|------------|-------------------|------------|----------------------------|------------|
| ** **                                          | ** ** | ** **        | ** ** | **September ****30,** | ** ** |
| **Notes to**                                   | ** ** | **Due Date** | ** ** | **2010**                   | ** ** |
| Shanghai Pudong  Development Bank - Liaoning Branch |       | 11/18/2010        |       | $                          | 7,464,803  |   |
|                                                |       |              |       | $                          | 7,464,803  |   |

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

 

TheNotes do not carry a stated interest rate but do carry a specific duedate.  These notes are negotiabledocuments issued by financial institutions on the Company’s behalf tovendors.  These notes can either beendorsed by the vendor to other third parties as payment, or prior to comingdue, they can discount these notes to other financial institutions. These notesare short term in nature so the Company does not calculate an imputed intereston them. These notes are collateralized by the Company’s deposits as describedin Note 3.Restricted Cash.

 

11.                               Capitalization

 

Asa result of a reverse-merger on December 31, 2007 that was consummated viaa share exchange, and a concurrent equity financing, in the form of a privateplacement by issuing common stock to ten accredited investors, the Company’s capitalizationis 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     |                                  | $          | 31,186,367        |       | 69.50 | % |
| PRE-RTO Shell Shareholders        |       | 422,756                          |       | 423                        |       | —                                |       | 2.00              | %          |
| Advisors &  Consultants  |       | 2,161,052                        |       | 2,161                      |       | —                                |       | 10.22             | %          |
| Private Investors                 |       | 3,863,636                        |       | 3,864                      |       | 13,043,964                            |       | 18.28             | %          |
|                              |       | 21,136,392                       |       | $                          | 21,137     |                                  | $          | 44,230,331        |       | 100.00 | % |

 

26

----

 

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

12.                               Commitments ofStatutory Reserve

 

In compliance with PRC laws, the Company is required toappropriate a portion of its net income to its statutory reserve up to amaximum of 50% of an enterprise’s registered capital in the PRC.  The Company had future unfunded commitments,as provided below.

 
| ** **             | ** **                                                      | **At**                     | ** ** | **At**                | ** ** |
|------------------------|-----------------------------------------------------------------|----------------------------|------------|-----------------------|------------|
| ** **             | ** **                                                      | **September 30****,** | ** ** | **December 31,** | ** ** |
| ** **             | ** **                                                      | **2010**                   | ** ** | **2009**              | ** ** |
| PRC Registered Capital |                                                            | $                          | 17,666,849 |                  | $          | 15,566,849 |   |
|                   |                                                            |                       |       |                  |       |
|                   | - Statutory Reserve  Ceiling based on 50% of Registered Capital |                       | 8,833,425  |                  | 7,783,424  |   |
|                   |                                                            |                       |       |                  |       |   |
| *Less**:*              | - Retained Earnings appropriated  to Statutory Reserve          |                       | (2,077,488 | )                     | (2,077,488 | ) |
|                   |                                                            |                       |       |                  |       |   |
|                   | Reserve Commitment Outstanding                                  |                       | **$**      | **6,755,937**         |       | **$** | **5,705,936** |   |

 

13.                               AdvertisingCosts

 

Advertising expenses were $211,669 and $163,029 for the nine-monthperiods ended September 30, 2010 and 2009, respectively.

 

14.                               Income Taxes

 

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

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

 

As shown in the tableabove, Dalian Chuming Slaughtering & PorkPackaging Co. Ltd., Dalian Chuming Processed Foods Co. Ltd., Dalian ChumingSales Co. Ltd., and Dalian Chuming Precious Sheen Investment Consulting Co. operate in the PRC.  They generate substantially all of theprofits for the Company. The Company expects that these subsidiaries will onlybe subject to PRC taxes in the foreseeable future, because the Company has notyet established a plan to repatriate it earnings to the United States.

 

27

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

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

 

Dalian Chuming Slaughtering & PorkPackaging Co. Ltd. has been given special tax-free status by the PRCgovernment because of the Company’s standing as leader in its industry inDalian.  Accordingly, the Company has notmade a provision for income taxes in the PRC for the nine-month periodsended  September 30, 2010 and 2009.

 

Dalian Chuming Processed Foods Co. Ltd has providedfor income taxes for the nine-month periods ended September 30, 2010 and2009 in the amounts of  $1,198,617 and$1,441,418, respectively.

 

Dalian Chuming Sales Co. Ltd. has notprovided for income taxes in years 2010 and 2009 because it has incurredoperating losses for those respective years. The Company has chosen to derecognize its deferred tax assets arisingfrom net operating losses in prior periods by expensing the asset to the incometax expense account.  The amounts expenserelated to de-recognition of deferred tax assets for the years ended December 312009 and 2008 were $176,191 and $11,246 respectively. Management made thedecisions of de-recognition based on new information such as changes in marketconditions and the further streamlining of the Company’s business.  Management does not believe that previouslyaccrued deferred tax assets will be used to reduce taxes payables at any pointin the foreseeable future. Management deemed the use of a valuation allowanceinappropriate based on the circumstances in accordance to guidance providedunder ASC 740-10-40.

 

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

 

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

 
| i.  |   | 2010 |   | Tax  expense |   | (1,198,617 | ) |
|-----|--------|------|--------|--------------|--------|------------|---|
| ii. |   | 2009 |   | Tax  expense |   | (1,441,418 | ) |

 

15.                               Commitments

 

It is company policy to develop plant facilities based on availabilityof cash resources without incurring capital commitments. Therefore, the Companydid not have any capital commitments existing at September 30, 2010 exceptfor the commitment to have the construction in progress finished.

 

On December 19, 2007, the Company entered into a hog purchaseagreement whereby the Dalian Chuming Group Co., Ltd will provide at fair marketprice a minimum number of hogs to the Company. At September 30, 2010, the Company expects minimum quantities ofhogs detailed in the following table:

 
| **Year**           | ** ** | **Hogs** | ** ** | **Price Per Hog** | ** ** | **Amount** | ** ** |
|--------------------|------------|----------|------------|-----------------------------|------------|------------|------------|
| 2010  (Oct to Dec) |       | 384,511  |       | $                           | 205.84     |       | $          | 79,147,744 |   |
|                    |            |          |            |                             |            |            |            |  |  |

 

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

 

28

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

16.                              OperatingSegments

 

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

 

Below is a presentation of the Company’s financialposition for its operating subsidiaries at September 30, 2010 and December 31, 2009, and for the Company’s result ofoperation for the nine-month periods then ended. The Company has also providedreconciling adjustments with the Company and its intermediate holding companiesDalian Chuming Precious Sheen Investments Consulting Ltd. (“Chuming WFOE”) andPrecious Sheen Investments Ltd (PSI).

 
| **Results of Operations**     | ** ** | ** **  | ** **     | ** **  | ** ** | ** **    | ** ** | **WFOE,**           | ** **     | ** **  | ** ** |
|-----------------------------------------|------------|-------------|----------------|-------------|------------|---------------|------------|---------------------|----------------|-------------|------------|
| **For the period ended** | ** ** | **Meat**    | ** **     | **Food**    | ** ** | **Sales**     | ** ** | **PSI, &** | ** **     | ** **  | ** ** |
| **September ****30, 2009**    | ** ** | **Company** | ** **     | **Company** | ** ** | **Company**   | ** ** | **Eliminations**    | ** **     | **Total**   | ** ** |
| Sales                                   |       | $           | 147,991,969    |        | $          | 24,184,096    |       | $                   | 25,724,571     |        | $          | (41,047,962 | ) | $ | 156,852,674 |   |
| Cost of Sales                           |       | 129,915,408 |           | 17,675,199  |       | 27,073,097    |       | (41,047,962         | )              | 133,615,742 |       |
| Gross Profit                            |       | 18,076,560  |           | 6,508,897   |       | (1,348,526    | )          | —              |           | 23,236,932  |       |
|                                    |       |        |           |        |       |          |       |                |           |        |       |
| Operating (Loss)/Profit                 |       | 17,114,488  |           | 5,881,237   |       | (3,454,008    | )          | (269,463            | )              | 19,272,254  |       |
|                                    |       |        |           |        |       |          |       |                |           |        |       |
| Other Income (Expense)                  |       | (129,147    | )              | (115,566    | )          | (29,779       | )          | (12,836,469         | )              | (13,110,961 | )          |
|                                    |       |        |           |        |       |          |       |                |           |        |       |
| Earnings before Tax                     |       | 16,985,341  |           | 5,765,671   |       | (3,483,787    | )          | (13,105,932         | )              | 6,161,294   |       |
|                                    |       |        |           |        |       |          |       |                |           |        |       |
| (Income Tax Expense)                    |       | —      |           | (1,441,418  | )          | —        |       | —              |           | (1,441,418  | )          |
|                                    |       |        |           |        |       |          |       |                |           |        |       |
| Extraordinary Expense                   |       | —      |           | —      |       | —        |       | —              |           | —      |       |
|                                    |       |        |           |        |       |          |       |                |           |        |       |
| **Net  Income**                         | ** ** | **$**       | **16,985,341** | ** **  | **$**      | **4,324,253** | ** ** | **$**               | **(3,483,787** | **)**       | **$**      | **(13,105,932** | **)** | **$** | **4,719,876** | ** ** |

 

Eliminated Intercompany Sales of Products Sold Nine-month periods ended September 30, 2009

 
| **Sold From:** | ** ** | **Sold To:** | ** ** | **Amount** | ** ** |
|---------------------|------------|-------------------|------------|------------|------------|
| Food Company        |       | Sales Company     |       | $          | 5,854,487  |   |
| Meat Company        |       | Sales Company     |       | 20,292,333 |       |
| Meat Company        |       | Food Company      |       | 14,901,142 |       |
|                |       |              |       | $          | 41,047,962 |   |

 

29

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 
| **Results of Operations**        | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** | **WFOE,**           | ** ** | ** **  | ** ** |
|--------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|---------------------|------------|-------------|------------|
| **For the period ended**    | ** ** | **Meat**    | ** **  | **Food**    | ** ** | **Sales**   | ** ** | **PSI, &** | ** ** | ** **  | ** ** |
| **September **** 30, 2010** | ** ** | **Company** | ** **  | **Company** | ** ** | **Company** | ** ** | **Eliminations**    | ** ** | **Total**   | ** ** |
| Sales                                      |       | $           | 156,013,257 |        | $          | 21,743,518  |       | $                   | 14,381,918 |        | $          | (26,642,157 | ) | $ | 165,496,536 |   |
| Cost of Sales                              |       | 137,498,825 |        | 16,237,740  |       | 13,874,597  |       | (26,642,157         | )          | 140,969,005 |       |
| Gross Profit                               |       | 18,514,432  |        | 5,505,778   |       | 507,321     |       | —              |       | 24,527,531  |       |
|                                       |       |        |        |        |       |        |       |                |       |        |       |
| Operating (Loss)/Profit                    |       | 17,418,690  |        | 4,976,812   |       | (596,388    | )          | (331,691            | )          | 21,467,422  |       |
|                                       |       |        |        |        |       |        |       |                |       |        |       |
| Other Income (Expense)                     |       | (1,071,151  | )           | (182,343    | )          | 70,239      |       | 1,976               |       | (1,181,278  | )          |
|                                       |       |        |        |        |       |        |       |                |       |        |       |
| Earnings before Tax                        |       | 16,347,539  |        | 4,794,469   |       | (526,149    | )          | (329,715            | )          | 20,286,144  |       |
|                                       |       |        |        |        |       |        |       |                |       |        |       |
| (Income Tax Expense)                       |       | —      |        | (1,198,617  | )          | —      |       | —              |       | (1,198,617  | )          |
|                                       |       |        |        |        |       |        |       |                |       |        |       |
| Extraordinary Expense                      |       | —      |        | —      |       | —      |       | —              |       | —      |       |
|                                       |       |        |        |        |       |        |       |                |       |        |       |
| **Net  Income**                            |       | $           | 16,347,539  |        | $          | 3,595,852   |       | $                   | (526,149   | )           | $          | (329,715 | ) | $ | 19,087,527 |   |

 

Eliminated Intercompany Sales of Products Sold****Nine-monthperiods ended ** **September  30, 2010

 
| **Sold From:** | ** ** | **Sold To:** | ** ** | **Amount** | ** ** |
|---------------------|------------|-------------------|------------|------------|------------|
| Food Company        |       | Sales Company     |       | $          | 6,104,111  |   |
| Meat Company        |       | Sales Company     |       | 8,015,476  |       |
| Meat Company        |       | Food Company      |       | 12,522,570 |       |
|                |       |              |       | $          | 26,642,157 |   |

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

 

30

----

 

**Energroup HoldingsCorporation**

**Notes to Consolidated FinancialStatements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 
| **Financial Position**                 | ** ** | ** **      | ** **      | ** **      | ** ** | ** **      | ** ** | **WFOE,**           | ** **     | ** **      | ** ** |
|---------------------------------------------|------------|-----------------|-----------------|-----------------|------------|-----------------|------------|---------------------|----------------|-----------------|------------|
| **At**                                      | ** ** | **Meat**        | ** **      | **Food**        | ** ** | **Sales**       | ** ** | **PSI, &** | ** **     | ** **      | ** ** |
| **September ****30, 2010**        | ** ** | **Company**     | ** **      | **Company**     | ** ** | **Company**     | ** ** | **Eliminations**    | ** **     | **Total**       | ** ** |
| Current Assets                              |       | $               | 254,929,477     |            | $          | 88,624,763      |       | $                   | 37,764,257     |            | $          | (241,145,644 | ) | $ | 140,172,853 |   |
| Non Current Assets                          |       | 24,295,755      |            | 18,291,575      |       | 171,696         |       | 446                 |           | 42,759,472      |       |
| **Total  Assets**                           | ** ** | **279,225,232** | ** **      | **106,916,338** | ** ** | **37,935,953**  | ** ** | **(241,145,198**    | **)**          | **182,932,325** | ** ** |
|                                        |       |            |            |            |       |            |       |                |           |            |       |
| Current Liabilities                         |       | 184,880,011     |            | 91,354,215      |       | 46,085,571      |       | (253,623,279        | )              | 68,696,517      |       |
|                                        |       |            |            |            |       |            |       |                |           |            |       |
| Total Liabilities                           |       | 184,880,011     |            | 91,354,215      |       | 46,085,571      |       | (253,623,279        | )              | 68,696,517      |       |
|                                        |       |            |            |            |       |            |       |                |           |            |       |
| Net Assets                                  |       | 94,345,221      |            | 15,562,123      |       | (8,149,618      | )          | 12,482,081          |           | 114,235,808     |       |
|                                        |       |            |            |            |       |            |       |                |           |            |       |
| **Total  Liabilities****&  Net Assets** | ** ** | **$**           | **279,225,232** | ** **      | **$**      | **106,916,338** | ** ** | **$**               | **37,935,953** | ** **      | **$**      | **(241,141,198** | **)** | **$** | **182,932,323** | ** ** |

 

31

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

17.                               Earnings PerShare

 

Components of basic and diluted earnings pershare were as follows: -

 
| ** **                                                                                   | ** ** | **For the**           | ** **     | **For the**           | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------|----------------|----------------------------|------------|
| ** **                                                                                   | ** ** | **Nine months**       | ** **     | **Nine months**       | ** ** |
| ** **                                                                                   | ** ** | **September ****30,** | ** **     | **September ****30,** | ** ** |
| ** **                                                                                   | ** ** | **2010**                   | ** **     | **2009**                   | ** ** |
|                                                                                         |       |                       | ** **     | ** **                 | ** ** |
| Net Income (A)                                                                               | ** ** | **$**                      | **19,087,527** | ** **                 | **$**      | **4,719,876** | ** ** |
|                                                                                         |       |                       |           |                       |       |
| Basic Weighted Average  Shares Outstanding (B)                                               |       | 21,136,392                 |           | 17,272,756                 |       |
| Dilutive Shares:                                                                             |       |                       |           |                       |       |
| - Addition  to Common Stock from Exercise of Placement Warrants                              |       | —                     |           | —                     |       |
| - Addition  to Common Stock from Contingent Shares Held in Escrow (Please refer to Note  19) |       | —                     |           | 3,863,636                  |       |
| Diluted Weighted  Average Shares Outstanding: (C)                                            |       | 21,136,392                 |           | 21,136,392                 |       |
| ** **                                                                                   | ** ** | ** **                 | ** **     | ** **                 | ** ** |
| Earnings Per Share:                                                                          | ** ** | ** **                 | ** **     | ** **                 | ** ** |
| - Basic (A)/(B)                                                                              |       | $                          | 0.90           |                       | $          | 0.27 |   |
| - Diluted  (A)/(C)                                                                           |       | $                          | 0.90           |                       | $          | 0.22 |   |
|                                                                                         |       |                       | ** **     | ** **                 | ** ** |
| Weighted Average Shares Outstanding:                                                         |       |                       | ** **     | ** **                 | ** ** |
| - Basic                                                                                      |       | 21,136,392                 |           | 17,272,756                 |       |
| - Diluted                                                                                    |       | 21,136,392                 |           | 21,136,392                 |       |

 

18.                               Concentrationof Risk

 

*(A)**                               **Demandrisk*

 

The Company had concentrations of risk in demand for its productsbecause its sales were made to a small number of customers.

 

*(B)**                               **SupplyRisk*

 

The Company is subject to concentration of supply shortage risk becauseit purchases its materials for resale from a few select vendors. The Company’savailability of supply is correlated with the few select vendors’ ability tomeet the market demand.  In 2007, theentire industry in the PRC faced a shortage in the supply of hogs.

 

32

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

19.                               FinancingTransaction

 

On December 31, 2007, the Company, a Nevadacorporation (“Energroup” or the “Company”), acquired Precious Sheen InvestmentsLtd. (“PSI”) in a reverse take-over transaction, by executing a Share ExchangeAgreement (“Exchange Agreement”) by and among Energroup, PSI, and all of theshareholders of PSI’s issued and outstanding share capital (the “PSIShareholders”). PSI owned 100% of the equity in Chuming WFOE. Chuming WFOE is aholding company for the following three operating subsidiaries: (i) MeatCompany, (ii) Food Company, and (iii) Sales Company, each of which isa 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 Shareholdersbecame Energroup’s controlling shareholders and PSI became Energroup’swholly-owned subsidiary. As a result of PSI becoming Energroup’s wholly-ownedsubsidiary, Energroup acquired the business and operations of Chuming and theChuming Operating Subsidiaries.

 

Under the Exchange Agreement, Energroup completed the acquisition ofall of the issued and outstanding shares of PSI through the issuance of16,850,000 restricted shares of common stock of Energroup to PSI’s Shareholders.Immediately prior to the Exchange Agreement transaction, the Company had422,756 shares of common stock issued and outstanding. Immediately after theissuance of the shares to PSI’s Shareholders, the Company had 17,272,756 sharesof common stock issued and outstanding. The 422,756 shares of PSI werecancelled and 17,272,756 shares of Energroup were issued to reflect thisreverse take-over transaction.

 

Concurrently with the Exchange Agreement, Energroup also entered into aSecurities Purchase Agreement (the “Purchase Agreement”) pursuant to whichEnergroup agreed to issue and sell 3,863,636 shares of its common stock to tenaccredited investors for an aggregate purchase price of $17,000,000 or $4.40per share (the “Financing”). The closing of the Financing coincided with theClosing of the reverse take-over transaction.

 

In connection with the sales of securities to accredited investorsunder the securities purchase agreement, Hunter Wise Financial Group, LLC (the “PlacementAgent”), was compensated with a commission of $1,190,000 which is equal to7.00% of the aggregate purchase price and a warrant to purchase the 386,364shares of the Company’s common stock at an exercise price of $4.40 pershare.  At September 30, 2010, theCompany had adequate authorized capital to issue common shares upon theexercise of the warrant.

 

At September 30, 2010, the total number of shares outstanding, ona fully diluted basis, is shown in the following table:

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

 

33

----

 

**Energroup HoldingsCorporation**

**Notes to ConsolidatedFinancial Statements**

**As of September 30,2010 and December 31, 2009**

**And for the nine monthsended September 30, 2010 and 2009**

**(Stated in US Dollars)**

 

Inconnection 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 beneficiallyowned by him. These shares were to be released back to him if the Company metthe following earnings targets of $15.9 million, and $20.9 million in after-taxnet income for the years ended December 31, 2008, and 2009respectively.  The Company met theaforementioned targets.  In accordancewith SFAS 128, *Earnings per Share*(FASB ASC 260), for the sake of calculatingthe Company’s earnings per share, the Company has accountedfor the 3,863,636 escrowed shares as contingentlyissuable shares as such they were not included in the weighted average basicshares outstanding for nine months end September 30, 2009, but are included in the weighted average diluted sharesoutstanding for the same period.  Theescrowed shares have been released to the Chairman and CEO; therefore, for thenine months ended September 30,2010, the 3,863,636 have been included in both basic and diluted weightedaverage shares outstanding.  Please referto Note 17.

 

Inaccordance with Topic 5.T of the Staff Accounting Bulletins (SAB 79), theCompany had recorded compensatory expense for shares to be released from escrowby charging the Company’s earnings and recording a corresponding increase tothe Company’s contributed paid in capital. The Company recorded $12,838,043 forthe nine months ended September 30, 2009. The terms and conditions relatedto the signatures required to release the shares in escrow back to the Chairmanand CEO have been modified under the settlement agreement.  Refer to Note 20.

 

20.                               Sales

 

*ChineseNational Pork Reserve*

 

In2009, the PRC government established the Chinese National Pork Reserve with themission of: (1) avoiding the risk of a supply shortage of pork, and (2) maintainingan orderly market for pork.  The ChineseNational Pork Reserve will be comprised of facilities located in elevendifferent cities nationwide.  Dalian wasselected as one of the eleven cities to host a facility.

 

OnJune 15, 2009, the Company’s operating subsidiary, Meat Company, afterpassing a qualification process, was selected to be a supplier to the ChineseNational Pork Reserve; accordingly, the Company signed a long-term supplier agreementwith the Chinese National Pork Reserve. Under the terms of the agreement, the Company is to supply 30,000,000 kgof fresh pork to the Chinese National Pork Reserve, annually. The agreementprovides guidelines whereby the facility must use up and replenish 10,000,000kg of fresh meat (approximately 150,000 hogs) every four months. The Company’s2010 first three quarters sales was $165,496,536 of which $2,681,582 (RMB18,278,738), representing 1.62% of total sales, consisted of fresh pork sold tothe Chinese National Pork Reserve.

 

34

----

 

**ITEM 2.****    ****MANAGEMENT’S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS**

 

**Note Regarding Forward-LookingStatements**

 

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

 

*Although the Company believesthat the expectations reflected in the forward-looking statements arereasonable, the Company cannot guarantee future results, levels of activity,performance, or achievements. Except as required by applicable law, includingthe securities laws of the United States, the Company  does notintend to update any of the forward-looking statements to conform thesestatements to actual results. Readers are urged to carefully review andconsider the various disclosures made throughout the entirety of this quarterlyreport, which*

 

35

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*attempt to advise interestedparties of the risks and factors that may affect our business, financialcondition, results of operations, and prospects.*

 

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

 

**OVERVIEW**

 

Headquartered in the City ofDalian, 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 alsoprocess and sell seafood, such as minced fillet products, which accounted for asmall portion of our revenue (approximately 5.6%) in the third quarter of 2010.

 

We are the first pork producer inChina to receive “Green Food” certification from China’s Ministry ofAgriculture. Green Food is an innovative certification program unique to Chinathat is awarded to food processors who produce using environmentallysustainable methods and meet certain high technical standards of qualitycontrol, safety, and product quality and generate low levels of pollution. TheGreen Food certification is based on standards defined by the CodexAlimentarius Commission (“CAC”), a joint body of the United Nations Food andAgriculture Organization and the World Health Organization. We also receivedISO 9001:2000 certification that covers our production, research anddevelopment and sales activities.

 

Currently we have a wholesale andretail distribution network and sell either directly or indirectly acrossnortheast China, including supermarkets and hypermarkets.

 

As of September 30, 2010, wehad 793 employees, of whom 397 were operating personnel, 309 were salespersonnel, 41 were research and development personnel and 46 wereadministrative personnel.

 

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

 

1.               Dalian Chuming Slaughter and Packaging Pork Company Ltd. ( “MeatCompany”), whose primary business activity is acquiring, slaughtering andpackaging of pork and cattle;

 

2.               Dalian Chuming Processed Foods Company Ltd. ( “Food Company”),whose primary business activity is the processing of raw and cooked meatproducts; and

 

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

 

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

 

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

 

Aside from increasing aggregateconsumption, based on management’s research, pork consumption patterns inrecent years have shown two main characteristics. The first is that per capitapork is consumed at higher rates in the urban areas of China as opposed torural areas, although the rate of growth in these urban consumption rates isrelatively slight. The second is that consumers’ consumption preferences appearto have shifted from frozen meat to fresh meat, and from fat meat to lean meat,with a tendency toward high quality cuts. Management believes

 

36

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these trends continue to be veryfavorable to our business which is based on mechanized meat processing andsales to urban consumers.

 

Our total salesvolume was 28,221 metric tons in the third quarter of 2010 and 36,376metric tons in the third quarter of 2009.

 

Retail pork prices are an importantcomponent of China’s Consumer Price Index (CPI), a key inflation indicator. Inorder to moderate increases in the CPI and maintain the living standard of itslower-income population, the Chinese government has implemented a number ofpolicies to encourage pork production.  Due to a shortage in supply,live hog prices rose significantly in 2008.  However, during thefirst half of 2009, the average pork price declined as compared to the averageprice during the same periods in 2008.  The decline in pork priceswas due to a decline in demand which was the result of wide public perceptionthat the swine flu epidemic in late April and early May affected thehealth and quality of pork produced during such time.  In June 2009,in response to the decline in pork prices and demand, the Chinese governmentpurchased and placed into storage large quantities of pork products.  Thiswas done to help reduce public fear that the pork supplies were contaminateddue to the swine flu epidemic in an effort to cause  the pork priceto rebound to a reasonable level.  This action by the PRC governmenthelped to regain consumer confidence to increase the purchase of pork products,and as the demand began to rise, the prices of pork began to rise again in July 2009,and by the end of the year ultimately rose to a level higher than the pricesseen during the first half of 2009. In the third quarter of 2010,pork prices trended higher due to consumer goods inflation in China, weexpect this upward trend to continue through the end of the year.

 

In China, the pork processingindustry remains fragmented, and we believe, inefficient. As smaller playersexperience pressure from margin compression and stricter governmentregulations, we believe scaled pork processors, like ourselves, will bepositioned to make acquisitions on favorable terms in order to capture marketshare, gain scale, secure raw material, and access more customers. We expectthat the combined factors of stricter hygiene regulations, increasingcompetition from well-financed players, and struggling meat suppliers, willinduce industry consolidation in the coming years. We believe we are in astrong position to continue to take advantage of the Chinese government’ssupport for leading pork producers, these market consolidation trends, and theemerging hog supply situation. Management believes that this is a long-termtrend.

 

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

 

We place a very high priority onfood safety and integrity. For the feeds which are used for our hogs, wecontrol and monitor our feed sources by acquiring feeds only from qualifiedsuppliers who are licensed in the nation or the province, and then carry outcomprehensive tests to ensure quality. All of our production lines have alsopassed the Hazard Analysis and Critical Control Point (HACCP) test, which iscertified by Moody International Certification Ltd. Management anticipates thatcompanies such as ours, with quality meat processing and modern logisticssystems, will benefit as they capture market share and build consumer brandloyalty.

 

Management believes that we need tobroaden our geographic sales network and diversify our customer base. Currentlyour distribution network is principally located in Liaoning Province,especially Dalian city. We have however expanded our sales network for freshand processed food products to major large and medium cities in the three mostnortheast provinces of China. In the near future we need to further extend thisnetwork and penetrate all large and medium cities in the northeast provinces ofChina with all our products. A broader customer base will not only mitigate ourreliance on certain big customers, but also bring us more opportunities. Webelieve a broader market for our products can increase demand for our products,reduce our vulnerability to market changes, and provide additional areas ofgrowth in the future.

 

Our top five customers accountedfor 34.7% for our total sales for the quarter ended September 30, 2010. Weplan to position our business to diversify our customer base, which is expectedto lower this percentage gradually in the future.

 

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Management presently anticipatescontinued growth in volume of sales. Nevertheless, our ability to meetincreased customer demand and maintain profitability will however continue todepend on factors such as our production capacity, availability of workingcapital, input costs, as well as the other factors described throughout thisreport.

 

**CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

 

Our management’s discussion andanalysis of our financial condition and results of operations are based on ourconsolidated financial statements.

 

While our significant accountingpolicies are more fully described in Note 2 to our combined financialstatements included in this report, we believe that the following accountingpolicies are the most critical to aid you in fully understanding and evaluatingthis management discussion and analysis:

 

*Method of Accounting*

 

We maintain our general ledger andjournals 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 accountingprinciples in the United States of America and have been consistently appliedin the presentation of financial statements, which are compiled on the accrualbasis of accounting.

 

*Principles of Consolidation*

 

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

 

The Company has owned the threeoperating subsidiaries since December 31, 2007 as a result of a reversemerger consummated via share exchange. Control of our operatingsubsidiaries (through the Company, its subsidiaries, predecessors or otherentities) was consistently held prior to and after the reverse merger. We alsoown two intermediary holding companies. As of September 30, 2010, thedetailed identities of the consolidating subsidiaries are as follows:

 
| **Name of Company**                                       | ** ** | **Place of********Incorporation** | ** ** | **Attributable********Equity********Interest** | ** ** | **Registered  Capital** | ** **  |
|---------------------------------------------------------------------|------------|----------------------------------------|------------|------------------------------------------------|------------|-------------------------|-------------|
| Precious  Sheen Investments Limited                                 |       | BVI                                    |       | 100                                            | %          | USD                     | 10,000      |   |
|                                                                |       |                                   |       |                                           |       |                    |        |
| Dalian  Chuming Precious Sheen Investment Consulting Co., Ltd. |       | PRC                                    |       | 100                                            | %          | RMB                     | 105,241,234 |   |
|                                                                |       |                                   |       |                                           |       |                    |        |
| Dalian  Chuming Slaughtering & Pork Packaging Co. Ltd.     |       | PRC                                    |       | 100                                            | %          | RMB                     | 10,000,000  |   |
|                                                                |       |                                   |       |                                           |       |                    |        |
| Dalian  Chuming Processed Foods Co. Ltd.                            |       | PRC                                    |       | 100                                            | %          | RMB                     | 5,000,000   |   |
|                                                                |       |                                   |       |                                           |       |                    |        |
| Dalian  Chuming Sales Co. Ltd.                                      |       | PRC                                    |       | 100                                            | %          | RMB                     | 5,000,000   |   |

 

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

 

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*Use of Estimates*

 

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

 

*Accounts Receivable*

 

We extend unsecured, non-interestbearing credit to our customers; accordingly, we carry an allowance fordoubtful accounts, which is an estimate, made by management. Management makesits estimate based on prior experience rates and assessment of specificoutstanding customer balances.  Management may extend credit to newcustomers who have met the criteria of our revised credit policy.

 

*Inventory Carrying Value*

 

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

 

*Property, Plant, and Equipment*

 

Property, Plant, and Equipment arestated at cost. Repairs and maintenance to these assets are charged to expenseas incurred; major improvements enhancing the function and/or useful life arecapitalized. When items are sold or retired, the related cost and accumulateddepreciation are removed from the accounts and any gains or losses arising fromsuch transactions are recognized.

 

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

 
| **Fixed Asset Classification**      | ** ** | **Useful  Life** | ** ** |
|-----------------------------------------------|------------|------------------|------------|
| Land  Improvements                            |       | 10 years         |       |
| Buildings                                     |       | 20 years         |       |
| Building  Improvements                        |       | 10 years         |       |
| Manufacturing  Machinery & Equipment |       | 10 years         |       |
| Office  Equipment                             |       | 5 years          |       |
| Furniture &  Fixtures                |       | 5 years          |       |
| Vehicles                                      |       | 5 years          |       |

 

*Land Use Rights*

 

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

 

*Customer Deposits*

 

Customer Deposits represents moneywe have received in advance for purchases of pork and pork products. Weconsider customer deposits as a liability until products have been shipped andrevenue is earned. We collect a damage deposit (as a deterrent) recorded onother payable from showcase store operators as a means of enforcing the properuse of our trademark. We carry the amount of these deposits as a currentliability because we will return the deposit to the operator when we cease toconduct business with the operator.

 

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*Statutory Reserve*

 

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

 

*Earnings Per Share*

 

We compute earnings per share (“EPS”)in accordance with Statement of Financial Accounting Standards No. 128, “Earningsper share” (“FASB ASC 260”), and SEC Staff Accounting Bulletin No. 98 (“SAB98”). FASB ASC 260 requires companies with complex capital structures topresent basic and diluted EPS. Basic EPS is measured as the income or lossavailable to common shareholders divided by the weighted average common sharesoutstanding for the period. Diluted EPS is similar to basic EPS but presentsthe dilutive effect on a per share basis of potential common shares (e.g.,contingent shares, convertible securities, options, and warrants) as if theyhad 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 excludedfrom the calculation of diluted EPS.

 

*Recent Accounting Pronouncements*

 

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

 

*Related Party Receivable andPayable*

 

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

 

**RESULTS OF OPERATIONS**

 

**Comparison of Three Months Ended September 30,2010 and September 30, 2009.**

 

The following table sets forth theresults of our operations for the periods indicated as a percentage of netsales:

 

The following table sets forth theresults of our operations for the periods indicated as a percentage of netsales:

 
| ** **                                   | ** ** | **Quarter Ended********September 30,** | ** ** | **% of** | ** ** | **Quarter Ended********September 30,** | ** ** | **% of** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|--------------------------------------------------|------------|---------------|------------|
| ** **                                   | ** ** | **2010**                                         | ** ** | **Sales**     | ** ** | **2009**                                         | ** ** | **Sales**     | ** ** |
| Sales                                        |       | $                                                | 55,701,960 |          | 100.00     | %                                                | 67,821,080 |          | 100        | % |
| Cost of  Sales                               |       | (47,934,479                                      | )          | 86.06         | %          | (57,246,206                                      | )          | 84.41         | %          |
| Gross  Profit                                |       | 7,767,481                                        |       | 13.94         | %          | 10,574,874                                       |       | 15.59         | %          |
| Selling  Expenses                            |       | (491,412                                         | )          | 0.88          | %          | (706,664                                         | )          | 1.04          | %          |
| General &  Administrative Expenses  |       | (538,382                                         | )          | 0.97          | %          | (614,806                                         | )          | 0.91          | %          |
| Total  Operating Expense                     |       | (1,029,794                                       | )          | 1.85          | %          | (1,321,470                                       | )          | 1.95          | %          |
| Operating  Income / (Loss)                   |       | 6,737,687                                        |       | 12.10         | %          | 9,253,405                                        |       | 13.64         | %          |
| Other  Income (Expense)                      |       | (442,108                                         | )          | 0.79          | %          | (4,814,163                                       | )          | 7.10          | %          |
| Earnings  Before Tax                         |       | 6,295,579                                        |       | 11.30         | %          | 4,439,242                                        |       | 6.55          | %          |
| (Income  Tax Expense) / Deferred Tax Benefit |       | (318,101                                         | )          | 0.57          | %          | (686,232                                         | )          | 1.01          | %          |
| Net  Income                                  |       | $                                                | 5,977,478  |          | 10.73      | %                                                | 3,753,010  |          | 5.53       | % |
| Earnings  Per Share                          |       |                                             |       |          |       |                                             |       |          |       |
| Basic                                        |       | $                                                | 0.29       |          |       |                                             | 0.22       |          |       |   |
| Diluted                                      |       | 0.29                                             |       |          |       | 0.18                                             |       |          |       |
| Weighted  Average Shares Outstanding         |       |                                             |       |          |       |                                             |       |          |       |
| Basic                                        |       | 21,136,392                                       |       |          |       | 17,272,756                                       |       |          |       |
| Diluted                                      |       | 21,136,392                                       |       |          |       | 21,136,392                                       |       |          |       |

 

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*Sales*. Our sales include revenues from sales of our fresh pork,frozen pork, and processed food products. During the quarter ended September 30,2010, we had sales of $55,701,960, as compared to the sales of $67,821,080 forthe quarter ended September 30, 2009, a decrease of approximately 17.87%.Our sales for our various product categories in the third quarter of 2010 aresummarized as follows:

 
| **Sales by product category, in dollars:** | ** ** | **Third  Quarter 2010  (amount)** | ** ** | **% of  Total  Sales** | ** ** | **Third  Quarter 2009  (amount)** | ** ** | **% of********Total  Sales** | ** ** | **%  increase********from********2009 to  2010** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------|------------|-----------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|-------------------------------------------------------|------------|
| Fresh  Pork                                                         |       | $                                      | 44,091,608 |                        | 79.16      | %                                      | $          | 48,102,469                        |       | 70.93                                                 | %          | -8.34 | % |
| Frozen  Pork                                                        |       | 4,539,405                              |       | 8.15                        | %          | 8,244,934                              |       | 12.16                             | %          | -44.94                                                | %          |
| Processed  Food Products                                            |       | 7,070,947                              |       | 12.69                       | %          | 11,473,677                             |       | 16.92                             | %          | -38.37                                                | %          |
|                                                                |       |                                   |       |                        |       |                                   |       |                              |       |                                                  |       |
| Total  Sales                                                        |       | $                                      | 55,701,960 |                        | 100        | %                                      | $          | 67,821,080                        |       | 100                                                   | %          | -17.87 | % |

 
| **Sales by product category, by weight of  product (metric tons):** | ** ** | **Third  Quarter 2010  (Weight in  tons)** | ** ** | **% of  Total  Sales** | ** ** | **Third  Quarter 2009  (Weight in  tons)** | ** ** | **% of  Total  Sales** | ** ** | **%  change  from  2009 to  2010** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------|------------|------------------------------------------------------|------------|-----------------------------|------------|-----------------------------------------|------------|
| Fresh  Pork                                                                                                 |       | 23,058                                               |       | 81.71                       | %          | 28,322                                               |       | 77.86                       | %          | -18.59                                  | %          |
| Frozen  Pork                                                                                                |       | 2,736                                                |       | 9.69                        | %          | 4,196                                                |       | 11.54                       | %          | -34.80                                  | %          |
| Processed  Food Products                                                                                    |       | 2,427                                                |       | 8.60                        | %          | 3,858                                                |       | 10.61                       | %          | -37.09                                  | %          |
|                                                                                                        |       |                                                 |       |                        |       |                                                 |       |                        |       |                                    |       |
| Total  Sales                                                                                                |       | 28,221                                               |       | 100                         | %          | 36,376                                               |       | 100                         | %          | -22.42                                  | %          |

 

We believe that the decreases insales revenue and sales volume in fresh pork, frozen pork and processed porkproducts arises from short supply of live pigs.

 

In the third quarter of 2010, weincreased our average per-kilogram sales price for fresh pork products anddecreased our average per-kilogram sales price for frozen pork and processedfood products. These changes were in-line with changes in the market price forthose products. In the third quarter of 2010, our sales volume by weight offresh pork decreased as compared to the third quarter of 2009 by18.59%. Our revenue for fresh pork, however, decreased by 8.34%, givenlower sales volume by weight but higher average per-kilogram sales price forthis product category. For frozen pork and processed food products, our salesvolume by weight decreased by 34.80% and 37.09%, respectively, and because oflower average per-kilogram prices to customers, our sales revenue for those twoproduct category decreased by 44.94% and 38.37%, respectively.

 

The following table shows thechange in the average price per kilogram for our product to consumers in thequarter ending September 30, 2010, as compared to the same quarter lastyear:

 

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| ** **               | ** ** | **Average Per-Kilogram Price to Customers  (in US$)** | ** ** |
|--------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **               | ** ** | **Third  quarter of  2010**                                               | ** ** | **Third  quarter of  2009** | ** ** | **% change** | ** ** | **Change in  Price** | ** ** |
| Fresh  Pork              |       | $                                                                              | 1.91       |   | $ | 1.70 |   | 12.59 | % | $ | 0.21 |   |
| Frozen  Pork             |       | $                                                                              | 1.66       |   | $ | 1.96 |   | -15.56 | % | $ | -0.31 |   |
| Processed  Food Products |       | $                                                                              | 2.91       |   | $ | 2.97 |   | -2.04 | % | $ | -0.06 |   |

 

*Cost of Sales*. Cost of sales for the third quarter of 2010 decreased by$9,311,727 or approximately 16.27%, from $57,246,206 for the three monthsended September 30, 2009 to $47,934,479 for the three months ended September 30,2010. The decrease was principally attributable to the decreasein both the sales revenue and sales volume for our three productcategories in the third quarter of 2010 as compared to the same period inthe prior year. Our cost of sales for our various product categories in thethird quarter of each of 2010 and 2009 is summarized and shown as a percentageof overall cost of sales in the following chart:

 
| ** **                | ** ** | **Cost of Sales**  | ** ** | **% of********Overall** | ** ** | **Cost of  Sales Third** | ** ** | **% of********Overall** | ** ** | **% Change********from** | ** ** |
|---------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------------|------------|------------------------------|------------|-------------------------------|------------|
| **Product Category** | ** ** | **Third quarter  2010** | ** ** | **Cost  of Sales**      | ** ** | **Quarter  2009**                  | ** ** | **Cost  of Sales**      | ** ** | **2009 to  2010**        | ** ** |
| Fresh  Pork               |       | $                            | 38,630,093 |                         | 80.59      | %                                  | $          | 41,643,459                   |       | 72.74                         | %          | -7.24 | % |
| Frozen  Pork              |       | 3,763,846                    |       | 7.85                         | %          | 7,093,774                          |       | 12.39                        | %          | -46.94                        | %          |
| Processed  Food Products  |       | 5,540,540                    |       | 11.56                        | %          | 8,508,973                          |       | 14.86                        | %          | -34.89                        | %          |
|                      |       |                         |       |                         |       |                               |       |                         |       |                          |       |
| Total  Cost of Sales      |       | $                            | 47,934,479 |                         | 100        | %                                  | $          | 57,246,206                   |       | 100                           | %          | -16.27 | % |

 

The following table shows our costof sales in the third quarter of each of 2010 and 2009 as a percentage of saleswithin each product group.

 
| **Product Category:** | ** ** | **Cost of Sales  Third quarter********2010** | ** ** | **% of  Product  Group  Sales** | ** ** | **Cost of Sales  Third quarter********2009** | ** ** | **% of  Product  Group  Sales** | ** ** | **%  Change  in  Product  Group  Sales** | ** ** |
|----------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------|------------|
| Fresh  Pork                |       | $                                                           | 38,630,093 |                                 | 87.61      | %                                                           | $          | 41,643,459                           |       | 86.57                                    | %          | 1.04 | % |
| Frozen  Pork               |       | 3,763,846                                                   |       | 82.91                                | %          | 7,093,774                                                   |       | 86.04                                | %          | -3.12                                    | %          |
| Processed  Food Products   |       | 5,540,540                                                   |       | 78.36                                | %          | 8,508,973                                                   |       | 74.16                                | %          | 4.20                                     | %          |
| Total  Cost of Sales       |       | $                                                           | 47,934,479 |                                 | 86.06      | %                                                           | $          | 57,246,206                           |       | 84.41                                    | %          | 1.65 | % |

 

The following table shows theestimated average per-kilogram price we paid for live pigs in the first, secondand third quarters of 2010 and 2009:

 
| ** **      | ** ** | **Average  Unit Price  Per  Kilogram  in 2010  (in US$)** | ** ** | **Average  Unit Price  Per  Kilogram  in 2009  (in US$)** | ** ** | **Price  Increase/(Decrease)********(in US$)** | ** ** | **%  Increase/(Decrease)  from********2009 to 2010** | ** ** |
|-----------------|------------|--------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------------------|------------|
| First  Quarter  |       | 1.59                                                                     |       | 1.77                                                                     |       | (0.18                                               | )          | (10.17                                                         | )%         |
| Second  Quarter |       | 1.54                                                                     |       | 1.50                                                                     |       | 0.04                                                |       | 2.67                                                           | %          |
| Third  Quarter  |       | 1.87                                                                     |       | 1.75                                                                     |       | 0.12                                                |       | 6.86                                                           | %          |
| Fourth  Quarter |       | N/A                                                                      |       | 1.70                                                                     |       | N/A                                                 |       | N/A                                                            |       |

 

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*Gross Profit.*Gross profit was $7,767,481 for the three months ended September 30,2010 as compared to $10,574,874 for the three months ended September 30,2009, representing a decrease of $2,807,393, or approximately 26.55%. Managementattributes the decrease in gross profit to decreased sales volume of the threeproduct categories. Our gross profit as a percentage of sales was 13.94% in thethird quarter of 2010, as compared to 15.59% in the third quarter of 2009.

 

The following table presents ourgross profit for the three months ended September 30, 2010 and 2009. Thetable below also shows the percentage of gross profit for each of our productgroups, as a percentage of sales for that product group.

 
| **Product Group**   | ** ** | **Gross Profit********Third  quarter of********2010** | ** ** | **% of  Product********Group  Sales** | ** ** | **Gross Profit********Third quarter  of********2009** | ** ** | **% of  Product********Group  Sales** | ** ** | **% increase  from Third  quarter of  2009 to  Third********quarter of  2010** | ** ** |
|--------------------------|------------|-----------------------------------------------------------------|------------|--------------------------------------------|------------|-----------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|
| Fresh  Pork              |       | $                                                               | 5,461,515  |                                       | 12.39      | %                                                               | $          | 6,459,010                                  |       | 13.43                                                                                                   | %          | -15.44 | % |
| Frozen  Pork             |       | 775,559                                                         |       | 17.09                                      | %          | 1,151,160                                                       |       | 13.96                                      | %          | -32.63                                                                                                  | %          |
| Processed  Food Products |       | 1,530,407                                                       |       | 21.64                                      | %          | 2,964,704                                                       |       | 25.84                                      | %          | -48.38                                                                                                  | %          |
| Total  Gross Profit      |       | $                                                               | 7,767,481  |                                       | 13.94      | %                                                               | $          | 10,574,874                                 |       | 15.59                                                                                                   | %          | -26.55 | % |

 

In the third quarter of 2010, thegross profit of fresh pork decreased by 15.44% as compared to the same periodlast year, principally due to the increase in average per-kilogram pricewe paid for live pigs. Processed food products continued to yield a grossprofit margin that was the highest among all the product groups. Thegross profit of the frozen pork products segment decreased by 32.63%, ascompared to the same period last year, primarily due to a decrease in bothsales volume and average price to customers in that product.

 

*Selling Expenses*.  Selling expenses totaled $491,412 for thethree months ended September 30, 2010 as  compared to $706,664for the three months ended September 30, 2009, a decrease of $215,252 or30.46%. This decrease is primarily due to the decrease in sales revenue whichresulted in proportionate decreases in outbound fright and salary for the salesforce.

 

*General andAdministrative Expenses*.General and administrative expenses totaled $538,382 for the three months endedSeptember 30, 2010 as compared to $614,806 for the three months ended forthe same period in 2009, a decrease of $76,424 or 12.43%. This change isprimarily attributable to decrease in sales revenue.

 

*Other income(Expense).*Our otherincome (expense) consists of interest income, other expenses, and interestexpense.  In the third quarter of 2010, we had other income of$197,646 which included a government subsidy, as compared to $7,204 forthe third quarter of 2009.  Our total other expense in the third quarterof 2010 decreased by $4,372,055, or 90.82% as compared to the same period in2009.  This decrease in total other expenses  is primarilyattributable to an increase in interest expense on bank indebtedness andthe compensation expense in the amount of $4,619,816 arising from the releaseof 3,863,636 of our shares from an escrow arrangement entered into as part of aprivate equity financing consummated by us in December 2007, which is notpresent in 2010.  See Note 19 of the consolidated financialstatements included in Item 1 of this quarterly report on Form 10-Q.

 

*Net Income*. Net income for the three months ended September 30,2010 was $5,977,478 as compared to $3,753,010 for the same period in 2009, anincrease of $2,224,468 or 59.27%.  This increase in net income isattributable to decreases in other expense which resulted from the compensationexpense in the comparable quarter for 2009 described above and in income tax,and an increase in other income.

 

**Comparison of NineMonths Ended September 30, 2010 and September 30, 2009.**

 

The following table sets forth theresults of our operations for the periods indicated as a percentage of netsales:

 

43

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| ** **                                   | ** ** | **Nine months  ended********September 30,********2010** | ** **  | **%  of**** ****Sales** | ** ** | **Nine months  ended********September 30,********2009** | ** ** | **%  of**** ****Sales** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------------------------|-------------|------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------|------------|
| Sales                                        |       | $                                                                 | 165,496,536 |                         | 100.00     | %                                                                 | $          | 156,852,674                  |       | 100.00 | % |
| Cost of  Sales                               |       | (140,969,005                                                      | )           | 85.18                        | %          | (133,615,742                                                      | )          | 85.19                        | %          |
| Gross  Profit                                |       | 24,527,531                                                        |        | 14.82                        | %          | 23,236,932                                                        |       | 14.81                        | %          |
| Selling  Expenses                            |       | (1,125,722                                                        | )           | 0.68                         | %          | (2,079,027                                                        | )          | 1.33                         | %          |
| General &  Administrative Expenses  |       | (1,934,387                                                        | )           | 1.17                         | %          | (1,885,651                                                        | )          | 1.20                         | %          |
| Total  Operating Expense                     |       | (3,060,109                                                        | )           | 1.85                         | %          | (3,964,678                                                        | )          | 2.53                         | %          |
| Operating  Income / (Loss)                   |       | 21,467,422                                                        |        | 12.97                        | %          | 19,272,254                                                        |       | 12.29                        | %          |
| Other  Income (Expense)                      |       | 1,181,278                                                         |        | 0.71                         | %          | (13,110,960                                                       | )          | 8.36                         | %          |
| Earnings  Before Tax                         |       | 20,286,144                                                        |        | 12.26                        | %          | 6,161,294                                                         |       | 3.93                         | %          |
| (Income  Tax Expense) / Deferred Tax Benefit |       | (1,198,617                                                        | )           | 0.72                         | %          | (1,441,418                                                        | )          | 0.92                         | %          |
| Net  Income                                  |       | $                                                                 | 19,087,527  |                         | 11.53      | %                                                                 | $          | 4,719,876                    |       | 3.01 | % |
| Earnings  Per Share                          |       |                                                              |        |                         |       |                                                              |       |                         |       |
| Basic                                        |       | $                                                                 | 0.90        |                         |       |                                                              | $          | 0.27                         |       |   |   |
| Diluted                                      |       | 0.90                                                              |        |                         |       | 0.22                                                              |       |                         |       |
| Weighted  Average Shares Outstanding         |       |                                                              |        |                         |       |                                                              |       |                         |       |
| Basic                                        |       | 21,136,392                                                        |        |                         |       | 17,272,756                                                        |       |                         |       |
| Diluted                                      |       | 21,136,392                                                        |        |                         |       | 21,136,392                                                        |       |                         |       |

 

*Sales*. During the nine months of 2010, we had sales of$165,496,536 as compared to $156,852,674 for the nine months of 2009, anincrease of $8,643,862 or approximately 5.51%. Our sales for our variousproduct categories in the nine months of 2010 and 2009 are summarized asfollows:

 
| **Sales by product category, in dollars:** | ** ** | **Nine months  ended  September 30,  2010** | ** **  | **% of  Total  Sales** | ** ** | **Nine months  ended  September 30,  2010** | ** ** | **% of********Total  Sales** | ** ** | **%  increase********from********2009 to  2010** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------------|-------------|-----------------------------|------------|-------------------------------------------------------|------------|-----------------------------------|------------|-------------------------------------------------------|------------|
| Fresh  Pork                                                         |       | $                                                     | 132,620,626 |                        | 80.13      | %                                                     | $          | 115,951,472                       |       | 73.92                                                 | %          | 14.38 | % |
| Frozen  Pork                                                        |       | 11,110,168                                            |        | 6.71                        | %          | 16,686,335                                            |       | 10.64                             | %          | -33.42                                                | %          |
| Processed  Food Products                                            |       | 21,765,732                                            |        | 13.15                       | %          | 24,214,867                                            |       | 15.44                             | %          | -10.11                                                | %          |
|                                                                |       |                                                  |        |                        |       |                                                  |       |                              |       |                                                  |       |
| Total  Sales                                                        |       | $                                                     | 165,496,536 |                        | 100        | %                                                     | $          | 156,862,674                       |       | 100                                                   | %          | 5.51 | % |

 
| **Sales by product category, by weight of  product (metric tons):** | ** ** | **Nine months  ended********September 30,  2010  (Weight in  tons)** | ** ** | **% of  Total  Sales** | ** ** | **Nine months  ended********September 30,********2009  (Weight in  tons)** | ** ** | **% of  Total  Sales** | ** ** | **%  change  from  2009 to  2010** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------------------|------------|
| Fresh  Pork                                                                                                 |       | 73,919                                                                              |       | 82.79                       | %          | 64,471                                                                                    |       | 78.07                       | %          | 14.65                                   | %          |
| Frozen  Pork                                                                                                |       | 7,679                                                                               |       | 8.60                        | %          | 9,763                                                                                     |       | 11.82                       | %          | -21.35                                  | %          |
| Processed  Food Products                                                                                    |       | 7,692                                                                               |       | 8.61                        | %          | 8,351                                                                                     |       | 10.11                       | %          | -7.89                                   | %          |
|                                                                                                        |       |                                                                                |       |                        |       |                                                                                      |       |                        |       |                                    |       |
| Total  Sales                                                                                                |       | 89,290                                                                              |       | 100                         | %          | 82,585                                                                                    |       | 100                         | %          | 8.12                                    | %          |

 

In the nine months of 2010, wedecreased our average per-kilogram sales price for fresh pork, frozen pork andprocessed food products to our customers. These changes were in line withchanges in the market price for these products. In the nine months of 2010, oursales volume of fresh pork increased, with the fresh pork category continuingto experience growth both in sales volume by weight

 

44

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and in terms of sales revenue. Oursales revenue for frozen pork decreased due to reductions in the averageper-kilogram price to customers and a correct consumer trend away from frozenpork products to fresh pork products. For processed food products, our salesvolume decreased by 7.89%, and because of lower per-kilogram prices, our salesrevenue for this product category decreased by 10.11%. Management believes thatchanges in sales revenue in our product categories reflects consumer demand forour products in the periods presented.

 

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

 
| ** **               | ** ** | **Average Per-Kilogram Price to Customers  (in US$)** | ** ** |
|--------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **               | ** ** | **Nine months  ended********September 30,  2010**                    | ** ** | **Nine months  ended********September 30,  2009** | ** ** | **%  change** | ** ** | **Change in  Price** | ** ** |
| Fresh  Pork              |       | $                                                                              | 1.79       |   | $ | 1.80 |   | -0.24 | % | $ | -0.01 |   |
| Frozen  Pork             |       | $                                                                              | 1.45       |   | $ | 1.71 |   | -15.35 | % | $ | -0.26 |   |
| Processed  Food Products |       | $                                                                              | 2.83       |   | $ | 2.90 |   | -2.41 | % | $ | -0.07 |   |

 

Although we also sell our productsthrough sales agents, our principal sales channels consist of Chuming-brandedshowcase stores, supermarkets and restaurants and canteens, each of which areowned by third parties. The following table summarizes the changes in thenumber of participants within these sales channels:

 
| ** **                             | ** ** | **Sales Channels**    | ** ** |
|----------------------------------------|------------|----------------------------|------------|
| **As of September 30,** | ** ** | **Showcase********Stores** | ** ** | **Supermarkets** | ** ** | **Restaurants  and********Canteens** | ** ** |
| 2010                                   |       | 987                        |       | 646 |   | 6,018 |   |
| 2009                                   |       | 924                        |       | 572 |   | 5,013 |   |

 

As shown in the table above, as of September 30,2010, as compared to September 30, 2009, we significantly increased thenumber of participants in all three of these sales channels. We believe thesales from supermarkets  are likely to continue to yield higherprofit margins. Their orders tend to be large and stable in quantity, and theyusually have better credit. The increase in the number of these participantshas contributed to increased sales volume for the nine months ended September 30,2010.

 

*Cost of Sales*. Cost of sales for the nine months of 2010 increased by$7,353,263 or approximately 5.50%, from $133,615,742 for the nine months of2009 to $140,969,005 for the nine months of 2010. The increase was principallyattributable to the increase in the sales volume of fresh pork for the ninemonths of 2010 as compared to the same period in 2009. Our cost of sales forour various product categories in the nine months of each of 2010 and 2009 issummarized and shown as a percentage of overall cost of sales in the followingchart:

 
| ** **                | ** ** | **Cost of Sales  Nine Months  ended** | ** **  | **% of********Overall** | ** ** | **Cost of Sales  Nine Months  ended** | ** ** | **% of********Overall** | ** ** | **% Change********from** | ** ** |
|---------------------------|------------|------------------------------------------------------|-------------|------------------------------|------------|------------------------------------------------------|------------|------------------------------|------------|-------------------------------|------------|
| **Product Category** | ** ** | **September 30,  2010**                         | ** **  | **Cost  of Sales**      | ** ** | **September 30,  2009**                         | ** ** | **Cost  of Sales**      | ** ** | **2009 to  2010**        | ** ** |
| Fresh  Pork               |       | $                                                    | 115,539,737 |                         | 81.96      | %                                                    | $          | 101,328,631                  |       | 75.84                         | %          | 14.02 | % |
| Frozen  Pork              |       | 9,169,468                                            |        | 6.50                         | %          | 14,405,427                                           |       | 10.78                        | %          | -36.35                        | %          |
| Processed  Food Products  |       | 16,259,800                                           |        | 11.53                        | %          | 17,881,684                                           |       | 13.38                        | %          | -9.07                         | %          |
|                      |       |                                                 |        |                         |       |                                                 |       |                         |       |                          |       |
| Total  Cost of Sales      |       | $                                                    | 140,969,005 |                         | 100        | %                                                    | $          | 133,615,742                  |       | 100                           | %          | 5.50 | % |

 

45

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The following table shows our costof sales in the nine months of 2010 and 2009 as a percentage of sales withineach product group:

 
| ** **                | ** ** | **Cost of Sales  Nine Months  ended** | ** **  | **% of********Product** | ** ** | **Cost of Sales  Nine Months  ended** | ** ** | **% of********Product** | ** ** | **% of Change********from** | ** ** |
|---------------------------|------------|------------------------------------------------------|-------------|------------------------------|------------|------------------------------------------------------|------------|------------------------------|------------|---------------------------------------|------------|
| **Product Category** | ** ** | **September 30,  2010**                         | ** **  | **Group  Sales**             | ** ** | **September 30,  2009**                         | ** ** | **Group  Sales**             | ** ** | **2009 to  2010**                | ** ** |
| Fresh  Pork               |       | $                                                    | 115,539,737 |                         | 87.12      | %                                                    | $          | 101,328,631                  |       | 87.39                                 | %          | -0.27 | % |
| Frozen  Pork              |       | 9,169,468                                            |        | 82.53                        | %          | 14,405,427                                           |       | 86.33                        | %          | -3.80                                 | %          |
| Processed  Food Products  |       | 16,259,800                                           |        | 74.70                        | %          | 17,881,684                                           |       | 73.85                        | %          | 0.86                                  | %          |
| Total  Cost of Sales      |       | $                                                    | 140,969,005 |                         | 85.18      | %                                                    | $          | 133,615,742                  |       | 85.19                                 | %          | -0.01 | % |

 

*Gross Profit*. Gross profit was $24,527,531 for the nine months of 2010as compared to $23,236,932 for the nine months of 2009, representing anincrease of $1,290,599, or approximately 5.55%. Our gross profit as apercentage of sales was 14.82% for the nine months of 2010 as compared to14.81% in the nine months of 2009.

 

The following table presents ourgross profit and gross profit margin for each of our product groups for thenine months of 2010 and 2009:

 
| **Product Group**   | ** ** | **Gross Profit********Nine months  ended  September 30,********2010** | ** ** | **% of  Product********Group  Sales** | ** ** | **Gross Profit********Nine months  ended********September 30,********200** | ** ** | **% of  Product********Group  Sales** | ** ** | **% of Change  from 2009  to 2010** | ** ** |
|--------------------------|------------|--------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|
| Fresh  Pork              |       | $                                                                                    | 17,080,899 |                                       | 12.88      | %                                                                                         | $          | 14,222,841                                 |       | 12.27                                                   | %          | 20.09 | % |
| Frozen  Pork             |       | 1,940,700                                                                            |       | 17.47                                      | %          | 2,680,908                                                                                 |       | 16.07                                      | %          | -27.61                                                  | %          |
| Processed  Food Products |       | 5,505,932                                                                            |       | 25.30                                      | %          | 6,333,183                                                                                 |       | 26.15                                      | %          | -13.06                                                  | %          |
| Total  Gross Profit      |       | $                                                                                    | 24,527,531 |                                       | 14.82      | %                                                                                         | $          | 23,236,932                                 |       | 14.81                                                   | %          | 5.55 | % |

 

In the nine months of 2010, thegross profit of fresh pork increased by 20.09%, as compared to the same periodlast year. The gross profit for frozen pork and processed food products decreasedby 27.61% and 13.06%, respectively, due to lower per-kilogram sales prices tocustomers.

 

*Selling Expenses*. Selling expenses totaled $1,125,722 for the nine monthsof 2010 as compared to $2,079,027 for the nine months of 2009, a decrease of$953,305 or 45.85%. This decease is mainly due to an decrease in outboundfright.

 

*General andAdministrative Expenses*.General and administrative expenses totaled $1,934,387 for the nine months of2010 as compared to $1,885,651 for the nine months of 2009, an increase of$48,736 or 2.58%. This change is primarily attributable to increased feescharged by local government.

 

*Other income(Expense).*Our otherincome (expense) consists of interest income, other expenses, and interestexpense.  In the nine months of 2010, we had other income of $227,939which included a government subsidy, as compared to $35,552 for the ninemonths of 2009.  Our total other expensein the nine months ended September 30, 2010 decreased by $11,929,682 orapproximately 90.99% as compared to the same period in 2009.  This decrease in total other expense isprimarily attributable to the 2009 compensation expense in the amount of$12,838,043 arising from the release of our 3,863,636 shares from an escrowarrangement entered into as part of a private equity financing consummated byus in December 2007, which is not present in 2010.  See Note 19of the consolidated financial statements.

 

*Net Income*. Net income for the nine months of 2010 was $19,087,527****as compared to $4,719,876 for the sameperiod in 2009, an increase of $14,367,651 or 304.41%.  This largeincrease in net income is primarily attributable to the increase in salesrevenue, the 2009 compensatory expense as discussed above, as well as theincrease of the other income.

 

46

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**LIQUIDITY AND CAPITAL RESOURCES**

 

**Cash Flows**

 

***Nine months Ended September 30,2010***

 

As of September 30, 2010, wehad cash and cash equivalents of $23,993,544, other current assets of $116,179,309and current liabilities of $68,696,517. At September 30, 2009, we had$14,670,937 in cash and cash equivalents.  We presently finance ouroperations primarily with cash flows from our operations, and we anticipatethat this will continue to be our primary source of funds to finance ourshort-term cash needs. If we require additional capital to expand or enhanceour existing facilities, we will consider debt or equity offerings orinstitutional borrowings as potential means of financing.

 

Net cash used in operating activitieswas $26,898,810 for the nine months of 2010 as compared to net cash sourcedfrom operating activities of $881,330 for the nine months of 2009. This isprimarily attributable to increases in account receivable and inventory.

 

Net cash used in investingactivities was $20,783,652 for the nine months of 2010 as compared to$3,932,762 for the nine months of 2009. This is primarily attributable to theincreased funds in restricted cash account. See Note 3 of the consolidatedfinancial statements.

 

Net cash sourced from financingactivities was $27,467,874 for the nine months of 2010 as compared to$10,253,095 for the nine months of 2009.  This increase resultedprincipally from an increase in our borrowings from banks during the ninemonths of 2010 as compared to the same period of 2009.  Theseadditional borrowings are short-term loans, and were used for operationalpurposes.

 

**Capital Commitments**

 

We have been following a policy ofrelaxing our credit policy for an increasing number of our major customers, permittingthem up to a 75-days grace period for payment for goods, where previously nosuch grace period was provided. Management expects that in the short term, thisrevised credit policy will result in an increase in accounts receivable, and acorresponding reduction in our cash position. Management does not anticipatethat this change in our credit policy will result in any deficiency of workingcapital. Over the nine months of 2010, however, net accounts receivableincreased from $39,876,187 as of December 31, 2009 to $40,858,902. Thisincrease was primarily due to the increase in sales revenue.

 

**Uses of Liquidity**

 

Our cash requirements through theend of fiscal 2010 will be primarily to fund daily operations for the growth ofour business. Management will consider acquiring additional manufacturingcapacity for processed foods in the future to strengthen and stabilize ourmanufacturing base.

 

**Sources of Liquidity**

 

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

 

We believe our cash flow fromoperations together with our cash and cash equivalents currently on hand willbe sufficient to meet our needs for working capital, capital expenditure andother commitments through the end of 2010. For our long-term cash needs, we may consider a number of alternativefinancing opportunities, which may include debt and equity financing. Noassurance can be made that such financing will be available to us, and adequatefunds may not be available on terms acceptable to us. If additional funds areraised through the issuance of equity securities, dilution to existingshareholders may result. If funding is insufficient at any time in the future,we will develop or enhance our product or services and expand our businessthrough our own 

 

47

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cash flows from operations.

 

As of September 30, 2010, wehad outstanding $43,410,072 in aggregate borrowings from Bank of China,Shanghai Pudong Development Bank, Huaxia Bank, Bank of East Asia and ChinaMinsheng Banking Corp., Ltd. under short-term loans, on which we payinterest at average rates of 5.67% per annum. As of September 30,2010, we did not have any standby letters of credit or standby repurchaseobligations. We intend to satisfy our short-term debt obligations that matureover the next 12 months through either additional short-term bank loans, inmost cases by rolling the maturing loans into new short-term loans with thesame lenders, or equity financings in the public capital market.

 

**Foreign Currency Translation Risk**

 

Our operations are, for the mostpart, located in the PRC, and we earn our revenue in Chinese Renminbi (“RMB”).However, we report our financial results in U.S. dollars using the closing ratemethod. As a result, fluctuations in the exchange rates between Chinese RMB andthe U.S. dollar will affect our reported financial results. The balance sheetitems are translated into U.S. dollars using the exchange rates at therespective balance sheet dates. The capital and various reserves are translatedat historical exchange rates prevailing at the time of the transactions whileincome and expenses items are translated at the average exchange rate for theperiod. All exchange differences are recorded within equity. The foreigncurrency translation adjustment for the nine months of 2010 was $2,224,030, ascompared to $1,773,476 for the nine months of 2009, both of which were gains.

 

During 2003 and 2004 the exchangerate 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 RMBto the dollar. In 2008, the RMB continued to appreciate against the U.S.dollar. As of September 30, 2010, the market foreign exchanges rate wasincreased to 6.6981 RMB to one U.S. dollar. As a result, the ongoingappreciation of RMB to U.S. dollar may negatively impact our gross margins inthe future.

 

**Contractual Obligations andOff-Balance Sheet Arrangements**

 

***Contractual Obligations***

 

We have certain fixed contractualobligations and commitments that include future estimated payments. Changes inour business needs, cancellation provisions, changing interest rates, and otherfactors may result in actual payments differing from the estimates. We cannotprovide certainty regarding the timing and amounts of payments. We havepresented below a summary of the most significant assumptions used in ourdetermination of amounts presented in the tables in order to assist in thereview of this information within the context of our consolidated financialposition, results of operations, and cash flows.

 

The following tables summarize ourcontractual obligations as of September 30, 2010, and the effect theseobligations are expected to have on our liquidity and cash flows in futureperiods.

 
| ** **                      | ** ** | **Payments Due by Period** | ** **  |
|---------------------------------|------------|-------------------------------------------|-------------|
| ** **                      | ** ** | **Total**                                 | ** **  | **Less than 1  year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **5 Years +** | ** ** |
| Contractual  Obligations :      |       |                                      |        |   |   |   |   |   |   |   |   |
| Bank  Indebtedness              |       | $                                         | 43,410,072  |   | $ | 43,410,072 |   | $ | — |   | $ | — |   | $ | — |   |
| Other  Indebtedness             |       | $                                         | —      |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Capital  Lease Obligations      |       | $                                         | —      |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Operating  Leases               |       | $                                         | —      |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Purchase  Obligations           |       | $                                         | 79,147,744  |   | $ | 79,147,744 |   | $ | — |   | $ | — |   | $ | — |   |
| Total  Contractual Obligations: |       | $                                         | 122,557,816 |   | $ | 122,557,816 |   | $ | — |   | $ | — |   | — |   |

 

48

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As indicated in the table, as of September 30,2010, we had $79,147,744 in purchase obligations, which relates to ouragreement for the purchase and sale of hogs. On December 19, 2007, weentered into a hog purchase agreement whereby the Group will provide, at fairmarket prices, a minimum number of hogs to us.

 

At September 30, 2010,management projected minimum quantities of hogs as detailed in the followingtable:

 
| **Year**                    | ** ** | **Hogs** | ** ** | **Price Per Hog** | ** ** | **Amount** | ** ** |
|-----------------------------|------------|----------|------------|-----------------------------|------------|------------|------------|
| 2010  (October to Dec) |       | 384,511  |       | $                           | 205.84     |       | $          | 79,147,744 |   |
|                             |            |          |            |                             |            |            |            |  |  |

 

For purposes of estimating futurepayments, we project that the fair market price of the hogs will increase by10% each year. The assumption of 10% reflects our expectations with regard toinflation and the rising costs of inputs in breeding livestock.

 

**Off-Balance Sheet Arrangements**

 

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

 

**ITEM 3.****                                                    ****QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

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

 

Interest Rates. Our exposure tomarket risk for changes in interest rates relates primarily to our short-terminvestments and short-term obligations; thus, fluctuations in interest rateswould not have a material impact on the fair value of these securities. At September 30,2010, we had approximately $23,993,544 in cash and cash equivalents. Ahypothetical 10% increase or decrease in interest rates would not have amaterial impact on our earnings or loss, or the fair market value or cash flowsof these instruments.

 

Foreign Exchange Rates. All of oursales and inputs are transacted in RMB. As a result, changes in the relativevalues of U.S. dollars and RMB affect our reported levels of revenues andprofitability as the results are translated into U.S. dollars for reportingpurposes. However, since we conduct our sales and purchase inputs in RMB,fluctuations in exchange rates are not expected to significantly affect ourfinancial stability or gross and net profit margins. We do not currently expectto incur significant foreign exchange gains or losses, or gains or lossesassociated with any foreign operations.

 

Our exposure to foreign exchangerisk primarily relates to currency gains or losses resulting from timingdifferences between the signing of sales contracts and the settling of thesecontracts. Furthermore, we translate monetary assets and liabilitiesdenominated in other currencies into RMB, the functional currency of ouroperating business. Our results of operations and cash flow are translated ataverage exchange rates during the period, and assets and liabilities aretranslated at the unified exchange rate as quoted by the People’s Bank of Chinaat the end of the period. Translation adjustments resulting from this processare included in accumulated other comprehensive income in our statement ofstockholders’ equity. We recorded net foreign currency gains of $2,224,030 and 

 

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$1,773,476 in the nine months endedSeptember 30, 2010 and 2009, respectively. We have not used any forwardcontracts, currency options or borrowings to hedge our exposure to foreigncurrency exchange risk. We cannot predict the impact of future exchange ratefluctuations on our results of operations and may incur net foreign currencylosses in the future. As our sales denominated in foreign currencies, such asRMB, continue to grow, we may consider using arrangements to hedge our exposureto foreign currency exchange risk.

 

Our financial statements areexpressed in U.S. dollars, but the functional currency of our operatingsubsidiaries is RMB. The value of an investment in our stock will be affectedby the foreign exchange rate between U.S. dollars and RMB. A decline in thevalue of RMB against the U.S. dollar could reduce the U.S. dollar equivalentamounts of our financial results, the value of an investment in our company andthe dividends we may pay in the future, if any, all of which may have amaterial adverse effect on the price of our stock.

 

**ITEM 4T.****                                            ****CONTROLS AND PROCEDURES**

 

We maintain disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in our Exchange Act reports is recorded, processed, summarized andreported 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 Interim Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure. Indesigning and evaluating the disclosure controls and procedures, managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and management necessarily is required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

As of September 30, 2010, wecarried out an evaluation, under the supervision and with the participation ofour management, including our chief executive officer and our Interim ChiefFinancial Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) as of the end of theperiod covered by this Quarterly Report on Form 10-Q. Our chief executiveofficer and our Interim Chief Financial Officer, solely as a result of the significantweaknesses in internal control over financial reporting described in our AnnualReport on Form 10-K for the fiscal year ended December 31, 2010, ourchief executive officer and our Interim Chief Financial Officer have concludedthat the Company’s disclosure controls and procedures were ineffective.

 

There were no changes in ourinternal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934, as amended) duringthe quarter ended September 30, 2010 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

As of September 30, 2010, theCompany had yet to become compliant with SOX 404 and maintain effectiveinternal controls; however, the progress of the Company’s remedial measures isdetailed below.  The Company expects to be compliant by the fiscalyear ending December 31, 2010.

 

A “material weakness” is asignificant deficiency, or combination of significant deficiencies that resultsin more than a remote likelihood that a material misstatement of the annual orinterim financial statements presented will not be prevented or detected. A “significantdeficiency” is a control deficiency, or combination of control deficiencies,that adversely affects a company’s ability to initiate, authorize, record,process or report external financial data reliably in accordance with GAAP suchthat there is more than a remote likelihood that a misstatement of the annualor interim financial statements presented that is more than inconsequentialwill not be prevented or detected.

 

At September 30, 2010,management has identified the following material weaknesses in our internalcontrol over financial reporting, and has proposed the following plan ofimplementation with respect to each material weakness:

 

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·                  *Weakness:*TheCompany’s board of directors has yet to pass a formal resolution to put inplace a strategic plan and framework in order to comply with the regulationsplaced on issuers concerning internal controls.

 

*ImplementationPlan:* The board of directorsintends to pass a resolution to adopt the Committee of Sponsoring Organizationsof the Treadway Commission (COSO) Framework which provides for a structure toestablish a control environment, risk assessment, control activities,information and communication, and monitoring of effective internal controls.The board also intends that the Chief Executive Officer shall be made to takeultimate ownership of establishing an effective internal control system.

 

As of September 30, 2010, theCompany had not yet passed a formal resolution, however, Board has instructed Ms. MaFeng Qin, a Board Member, to take charge of the implementation of a system ofan internal control system that will ultimately meet the goal of compliancewith SOX 404 Act.  In March 2010, the Company appointed two newindependent directors who have experience in US public companies and whoseexpertise in US financial reporting standards is expected to be contributed tothe Company. In addition, the Company has established an audit committee comprisingof independent directors, which is expected to play an important role inenhancing the Company’s processes and procedures relating to internal controland corporate reporting including financial reporting..  The Companyis in the process of identifying and hiring more professionals with experiencein SOX 404 to enable the Company to effectively address this issue.

 

·                  *Weakness:*The Company accounting department is currently understaffed and lacks personnelwith expertise in US GAAP and SEC reporting standards.

 

*ImplementationPlan:* The Company is currently inthe hiring process for a senior financial accounting officer and staffaccountants to fulfill the demands and rigors of being a US public reportingcompany. The Company will also provide training to existing employees on therequirements of US GAAP and SEC Reporting standards.

 

As of September 30, 2010, theCompany has hired an Interim Chief Financial Officer, however, as of the datehereof the Company continues to seek actively candidates for a senior financialreporting officer knowledgeable in US GAAP and SEC Reportingstandards.  Upon hiring of a senior financial reporting officer, thatindividual could further hire and train personnel as needed.

 

·                  *Weakness:*TheCompany does not have an internal audit function and department.

 

*ImplementationPlan:* The Company will establishan internal audit department.

 

As of September 30, 2010, theCompany has created an internal audit department.  The effectivenessof this new department is currently under evaluation, and has yet to bedetermined.

 

·                  *Weakness:*TheCompany’s present methods and systems for tracking related party transactionsare inadequate. Since the corporate reorganization and separation of Chumingfrom the Group occurred recently (at the end of 2007), and the Company’saccounting system in the past was manually based, only manual records ofrelated party transactions are currently available. Further, the Company notesthat its current accounting staff is not sufficient in size to undertake anexercise to completely re-summarize all of the events and transactions that ledto the current related party transaction balances disclosed in its financialstatements. Specifically, paragraph 2(c) of the Statement of FinancialAccounting Standards No. 57 (SFAS 57) requires us to disclose in ourfinancial statements the dollar amounts of each of the periods presented, forour related-party transactions. Due to certain limitations in our historicalrecords, the present capacity of our accounting staff, and the fact that ourhistorical records relating to these related party transactions aremanually-based, these related party transactions have been presented accordingto their general category and current balance, with each such balancerepresenting one or more prior transactions culminating in such balance.

 

*ImplementationPlan:*The Company will write andrewrite formal contracts with these Related Parties as necessary to detail thenature of these transactions. The Company’s accounting staff will formalize theprocess of recording these related party transactions, so that 

 

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the nature of these transactionsare more easily understandable and may be adequately disclosed in the Company’sfinancial statements. The Company and management acknowledge our responsibilityto comply with the requirements of SFAS 57, and fully intend to take allnecessary steps to update our accounting systems and procedures in order toachieve such compliance on an ongoing basis. In addition, we expect that theforegoing material weakness is related to our lack of adequate accounting staff(see paragraph below), and that appropriate changes to our staff are expectedto eliminate the foregoing material weakness.

 

As of September 30, 2010, theCompany has implemented from an operational standpoint, a plan for theelimination of related party transactions unrelated to the Company’s corebusiness transactions. Therefore, all related party transactions, except forthe purchase of hogs which is conducted under an arms-length Hog ProcurementAgreement, will be phased out and eliminated. The Company continues to developdesktop and closing procedures in order to report historical and remainingrelated party balances on a more timely and accurate basis. Contracts withrelated parties, which include netting agreements, have been formalized forpast transactions; however, on going forward basis the Company is in theprocess of creating standardized contracts that will govern related partytransactions that occur frequently and regularly, such as purchases of hogs.

 

**PART II. OTHER INFORMATION**

 

**ITEM 1.****    ****LEGAL PROCEEDINGS**

 

We are not aware of any materialexisting or pending legal proceedings against us, nor are we involved as aplaintiff in any material proceeding or pending litigation. There are noproceedings in which any of our current directors, officers or affiliates, orany registered or beneficial shareholder, is an adverse party or has a materialinterest adverse to us.

 

**ITEM 1A.****                                           ****RISK FACTORS**

 

The risk factors included in ourannual report on Form 10-K for the fiscal year ended December 31,2009 have not materially changed as of September 30, 2010.

 

**ITEM 2.****    ****UNREGISTERED SALES OF EQUITY SECURITIESAND USE OF PROCEEDS**

 

None.

 

**ITEM 3.****    ****DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.****    ****OTHER INFORMATION**

 

None.

 

**ITEM 5.****    ****EXHIBITS**

 

The exhibits listed on the Exhibit Indexare filed with this report.

 

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** **

**SIGNATURES**

 

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

 
| ** **                                | **ENERGROUP  HOLDINGS CORPORATION** |
|-------------------------------------------|-------------------------------------|
|                                      |                                |   |
| Dated:  November 15,  2010 | By:                                 | /s/ Shi Huashan |
|                                      |                                | Shi Huashan |
|                                      |                                | President and Chief Executive  Officer |
|                                      |                                | (Principal Executive Officer) |
|                                      |                                |   |
|                                      |                                |   |
| Dated:  November 15,  2010 | By:                                 | /s/ Shu Wang |
|                                      |                                | Shu Wang |
|                                      |                                | Interim Chief Financial Officer |
|                                      |                                | (Principal Financial and  Accounting Officer) |

 

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** **

**EXHIBIT INDEX**

 
| 31.1 |   | Certification of Principal  Executive Officer |
|------|--------|-----------------------------------------------|
| 31.2 |   | Certification of Principal  Financial Officer |
| 32.1 |   | Certification of Principal  Executive Officer |
| 32.2 |   | Certification of Principal  Financial Officer |

 

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