ENERGROUP HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

Nevada		2011		87-0420774
(State or Other Jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
Incorporation or Organization)		Classification Number)		Identification No.)

 

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No. 9, Xin Yi Street, Ganjingzi District Dalian City, Liaoning province, PRC 116039 Telephone: +86 411 867 166 96 (Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

The Corporation Trust Company of Nevada 6100 Neil Road, Suite 800 Reno, Nevada 89511 (775) 688-3061 (Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)

With copies of all correspondence to:

Edgar D. Park and Kevin K. Leung

Richardson & Patel LLP

10900 Wilshire Blvd. Suite 500

Los Angeles, California 90024

(310) 208-1182

 

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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. þ 

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ 

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ 

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

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

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of  Securities to be Registered		Amount to be Registered			Proposed  Maximum Per Share Offering Price			Proposed Maximum Aggregate  Offering Price (1)			Amount of Registration Fee
Common Stock			8,140,487		$	5.00	(2)	$	40,702,435		$	1,599.61	(3)

 

(1)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.
(2)	Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(c) of the Securities Act of 1933, the price per share and aggregate offering price are based upon the last reported per share price of the common stock of the Registrant on the OTC Bulletin Board.

 

(3)	The amount of $2,277.61 was previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and no offer to buy these securities is being solicited in any state where the offer or sale is not permitted.

Prospectus

ENERGROUP HOLDINGS CORPORATION

 

8,140,487 shares

 

Common Stock

 

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This prospectus covers the resale by selling shareholders of up to 8,140,487 shares of our common stock, $0.001 par value.

 

These securities will be offered for sale from time to time by the selling shareholders identified in this prospectus at prevailing market prices in accordance with the terms described in the section of this prospectus entitled “Plan of Distribution.” We will not receive any of the proceeds from the sale of the common stock by the selling shareholders.

 

Our securities are not listed on any national securities exchange. Our common stock is currently quoted on the OTC Bulletin Board under the symbol “ENHD.OB.” The last reported per share price for our common stock was $5.00, as quoted on the OTC Bulletin Board on March 5, 2008.

 

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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 9.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this prospectus is May __, 2008

 

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No offers to sell are made, nor are offers sought to buy these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate as of the date in the front of this prospectus only. Our business, financial condition, results of operations and prospectus may have changed since that date.

 

TABLE OF CONTENTS

		Page
Prospectus Summary			1
Summary Consolidated Financial Data			7
Supplementary Financial Information			8
Risk Factors			9
Business			26
Special Note Regarding Forward-Looking Statements			49
Use of Proceeds			49
Plan of Distribution			49
Selling Shareholders			51
Selected Consolidated Financial Data			55
Management’s Discussion and Analysis of Financial Condition and Results of Operations			56
Legal Proceedings			73
Management			74
Security Ownership of Certain Beneficial Holders and Management			81
Certain Relationships and Related Party Transactions			82
Description of Securities			84
Dividends			86
Shares Eligible for Future Sale			86
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure			87
Legal Matters			87
Experts			87
Disclosure of Commission Position on Indemnification			88
Additional Information			88
Index to Consolidated Financial Information			F-1

 

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PROSPECTUS SUMMARY

  

This summary contains basic information about us and this offering. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors.” Some of the statements contained in this prospectus, including statements under “Summary” and “Risk Factors” as well as those noted in the documents incorporated herein by reference, are forward-looking statements and may involve a number of risks and uncertainties. We note that our actual results and future events may differ significantly based upon a number of factors. You should not put undue reliance on the forward-looking statements in this document, which speak only as of the date on the cover of this prospectus.

References to “we,” “our,” “us,” the “Company,” or “Energroup” refer to Energroup Holdings Corporation, a Nevada corporation, and its consolidated subsidiaries.

 

ENERGROUP HOLDINGS CORPORATION

Energroup Holdings Corporation, through its subsidiaries, is engaged in the business of producing, packing, selling, marketing and distributing fresh pork and processed meat products to clients throughout the People’s Republic of China (“China” or the “PRC”). We sell our products to consumers in northeastern China, which has a population of approximately 108 million. In 2007, we had approximately US $124.7 million in sales and US $11.7 million in net income.

Our Business

 

We produce, pack, sell, market and distribute fresh and processed meat products to customers in the People’s Republic of China (“China” or the “PRC”). Our current corporate structure is shown below. We own three PRC operating subsidiaries (collectively, the “Chuming Operating Subsidiaries”):

1.

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

 

2.

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

 

3.

Dalian Chuming Sales Company Ltd., which is responsible for our sales, marketing and distribution activities.

Our three operating subsidiaries are spun off constituents of a former parent company, Dalian Chuming Group Co., Ltd. (the “Group”). Our company is separate and independent from the Group, which operates a different business and has different operations from ours. We took over ownership and control of the three Chuming Operating Subsidiaries from the Group in September 2007 following our corporate reorganization (See subsection entitled “Corporate Reorganization” on page 6 of this report). We are headquartered in the City of Dalian, Liaoning Province of China. Throughout this report, Energroup Holdings Corporation, Precious Sheen Investments Limited, Dalian Chuming Precious Sheen Investments Consulting Co., Ltd. and the Chuming Operating Subsidiaries are sometimes collectively referred to as “Chuming.”

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Our Current Corporate Structure

 

 

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We sell our products to consumers in northeastern China, which has a population of approximately 108 million. In particular, our current customers are concentrated in the Liaoning Province (which has a population of approximately 42 million), and we are the largest pork producer in Dalian City, which has a population of approximately 3 million, or 6 million including the greater metropolitan area. At present, all of our sales are within China, which is the largest pork-consuming nation in the world, with a total of 54 million metric tons consumed in 2006. Due to the rapid development of the Chinese economy, urbanization and strong income growth, we have observed that pork consumption patterns are changing and consumption levels are continuing to increase. 

 

Our major products are:

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Fresh meat - pork that is processed in a controlled environmental chamber with closely monitored temperatures to ensure quality and safety standards during processing right up to the time of delivery to the consumer.

·

Frozen fresh meat - butchered pigs that are processed and immediately frozen, which includes such products as smoked pork, ham and roasts.

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Frozen fresh byproducts - pork byproducts including pig’s liver, stomach, intestine, head and hoof.

We are part of an established pork production cycle that culminates in sales of fresh and frozen pork. This cycle includes feedstuff production, pig breeding, slaughtering, processing, packaging and distribution. We are involved in the slaughtering, processing, packaging and distribution aspects of the pork production cycle.

We are the first pork producer in China to receive “Green Food” certification from China’s Ministry of Agriculture. Green Food is an innovative certification program unique to China that is awarded to food processors who produce using environmentally sustainable methods and meet certain high technical standards of quality control, safety, and product quality, and generate low levels of pollution.

 

Share Exchange Transaction

 

In December 2007, we completed a reverse take-over transaction in the form of a share exchange, which resulted in our current corporate structure. On December 31, 2007, we acquired all of the outstanding shares of PSI in exchange for the issuance of 16,850,000 restricted shares of our common stock to the shareholders of PSI, which represented approximately 97.55% of then-issued and outstanding common stock (excluding the shares issued in the December 31, 2007 financing transaction). As a result of that transaction, PSI became our wholly owned subsidiary and we acquired the business and operations of Chuming.

 

Prior to the share exchange transaction, Energroup was a public reporting “shell” company with nominal assets whose sole business was to identify, evaluate and investigate various companies with the intent that, if such investigation warrants, a reverse merger transaction be negotiated and completed pursuant to which Energroup would acquire a target company with an operating business with the intent of continuing the acquired company’s business as a publicly held entity.

As a result of the share exchange transaction, PSI (and its subsidiaries) became the 100% owned subsidiary of Energroup Holdings Corporation, and we acquired the business and operations of Chuming.

$17 Million Financing

On December 3, 2007, we completed a $17 million private placement in which we sold and issued 3,863,635 shares of our common stock to fifteen accredited investors for $4.40 per share. After giving effect to both the share exchange transaction and the $17 million financing, we had a total of approximately 21,136,392 shares of our common stock issued and outstanding, and the shareholders of PSI held 16,850,000 of these shares, constituting approximately 79.7% of our issued and outstanding common stock. For additional details concerning this financing, please see the section entitled “Strategic Financing” below in this prospectus.

Financial Results

Our consolidated financial statements for the years ended December 31, 2007, 2006, and 2005 are included in this prospectus. In 2005, 2006 and 2007, we had approximately $54.1 million, $70.4 million and $124.7 million in sales, respectively. In 2005, 2006 and 2007, we had approximately $6.0 million, $8.1 million and $11.7 million in net income, respectively.

 

We have also included our unaudited consolidated financial statements for the three months ended March 31, 2008, during which time we had approximately $43.5 million in sales and $4.2 million in net income.

See“Index of Financial Statements” on page F-1.  

 

RISKS AFFECTING OUR BUSINESS

We are subject to a number of risks, which you should be aware of before deciding to purchase the securities in this offering. These risks are discussed in the summary below and in the section titled “Risk Factors” beginning on page 9 of this prospectus.

 

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SUMMARY OF RISK FACTORS

This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to growth and strategies, future operating and financial results, financial expectations and current business indicators are based upon current information and expectations and are subject to change based on factors beyond our control. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. The accuracy of such statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to:

·

our ability to timely and accurately complete orders for our products;

 

·

our dependence on a limited number of major customers;

 

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political and economic conditions within the PRC;

 

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our ability to expand and grow our distribution channels;

 

·

general economic conditions which affect consumer demand for our products;

 

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the effect of terrorist acts, or the threat thereof, on consumer confidence and spending;

 

·

acceptance in the marketplace of our new products and changes in consumer preferences;

 

·

foreign currency exchange rate fluctuations;

 

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our ability to identify and successfully execute cost control initiatives;

 

·

other risks outlined above and in our other public filings.

 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. We undertake no obligation to update this forward-looking information.

 

While our management fully intends to make concerted efforts to manage these risks, we cannot assure you that we will be able to do so successfully. See “Risk Factors” beginning on page 9 of this prospectus.

STRATEGIC FINANCING

On December 31, 2007, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which we agreed to issue and sell 3,863,635 shares of our common stock to fifteen accredited investors for an aggregate purchase price of $17,000,000, or $4.40 per share (the “Financing”). The closing of the Financing coincided with the closing of the share exchange transaction with PSI and its shareholders.

    

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In connection with the Purchase Agreement, we agreed to set aside $4.25 million of the purchase price in a holdback escrow account, $2.0 million of which is to be released upon appointment and confirmation of a board of directors comprised of a majority of independent directors, $1.5 million of which shall be released to us upon appointment of a new Chief Financial Officer meeting certain qualifications, $500,000 of which is to be released upon selection of a successor independent accounting firm, and $250,000 of which shall be applied towards certain investor relations activities. We agreed to pay partial liquidated damages to the investors equal to 0.5% per month (prorated daily) for each investor’s investment amount if, among other things, we do not successfully appoint a new CFO by March 31, 2008. Prior to March 31, 2008, a majority in interest of the investors and the Company agreed to extend the deadline for appointment of a qualified CFO to April 30, 2008. As of April 30, 2008, however, the Company had not yet appointed a CFO meeting the requirements, and as a result, under our agreement with the investors, the Company is obligated to pay liquidated damages of 0.5% of the total investment amount (i.e., $85,000) beginning on April 30, 2008. In March 2008, the investors in the financing agreed to release $2.0 million in restricted cash from escrow in connection with the appointment of independent directors to our board of directors. As noted above, however, under the Company’s Financing agreements, an additional $500,000 is held as restricted cash in escrow until the Company appoints a new independent auditing firm, within 120 days after the closing, or April 30, 2008. As of the date of this prospectus the Company has not appointed an independent auditing firm, and thus it is required to pay liquidated damages of $85,000 per month beginning on April 30, 2008.

 

Under the terms of our arrangement with Hunter Wise Securities, LLC, our placement agent for the Financing, we paid a commission equal to 7% of the aggregate gross proceeds of the Financing, plus an a amount equal to 3% of such proceeds to reimburse expenses of the placement agent. We also issued a warrant to the placement agent for the purchase of 386,364 shares of the Company’s common stock at an exercise price of $4.40 per share. We also paid $75,000 to the lead investor in the Financing as reimbursement for fees and legal expenses. After deduction of these payments and our expenses, the resulting net proceeds to us was approximately $14.8 million.

 

Under the terms of the Financing, we agreed to a “make good” provision, under which certain of our founders’ shares were set aside in escrow, and must be released to the investors in the event that we do not meet specified earnings targets of $15.9 million in after-tax net income for 2008, and $20.9 million in after-tax net income and fully-diluted earnings per share of $0.99 for 2009. If the 2008 after-tax net income target is not met, 1,931,818 shares of common stock held by our founders (approximately 9.1% of the issued and outstanding shares) will be transferred to the investors pro rata in proportion to their investment in the Financing without any further consideration from or action by the investors. If both the 2009 after-tax net income and earnings per share targets are not met, an additional 1,931,818 shares of common stock (approximately 9.1% of the issued and outstanding shares) held by our founders will be transferred to the investors, also on a pro rata basis. If all of these “make good” shares were to be released to the investors, the investors would then hold 36.6% of our issued and outstanding stock, assuming a total of 21.2 million shares outstanding. “After-tax net income” is defined in the Purchase Agreement, and is calculated based upon our audited financial statements prepared by U.S. auditors in accordance with U.S. generally accepted accounting principles. For purposes of determining whether or not “after-tax net income” has been achieved by us, any direct or indirect tax breaks, tax holidays, tax credits or similar tax benefits, compensation, grant or any other remuneration or deduction granted by any governmental authority or body which benefits us are excluded from the calculation.

We agreed to register for resale the 3,863,635 shares of common stock acquired by the investors pursuant to a registration statement on Form S-1, of which this prospectus forms a part. We also agreed to register the 1,931,818 shares for the 2008 “make good” escrow and the 1,931,818 shares for the 2009 “make good” escrow, which forms the total number of shares registered under this prospectus of 8,140,487 shares. In the event that our registration statement is not declared effective by the Securities and Exchange Commission (“SEC”) within 135 days of the closing of the Financing, we will also owe liquidated damages to the investors of 1% of the total Financing amount in cash per month after the 135 day period. The liquidated damages payable to the investors in the event of non-registration or late effectiveness is subject to a maximum limit of 10% of the total Financing amount, or $1.7 million. The investor’s registration rights and our registration obligations are set forth in a registration rights agreement which we entered into in connection with the Financing.

 

Our Chairman and Chief Executive Officer, who indirectly owns shares of our common stock through family-owned entities and trusts, agreed that his family-owned entities will enter into a lockup agreement under which these shareholders may not offer or sell their securities for a period of one year following the date on which the registration statement is declared effective. This lockup agreement was entered into at the closing of the Financing.

 

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The investors in the Financing have a right of first refusal on any placement or offering by us of debt or equity securities for a one year period following the date on which the registration statement is declared effective. The investors’ right of first refusal does not apply to options or warrants that we may issue to employees or consultants, or to non-affiliates as compensation for services, to securities issued in acquisitions or strategic investments that are not related to raising capital for the Company, or to securities issued in underwritten public offerings.

 

The Financing was subject to the completion of customary due diligence procedures conducted by our investors and their advisors, and we made various representations and warranties in the Purchase Agreement regarding our business, operations and corporate affairs. The Financing is also subject to rescission by the investors in the event that the PRC government challenges or otherwise adversely affects the share exchange transaction with PSI and its shareholders (and the related corporate restructuring of Chuming in the PRC as a prelude to the transaction), if we cannot undo such governmental action or otherwise address the material adverse effect to the reasonable satisfaction of the investors within sixty (60) days after the action occurs.

 

Among other terms of the Financing, we agreed to allocate $250,000 of the proceeds from the Financing for our investor relations program. In December 2007, Chuming (our wholly owned subsidiary), agreed to engage Hayden Communications International, Inc. as our investor relations and public relations consultant. Under this arrangement, Hayden Communications agreed to provide us with consulting services for 13 months in exchange for fees consisting of $9,500 per month and 30,000 restricted shares of our common stock.

 

As a result of the closing of the share exchange transaction and the Financing, the shareholders of PSI now own 79.7%, the investors in the Financing own 18.3%, and other shareholders own 2%, respectively, of our presently issued and outstanding capital stock. The closing of these transactions occurred on December 31, 2007 (the “Closing Date”). At the Closing Date, we had a total of 21,136,391 shares of common stock issued and outstanding.

The securities were offered and sold in the Financing to accredited investors in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), under Regulation D. At the time of the closing, the offering was not registered under the Securities Act or any state securities or “blue sky” laws.

In connection with the Financing, we increased compensation paid to our CEO, CFO and COO from an aggregate of $120,000 to $300,000, engaged Hayden Communications to provide investor relations services, and allocated $250,000 of proceeds from the Financing to our investor relations programs, and we anticipate that these additional costs will have an impact on our 2008 financial results. In addition, please see our risk factor that reads “We will incur increased costs as a public company which may affect our profitability” on page 37 of this prospectus.

    

GENERAL INFORMATION

 

Our principal executive offices are located at No. 9, Xin Yi Street, Ganjingzi District Dalian City, Liaoning Province, PRC 116039 , and our main telephone number is +86 411 867 166 96 .  

THE OFFERING

We are registering 8,140,487 shares of our common stock for sale by the selling shareholders identified in the section of this prospectus entitled “Selling shareholders.” Information regarding our common stock is included in the section of this prospectus entitled “Description of Securities.”

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SUMMARY CONSOLIDATED FINANCIAL DATA

		(US dollars in thousands)
		Three Months Ended March 31,			Twelve Months Ended  December 31,
		2008 (unaudited)			2007 (audited)			2006 (audited)			2005 (audited)			2004 (audited)			2003 (unaudited)
Consolidated Statements of Operations Data:
Sales			43,507			124,696			70,396			54,119			654
Cost of Sales			(36,474	)		(104,379	)		(57,794	)		(45,284	)		(711	)		-
Gross Profit			7,033			20,317			12,601			8,835			(56	)		-
Operating Expenses			(2,318	)		(6,246	)		(2,891	)		(1,647	)		(402	)		-
Income from Operations			4,714			14,071			9,709			7,188			(459	)		-
Other Income (Expense), net			(307	)		(1,476	)		(1,583	)		(1,008	)		5,164			-
Income Before Taxes			4,408			12,620			8,126			6,180			4,705			-
Income Taxes			166			968			1.6			191			66
Net Income			4,241			11,652			8,128			,988			4,772			-
Foreign Currency Translation			3,682			2,064			285			0.7			-			-
Comprehensive Income			7,923			13,716			8,739			6,274			0.7			-
Basic Net Income Per Share (in US$)			0.25			0.87			0.61			0.45			0.36			-
Diluted Net Income Per Share (in US$)			0.20			0.67			0.47			0.35			0.28			-
Basic Weighted Average Number of Shares Outstanding			17,272,756			13,409,120			13,409,120			13,409,120			13,409,120			-
Diluted Weighted Average Number of Shares Outstanding			21,182,756			17,272,756			17,272,756			7,272,756			17,272,756			-

 

		(US dollars in thousands)
		At			At December 31,
		March 31, 2008 (unaudited)			2007 (audited)			2006 (audited)			2005 (audited)			2004 (audited)			2003 (unaudited)
Balance Sheet Data:
Total Assets		$	82,647		$	66,620		$	56,846		$	50,993		$	29,957		$	-
Current Liabilities			25,786			17,682			16,764			18,979			2,358			-
Long Term Liabilities			-			-			17,909			18,580			19,309			-
Stockholders Equity			56,861			48,938			22,174			13,434			8,290			-

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SUPPLEMENTARY FINANCIAL INFORMATION

 

The supplementary financial information presented below summarizes certain financial data which has been derived from and should be read in conjunction with our consolidated financial statements and footnotes thereto included in the section beginning on page F-1.

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Total

 

2008
Sales		$	43,507,098			-			-			-		$	43,507,098
Gross Profit			7,032,674			-			-			-			7,032,674
Net Income			4,241,217			-			-			-			4,241,217
Basic Earnings Per Share		$	0.25			-			-			-		$	0.25
Diluted EarningsPer Share		$	0.20			-			-			-		$	0.20
Basic Weighted Average Shares			17,272,756			-			-			-			17,272,756
Diluted Weighted Average Shares			21,182,756			-			-			-			21,182,756

 

2007
Sales		$	23,187,994		$	31,370,321		$	35,160,526		$	34,977,195		$	124,696,036
Gross Profit			4,162,362			4,859,655			5,730,373			5,564,737			20,317,127
Net Income			3,009,384			2,784,233			2,504,970			3,353,560			11,652,147
Basic Earnings Per Share		$	0.22		$	0.21		$	0.19		$	0.25		$	0.87
Diluted EarningsPer Share		$	0.17		$	0.16		$	0.15		$	0.19		$	0.67
Basic Weighted Average Shares			13,409,120			13,409,120			13,409,120			13,409,120			13,409,120
Diluted Weighted Average Shares			17,272,756			17,272,756			17,272,756			17,272,756			17,272,756

 

2006
Sales		$	15,481,846		$	16,964,150		$	17,854,359		$	20,096,084		$	70,396,439
Gross Profit			2,579,552			3,633,282			2,357,829			4,030,924			12,601,586
Net Income			1,573,801			2,551,750			1,291,919			2,710,902			8,128,371
Basic Earnings Per Share		$	0.12		$	0.19		$	0.10		$	0.20		$	0.61
Diluted EarningsPer Share		$	0.09		$	0.15		$	0.07		$	0.16		$	0.47
Weighted Average Shares			13,409,120			13,409,120			13,409,120			13,409,120			13,409,120
Diluted Weighted Average Shares			17,272,756			17,272,756			17,272,756			17,272,756			17,272,756
2005
Sales		$	9,501,321		$	12,639,443		$	15,833,533		$	16,145,689		$	54,119,985
Gross Profit			2,064,317			2,126,989			2,191,282			2,453,122			8,835,709
Net Income			1,530,539			1,601,519			1,526,686			1,330,028			5,988,772
Basic Earnings Per Share		$	0.11		$	0.12		$	0.11		$	0.10		$	0.45
Diluted EarningsPer Share		$	0.09		$	0.09		$	0.09		$	0.08		$	0.35
Weighted Average Shares			13,409,120			13,409,120			13,409,120			13,409,120			13,409,120
Diluted Weighted Average Shares			17,272,756			17,272,756			17,272,756			17,272,756			17,272,756

 

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BUSINESS

 

Company Organization

 

We produce, pack, sell, market and distribute fresh pork and processed meat products to customers in the People’s Republic of China (“China” or the “PRC”).

We own three PRC operating subsidiaries (collectively, the “Chuming Operating Subsidiaries”):

 

1.

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

 

2.

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

 

3.

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

 

The three operating subsidiaries are spun off constituents of a former parent company, Dalian Chuming Group Co., Ltd. (the “Group”). Our company is separate and independent from the Group, which operates a different business and has different operations from ours. We took over ownership and control of the three Chuming Operating Subsidiaries from the Group in September 2007 following our corporate reorganization (See subheading entitled “Corporate Reorganization” on page 1 of this prospectus). We are headquartered in the City of Dalian, Liaoning Province of China.

 

Corporate Reorganization

 

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

Following this corporate restructuring, PSI became the 100% owner and parent company of Chuming WFOE, which in turn owns 100% of the Chuming Operating Subsidiaries: the Meat Company, the Food Comapny and the Sales Company.

Throughout this prospectus, PSI, Chuming WFOE and the Chuming Operating Subsidiaries are sometimes collectively referred to as “Chuming.”

 

Share Exchange Transaction

 

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

 

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Prior to the share exchange transaction, Energroup was a public reporting “shell” company with nominal assets whose sole business was to identify, evaluate and investigate various companies with the intent that, if such investigation warrants, a reverse merger transaction be negotiated and completed pursuant to which Energroup would acquire a target company with an operating business with the intent of continuing the acquired company’s business as a publicly held entity.

As a result of the share exchange transaction, PSI (and its subsidiaries) became the 100% owned subsidiary of Energroup Holdings Corporation, and we acquired the business and operations of Chuming.

$17 Million Financing

On December 3, 2007, we completed a $17 million private placement in which we sold and issued 3,863,635 shares of our common stock to fifteen accredited investors for $4.40 per share. The financing yielded net proceeds of approximately $14.7 million. See the section in the summary above entitled “Strategic Financing.”  

Company Overview and History

 

Our business originated from the founding in 1999 of Dalian Chuming Group Co., Ltd. (the “Group”), the former parent of Chuming.  The Group began as a processor and supplier of fresh and frozen meat and meat products. Among industrialized farming corporations in northeastern China, the Group pursued distinction in the Chinese food industry by maintaining high quality management standards and international safety certifications. 

In 2004, the Group formed the Chuming Operating Subsidiaries, which now form the core of our business, and these companies began producing and supplying fresh and processed meats under the Chuming brand name. Since then we have rapidly become a significant producer and supplier in China’s meat industry, and have achieved consistent profitability and growth since inception. In the last three years of operation, our sales have grown at an average rate of 53.6% per annum, and our net income has grown at an average rate of 39.8%. We sell our products to consumers in northeastern China, which has a population of approximately 108 million. In particular, our current customers are concentrated in the Liaoning Province (which has a population of approximately 42 million), and we are the largest pork producer in Dalian City, which has a population of approximately 3 million, or 6 million including the greater metropolitan area. At present, all of our sales are within China, which is the largest pork-consuming nation in the world, with a total of 54 million metric tons consumed in 2006. Due to the rapid development of the Chinese economy, urbanization and strong income growth, we have observed that pork consumption patterns are changing and consumption levels are continuing to increase. 

 

Our major products are:

 

	·	Fresh meat - pork that is processed in a controlled environmental chamber with closely monitored temperatures to ensure quality and safety standards during processing right up to the time of delivery to the consumer.
	·	Frozen fresh meat - butchered pigs that are processed and immediately frozen, which includes such products as smoked pork, ham and roasts.
	·	Frozen fresh byproducts - pork byproducts including pig’s liver, stomach, intestine, head and hoof.

 

We are part of an established pork production cycle that culminates in sales of fresh and frozen pork. This cycle includes feedstuff production, pig breeding, slaughtering, processing, packaging and distribution. We are involved in the slaughtering, processing, packaging and distribution aspects of the pork production cycle.

 

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We are the first pork producer in China to receive “Green Food” certification from China’s Ministry of Agriculture. Green Food is an innovative certification program unique to China that is awarded to food processors who produce using environmentally sustainable methods and meet certain high technical standards of quality control, safety, and product quality, and generate low levels of pollution. Under strict supervision, control and regulation in production, processing, packing, storage and transportation, Green Food-certified companies must apply these quality control standards from field to customer and regulate the application of inputs, including pesticide, fertilizer, veterinary drug and additives to minimize environmental pollution and prevent toxic and harmful substances from entering the food supply chain. The Green Food certification is based on standards defined by the Codex Alimentarius Commission (“CAC”), a joint body of the United Nations Food and Agriculture Organization and the World Health Organization.

PRC law currently limits foreign ownership of certain companies based in the PRC. In order for us to raise equity capital from investors outside of China, we established an offshore holding company by the name of Precious Sheen Investments Limited (“PSI”) in the British Virgin Islands in May 2007. On September 26, 2007, In 2007, the Group completed a corporate reorganization whereby the Chuming Operating Subsidiaries (namely, the Meat Company, the Food Company and the Sales Company) spun off and separated from the Group. On October 23, 2007, Chuming WFOE completed all required registrations to complete the share transfer, and became the 100% owner of the Chuming Operating Subsidiaries. On November 14, 2007 the Dalian Commerce Bureau approved the transfer of the Group’s 68% interest in Chuming WFOE to PSI, and upon this transfer, Chuming WFOE became a wholly foreign owned enterprise, with PSI as the 100% owner of Chuming (including its subsidiaries). On December 13, 2007, the PRC government authorities issued Chuming WFOE a business license formally recognizing it as a wholly foreign owned enterprise, of which PSI is the sole shareholder.

Following this corporate restructuring, PSI became the 100% owner and parent company of  Chuming WFOE, which in turn owns 100% of the Chuming Operating Subsidiaries: the Meat Company, the Food Comapny and the Sales Company. The business and operations of the Chuming Operating Subsidiaries now comprise the principal business and operations of our company.

In December 2007, PSI completed a reverse-takeover transaction with a U.S. publicly reporting company, which resulted in our current corporate structure. Today, we are a U.S. public reporting company incorporated in the State of Nevada, and we own the Chuming Operating Subsidiaries that continue to operate in the city of Dalian, in Liaoning Province, China. Our common stock is quoted on the OTC Bulletin Board under the symbol “ENHD.OB.”

Concurrently with the closing of the reverse take-over transaction, on December 31, 2007 we closed our $17 million private placement financing involving the issuance of our common stock to 15 accredited investors. The financing yielded net proceeds to us of approximately $14.7 million. For an additional discussion of this financing, please refer to the section above entitled “Strategic Financing” on page 4 of this prospectus.

 

Industry Overview

 

The following overview in certain instances cites to materials that are publicly available without charge. If no citation is provided with respect to certain information presented in this “Industry Overview” section, that information is attributed to our own research regarding the world pork market and China’s pork industry.

 

World Pork Market

 

According to a November 2007 report of the United States Department of Agriculture (USDA), China is the largest pork producer and consumer in the world. China is the leading producer among other countries in the world by a wide margin, and produces and consumes more than half of the world’s pork. Preliminary numbers for 2007 worldwide production of pork was 94.7 million metric tons (MMT, carcass weight equivalent) and consumption was 93.8 MMT. The USDA forecast for 2008 is that both the production and the consumption in China are expected to expand by more than 2% over 2007 levels.

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Pork Production (1,000 Metric Tons, Carcass Weight Equivalent), 2003-2008 (Estimated)

		2003			2004			2005			2006			2007			2008 November
China			45,186			47,016			50,106			51,972			47,000			48,000
EU-27			21,712			21,753			21,676			21,677			22,040			21,910
United States			9,056			9,312			9,392			9,559			9,877			10,108
Brazil			2,560			2,600			2,710			2,830			2,980			3,095
Russian Federation			1,710			1,725			1,735			1,805			1,880			2,000
Canada			1,882			1,936			1,920			1,898			1,850			1,790
Japan			1,260			1,272			1,245			1,247			1,260			1,255
Mexico			1,100			1,150			1,195			1,200			1,200			1,250
Korea, Republic of			1,149			1,100			1,036			1,000			1,065			1,095
Taiwan			893			898			911			905			910			910
Ukraine			630			558			493			485			530			540
Others			3,350			3,481			3,720			3,926			4,086			1,039
Total			90,488			92,801			96,136			98,504			94,678			92,992

 

Sources: USDA report, Livestock and Poultry: World Markets and Trade, November 2007.   

Note: 2007 data is preliminary and 2008 is forecast.

 

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Pork Consumption (1,000 Metric Tons, Carcass Weight Equivalent), 2003-2007 (Estimated)

		2003			2004			2005			2006			2007			2008 November
China			45,054			46,648			49,703			51,467			46,690			47,700
EU-27			20,683			20,528			20,632			20,518			20,790			20,800
United States			8,816			8,817			8,670			8,640			8,939			9,129
Russian Federation			2,417			2,338			2,486			2,639			2,734			2,874
Japan			2,331			2,529			2,482			2,458			2,500			2,490
Brazil			1,957			1,979			1,949			2,191			2,265			2,320
Mexico			1,423			1,556			1,556			1,580			1,565			1,580
Korea, Republic of			1,286			1,336			1,311			1,420			1,518			1,550
Canada			1,003			1,068			967			971			970			930
Taiwan			934			948			944			928			927			928
Ukraine			623			606			544			544			609			619
Others			3,621			3,697			3,906			4,158			4,332			1,249
			90,148			92,050			95,150			97,514			93,839			92,169

 

Sources: USDA report, Livestock and Poultry: World Markets and Trade, November 2007.   

Note: 2007 data is preliminary and 2008 is forecast.

China’s Pork Industry

 

According to China’s National Bureau of Statistics, China’s US$176 billion animal husbandry sector is the second largest in the country’s basket of agricultural related industries including farming, forestry and fishery. The present size of the pork and processed meat market in China is an estimated US$32 billion.

 

Our research indicates that China’s per capita meat consumption was just over 55 kilograms by 2000, which is significantly smaller than the consumption level of over 100 kg per year by western standards. Based on what is known about Chinese culinary culture and habits, however, our management believes that the Chinese population is expected to consume more meat as their disposable income increases. For example, our research indicates that Hong Kong residents, who have a significantly higher per capita income, consumed on average 124 kg of meat in 2000.

 

The manner in which meat sales are conducted has changed as a result of new hygiene and food safety regulations that were introduced by the Chinese government in 1995. Historically, the great majority of meat sales in China had taken place in open-air markets or on streets, i.e. in free wet markets. These markets provided a location through which the consumer could buy live poultry or freshly slaughtered meat produced direct from local farmers. As a result of the new regulations, however, governmental agencies recently have encouraged the replacement of open-air markets by supermarkets and convenience stores, and the market share of open-air markets has continued to decline. Even with these new regulations, however, the open-air markets still currently represent 80% of the overall meat-processing sector in China.

 

The meat industry in China is characterized by fragmentation, sanitation and hygiene issues, as well as social demographic trends. Supply is extremely localized with limited distribution capability. China’s vast geography and ‘in-development’ transport infrastructure have made it difficult to create national or even regional level competition in the industry. Our management believes that the trend towards greater sales through formal supermarkets and chain stores, coupled with the expansion of our sales and distribution network, will continue to favorably impact our business.

 

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Pork is China’s most important source of meat and is consumed at a much higher rate than other categories of meat. The following 2007 USDA Report shows that pork is consumed in China with five times greater volume than poultry or “broiler meat” and almost seven times more than beef:

 

		Kg Per Person			Relative %
Beef			5.6			11	%
Broiler Meat			7.9			15	%
Pork			39.4			74	%
Total:			52.9			100	%

 

Sources: USDA report, Livestock and Poultry: World Markets and Trade, April 2007.   

 

In addition to a greater general preference for pork, urbanization and rapid income growth are working in parallel to create more demand for pork and processed pork products. An emerging middle class of relatively high-income consumers is forming in certain Chinese cities. As household incomes rise, these high-income residents consume more of most foods on a per capita basis. According to the Urban Household Survey conducted in 2000 by China’s National Bureau of Statistics, pork consumption by low-income residents was 13.4 kg whereas it was 19.6 kg for high-income residents. These residents not only demand a greater quantity of food, but also higher quality (e.g. better cuts of meat, foods that are safer or healthier) and convenience (processed foods). Reports of food poisoning and dangerous chemical residues have given rise to strong demand for “green” foods for which we are certified. We believe that affluent consumers would be willing to pay premium prices for foods which have safety-related certifications, foods with purported health benefits or foods with other desirable attributes. We offer a wide range of food products that appeal to demands for safety, convenience, quality and health attributes demanded by high-income urban consumers.

 

Our management expects China’s meat industry, which includes the meat processing business, to grow due to key driving forces including food safety concerns that we believe will accelerate the transition from the traditional wet market to the modern dry market; rising modern retail channels; government mandates and supports of agricultural and meat processing companies; and consolidating forces.

 

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·

Transitioning from “wet-market” to “dry-market”

We believe that food safety is a top concern of Chinese consumers who purchase meat products, and that this will eventually compel modernization of China’s meat processing industry. Consumer surveys showed that food safety, nutritional value and taste are the top three concerns of consumers, while price was ranked fourth. Furthermore, surveys showed that 60% of the consumers have a low degree of confidence in meat products in general. There are a number of food safety concerns facing the Chinese pork industry, including swine streptococcus and Foot and Mouth Disease, the use of antibiotics and illegal feed additives such as Clenbutero, pork injected with water and illegal slaughterhouses. China’s meat industry traditionally has been dominated by small and family-operated butcher shops that would slaughter the livestock in the open-air marketplaces and without the necessary safety and sterilized equipment. These unsanitary operations create what is commonly known as the “wet market,” which currently represents 80% of the overall meat-processing sector. However, the industry is changing rapidly. Along with the prevalent use of refrigerators in urban households, health conscious consumers are demanding more sanitary quality meat products which can only be processed and delivered in a temperature controlled cold chain environment. This presents significant opportunities to meat processors with advanced processing plants and refrigerated transportation capabilities.

  

·

Government quality control

Frequent occurrences of food safety scares have hastened the Chinese government’s effort in regulating food safety and quality. For example, in 2006 pork containing Clenbutero were found to be sold in several wet markets in Shanghai that resulted in over 330 people being poisoned, and an outbreak of swine Streptococcus in Sichuan Province led to the death of 17 people. A number of Chinese organizations are involved in an effort to bring the Chinese meat industry’s safety, hygiene and sanitation standards to an international level, including the Ministry of Agriculture, Ministry of Health, State Administration of Quality Supervision, Inspection, and Quarantine, State Food and Drug Administration, and the Ministry of Commerce. Tougher quality standards set for the meat processing industry represent barriers to newcomers while forcing operationally inadequate and financially unsound companies to shut down. Our management anticipates that companies such as ours, with quality meat processing and modern logistics systems, will benefit as they capture market share and build consumer brand loyalty.

·

Government’s strong support of meat processing industry

The main theme of China’s 11^th Five Year Plan is the development of China’s rural economy. With the widening wealth gap between the rich and poor or between urban and rural regions, China’s central government has shifted its focus from urban industrial growth to rural agricultural development aimed at improving the standard of living in the poorer regions. Many preferential policies were enacted to help the farming communities including subsidized livestock insurance and interest free loans. Scaled meat processors are considered active agents in galvanizing the rural economies by providing jobs, injecting capital, and introducing new technology and management expertise to the local economies. The Five Year Plans are a series of economic development initiatives promulgated by the Chinese government, however, they do not constitute binding or substantive policies or regulations. The Chinese economy has been shaped primarily through the plenary sessions of the Central Committee and National Congress. The Five Year Plan serves, in part, as a mapping strategy for economic development, setting growth targets, and launching reforms. The plan usually includes detailed economic development guidelines for all its regions and the nation as a whole. As China has transited from a centrally-planned economy to market economy, the name for the 11th Five-Year Plan has been characterized as a “guideline” rather than a strict “plan”. The 11^th Five-Year Plan covers the period from 2006 to 2011.  

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·

National retailers provide platform for growth

The increasingly widespread use of refrigerators in urban Chinese households has attracted many retailers to carry more frozen food products, making available a wide variety of frozen products to consumers. Major domestic retailers, including LianHua, have made an impact in introducing more brands of frozen food products in their retail stores. Even more significantly going forward will be the rapid expansion of international hypermarkets in China, including France’s Carrefour, the U.S.’s Wal-mart, and Germany’s Metro. These retailers with national reach will significantly change the retail industry landscape as they provide the platform for the large branded food companies to efficiently and rapidly distribute their products to large and untapped markets. These international retail chains can also provide excellent export opportunities to scaled, quality meat processing companies.

·

Industry consolidation benefits scaled players

In the more mature U.S. meat market, the top three producers represent about 50% of the meat industry there. But in China the meat-processing industry is very fragmented, with over 3,000 meat-processors most of which are small operators. The top three producers represent less than 5% of the overall market. Pig farms in China are also very fragmented, with over 90% of the farms possessing fewer than 10 pigs. As smaller players experience pressure from margin compression and stricter government regulations, we believe scaled meat processors will make attractive acquisitions in order to capture market share, gain scale, secure raw material, and move closer to clients. The combination of stricter hygiene regulations, increasing competition from well-financed players, struggling meat suppliers, and increasing international competition from companies like Hormel will induce major industry shakeout and consolidation in the coming years.

 

Macro and Demographic Trends

It is widely believed that a middle class is rapidly emerging in China. China’s GDP has been growing at over 9% per year for the past 10 years and has created millions of new consumers. Management believes that these trends will translate into higher demand for pork products:

    

	·	Incomes in urban China increased by 10% in the first nine months of 2006. China’s middle class - citizens making at least 50,000 Yuan (US$6,250) - are expected to double by 2010 to 25% of the country’s population, fueling domestic consumption.
	·	While overall income grew rapidly, urban per capita disposable income grew even faster at 39.6% between 2002 and 2005, compared to 34.7% for per capita rural income during the same period. Urban per capita consumption of meat is twice that of the national average.
	·	Due to the increasing rural migration to urban cities, China expects to double its major cities by 2010 creating new waves of Chinese urban meat consumers. The number of Chinese cities with over 1 million people is projected to reach 125 by 2010 according to the Chinese Academy of Sciences, and cities with over 2 million people are projected to reach 300 by 2020.
	·	Domestic demand for meat products in China is expected to grow to a projected 100 million metric tons in 2010 from an actual 72.4 million metric tons in 2004 according to Access Asia, an independent research firm. Total production value of meat products are expected to increase to a projected US$120 billion from an actual US$84 billion and per capita meat consumption is expected to increase from an actual 49 kg to a projected 75 kg during the same period. Pork represents the bulk of meat products consumed in China.

 

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With higher standards of living and more a demanding working lifestyle, urban Chinese consumers are purchasing more processed meat products and spending more on dining on meat products outside of the home. Our research indicates that:

 

·

Currently less than an estimated 10% of the meat consumed in China is processed. Meat consumption out of the home has surpassed in-home meat consumption in 11 Chinese provinces, especially in more economically developed regional markets such as Shanghai, Beijing, and Shenzhen, according to the National Bureau of Statistics.

 

	·	Chinese consumers have become more conscious of food safety and quality, fueling demand for branded foods. This has become more evident after the occurrence of a series of disease outbreaks across Asia including SARS and the avian flu. With changing lifestyles and food quality awareness, Chinese consumers are seeking more name brands to ensure the quality in processed meat that they purchase.
	·	The new health-conscious consumer group has become more educated and concerned with the freshness and nutritional value of various meat products. For example, LTMP (low temperature meat product) pork has become more popular recently as urban consumers become aware that LTMP has better nutritional value and fresher taste than the longer-shelf-life HTMP (high temperature meat product) pork products.

 

Processing of Meat Products in China

 

In the PRC, regulations relating to the processing of meat products are set forth in the PRC Law of Food Hygiene and the Administrative Measures for the Hygiene of Meat and Meat Products. A PRC food processing company is required to obtain a hygiene permit from the Hygiene Bureau of the relevant districts before it is permitted to apply to the Ministry of Industry and Commerce for a business license.

 

A food processing company may not purchase or use meat that has not been inspected and approved by the Animal Supervision Authority. Even if the meat has been so inspected, it must still satisfy other hygiene requirements. Each food processing company must have facilities to conduct regular laboratory testing of its products to ensure food safety requirements are met. For instance, sometimes traceable levels of contaminants and radioactive substances are found in meat products, and these must not exceed certain established national standards.

 

Food processing companies are required to possess hygienic cold storage facilities, and proper management of such cold storage facilities must be set out. All storage equipment and packing materials must also comply with hygienic standards. All meat products which are packed must be labeled, specifying requisite information such as name of the product, place of manufacture, manufacture date, lot number or code, final consumption date and ingredients. Any meat product to be exported shall be inspected by the Animal and Plant Quarantine Authority when passing through customs. Only meat products which have passed such inspections may be exported.

 

Business

 

We are principally engaged in the production, processing, sale and distribution of fresh and prepared meat products in China. Our products are classified as fresh and frozen pork, and prepared foods, which includes prepared pork, seafood and by-products.

 

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Our production facilities are located in Dalian, a coastal city with a population of 3 million (6 million including the greater metropolitan area). Referred to as the “Boston of China” due to its Northeast proximity and port orientation, Dalian is the most affluent city in the Liaoning Province, with a population of 42 million. Dalian serves as a finance and export trade center of Northeast China, and is also the center of the “Buo Sea Economical Zone” (“BSEZ”). According to China’s National Bureau of Statistics, the BSEZ covers 12% of the territory and 20% of the population in China, and is the most important economic center in Northern China. The National Bureau of Statistics also projects that these two areas may generate a more rapid growth rate than the overall GDP growth of China in next 10 years. Our facilities include 5 production lines with the slaughtering capacity of 123,318 metric tons and prepared food capacity of 16,000 metric tons. Our prepared food facilities are the largest in Liaoning Province.

 

Our production lines are imported from international manufacturing automation leader Stork™ of the Netherlands, with the state-of-the-art technology and specialized for their in-process testing and quality controls. Our production facilities are certified under ISO9001 and HACCP. Our pork products are qualified “Green Food” by the National Green Food Development Center and qualified as one of 14 “National Safe Foods” by the National Slaughtering Authentication Center.

 

Our products are sold under the brand name of “Chuming™.” We target consumers who desire high quality pork products. We distribute our products through dealers and agents to more than 100 supermarkets, including Carrefour, Wal-mart, Metro, New-mart, Hymall and others. We also distribute our products to over 500 schools, hospitals, factory canteens and restaurants, and more than 500 “Chuming” franchise stores or specialty counters in wet markets. These franchise stores and specialty counters are resellers of our products with whom we have arrangements to sell our product under the Chuming brand name (the principal difference between franchise stores and specialty counters being location within a supermarket for the former, and location in a wet market for the latter).

 

Our business activities are the slaughter, processing, packing and distribution of meat products for sale to clients throughout the PRC. We have a 250,000 square meter campus which houses an international standards-based meat processing plant located in the city of Dalian in Liaoning Province, PRC. We have a total of five production lines and an aggregate capacity to slaughter approximately 1.5 million pigs per year. We purchase hogs from more than 3,000 farms in Liaoning Province and nearby areas, in addition to having an exclusive contract with farms owned and operated by the Group to supply us with 600,000 live hogs in 2007, 750,000 in 2008, 800,000 in 2009, and 800,000 in 2010, at local market prices. The Group provides breeding pigs, animal feed, vaccination, veterinary services and technology support to our subcontractor pig farmers, resulting in more favorable relations with these small independent suppliers.

    

Principal Products

 

We produce, distribute and sell fresh meat and prepared food products under the brand name “Chuming™,” through our dealership distribution network, our own sales force and franchise stores in the PRC.

 

We produce two main types of Processed Meat Products - High Temperature Meat Products (HTMPs) and Low Temperature Meat Products (LTMPs).

 

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High Temperature Meat Products. HTMPs are cooked at a temperature of approximately 121°C and at approximately 2.5 times atmospheric pressure. These meat products can be stored at room temperature and have a shelf life of approximately six months from the date of production. However, the permitted shelf life of these products is 120 days from the date of production, even though the actual shelf life of these products is six months. HTMPs are generally priced lower than LTMP and do not require refrigeration. Therefore, they are affordable and accessible to the average PRC consumer.

 Low Temperature Meat Products. LTMPs are cooked at lower temperatures ranging from 65 to 85°C, under 1 atmospheric pressure. These meat products have a shelf life of three months from the date of production if they are stored at a temperature of 0°C. In 2003, we introduced our LTMPs to the PRC market. The Group’s R&D studies have shown that LTMPs generally taste better than HTMPs because they are cooked at lower temperatures and thus are able to preserve the taste and nutrients found in the ingredients. The LTMPs generally cater to the taste of consumers in PRC cities who have higher purchasing power.

 

Currently, we have two main series of products for both HTMP and LTMP: the “Ham” series and the “Sausage” series. The Ham series has chunkier pieces of meat and thus has a meatier texture. It also has a corresponding higher percentage of meat content. The Sausage series has a lower percentage of meat content and has a smoother texture. The range of products we offer includes more than 300 varieties of hams and sausages.

 

The following is a summary of some of the types of Fresh and Processed Meat Products that we manufacture and how they are categorized:

 

Fresh Pork

 

Chinese people generally perceive that fresh meat retains a better flavor as compared with frozen meat. As such, the price of fresh pork meat is approximately 20% higher than frozen pork meat. The other producers of fresh pork meat in the PRC are generally farm-based suppliers, which supply the areas around the farms. The key difference between our fresh pork and that of farm-based suppliers is that our fresh pork is produced and packed in a highly controlled sanitized environment in our own facilities. Therefore, consumers have added assurance that our fresh pork meat is safe for consumption.

 

In order for the pork to remain fresh, at our facilities the pigs are slaughtered and then processed within 30 minutes. The meat is then cooled but not frozen at a temperature between 32° F (0° C) and 39.2° F (4° C) for about 20 hours. Following this cooling process, fresh pork is cut into various parts in a sterilized room with the constant temperature of 12° C. This reduces the risk of exposure to germs and bacterial contamination. Before delivery, the fresh pork is kept in our storage room at a controlled temperature of 0 to 4° C. The meat is stored in airtight sterilizing rooms filled with ozone, which acts as a sterilizing agent, killing remaining germs and bacteria in the meat.

 

With our own temperature-controlled vans and trucks, we deliver the fresh pork to our customers including dealers, supermarkets and our franchise specialty stores. The entire process of cold production, cold storage and cold delivery is what we refer to as the “cold chain system.” This cold chain system ensures the freshness and quality of our product. Our fresh pork products have an average shelf life of 7 days from the date of production.

 

Frozen Pork

 

In the production of our frozen pork, the meat is frozen at -31° F (-35° C) to -40° F (-40° C) for 48 hours. It is then stored or transported at a constant temperature of between -0.4° F (-18° C) to -13° F (-25° C). Since frozen pork can be preserved for longer periods of time, our frozen meat products are ideal for distribution across longer distances to Northeast and North China as well as potentially to international markets such as Korea, Russia and Japan. These products have an average shelf life of 180 days from the date of production. We also sell our frozen pork to restaurants, supermarkets and fresh food markets.

 

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Prepared Food Products

 

Our prepared food products include prepared pork, seafood and pig by-products, which accounted for 10% of our 2006 revenues.

 

Prepared Pork Products. Our prepared pork products are mainly LTMPs, which are cooked at lower temperatures ranging from 65° C to 85° C and under atmospheric pressure. These meat products generally have a shelf life of 30 days from the date of production if they are stored at a temperature ranging from 0° C to 4° C. For LTMPs, we currently have two series and more than 300 products. These foods are all made from the fresh pork that we produce. The following is a description of the types of prepared pork products we offer:

 

Ham

 

·

Chuming Cumin Ham

·

Cooked Ham

·

Roast Ham

·

Premium Ham

·

Sandwich Ham

·

Square Ham

·

Chunky Ham

·

Baby Ham

·

Salted Loin

·

Smoked Ham

 

Sausage

 

·

Diary Sausage

·

Garlic Sausage

·

Spicy Sausage

·

Chinese Sausage

·

Taiwan Sausage

·

Baby Sausage

 

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Seafood Products.   Our prepared seafood products are made from fish, shrimp and other varieties of seafood. With our techniques of prepared food production, we prepare seafood products such as fish sausage and shellfish sausage. Seafood products accounted for approximately 5% of our revenue in 2007. Due to the abundance of seafood in Dalian, located on the Northern coast of China, as well as relatively high profit margins for these products, we plan to expand our seafood output in the future. The following is a description of the varieties of seafood products we offer:

 

Seafood sausage

 

·

Baked Fish Sausage

·

Barbequed Prawn Sausage

·

Crab Sausage

·

Scallop Sausage

·

Squid Sausage

 

Pig By-Products. In China, virtually all parts of the pig are valued for consumption and are used in local cuisine. Pig “by-products” that are not typically used or sold in other parts of the world are prepared and sold in the Chinese market. This includes pig innards, pig skin, pig tails, lard and pig heads. Pig liver, stomach, intestine, head and hoofs are commonly used in Chinese cuisine and are sold to a ready market.

 

We produce our products through two of the Chuming Operating Subsidiaries: (i) the Meat Company in Wangfangdian, and (ii) the Food Company in Dalian.

 

Our fresh and frozen pork is produced by our subsidiary Meat Company. The Meat Company’s facilities cover 150,000 square meters and utilize state-of-art slaughtering and cutting lines imported from Stork Co. of the Netherlands. The Meat Company has a slaughtering capacity of 250 pigs per hour, which is 1,500,000 pigs per year at full capacity. Our cutting line has a capacity of 30,132 metric tons per year. Our cold and freezing storage facilities can store up to 6,000 metric tons of fresh product. The fresh pork and frozen pork produced by the Meat Company are typically sold either in whole carcass form or in cuts.

 

The prepared foods are produced by our subsidiary Food Company, located in the Ganjingzi District of Dalian. The Food Company includes a 10,000 square meter processing facility. There are three prepared food production lines including one pork processing line with the capacity of 10,000 metric tons, one seafood sausage production line with the capacity of 4,500 metric tons and one deli by-product production line with the capacity of 1,500 metric tons. All of the Food Company’s production line equipment is imported from Germany and features state-of-the-art technology. Based on our own market research on our competitors, management believes that the Food Company is now the largest prepared food production plant in the Liaoning Province. 

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Supply of Pigs

 

We do not rear pigs, but instead purchase them from our former parent company, the Group, and from other suppliers who aggregate supply from local pig farms. We purchase live pigs from the Group and third party suppliers on a cash-on-delivery basis.  While the Group’s breeding operations are well developed and large scale, most of the pig farming in the PRC is generally not well commercialized. Our third party suppliers aggregate supplies from hundreds of small pig farms, which are typically operated by independent family-owned farms. One advantage of decentralized supply is that we obtain competitive market pricing for our supply of pigs. Another advantage is that any outbreak of livestock disease is likely to be confined to a one or more of these farms and would not affect our entire supply. Potential disadvantages from a decentralized supply of pigs include variations in quality of stock, and potential variation in quantity and timing of the supply of hogs to our plant for processing. However, because all pig famers who supply pigs to us are all located within the greater Dalian City metropolitan area (within a two hour radius by truck), the logistical issues have so far not interfered with our ability to secure a steady supply of hogs. Since we have around 6,000 local pig farmers who will supply hogs to us, we ordinarily are able to obtain a reasonably stable supply of hogs, even when some farms cannot meet our requests for any reason. Also, because our former parent company, the Group, acquires pigs directly from independent farmers then sell pigs to us in lots (under our Hog Procurement Agreement), to some extent we have minimized the potential disadvantages discussed above.

 

Our pig suppliers supply us with regular quantities of pigs based on the current prevailing market price of pigs on the day of delivery. We typically order a certain number of pigs per day from each of the farms that supply us pigs. For instance, if we expect to order 80,000 pigs per annum from a supplier, that supplier will supply somewhere between 240 and 260 pigs per day.

 

In order to ensure a consistent supply of fresh pork to our customers, we have made agreements with approximately 6,000 pig farms in the Dalian, to supplement our usual supply of live pigs. These pig farms agreed to supply us approximately 400,000 pigs in 2007. Our suppliers have an aggregate capacity to supply us with approximately 1,100 pigs per day.

We normally pay a higher than average price per pig, which is typically RMB 1.25 per kg above the average market price for live pigs, in order to acquire what we believe to be a higher quality supply of pigs. Although we pay a premium for a higher quality supply of pigs, our management believes that the benefits of this strategy outweigh the costs because of the goodwill that results from providing a consistently high-quality product to our customers.

 

We pay different “market prices” for live pigs depending on quality and weight.  Incoming live pigs are graded by our quality control personnel based on a number of criteria (including fat content, health of the animal, absence of injuries, the net weight), into several categories including “Grades 1- 4” and “below-grade,” with Grade 1 being the highest quality (and accordingly the highest price per kilogram).  We then determine prevailing market prices for live pigs for these various grades based on market data drawn from the local marketplace, which fluctuates daily.  Approximately 80% of the live pigs purchased by us are in the Grade 1 and Grade 2 categories.  For example, for the first quarter of 2008, approximately 80% of the live pigs purchased by us were Grade 1 and 2, with the remainder in Grade 3 and 4. Since we generally select higher-quality pigs (Grades 1 and 2) among all live pigs available for purchase in the marketplace, as a result we pay a higher than average price per kilogram for our overall supply of live pigs.

 

In 2005, 2006 and 2007, we paid a total of $39.5 million, $59.2 million and $110.4 million, respectively, for our total supply of live pigs. We paid the Group an aggregate of $61.7 million and $23.6 million for live pigs during the full year of 2007 and the first quarter of 2008, respectively, and the amounts paid were determined as described above.

 

Under our Long-Term Hog Procurement Agreement between the Group and the Meat Company, the Group agreed to supply no less than 750,000 live hogs to us in 2008, 800,000 in 2009, and 800,000 in 2010, and the price for the hogs is set at the fair market price at the time of delivery.

 

Due to a severe supply shortage of hogs in 2007 that was unanticipated, we processed approximately 608,000 pigs through September 30, which is 42,000 short of our 650,000 third quarter year-to-date target set up earlier this year. According to China Livestock and Products Annual Report 2007 dated on September 25, 2007 by the USDA Foreign Agricultural Service, the severe supply shortage of hogs in 2007 was because of a series of outbreaks of Porcine Reproductive and Respiratory Syndrome (PRRS), also known as Blue Ear Disease, in China from May 2006. Blue Ear Disease is an infectious disease that affects swine, characterized by reproductive disorders, premature delivery, miscarriage, and stillbirth—as well as abnormal breathing in piglets. According to the report, shortages and a sharp pork price increase occurred as a result of Blue Ear Disease. The average pork price increased by 48 percent from January to August 2007 over the same period in 2006, while prices in July and August 2007 increased by 86 and 87 percent, respectively, from the same months in 2006.

 

We participate in a breeding program with local farmers - under this program, after a careful selection process, every participating breeder must have a pig farmer provide a guarantee of supply, who must be responsible for making up any differences between the agreed amount and actual number of pigs supplied to us. This program has been in existence since 1998. Management believes that since our breeding program has been successful, and has increased farmer income and tax revenue in our region, our local government has welcomed these programs.

 

Among our suppliers, Zheng Baojiang, Wang Fujie, Zhang Jihuan, Sun Siyuan, and Ge Hongqi are the most successful pig farmers in our supply chain, and they supplied an aggregate of 12,000, 10,000, 8,000, 8,000 and 6,000 hogs respectively through each of the first six months of 2007, contributing to 4.4% of our total supply.

 

In addition to the quality of our suppliers’ stock, and their health and safety controls, we have a quality control system of our own to ensure that pigs supplied to us are healthy and fit for human consumption. We require that pigs supplied to us be accompanied by required health certificates, and each must weigh at least between 90kg and 100kg. If the pigs meet the above criteria, we are then obligated to accept delivery of the pigs. (A pig that weighs between 90 and 100 kg, has more saleable meat per kilogram. If it is below this weight range, the ratio of meat to innards would be lower, resulting in less saleable meat per kilogram).

 

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Customers and Distribution Methods

 

Customers

 

We have three primary types of customers for our products, which are (1) city and town households, (2) canteens and restaurants, and (3) food processing companies.

 

We have found that Chinese households prefer fresh pork to frozen pork. Consumers typically buy fresh pork in small quantities, in frequent visits to markets where it is sold. Households usually choose the supermarkets, the wet market, or Chuming™ franchise stores to buy the fresh pork based on convenience. This type of customer accounted for 90% of our revenues in 2007.

 

Canteens include the cafeterias of government agencies, schools, factories and hospitals. These customers, including restaurants, often purchase our pork from Chuming™ franchise stores or directly from agents or wholesalers of the Company. This customer segment accounted for 5% of our revenues in 2007.

 

In addition to the above two types of customers, we also provide branded food processing companies with fresh and frozen pork. However, this customer segment accounted for less than 5% of our revenue in 2007. Since our sourced pigs are of good breed and have strict quality control in the production process, these food processors regularly rely on our pork as an ingredient in their products. Our clients in this segment include Taiwan Dachan, a feed supplier and food processor in Taiwan. These food processing companies typically get access to our products from Chuming agents or wholesalers.

 

Our largest customer accounted for approximately 19%, 26% and 8.8% respectively of our total turnover for the years ended December 31, 2005, 2006 and 2007. Our top five customers together accounted for approximately 61%, 71% and 45% of our total turnover for the years ended December 31, 2005, 2006 and 2007, respectively. None of our directors, their associates or any shareholder of the Company has any interest in any of our five largest customers.

 

Distribution Network

 

Our distribution network is organized and divided by geographic markets and sales regions, including: Dalian Metropolitan, Eastern Liaoning, Western Liaoning, Jilin, Heilongjiang and Hebei markets. In each market, we have a team led by a sales officer whose objective is to expand the Chuming sales network by developing potential dealers, agents and wholesalers, and to maintain the existing network by assisting our sellers. Our Sales Company works with dealers, agents and wholesalers, who then submit orders directly to us.

 

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Sales by Region for the Year Ended December 31, 2007

 

Dalian			74	%
Shenyang			18	%
East Liaoning			3	%
North Liaoning			2	%
West Liaoning			2	%
Others			1	%

 

Retail Strategy

To differentiate ourselves, we have a unique retail strategy to complement our wholesale operations. We sell our product to “showcase stores” which are owned and operated by independent operators. These specialty boutique-type stores must have the same design and physical layout and must follow our operating methodologies. These storefronts are highly visible with the Chuming™ brand name. We also set merchandising and pricing policies and all employees must undergo a mandatory training program. There are currently over 500 such boutique stores in Liaoning Province, providing high brand recognition and communicating a message of quality that will benefit all channels. These boutique stores target the new middle class that desire and can afford high quality goods and services. They provide particular convenience to a typical busy two-income, middle-class family which shops frequently after work. Most of these boutique shops are located in Dalian and the major cities of Liaoning Province. Each store has a minimum monthly sales requirement depending on the city and store.

 

Dealers, agents and wholesalers who we work with serve their own diverse distribution channels. Our affiliated dealers organize their sales to stores and supermarkets, such as Carrefour, Wal-mart, Hymall, New-mart and Metro. Our affiliated agents assist in identifying locations and opening Chuming™ franchise stores in their region, important to the expanding our revenues. Our affiliated wholesalers typically organize the sales to canteens and restaurants as well as food processing companies. In some regions, our affiliated agents will also directly contact local canteens and restaurants.

 

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Chuming’s Distribution Network

 

We have our Chuming™ branded counters in large stores and supermarkets, which are the most important and highly visible locations to enhance our brand and image. Since large supermarkets such as Carrefour and Wal-mart have strict requirements to approve any suppliers, having Chuming™ counters in these megaretailers’ flagship stores reinforces the consumer confidence in our products. We have Chuming™ counters in more than 100 large supermarkets located in Northeast China and the Hebei Province.

  

Our most popular product, fresh pork, is sold primarily though our Chuming™ franchise stores. Chuming™ franchise stores are usually located in high-density, urban residential areas easily accessible by our customers. The Chuming™ franchise stores also save time compared to long lines sometimes found at large supermarkets. Chuming™ franchise stores are all equipped with refrigerators to keep the pork fresh. We have established more than 500 Chuming™ franchise stores now operating in Dalian and throughout the Liaoning Province. In the next few years, we aim to increase the number of our Chuming™ branded franchise stores to more than 1,000 outlets.

 

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We provide operators of franchise stores and specialty counters with equipment (refrigerated showcases, signage, uniforms, heating equipment for processed food and other equipment), labels and packaging, technical assistance, and permission to sell our products under the Chuming brand name. These operators pay us an equipment deposit (to cover the cost of equipment), a trademark usage guarantee deposit, a uniform fee (for the cost of employee uniforms), a one-time start-up fee to cover the costs of certain materials, and an ongoing fee of approximately 0.5% of the total purchase amount of the products these operators purchase from us. Operators agree to sell our products exclusively, and may sell other products only with our consent. Operators are responsible for payment of their own taxes and government fees, leasing expenses, and other operating costs. If an operator is terminated, we will refund the equipment deposit upon return of the equipment, and the trademark deposit if the operator has complied with the trademark usage guidelines we provide to them. We generally reward high-volume operators with discounts and incentives on a case-by-case basis.

Delivery

 

In China, one of the main obstacles to expanding market share and developing national brands has been logistical management during processing. We address this issue by equipping our processing plant with modern technologically advanced, state-of-the art equipment and production lines. Our advanced logistical infrastructure includes the use of bar coding and electronic interchange to enhance the speed and accuracy of data flow. Over the years, we have built an extensive logistical system that includes 21 contracted refrigerated container trucks that allow us to better preserve the meat and to expand our market scope by delivering food to farther retail points. As a result, we have been able to make deliveries within a 500km radius of our Dalian processing plant. Furthermore, our modern information technology system adds additional competitive advantage as it provides us real time market and production data which in turn enables us to capitalize on the timely information regarding market pricing, inventory levels, and changes in demand.

 

After orders are gathered and processed at the Sales Company, our products are delivered utilizing our transportation fleet and through pick-up by certain accounts at our facilities. The quality of our fresh pork is highly dependent on the storage room and delivery vehicles once they leave the chill room. We currently operates 21 temperature-controlled vehicles, which we employ in our operations to help guarantee the freshness of pork at the point of delivery to customer locations in our primary market which is within a two-hour radius of Dalian.

 

Quality Control

 

We maintain all required licenses and certificates from the relevant central and local government authorities with regard to our pork production business. In 2005, we were awarded ISO 9001:2000 certification that covers our production, research and development and sales activities. ISO 9001 certification indicates that our abattoirs and pork production operations comply with international standards of quality assurance established by the International Standards Organization. All of our production lines have also passed the Hazard Analysis and Critical Control Point (HACCP) test, which is certified by Moody International Certification Ltd.

 

We currently have 78 Quality Control (QC) personnel who run and refine our quality assurance system. This system is divided into two sections: Meat Production Supervision and Processed Meat Supervision. The 78 employees who work in our quality assurance program consist of 33 quality control engineers, and 45 staff. All members of the QC team are trained technicians with qualifications and experience in animal husbandry, quarantines and veterinary medicine. The quality control laboratory meets and exceeds all standards set by the authorities and relevant agencies in the PRC.

 

In addition, on average 11 government inspectors work in our slaughtering and packaging plant every shift. They examine animals before slaughter, supervise sanitation, inspect carcasses and internal organs for diseases during the slaughtering and processing procedures, and then certify carcasses and packaged products as to consumer readiness.

 

As discussed in the above section regarding our principal products, the pork products produced from freshly slaughtered pigs at our facilities are chilled or frozen after slaughtering to prevent deterioration of the meat caused by bacteria or chemical changes. The chilled and frozen pork are maintained within the requisite temperature ranges, during subsequent handling, transportation and distribution to retain freshness and to prevent deterioration of the meat.

 

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Competition

 

We are currently one of the largest meat producers in the three northeast provinces of Jilin, Liaoning and Heilongjiang. According to management’s estimates, in Liaoning Province, we are the market leader for both fresh pork with 8.4% market share and for meat products with a 2.6% market share. Management estimates that in Dalian, we are the market leader for fresh pork with a 50% market share, and shares the lead position for meat products with a 20% market share. As we expand geographically, we expect to encounter additional regional and local competitors. Our management believes that all food segments in China compete on the basis of price, product quality, brand identification and customer service, and that we are well positioned in all of these areas.

 

Major Domestic Competitors

 

Currently, our primary competition comes from the domestic players that operate in a very fragmented industry environment. Presently, there is no clearly dominant producer in the PRC pork industry. The three largest producers in China, Shuanghui, People’s Food and China Yurun, together capture less than 5% of the total market. Most of the companies in the industry tend to focus on different product and market segments. Shuanghui has the largest market share in the HTMP pork segment, while Yurun is the leader in the LTMP space. Both companies have done well in the top tier markets. People’s Food, on the hand, tends to focus more of its distribution efforts on smaller cities, where mass distribution is more difficult, and typically does not sell through large retail channels. On the other hand, about 40% of China Yurun’s sales are through supermarket and hypermarket chains. In terms of geographical focus, we believe People’s Food has a strong presence in Northeastern China, and China Yurun has announced plans to expand into the Northeast with plans for two new plants in Shenyang and Harbin.

 

New International Entrants

 

After China joined the WTO, many domestic industries were opened to international competition, including the meat-processing industry. Foreign companies have already entered China’s major cities, mainly though the major hypermarkets such as Carrefour. So far, domestic players have an advantage in the introduction of new products based on local tastes and distribution in below super-tier cities such as Beijing and Shanghai. Tyson Foods, Inc., U.S.A. has a joint venture with Shanghai Ocean Wealth Fish Products Corporation Limited. Hormel Foods Corporation, U.S.A., has set up representative offices in China since 1995 and currently operates processing factories in Shanghai and Beijing.

Dalian Competitors - Fresh Pork

 

In Dalian, our key fresh pork competitors are Bangchui Island with an 18% market share and Jiuxing (Nine Stars) with a 12% market share.

 

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Name		Market share
Chuming			50	%
Bangchui Island			18	%
Nine Stars			12	%
Taifu			8	%
Tianxin			6	%
Yurun			6	%

Dalian Competitors - Meat Products

 

In Dalian, our main meat products competitors are Chengxin with a 20% market share, Chuhe with a 17% market share, Jin Baiwei with a 15% market share, Shineway with a 15% market share and Yurun with an 8% market share.

 

 

Name		Market share
Chuming			20	%
Chengxin			20	%
Chuhe			17	%
Jin Baiwei			15	%
Shineway			15	%
Yurun			8	%
Others			5	%

 

Advertising and Promotional Activities

 

Approximately US $75,000, US $100,000, US $150,000 and US $2,659,963 were spent respectively in the fiscal years ended 2004, 2005 and 2006 and nine months ended September 30, 2007 on advertising and promotional activities.

 

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Advertisements are principally for processed meat products and fresh pork and are targeted at consumers in the Northeast PRC. We advertise periodically in the local media to create and maintain public awareness of our products and branding. We increase the frequency of advertisements whenever new products are launched.

 

Intellectual Property Rights

 

Through our advertising efforts and the consistent quality of its products, our management believes that consumers in the PRC have come to associate our “Chuming™” brand name with quality meat products. Thus, our management believes that the goodwill in the “Chuming™” branding is a valuable asset to us. We have registered our “Chuming™” trademark in the PRC. We have also applied for trademark registration for our “Huayu” brand name in the PRC.

 

We believe that the protection of our brand names is important to our marketing efforts and believe that we have taken appropriate steps to protect our brand. We have not discovered any counterfeiting or any infringements of our Chuming™ or Huayu brand names during the three years prior to the date of this prospectus.

We require all resellers who we work with, including specialty counters and franchise store operators, to comply with our trademark usage policy, and require them to pay trademark usage guarantee deposits. We also employ approximately 30 employees who randomly inspect the facilities of the over 500 operators we work with to ensure compliance with our policies and other guidelines. We will generally terminate our business relationship with operators found violating our policies.

 

Research and Development

 

We have two operations, a Meat Engineering Center and a Sea Products Center, focused on the development of new products to the market. In addition to meeting the taste demands of consumers, these groups focus on quality, nutrition and safety standards. These groups draw upon a 25-employee research and development staff, including three professors in the field of animal nutrition and biology, supporting the safe and rapid introduction to the market of new products, specifically in the areas of seafood and meat by-products. We currently have more than 100 products available to consumers, with the average rate of three new products ready for the market per month. We are also working on anti-freezing experiments to facilitate preservation of our meats so as to minimize or eliminate the use of chemical preservatives.

 

Government Approval and Regulation of Principal Products

 

The Chinese government is actively promulgating a plan for “safe meat” and is expected to raise the proportion of slaughtering automation to over seventy percent of all meat and actively enforce authorized slaughtering and quarantine. Government initiatives take the form of benefits ranging from special grants, subsidized financing, preferential tax policies, direct government funding and other types of subsidies aimed at encouraging the modernization of the meat industry. In addition, while it is possible that the Chinese central or provincial governments may enact more stringent regulations that raise standards for the meat processing industry, we believe that our Company is currently a leader in meat processing safety standards, and would not be affected by such increased standards.

Compliance with Environmental Laws

 

We own two wastewater treatment plants on premise with a daily treating capacity of six hundred tons for each plant. These plants are designed to comply with the Integrated Wastewater Discharge Standard of the PRC and the Environmental Protection Regulation of Dalian City. To the knowledge of our management, we have not breached any environment protection regulations during any of the past three years.

 

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Employees

 

We currently have approximately 589 employees, the composition of which is as follows:

		R&D and Engineering			Production			General and Administrative			Sales and Marketing			Quality Control			Total
Meat Company			10			153			25			10			8			206
Food Company			15			165			15			18			10			211
Sales Company			0			0			25			135			0			160
Total			25			318			65			163			18			589

 

We have experienced excellent employee retention, which we believe is a result of our consistently-applied management policies and proactive employee benefit program participation. The average tenure is four years for factory workers and twelve years for management staff. All employees have health insurance, unemployment insurance and retirement benefits that are provided by the government. We make regular payments into these government-sponsored health insurance and retirement programs for each employee. Additionally, we provide free meals and accommodations to all employees on shift.

 

Certain of our employees are represented by a labor union which is governed by PRC Company and Labor Laws. There have been no adverse labor incidents or work stoppages in our history or our predecessor companies. Management believes that our relationship with our employees and the union are good.

 

Corporate Information

 

Our principal executive offices are located at No. 9, Xin Yi Street, Ganjingzi District, Dalian City, Liaoning province, PRC 116039. Our main telephone number is +86 411 867 166 96 and our fax number is +86 411 867 166 90.

Description of Property

 

Facilities

 

Our main facility and principal executive offices are located at No. 9, Xin Yi Street, Ganjingzi District, Dalian City, Liaoning Province, PRC 116039, which also serves as the headquarters for our food subsidiary and sales subsidiary. Our main facility is located on 95 acres in the industrial area of Dalian, where we have developed over 74,000 sq. meters of factory floor. In addition to our corporate offices, we also own and maintain housing for up to 760 employees, and health maintenance facilities. Our slaughtering subsidiary’s principal facility is located at No.2026, Zhuanshi Street, Wafangdian Town, Dalian City, Liaoning Province, PRC. We believe that these facilities will be sufficient to house our operations for at least the next 3 years, and we have the capacity to accommodate our projected long-term growth plans.

 

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Land Lease on Main Facility and Other Company Offices

 

We have acquired the land use certificate for 89 acres of land in Dalian City, which entitles us to use and dispose of the land and the commercial or residential buildings located on the land. Our Food Company occupies this piece of land.

We have also opened offices in eleven cities outside of Dalian. We have entered leasing agreements for these office spaces for terms ranging from one and three years. These offices are mainly sales offices and they are generally very small in size. They are located in surrounding cities, mainly in Liaoning Province. In total, we paid approximately $58,000 rent in 2007 for these eleven offices.

        

Real Property Rights

 

We have rights to use and occupy two parcels of state-owned land, which are 106,466 square meters and 48,461 square meters in area, respectively, on which our operations are located. These land use rights are granted to us under two certificates dated March 3, 2003, granted by the Government of the Ganjingzi District of Dalian: (i) Gan Guo Yong [2003] No. 04010 for Site Number 4-17-03-09 (106,466 square meters), and (ii) Gan Guo Yong [2003] No. 04009 for Site Number 4-17-03-10 (48,461 square meters). These land use rights entitle us to use of the land for a period of fifty years (until March 20, 2053) for industrial purposes. Our Food Company occupies these two pieces of land.

 

We pledged our land use rights in the second parcel above (Gan Guo Yong [2003] No. 04009 for Site Number 4-17-03-10) to the Bank of China, Liaoning Province Branch, and the pledge has a term from December 14, 2006 to December 13, 2011. Our plant, warehouse and office building have all been completed, and we are in the process of filing the proper documentation with the local PRC government to bring these properties into operation.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements contained in this prospectus, other than statements of historical facts, that address future activities, events or developments, are forward-looking statements, including, but not limited to, statements containing the words “believe,” “anticipate,” “expect” and words of similar import. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results will conform to the expectations and predictions of management is subject to a number of risks and uncertainties that may cause actual results to differ materially. Such risks are summarized on page 4, in the section entitled “Risk Factors” on page 9, and in our previous SEC filings.

Consequently, all of the forward-looking statements made in this prospectus are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations.

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of the shares by the selling shareholders. All proceeds from the sale of the shares offered by the selling shareholders under this prospectus will be for the account of the selling shareholders, as described below in the sections entitled “Selling shareholders” and “Plan of Distribution.” With the exception of any brokerage fees and commissions which are the respective obligations of the selling shareholders, we are responsible for the fees, costs and expenses of this offering which includes our legal and accounting fees, printing costs and filing and other miscellaneous fees and expenses.

 

PLAN OF DISTRIBUTION

 

We are registering the shares of our common stock sold to certain investors in our December 31, 2007 financing, to permit the resale of these shares of common stock by the selling shareholders from time to time after the date of this prospectus. We are also registering shares of common stock held in escrow under our Make Good Escrow Agreement, which shares will not be released until determination of our 2008 and 2009 financial results. We will not receive any of the proceeds from the sale by the selling shareholders of the shares of common stock held by them. We will bear all fees and expenses incident to our obligation to register these shares of common stock.

 

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The selling shareholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or quoted or in private transactions. These sales may be at fixed or negotiated prices. The selling shareholders may use any one or more of the following methods when selling shares:

 

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits Investors;

 

·

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

·

an exchange distribution in accordance with the rules of the applicable exchange;

 

·

privately negotiated transactions;

 

·

to cover short sales made after the date that this registration statement is declared effective by the Securities and Exchange Commission;

 

·

broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share;

 

·

a combination of any such methods of sale; and

 

·

any other method permitted pursuant to applicable law.

 

The selling shareholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the selling shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

 

The selling shareholders may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.

 

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When we are notified in writing by a selling shareholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling shareholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, when we are notified in writing by a selling shareholder that a donee or pledgee intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.

 

The selling shareholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the selling shareholder and/or the purchasers. Each selling shareholder has represented and warranted to us that it acquired the securities subject to this prospectus and the registration statement of which it forms a part, in the ordinary course of such selling shareholder’s business and, at the time of its purchase of such securities such selling shareholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.

 

We have advised each selling shareholder that it may not use shares covered under this prospectus and the registration statement of which it forms a part, to cover short sales of common stock made prior to the date on which the registration statement shall have been declared effective by the Securities and Exchange Commission. If a selling shareholder uses this prospectus for any sale of the common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The selling shareholders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such selling shareholders in connection with resales of their respective shares under the related registration statement.

 

We are required to pay all fees and expenses incident to the registration of the shares, but we will not receive any proceeds from the sale of the common stock. We have agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

SELLING SHAREHOLDERS

We are registering this offering under the terms of securities purchase agreements between us and the holders of certain of our securities. Such securities were issued by us in transactions that were exempt from the registration requirements of the Securities Act to persons reasonably believed by us to be “accredited investors” as defined in Regulation D under the Securities Act. We are registering these securities in order to permit the selling shareholders who purchased them from us to dispose of the shares of common stock, or interests therein, from time to time. The selling shareholders may sell all, some, or none of their shares in this offering. See “Plan of Distribution.”

 

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The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder as of February 11, 2008. The third column lists the shares of common stock covered by this prospectus that may be disposed of by each of the selling shareholders. The fourth column lists the number of shares that will be beneficially owned by the selling shareholders assuming all of the shares covered by this prospectus are sold.

The selling shareholders may decide to sell all, some, or none of the shares of common stock listed below. We cannot provide you with any estimate of the number of shares of common stock that any of the selling shareholders will hold in the future. For purposes of this table, beneficial ownership is determined in accordance with the rules of the SEC, and includes voting power and investment power with respect to such shares.

The inclusion of any securities in the following table does not constitute an admission of beneficial ownership by the persons named below. Except as indicated in the footnotes to the table, no selling shareholder has had any material relationship with us or our predecessors or affiliates during the last three years. Except as indicated below, no selling shareholder is the beneficial owner of any additional shares of common stock or other equity securities issued by us or any securities convertible into, or exercisable or exchangeable for, our equity securities. Except as indicated below, no selling shareholder is a registered broker-dealer or an affiliate of a broker-dealer.

 

Selling Shareholder Table

 

Name		Shares Owned			Shares Offered			Shares Held After Offering			% Ownership After Offering
Pinnacle China Fund, L.P. 4965 Preston Park Blvd, Suite 240 Plano, TX 75093 (1)			1,022,727			1,022,727			0			0	%
The Pinnacle Fund, L.P. 4965 Preston Park Blvd, Suite 240 Plano, TX 75093 (1)			1,022,727			1,022,727			0			0	%
Westpark Capital, L.P. 4965 Preston Park Blvd, Suite 240 Plano, TX 75093 (2)			409,091			409,091			0			0	%
Atlas Allocation Fund, L.P. 100 Crescent Court #880, Dallas, TX 75201 c/o Atlas Capital Management (3)			409,091			409,091			0			0	%
Southwell Partners, L.P. 1901 North Akerd Street Dallas, TX 75201 (4)			409,091			409,091			0			0	%
Centaur Value Fund 1460 Main St., Suite 234 Southlake, TX 76092 (5)			62,500			62,500			0			0	%
United Centaur Master Fund 1460 Main St., Suite 234 Southlake, TX 76092 (5)			62,500			62,600			0			0	%

 

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Sandor Capital Master Fund, L.P. 2828 Routh Street, Suite 500 Dallas, TX 75201 (6)			113,636			113,636			0			0	%
Precept Capital Master Fund, G.P. 200 Crescent Court, Suite 1450 Dallas, TX 75201 (7)			113,636			113,636			0			0	%
Roth Capital Partners, LLC 24 Corporate Plaza Newport Beach, CA 92660 (8)			90,910			90,910			0			0	%
Cooper Family Trust 24 Corporate Plaza Newport Beach, CA 92660 c/o Roth Capital Partners (9)			11,364			11,364			0			0	%
Aaron M. Gurewitz Trustee of AMG Trust 30 Twilight Bluff Newport Coast, CA 92657 (10)			5,681			5,681			0			0	%
Gordon Roth 189 Monarch Bay Dana Point, CA 92629			5,681			5,681			0			0	%
Glacier Partners, L.P. 812 Anacapa St, Suite B Santa Barbara, CA 93101 (11)			90,909			90,909			0			0	%
Matthew Hayden 7582 Windermere Ct. Lake Worth, FL 33467			34,091			34,091			0			0	%
Shine Gold Holdings Limited Palm Grove House, P.O. Box 438 Road Town, Tortola, British Virgin Islands (12)			10,690,668			3,863,636			6,827,032			32.3	%
Halter Financial Investments, LP 12890 Hill Top Road Argyle, TX 76226 (13)			347,827			347,827			0			0	%
Jenson Services, Inc. 4685 S. Highland Drive, Suite 202 Salt Lake City, UT 84117 (14)			65,389			65,389			0			0	%
TOTAL			14,967,519			8,140,487			6,827,032			32.3	%

 

	(1)	Barry Kitt has dispositive and voting power over the shares and may be deemed to be the beneficial owner of the shares of common stock beneficially owned by each of Pinnacle China Fund, L.P. and The Pinnacle Fund, L.P.  Mr. Kitt disclaims beneficial ownership of the shares to the extent of his direct or indirect pecuniary interest.
	(2)	Mr. Patrick J. Brosnahan has voting and dispositive control over securities held by Westpark Capital, L.P.

 

	(3)	Mr. Robert H. Alpert has voting and dispositive control over securities held by Atlas Allocation Fund, L.P.
	(4)	Mr. Wilson S. Jaeggli has voting and dispositive control over securities held by Southwell Partners, L.P.

 

	(5)	Mr. Zeke Aston has voting and dispositive control over securities held by Centaur Value Fund and United Centaur Master Fund.
	(6)	Mr. John S. Lemak has voting and dispositive control over securities held by Sandor Capital Master Fund, L.P.
	(7)	Mr. D. Blair Baker has voting and dispositive control over securities held by Precept Capital Master Fund, G.P.
	(8)	Mr. Gordon Roth has voting and dispositive control over securities held by Roth Capital Partners, LLC.
	(9)	Mr. Chad Cooper has voting and dispositive control over securities held by the Cooper Family Trust.
	(10)	Mr. Aaron M. Gurewitz has voting and dispositive control over securities held by the Aaron M. Gurewitz, Trustee of AMG Trust.

 

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	(11)	Mr. Peter Castellanos has voting and dispositive control over securities held by Glacier Partners, L.P.
	(12)	Shine Gold Holdings Limited is a company organized under the laws of the British Virgin Islands. The registered address for Shine Gold Holdings is Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands. Mr. Shi Huashan and certain of his relatives (the “Shi Family”) have entered into a trust agreements with a non-PRC individual, under which the non-PRC individual holds the shares of Shine Gold Holdings as a trustee for the benefit of Mr. Shi and his family. The natural persons with voting power and investment power on behalf of Shine Gold Holdings is Chong Shun. As beneficiaries of the trust arrangement, members of the Shi family have only economic rights with respect to the shares held by Shine Gold Holdings. Mr. Shi Huashan and the Shi family hereby disclaim beneficial ownership except to the extent of their pecuniary interest in the Energroup shares held by Shine Gold Holdings.

 

	(13)	Mr. Timothy Halter has voting and dispositive control over securities held by Halter Financial Investments, LP.
	(14)	Mr. Travis Jenson has voting and dispositive control over securities held by Jenson Services, Inc.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition of Chuming for the three months ended March 31, 2008 and 2007, and for the fiscal years ended December 31, 2007, 2006, and 2005 should be read in conjunction with the Selected Consolidated Financial Data, the consolidated financial statements, and the notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

OVERVIEW

We are a meat processing company that specializes in pork and pork products. We have a unique wholesale and retail distribution model and sell directly to over 7,600 retail outlets, including supermarkets and hypermarkets across Northeast China.

 

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

 

	1.	Dalian Chuming Slaughter and Packaging Pork Company Ltd. (also referred to in this report as “Meat Company”), whose primary business activity is acquiring, slaughtering and packaging of pork and cattle;
	2.	Dalian Chuming Processed Foods Company Ltd. (also referred to in this report as “Food Company”), whose primary business activity is the processing of raw and cooked meat products; and
	3.	Dalian Chuming Sales Company Ltd. (also referred to in this report as “Sales Company”), which is responsible for Chuming’s sales, marketing and distribution operations.

 

The Chuming Operating Subsidiaries are spun off constituents of Chuming’s former parent company, Dalian Chuming Group Co., Ltd., or the “Group.” Our primary business activities are the production and packing of fresh pork and also production of processed meat products for distribution and sale to clients throughout the PRC. We are headquartered in the City of Dalian, Liaoning Province of China. Chuming WFOE was incorporated in China as wholly foreign owned enterprise on in December 2007.

 

Recent Events in 2007 - Reverse Acquisition and Financing Transaction

On December 31, 2007, Energroup acquired all of the outstanding shares of Precious Sheen Investments Limited ("PSI") in exchange for the issuance by Energroup of 16,850,000 restricted shares of our common stock to the shareholders of PSI, which represented approximately 97.55% of the then-issued and outstanding common stock of Energroup (excluding the shares issued in the Financing). As a result of this Exchange Transaction, PSI became Energroup’s wholly owned subsidiary and Energroup acquired the business and operations of Chuming WFOE.

Concurrently with the closing of the share exchange transaction, on December 31, 2007 we raised $17,000,000 in a private placement by issuing 3,863,635 shares of our common stock to investors at $4.40 per share.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flows

 

Three Months Ended March 31, 2008

Net cash used in operating activities was $20,079,493 in the first quarter of 2008, while net cash flow sourced from operating activities was $5,448,403 in the same period in 2007. This is primarily attributable to several reasons as follows. First, in order to expand our sales, we began offering payment terms to accommodate our best customers - beginning in the first quarter of 2008, we offered extended payment terms to some of our quality long term clients with good credit (up to one month), where previously we required payment within 1-2 days of delivery of goods. This practice caused a decrease in, and some delay in collection of, our incoming cash. Second, in the first quarter of 2008, due to the persistent shortage of live pigs in the marketplace and in order to maintain a steady supply of live pigs, we decided to pay our suppliers, including the farmers and the Group, cash immediately upon delivery of live pigs to us. This practice caused an increase in our outgoing cash and a decrease our cash balances. Third, as an incentive to the live pig suppliers, in January 2008, we paid all remaining outstanding balances at the end of 2007 on accounts payable to our suppliers in cash. This practice increased our outgoing cash and decreased our cash balance. Because these adjustments in our approach to accounts receivable and accounts payable are “one-time” adjustments, management believes that the resulting effect on our cash position will be relatively short-lived, and it is estimated this may affect the first several quarters of 2008, but management does not expect the effect of these adjustments to recur after this adjustment period.

Net cash sourced from investing activities was $206,155 in the first quarter of 2008, compared to cash used in investing activities of $769,629 in the first quarter of 2007. This is related to our December 2007 private placement financing, pursuant to which $2,092,169 in funds from the private placement (out of the $4.25 million initially deposited into escrow) remained in escrow as restricted cash. The $1,497,124 increase in net cash used for plant and equipment purchases in the first quarter of 2008 is largely due to equipment purchases and remodeling expenses as we remodeled our slaughtering facilities in the first quarter of 2008 to meet expanding production needs.

Net cash sourced from financing activities was $9,198,281 in the first quarter of 2008 as compared to net cash used in financing activities of $1,286,776 in the first quarter of 2007. This is related to the $7.5 million in net proceeds from new bank loans that we received in the first quarter of 2008 from the Bank of China, Liaoning Branch and Shanghai Pudong Development Bank.

 

Twelve Months Ended December 31, 2007

Net cash inflow sourced from operating activities was $23.0 million in fiscal 2007, while net cash flow used in operating activities was $7.1 million in fiscal 2006. Prior to 2007, we offered flexible payment terms to agents who purchase pork products from us for resale to retailers, but in March of 2007, we eliminated this practice and required agents to pay promptly for products ordered. In addition, we have worked with our larger customers to make improvements in the collection process. As a result we believe we have improved our process of collecting accounts receivable as compared to the prior year. In 2007, we also used $108.5 million in cash to purchase materials and pay employees in our efforts to satisfy increased customer demand for our products.

 

Net cash flow used in investing activities was $11.3 million in fiscal 2007, compared to cash used in investing activities of $1.9 million in fiscal 2006. The increase in cash flow used in investing activities from 2006 to 2007 was a result of an equity financing, and a one-time payment by us for land use rights. In 2007, we completed a $17 million private placement, and agreed to have $4.25 million of the net proceeds deposited into an escrow account for release contingent upon our satisfaction of certain criteria relating to the structure of the board and management, and appointment of an auditing firm. Also in 2007, we paid approximately $4.2 million to our local government for land use rights which we acquired in 2004.

Net cash flow used in financing activities was $2.7 million in fiscal 2007 as compared to net cash sourced from financing activities of $1.8 million in fiscal 2006. This change was a result of our $17 million private placement financing, $4.25 million of which was held back in an escrow account, and the repayment of a construction loan with an original principal amount of $19.3 million, in addition to other short term loans. Our private placement financing brought in approximately $14.7 million in cash proceeds, excluding amounts held back in escrow. However, this cash inflow was offset by the payment of $23.2 million that was used toward repayment in full of our construction loan from 2004, and certain short term business loans.

Twelve Months Ended December 31, 2006

Net cash outflow used in operating activities was $7.1 million in fiscal 2006 and while net cash inflow provided by operating activities was $18.9 million in fiscal 2005. In 2006, we used significant cash for the purchase of raw materials and inputs in order to satisfy customer orders, which totaled approximately $65 million, as compared to $30 million in 2005. In 2006, however, cash received from customers was approximately $60 million, which was less than the $70 million in sales we recorded in 2006. Management estimates that approximately $12 million in receivables generated in 2006 were not collected until after December 31, 2006, and management believes this is attributable to the longer collection periods associated with sales to large supermarkets, restaurant chains and other similar customers with which it does an increasing amount of business.

 

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Net cash flow used in investing activities was $1,920,586 for fiscal 2006, compared to net cash used in investing activities of $11,453,481 in fiscal 2005. In 2004 we completed the construction of our plant and equipment used in our fresh pork, frozen pork, and processed foods business. We used $10.5 million in cash in 2004 and $11.4 million in cash in 2005 to pay for this construction. Although we began operations in December 2004, a large portion of our construction cost was deferred to 2005 because it was dependent upon completion of a government permitting process which was completed in 2005. In addition, we acquired a 50 year land use right from the government in 2004, however, pursuant to an agreement with the local government, we were permitted to defer a one-time payment of $4.2 million to 2007. Since the one-time payment secures us land use rights for fifty year, management does not presently anticipate that any additional cash payments will be required of us in connection with land use rights in the foreseeable future.

Net cash flow provided by financing activities was $1,753,971 in fiscal 2006 as compared to net cash provided by financing activities of $2,496,786 for fiscal 2005. Net cash provided by financing activities in both 2005 and 2006 is from bank borrowings for purposes of financing the purchase of raw materials and inputs used in our operations.

 

Contractual Obligations and Off-Balance Sheet Arrangements

 

Contractual Obligations

 

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

 

The following tables summarize our contractual obligations as of March 31, 2008, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

 

Off-balance Sheet Arrangements

 

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

 

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Related Party Transactions

For a description of our related party transactions, see the section of this Prospectus entitled “Certain Relationships and Related Transactions.”

Quantitative and Qualitative Disclosures about Market Risk 

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

Interest Rates. Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. At September 30, 2007, we had approximately $2,457,434 in cash and cash equivalents. A hypothetical 10% increase or decrease in interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

 

Foreign Exchange Rates. All of our sales and inputs are transacted in Renminbi (“RMB”). As a result, changes in the relative values of U.S. Dollars and RMB affect our reported levels of revenues and profitability as the results are translated into U.S. Dollars for reporting purposes. However, since we conduct our sales and purchase inputs in RMB, fluctuations in exchange rates are not expected to significantly affect our financial stability, or gross and net profit margins. We do not currently expect to incur significant foreign exchange gains or losses, or gains or losses associated with any foreign operations. 

 

Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating business. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We recorded net foreign currency gains of $285,352, $610,696 and $2,064,272 in 2005, 2006 and 2007, respectively. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future. As our sales denominated in foreign currencies, such as RMB, continue to grow, we may consider using arrangements to hedge our exposure to foreign currency exchange risk.

Our financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. The value of your investment in our stock will be affected by the foreign exchange rate between U.S. dollars and RMB. A decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the price of our stock.

LEGAL PROCEEDINGS  

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

 

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MANAGEMENT

 

The following table includes the names, positions held, and ages of our current directors, executive officers and significant employees as of March 31, 2008:

Name		Age		Position
Shi Huashan *		49		President, Chief Executive Officer and Chairman of the Board
Wang Shu *		33		Chief Financial Officer and Director
Chen Fuyuan *		43		Chief Operating Officer
Yan Jinglu		42		Marketing Director and General Manager of Sales Company
Chen Shujie		41		Vice General Manager - Sales Company
Cui Zhiqiang		38		General Manager - Food Company
Ma Yongjun		42		General Manager - Meat Company
Sun Qiuye		33		Vice General Manager - Meat Company
Wang Suping		32		General Manager - Food Company
Song Deqi		32		Vice General Manager - Food Company
Ma Fengqin		45		Vice President and Director
Wang Shuying		57		Director
Matthew Dillon		47		Director
Nestor Gounaris		36		Director
James Boyle		47		Director

* Denotes an executive officer.

 

Each director will hold office until the next annual meeting of stockholders and until his or her successor has been elected and qualified.

Mr. Shi Huashan, age 49, is a graduate of Beijing Renwen University in Corporate Law, and the founder of Chuming. Mr. Shi Huashan has nearly 20 years of experience in the food industry. He established Dalian Chuming Industry Development Company in 1992, which started the Dalian Chuming Group Co., Ltd. From 1992 to present he has served as President and CEO of Chuming and the Dalian Chuming Group Co., Ltd. companies. In 2004, he was selected by the China Meats Association as one of the “Ten Most Influential Entrepreneurs in the China Meat Industry.” Mr. Shi Huashan is the current President of the Dalian Food Association. He is Chuming’s President, Chief Executive Officer, and Chairman of the Board of Directors.

Ms. Wang Shu, age 33, is a graduate of Liaoning University, with a major in accounting, Ms. Wang Shu has more than 11 years of experience in finance. From 1996 to 2001, she worked at Dalian Huaqiao House Development Company as its chief accountant. In 2001, she joined Dalian Chuming Group Co., Ltd., and in her present role serves as Chuming’s as Chief Financial Officer, and as a member of the Board of Directors.

Ms. Ma Fengqin, age 45, is a graduate of Dalian Electric Power Economic School, with a major in accounting. From 1990 to 1993, she worked at Dalian Thermo Engineering Company as its Chief Accountant. From 1992 to 2001, Ms. Ma served as Vice President of Dalian Chuming Industry Development Company. Since 2002 she has served as Chuming’s Vice President, and a member of the Board of Directors. Ms. Ma is married to Mr. Shi Huashan, Chairman of the Board of Directors.

Ms. Shuying Wang, age 57, member of the Chuming Board of Directors, served from 1996-2004 as Chief of the Dalian Planning Committee’s Agriculture Economy Development Section, and now works as a consultant to the Section.  From 1991-1996 she was Vice Chief of the Section.  A graduate of Dalian Railway College, she was a staff member of the Dalian Machinery Bureau’s Agriculture Machinery Department from 1977-1984.  From 1984-1989 Ms. Wang was Chief of the Dalian Planning Committee’s Industry Section, before undertaking German language studies at the Beijing Foreign Trading University.  She completed a training program in Germany at Heidelberg Hiller College from 1989-1991 prior to returning to Dalian’s Planning Committee.

 

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Mr. Matthew Dillon, age 47, member of the Chuming Board of Directors, has been President of Dalian Global Link Consultants in Dalian, China since 1998.  He was previously a Senior Engineer with Aeronautical Radio, Inc. in Annapolis, MD and an Avionics Systems Specialist in the U.S. Air Force.  Mr. Dillon speaks Mandarin, earning a Chinese Language Certificate from Dalian Maritime University, where he has owned the Dalian I-55 Coffee Stop and Bakery since 2000.  A graduate of Southern Illinois University with a BS degree in Industrial Engineering and Technology, he also earned a Master of Divinity degree from the Southern Baptist Theological Seminary in Louisville, KY.

Mr. Nestor Gounaris, age 36, member of the Chuming Board of Directors, has been a principal since 2005 with China Solutions LLC, a Shanghai- and New York-based advisory firm assisting its clients with foreign direct investments and operations in China. From 2003 to 2005 he was an associate with Simmons & Simmons in Shanghai, working in the law firm’s PRC-focused corporate and foreign direct investment practice. Mr. Gounaris worked for O’Melveny & Myers in Shanghai as an associate from 2001 to 2003. An Honors Paralegal with the U.S. Department of Justice’s Antitrust Division in Washington, D.C. from 1996-1998, he holds a degree in Foreign Studies from Georgetown University’s School of Foreign Service, and a juris doctor degree from the University of Virginia School of Law. Mr. Gounaris has been a research fellow for the North Atlantic Treaty Organization in Washington, D.C., and a Boren Fellow for the Academy of Educational Development in Charlottesville, VA and Shanghai. He is a member of the State Bar of New York, and is fluent in Mandarin and modern Greek.

Mr. James Boyle, age 47, is Principal and Managing Partner of Expat-CFO Services Ltd. in Shanghai, and has held this position since 2001. Expat-CFO serves U.S. and European multinational companies and private equity firms including Callaway Golf, Daymon Worldwide, Louisville Bedding and Kemin Industries, providing interim controller and CFO services, accounting and treasury outsourcing, and M&A transaction advisory including due diligence, deal structuring and valuation. From 1996-2001, Mr. Boyle worked for Dura-Line Shanghai Plastics Co., Ltd., as Business Development and China Start-Up Manager, Deputy General Manager, CFO, and Acting Managing Director. Mr. Boyle is fluent in Mandarin, earning a Bachelor of Science degree from the State University of New York Maritime College in Economics and Marine Transportation, and an MBA from the Thunderbird School of Global Management in International Management and Finance. He is a member of the Institute of Management Accountants and the American Chamber of Commerce in Shanghai, and serves as President of the Shanghai Chapter of the Thunderbird Alumni Association.

 

Mr. Chen Fuyuan, age 43, is a graduate of Dalian University of Technology, with a major in Mechanical Engineering. Mr. Chen Fuyuan has more than 15 years of experience in the food industry. From 1986 to 1998, he worked at Dalian Food Company as a vice manager. In 1998, he joined Dalian Chuming Group Co. Ltd. as vice general manager and general engineer. He presently serves as Chuming’s Chief Operating Officer.

Mr. Yan Jinglu, age 42, is a graduate of the Chinese Academy of Social Sciences in Beijing, with a masters degree in Economics. Mr. Yan Jinglu has more than 12 years of experience in the food industry. From 1987 to 1992, he worked at Heilongjiang Agriculture Development Economy College as a lecturer. From 1992 to 1995, he worked at Heilongjiang Commercial Bureau of the Farm Bureau General as a vice director. From 1995 to 2002, he worked at Dalian Longguang Foodstuff Co., Ltd. as a department director. From 2002 to the present he has worked at Dalian Chuming Group Co., Ltd. as Marketing Director and general manager of Chuming’s sales subsidiary.

Ms. Chen Shujie , age 41, worked at Dalian Grocery Group Company as director of the marketing center from 1985 to 1998. From 1998 to 2001, she worked at Dalian Mingxing Livestock Product Company as vice general manager in charge of marketing. In 2001, she began work at Dalian Chuming Sales Company Ltd. as vice general manager and has continued in that position to the present.

Mr. Cui Zhiqiang, age 38, is a graduate of Dongbei University of Finance and Economics, with a major in Accounting. Mr. Cui Zhiqiang worked at Hisense Changchun Company as finance supervisor from 1990 to 2004. From 2004 to 2005, he worked at Hisense Sales Company Dalian Branch as finance director. In 2005, he began work at Dalian Chuming Sales Company Ltd. as finance director and has continued in that position to the present.

Mr. Ma Yongjun, age 42, has more than 15 years of experience in the food industry. From 1981 to 1992, he worked at Dalian Power Engineering Company as a manager. From 1992 to 2004, he worked at Dalian Chuming Industry Development Company as a vice general manager. In 2004, he began his current role at Dalian Chuming Slaughter and Packaging Pork Company Ltd. as general manager.

Mr. Sun Qiuye, 33, is a graduate of Dalian University of Technology, with a major in Machinery and Equipment. Mr. Sun Qiuye worked at Dalian Sanyo Refrigeration Corporation from 1997 to 2003. From 2003 to 2004, he worked at Dalian Chuming Group Co., Ltd. as vice manager of the manufacturing department. In 2004, he started work at Dalian Chuming Meat Products Co., Ltd. as vice general manager.

Ms. Wang Suping, age 32, has more than 12 years of experience in the food industry. From 1995 to 2000, she worked at Shanxi Datong Tongfeng Group as factory director. From 2000 to 2004, she worked at Dalian Mingxing Livestock Product Company as vice general manager. In 2004, she began work at Dalian Chuming Food Co., Ltd. as general manager and has continued in that position to the present.

Mr. Song Deqi, age 32, is a graduate of Shenyang Agriculture University, with a major in Food Engineering, Mr. Song Deqi has more than 8 years of experience in the food industry. In 1999, he worked at Dalian Anji Food Company as an engineer. From 1999 to 2004, he worked at Dalian Mingxing Livestock Product Company as vice director of factory operations. In 2004, he began work at Dalian Chuming Food Co., Ltd. as vice general manager and has continued in that position to the present.

 

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There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or officer.

 

On February 6, 2008, Wendi Li resigned from our board of directors shortly after having been appointed. Ms. Li’s resignation was not due to any disagreements with our policies or management. Our board of directors is presently reviewing the candidacy of an independent director to fill the vacancy resulting from Ms. Li’s departure.

On February 21, 2008, the board of directors appointed Mr. James Boyle as a director on the board of directors, effective February 21, 2008. Mr. Boyle is one of seven directors presently serving on the board of directors.

 

Director Compensation

We did not pay any compensation to members of our board of directors for fiscal year 2007. However, in connection with the share exchange transaction with PSI and its shareholders, we appointed seven new directors consisting of four independent directors, Wang Shuying, Matthew Dillon, Nestor Gounaris and James Boyle, and three non-independent directors, Shi Huashan, Wang Shu and Ma Fengqin. For our upcoming fiscal year, we have agreed to pay these independent directors a flat fee of $12,000 per year as compensation for their services on the board, with additional compensation for service on board committees to be determined by the full board of directors.

Executive Compensation

The following executive compensation disclosure reflects all compensation for fiscal year 2007 received by our principal executive officer, principal financial officer, and three most highly compensated executive officers whose salary exceeded US$100,000. We refer to these individuals in this prospectus as “named executive officers.”

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Summary Compensation

					Annual Compensation (2)
Name and Principal Position		Fiscal  Year			Salary (1)  ($)			All Other Compensation (3) ($)			Total  ($)
Shi Huashan			2007		$	40,000			20,000			60,000
Chief Executive Officer, President			2006			50,000			-			50,000
Wang Shu			2007		$	20,000			10,000			30,000
Chief Financial Officer			2006			15,000			5,000			-
Chen Fuyuan			2007			20,000			10,000			30,000
Chief Operating Officer			2006			-			-			-
Wang Shuying			2007			-			-			-
Director			2006			-			-			-
Matthew Dillion			2007			-			-			-
Director			2006			-			-			-
Ma Fengqin			2007			-			-			-
Director			2006			-			-			-
Nestor Gounaris			2007			-			-			-
Director			2006			-			-			-
James Boyle			2007			-			-			-
Director			2006			-			-			-

(1)

Expressed in U.S. Dollars based on the interbank exchange rate of 7.61 RMB for each 1.00 U.S. Dollar for the year ended December 31, 2007.

 

(2)

In 2007, compensation paid to our officers and directors included no bonuses, stock or option awards, non-equity incentive plan awards, or non-qualified deferred compensation, and accordingly, these columns have been omitted from this table.

 

(3)

All Other Compensation includes allowances for transportation, housing, communications, training, personal service perquisites, and utility expenses. In 2007, “other compensation” to Mr. Shi Huashan included a transportation allowance ($6,000), housing allowance ($5,000), mobile phone and communications allowance ($4,000), training expenses ($4,000), personal service perquisites ($600), and utility expense reimbursement ($400). For Ms. Wang Shu and Chen Fuyuan, “other compensation” in 2007 included a transportation allowance ($3,000), housing allowance ($2,500), mobile phone and communications allowance ($2,000), training expenses ($2,000), personal service perquisites ($300), and utility expense reimbursement ($200).

None of our executive officers received, nor do we have any arrangements to pay out, any bonus, stock awards, option awards, non-equity incentive plan compensation, or non-qualified deferred compensation.

Grants of Plan-Based Awards

We did not make any grants of plan-based awards to our directors or named executive officers during our fiscal year-ended December 31, 2007.

 

Outstanding Equity Awards

There are no unexercised options, stock that has not vested, or equity incentive plan awards for any of our directors or named executive officers outstanding as of December 31, 2007.

 

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Option Exercises and Stock Vested

There were no exercises of stock options, SARs or similar instruments, and no vesting of stock, including restricted stock, restricted stock units and similar instruments, during the last completed fiscal year for any of our directors or named executive officers.

Pension Benefits

We currently have no plans that provide for payments or other benefits at, following, or in connection with retirement of our directors or named executive officers.

Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

We currently have no defined contribution or other plans that provide for the deferral of compensation to our directors or named executive officers on a basis that is not tax-qualified.

Potential Payments Upon Termination or Change-in-Control

Other than any employment agreements described in this prospectus, we currently have no contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to a named executive officer at, following, or in connection with any termination, including without limitation resignation, severance, retirement or a constructive termination of a named executive officer, or a change in control of the registrant or a change in the named executive officer’s responsibilities, with respect to each named executive officer.

 

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Indemnification

The Nevada Revised Statutes and our bylaws permit us to indemnify our officers and directors for liabilities they may incur, including liabilities under the Securities Act and Exchange Act. Our bylaws provide that our officers and directors may be indemnified by us in the event of third party actions, if the officer or director acted in good faith and in a manner that he or she reasonably believed was in or not against the company’s best interests, and with respect to any criminal action or proceeding, had no reason to believe that his or her actions were unlawful. Our bylaws also provide that we may provide indemnification for our officer and directors for any action by the company against such directors and officers, if the officer or director acted in good faith and in a manner that he or she reasonably believed was in or not against the company’s best interests, except no indemnification may be made for negligence or misconduct of such director’s or officer’s duties to the company, unless a court in which the matter is brought determines that in view of all the circumstance of the case, the person is fairly and reasonably entitled to indemnification. This and our bylaws’ indemnification may, however, be unenforceable as against public policy.

 

Employment Agreements

Effective at closing of the share exchange transaction described elsewhere in this prospectus, we entered into executive employment agreements with each of Mr. Shi Huashan (President and Chief Executive Officer), Ms. Wang Shu (acting Chief Financial Officer) and Mr. Chen Fuyuan (Chief Operating Officer). Each agreement provides for a yearly salary of USD $100,000 payable in monthly installments in accordance with our standard payroll practices for salaried employees. Each executive officer’s salary will be subject to adjustment pursuant to our employee compensation policies in effect from time to time. Under the terms of each of the agreements, each executive officer will be entitled to the benefits that we customarily make available to employees in comparable positions. Each officer has the right to terminate his or her employment by giving us prior notice with or without cause, and we hold an equal right. The board of directors or appropriate committee thereof, may from time to time, in its sole discretion, adjust the salaries and benefits paid to our executive officers. A copy of the employment agreements are included as exhibits to our Form 8-K filed on January 7, 2008. Beginning in 2008, we increased compensation paid to our CEO, CFO and COO from an aggregate of $120,000 in 2007 to an expected aggregate base compensation of $300,000 for 2008, and in addition we anticipate incurring increased costs as we hire additional financial and accounting staff as necessary to comply with accounting and regulatory requirements. We anticipate that these additional costs will have an impact on its 2008 financial results. In addition, please see our risk factor that reads “We will incur increased costs as a public company which may affect our profitability” on page 16 of this prospectus.

The following is a summary of the compensation to be paid under these employment agreements in the upcoming fiscal year ending December 31, 2008 to our named executive officers:

 

Summary of Compensation To Be Paid Under Employment Agreements for

Fiscal Year Ending December 31, 2008

		Annual Compensation
Name and Principal Position		Salary			Bonus (1)			Other annual compensation
Shi Huashan President, Chief Executive Officer		$	100,000			—			—
Wang Shu Chief Financial Officer		$	100,000			—			—
Chen Fuyuan Chief Operating Officer		$	100,000			—			—

 

(1)    We have no arrangements with our executive officers to pay bonuses or other annual compensation.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information regarding the beneficial ownership of our common stock as of February 11, 2008, for each of the following persons:

·

each of our directors and each of the named executive officers in the “Management” section of this prospectus;

·

all directors and named executive officers as a group; and

·

each person who is known by us to own beneficially five percent or more of our common stock.

Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated in the table, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the shareholder’s name. Unless otherwise indicated, the address of each beneficial owner listed below is c/o Dalian Precious Sheen Investments Consulting Co., Ltd., No. 9, Xin Yi Street, Ganjingzi District, Dalian City, Liaoning Province, PRC 116039. The percentage of class beneficially owned set forth below is based on 21,136,391 shares of our common stock outstanding on February 11, 2008.

		Common Stock Beneficially Owned
Named executive officers and directors:		Number of shares beneficially owned						Percentage of  class beneficially owned
Shi Huashan			14,688,948			(1)			69.5	%
Wang Shu			0						0	%
Chen Fuyuan			0						0	%
Ma Fengqin			0						0	%
Nestor Gounaris			0						0	%
Matthew Dillon			0						0	%
Wang Shuying			0						0	%
All directors and executive officers as a group (7 persons)			14,688,948						69.5	%

 

5% Shareholders:
Shine Gold Holdings Limited			10,690,668			(1)			50.6	%
Shiny Snow Holdings Limited			1,948,890			(1)			9.2	%
Smart Beat Limited			2,049,390			(1)			9.7	%
Barry Kitt			2,045,455			(2)			9.7	%

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	(1)	Shine Gold Holdings Limited, Shiny Snow Holding Limited, and Smart Beat Limited, are each companies organized under the laws of the British Virgin Islands (collectively, the “Shi Family Companies”). The registered address for the Shi Family Companies is Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands. Mr. Shi Huashan and certain of his relatives (the “Shi Family”) have entered into trust agreements with three non-PRC individuals, under which the non-PRC individuals shall hold the shares of the Shi Family Companies as trustees for the benefit of the Shi Family. The natural persons with voting power and investment power on behalf of the Shi Family Companies are (i) Chong Shun, (ii) Kuo Ching Wan Amy, and (iii) Wey Meirong, respectively (collectively, the “Trustees”). As beneficiaries of the trust arrangements, members of the Shi Family have only economic rights with respect to the shares held by the Shi Family Companies. Mr. Shi Huashan and the Shi Family hereby disclaim beneficial ownership except to the extent of their pecuniary interest in the Company shares held by the Shi Family Companies.
	(2)	Barry Kitt exercises investment discretion and control over the shares of common stock of the Company held by The Pinnacle Fund, L.P., a Texas limited partnership (“Pinnacle”) and Pinnacle China Fund, L.P., a Texas limited partnership (“Pinnacle China”). Pinnacle Advisers, L.P. (“Advisers”) is the general partner of Pinnacle. Pinnacle Fund Management, LLC (“Management”) is the general partner of Advisers. Mr. Kitt is the sole member of Management. Pinnacle China Advisers, L.P. (“China Advisers”) is the general partner of Pinnacle China. Pinnacle China Management, LLC (“China Management”) is the general partner of China Advisers. Kitt China Management, LLC (“China Manager”) is the manager of China Management. Mr. Kitt is the manager of China Manager. As of December 31, 2007, Pinnacle and Pinnacle China were the beneficial owners of 2,045,454 shares of Common Stock. Mr. Kitt may be deemed to be the beneficial owner of the shares of Common Stock beneficially owned by Pinnacle and Pinnacle China. Mr. Kitt expressly disclaims beneficial ownership of all shares of Common Stock beneficially owned by Pinnacle and Pinnacle China.

 

Equity Compensation Plan Information

 

We have not adopted any equity compensation plan as of March 31, 2008.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

In addition to the share exchange transaction described elsewhere in this prospectus, we had the following transactions, since the beginning of our last fiscal year in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years, and in which any related person had or will have a direct or indirect material interest:

Related Party Transactions of Chuming

Our current Chief Executive Officer, Mr. Shi Huashan, is also the Chief Executive Officer and a controlling beneficial shareholder of our former parent company, Dalian Chuming Group Co., Ltd. Mr. Shi devotes the majority of his time and effort to his role as our Chief Executive Officer under our employment agreement with him. A description of the executive employment agreements we have with our executives, including the employment agreement between Mr. Shi and the Company, under the heading “Employment Agreements” earlier in this prospectus. However, some portion of his time is spent on the business and affairs of Dalian Chuming Group Co., Ltd., and in his capacity as the principal executive officer, he presides over management and the day-to-day operations of Dalian Chuming Group Co., Ltd.

In the normal course of business, we conduct transactions with the following related parties, that are not consolidated into the Company or its subsidiaries: (1) Dalian Chuming Group Co., Ltd., also referred to this report as the “Group”, and the Group’s subsidiaries: (2) Dalian Chuming Industrial Development Co., Ltd., (3) Dalian Chuming Trading Co., Ltd, (4) Dalian Mingxing Livestock Product Co. Ltd., (5) Dalian Chuming Stockbreeding Combo Development Co., Ltd., (6) Dalian Chuming Fodder Co., Ltd., (7) Dalian Chuming Biological Technology Co., Ltd., and (8) Dalian Huayu Seafood Food Co., Ltd. The Company and the aforementioned related parties share common beneficial ownership. All related party transactions are conducted between Chuming WFOE and the Group. All transactions with related parties are generally performed at arm’s length, and in 2007, all such transactions were conducted at arm’s length.

Due to the non-exclusive roles of Mr. Shi as our CEO and the principal executive officer of the Group, with whom we conduct business from time to time, potential conflicts of interest may arise. In particular, situations might arise in which we transact business with the Group, and certain terms of agreements might be favorable to us, but conversely unfavorable to the Group, and vice versa. In order to effectively handle such conflict of interest scenarios, our management intends to submit all related party transactions to our independent board of directors, or appropriate committee of the board, for review and approval.

The “Chuming” trademark and rights to the “Huayu” trademark application in the PRC are owned by Dalian Chuming Industry Development Co., Ltd., a subsidiary of the Group. We have been granted a perpetual fully paid up license to use both of these trademarks in connection with our business, under two trademark agreements with Dalian Chuming Industry Development Co., Ltd.

 

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On December 17, 2007, we entered into a Long-Term Hog Procurement Agreement with the Group, our former parent. This agreement specifies that the Group should supply no less than 750,000 live hogs to Chuming in 2008, 800,000 in 2009, and 800,000 in 2010, and the price for the hogs is at the fair market price at the time of acquisition.

 

At December 31, 2007 the Company had the following short term loans outstanding:

Bank		Interest Rate			Due Date			Amount
Bank of China			8.02	%		11/17/2008		$	1,914,111
Shanghai Pudong Development Bank			7.65	%		7/1/2008			5,468,984
								$	7,383,095

 

The loan provided by the Bank of China is secured by the Meat Company’s land use rights, which have been appraised at a fair market value of $5,605,611 (RMB 41,000,000). The Shanghai Pudong Development Bank loan has been guaranteed by the Group.

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

At December 31, 2007, we repaid the debt in its entirety to the Group by setting off receivables owed by the Group to us. We repaid the loan in order to meet the requirements of the equity financing transaction detailed in Note 18 of our financial statements included in this prospectus. The balances are now owed by the Group to the Banks, and liability for paying the bonding insurance annually lies with the Group. The pledged collateral of land use rights and buildings made to the Bond Issuer still underlie the loan currently owed by the Group, and as such, our assets, namely the buildings and land use rights are at risk if the Group were to default on this loan.

 

Related Party Transactions Prior to Change in Control

Set forth below are the related party transactions that took place since December 31, 2006, but prior to our change in control on December 31, 2007, between our shareholders, officers and/or directors, and us.

 

A shareholder, Jenson Services, paid $3,193 of the Company’s operating expenses during the three months ended March 31, 2007 resulting in total accrued “loans from stockholders” of $25,871.  The total $25,871 has been paid by Jenson Services and was payable to Jenson Services as of March 31, 2007.  

 

On May 3, 2007, Energroup, along with its then-current directors and executive officers, entered into a stock purchase agreement with Halter Financial Investments, L.P., a Texas limited partnership (“HFI”), pursuant to which Energroup agreed to sell to HFI 11,200,000 pre-reverse split shares (approximately 1,600,000 post-reverse split shares) of unregistered, restricted common stock for $350,000 cash. This transaction closed on May 22, 2007. In conjunction with this stock purchase agreement, on May 3, 2007, certain of Energroup’s then-principal shareholders, as a condition of the closing of the stock purchase agreement surrendered and cancelled 1,350,000 then-issued and outstanding shares of Energroup common stock. These shares were surrendered as follows: Jenson Services, Inc., which then owned 2,480,500 pre-reverse split shares (approximately 354,290 post-reverse split shares) (or approximately 68% of our then-outstanding voting securities) delivered 375,000 of its pre-reverse split shares (approximately 53,572 post-reverse split shares) for cancellation; James P. Doolin, which then owned 475,000 pre-reverse split shares (approximately 67,858 post-reverse split shares) (or approximately 13% of our then-outstanding voting securities) delivered 475,000 pre-reverse split shares (approximately 67,858 post-reverse split shares) for cancellation; and his sister, Alycia Anthony, which then owned 500,000 pre-reverse split shares (approximately 71,429 post-reverse split shares (or approximately 14% of our then-outstanding voting securities) delivered 500,000 pre-reverse split shares (approximately 71,429 post-reverse split shares) for cancellation. All of these cancelled shares were returned to the status of authorized and unissued shares of Energroup. No consideration was given by Energroup in the cancellation of these shares. The effect of the share cancellations was to reduce the carrying par value of shares surrendered and a corresponding increase to additional paid-in capital.

Under the terms of the stock purchase agreement, on May 3, 2007, the board of directors of Energroup at the time declared a special cash distribution of $0.1219 per share to shareholders of record as of May 17, 2007, the record date for the special cash distribution. Neither HFI nor the shares surrendered by Jenson Services or James P. Doolin or Alycia Anthony participated in the special cash distribution. The special cash distribution was paid on May 29, 2007, to shareholders of record on the record date, subject to the closing of the stock purchase agreement. The special cash distribution was paid to the holders of an aggregate 2,297,421 pre-reverse split shares of Energroup’s common stock, after giving effect to the cancellation of 1,350,000 pre-reverse split shares discussed above, which resulted in a total cash distribution of approximately $280,000. The special cash distribution was a condition of the closing of the stock purchase agreement.

 

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Further, the stock purchase agreement contained covenants that required HFI, in its capacity as Energroup’s controlling shareholder following closing of the stock purchase agreement, to agree that it will not approve any reverse splits other than a one-time reverse split of not greater than 1-for-7 without the prior consent of Energroup’s former officers as representatives of Energroup’s continuing shareholders; that it will not authorize the issuance of any additional shares of common stock or securities convertible into shares of common stock except in connection with a combination transaction with a corporation with current business operations (a “Going Public Transaction”); and that it will not allow Energroup to enter into a Going Public Transaction unless Energroup, on a combined basis with the operating entity with which it completes a Going Public Transaction, satisfies the financial conditions for listing on the Nasdaq Small-Cap Market (now Nasdaq Capital Market) immediately following the closing of the Going Public Transaction. These conditions were deemed satisfied by HFI prior to the share exchange transaction of December 31, 2007. The stock purchase agreement also grants demand and “piggy back” registration rights to HFI and to any continuing holders of Energroup’s common stock that are deemed to be holding “restricted securities.”

As at the date of this prospectus, we do not have any policies in place with respect to whether we will enter into agreements with related parties in the future.

DESCRIPTION OF SECURITIES

The following information describes our capital stock and provisions of our articles of incorporation and our bylaws, all as in effect upon the closing of the share exchange transaction. This description is only a summary. You should also refer to our articles of incorporation, bylaws and articles of amendment which have been incorporated by reference or filed with the SEC as exhibits to the registration statement on Form S-1 of which this prospectus forms a part.

General

On December 14, 2007, we conducted a 4.6 to 1 reverse stock split, which resulted in the reduction of our outstanding common stock from 1,943,812 to 422,756 shares. In the December 31, 2007 share exchange transaction, we issued a total of 16,850,000 shares, which increased our outstanding shares of common stock to 17,272,756. In the concurrent Financing on December 31, 2007, we issued an additional 3,863,635 shares of common stock, bringing our total number of outstanding shares to 21,136,391 shares of common stock. We currently are authorized to issue up to 21,739,130 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share. As of February 11, 2008, there were 21,136,391 shares of common stock issued and outstanding, and no shares of preferred stock issued or outstanding.

 

Common Stock

Holders of common stock are entitled to one vote for each share on all matters submitted to a shareholder vote. Holders of common stock do not have cumulative voting rights. Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up, subject to preferences that may be applicable to any then-outstanding preferred stock, each outstanding share entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.

Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is authorized and issued. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.

 

Preferred Stock

Our board of directors, without further shareholder approval, may issue preferred stock in one or more classes or series as the board may determine from time to time. Each such class or series shall be distinctly designated. All shares of any one class or series of the preferred stock shall be alike in every particular, except that there may be different dates from which dividends thereon, if any, shall be cumulative, if made cumulative. The voting powers, designations, preferences, limitations, restrictions and relative rights thereof, if any, may differ from those of any and all other series outstanding at any time. Our board of directors has express authority to fix (by resolutions adopted prior to the issuance of any shares of each particular class or series of preferred stock) the number of shares, voting powers, designations, preferences, limitations, restrictions and relative rights of each such class or series. The rights granted to the holders of any series of preferred stock could adversely affect the voting power of the holders of common stock and issuance of preferred stock may delay, defer or prevent a change in our control.

Registration Rights

We have agreed to undertake to file this prospectus and related registration statement to register the common stock issued to the investors in the Financing. In the event that the registration statement is not declared effective by the SEC within 135 days of the closing of the Financing, we will also owe liquidated damages to the investors of 1% of the total financing amount in cash per month after the 135 day period. The liquidated damages payable to the investors in the event of non-registration or late effectiveness is subject to a cap of 10% of the total financing amount.

 

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Registration of these shares of common stock upon exercise of these registration rights would result in the holders being able to trade these shares without restriction under the Securities Act once the applicable registration statement is declared effective. We will pay all registration expenses related to any registration. Non-registration penalties do not apply when the holder can sell all of the holder’s shares pursuant to Rule 144(k) under the Securities Act.

Market Price of and Dividends on Common Equity and Related Shareholder Matters

Our common stock is not listed on any stock exchange. Our common stock is traded over-the-counter on the OTC Bulletin Board under the symbol “ENHD.OB”. The following table sets forth the high and low bid information for our common stock for each quarter within our last three fiscal years and subsequent interim periods, as reported by the OTC Bulletin Board. The bid prices reflect inter-dealer quotations, do not include retail markups, markdowns or commissions and do not necessarily reflect actual transactions.

 

		Low			High
2008 (1)
Quarter ended March 31, 2008		$	5.00		$	53.00

 

2007 (1)
Quarter ended December 31, 2007		$	53.00		$	53.00
Quarter ended September 30, 2007		$	4.65		$	4.65
Quarter ended June 30, 2007		$	4.65		$	4.65
Quarter ended March 31, 2007		$	4.65		$	4.65

 

2006
Quarter ended December 31, 2006		$	0.30		$	0.30
Quarter ended September 30, 2006		$	0.30		$	0.30
Quarter ended June 30, 2006		$	0.30		$	1.01
Quarter ended March 31, 2006		$	0.30		$	1.01

 

2005
Quarter ended December 31, 2005		$	0.50		$	0.50
Quarter ended September 30, 2005		$	0.25		$	0.50
Quarter ended June 30, 2005		$	0.05		$	0.025
Quarter ended March 31, 2005			n/a			n/a

(1)	Adjusted for reverse stock split effective on December 14, 2007.

 

The last reported closing sales price for shares of our common stock was $5.00 per share on the Over-The-Counter Bulletin Board on March 5, 2008.

Holders

As of February 11, 2008, there were approximately 160 shareholders of record of our common stock based upon the shareholders’ listing provided by our transfer agent.

 

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Transfer Agent

Our transfer agent is Western States Transfer and Registrar, Inc., and its telephone number is (801) 523-1547. Our transfer agent's address is 1911 Ryan Park Avenune, Sandy, Utah 84092.

 

DIVIDENDS

On May 3, 2007, prior to the share exchange transaction with PSI and its shareholders, Energroup, along with its then-current directors and executive officers, entered into a stock purchase agreement with Halter Financial Investments, L.P., a Texas limited partnership (“HFI”), pursuant to which we agreed to sell to HFI 11,200,000 pre-reverse split shares (approximately 1,600,000 post-reverse split shares) of unregistered, restricted common stock for $350,000 cash. This transaction closed on May 22, 2007. In conjunction with this stock purchase agreement, on May 3, 2007, certain of our then-principal shareholders, as a condition of the closing of the stock purchase agreement surrendered and cancelled 1,350,000 then-issued and outstanding shares of our common stock. These shares were surrendered as follows: Jenson Services, Inc., which then owned 2,480,500 pre-reverse split shares (approximately 354,290 post-reverse split shares) (or approximately 68% of our then-outstanding voting securities) delivered 375,000 of its pre-reverse split shares (approximately 53,572 post-reverse split shares) for cancellation; James P. Doolin, which then owned 475,000 pre-reverse split shares (approximately 67,858 post-reverse split shares) (or approximately 13% of our then-outstanding voting securities) delivered 475,000 pre-reverse split shares (approximately 67,858 post-reverse split shares) for cancellation; and his sister, Alycia Anthony, which then owned 500,000 pre-reverse split shares (approximately 71,429 post-reverse split shares (or approximately 14% of our then-outstanding voting securities) delivered 500,000 pre-reverse split shares (approximately 71,429 post-reverse split shares) for cancellation. All of these cancelled shares were returned to the status of authorized and unissued shares. No consideration was given by us in the cancellation of these shares. The effect of the share cancellations was to reduce the carrying par value of shares surrendered and a corresponding increase to additional paid-in capital.

 

Under the terms of the stock purchase agreement, on May 3, 2007, the then-current board of directors of Energroup declared a special cash distribution of $0.1219 per share to its shareholders of record as of May 17, 2007, the record date for the special cash distribution. Neither HFI or the shares surrendered by Jenson Services or James P. Doolin or Alycia Anthony participated in the special cash distribution. The special cash distribution was paid on May 29, 2007, to shareholders of record on the record date, subject to the closing of the stock purchase agreement. The special cash distribution was paid to the holders of an aggregate 2,297,421 pre-reverse split shares of our common stock, after giving effect to the cancellation of 1,350,000 pre-reverse split shares discussed above, which resulted in a total cash distribution of approximately $280,000. The special cash distribution was a condition of the closing of the stock purchase agreement.

Except for the special cash distribution described above, we have never paid cash dividends on our common stock. Since the reverse take-over transaction on December 31, 2007, we have not declared or paid any dividends.

We intend to keep future earnings, if any, to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Our future payment of dividends will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors that our board of directors may deem relevant. Our retained earnings deficit currently limits our ability to pay dividends.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been little or no active market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, because the trading volume of our shares is relatively low, sales of substantial amounts of our common stock in the public market after the restrictions lapse could adversely affect the prevailing market price or our shares, and may limit our ability to raise equity capital in the future. When a registration statement is declared effective by the SEC (referred to as the “effective date”) covering the underlying shares of common stock, these shares, when issued, will be freely tradable without restriction under the Securities Act, unless purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act (generally, officers, directors or 10% stockholders). See “ Description of Securities - Registration Rights” for additional information.

 

Assuming full registration of the shares covered by this prospectus, management estimates that approximately 13.4 million shares (or approximately 64%) of our common stock outstanding will be “restricted securities” within the meaning of Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted securities in the public market, or the availability of such shares for sale, could adversely affect the market price of the common stock.

 

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In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of our Company for at least six months would be entitled to sell such shares without regard to volume limitations, manner of sale restrictions or Form 144 notice requirements, so long as current public information about us is available. Under Rule 144(k), a person who is not deemed to have been an affiliate of us at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least one year, is entitled to sell such shares even if current public information about us is not available. Any person who is deemed to be an affiliate of us can begin selling restricted shares of our Company after six months, subject to volume limitations, manner of sale restrictions and current public information requirements. Our affiliates will not have to file a Form 144 unless the transaction is for at least 5,000 shares or $50,000.

 

Beginning 90 days after the effective date of our registration statement for the shares in this prospectus, any employee, officer or director of or consultant to us who purchases shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701 (if such plans are instituted and any plan shares are outstanding at that time). Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. In addition, we may in the future, file registration statements under the Securities Act to register shares to be issued pursuant to employee benefit plans. As a result, any options exercised under any benefit plans after the effectiveness of such registration statement will also be freely tradable in the public market, except that shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144 unless otherwise resalable under Rule 701. As of September 30, 2007, we had no outstanding options.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

Prior to our reverse take-over transaction and $17 million Financing, when we were a pubic reporting shell company, MantylaMcReynolds LLC   (“McReynolds”) served as our auditor of record. McReynolds resigned as the independent auditor of Energroup effective February 6, 2008. McReynolds served as Energroup’s independent auditors for the fiscal years ended December 31, 1999 thru December 31, 2006, and the interim periods during 2007.

McReynolds’ report on our financial statements for the two most recent fiscal years did not contain any adverse opinions or disclaimers of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except for a going concern opinion expressing substantial doubt about the ability of Energroup to continue as a going concern with respect to Energroup in 2006, during which time Energroup was a “shell company” under Rule 12b-2 of the Exchange Act.

During our two most recent fiscal years and the interim periods through February 6, 2008, there were no disagreements with McReynolds on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of McReynolds would have caused them to make reference to this subject matter of the disagreements in connection with their report, nor were there any “reportable events” as such term is described in Item 304(a)(1)(iv) of Regulation S-B.

Also on February 6, 2008, we engaged Samuel H. Wong & Co., LLP (“Wong & Co.”) as our outside independent accounting firm. This action has also been approved by our board of directors. During our two most recent fiscal years and any subsequent interim period prior to the engagement of Wong & Co., neither we nor anyone on our behalf consulted with Wong & Co., regarding either (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a “disagreement” or a “reportable event.”

LEGAL MATTERS

 

Richardson & Patel LLP has rendered an opinion regarding the legality of the issuance of the shares of common stock being registered in this prospectus.

 

EXPERTS

Our consolidated financial statements for each of the twelve month periods ending December 31, 2007, 2006, 2005 and 2004 have been audited by our independent auditor, Samuel H. Wong & Co., LLP, certified public accountants registered with the Public Company Accounting Oversight Board, which firm also reviewed our interim consolidated financial statements for the three months ending March 31, 2008, as set forth in their report. We have included our consolidated financial statements in this prospectus in reliance on the report of the above-named independent auditor, given upon their authority as experts in accounting and auditing.

 

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

 

Securities and Exchange Commission registration fee		$	2,278
Printing and engraving expenses		$	3,000
Blue Sky fees and expenses		$	5,000
Legal fees and expenses		$	45,000
Accounting fees and expenses		$	30,000
Miscellaneous		$	10,000
Total		$	95,278

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Indemnification Under Nevada Law

Nevada law generally permits us to indemnify our directors, officers and employees. Pursuant to the provisions of Nevada Revised Statutes 78.7502, a corporation may indemnify its directors, officers and employees as follows:

(a)  A corporation may indemnify any person who was or is a party or is threatened to be made a party to any action, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, against expenses, actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable for breach of his fiduciary duties as a director or officer pursuant to Nevada Revised Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

(b)  A corporation may indemnify any person who was or is a party or is threatened to be made a party to any action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation against expenses actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable for breach of his fiduciary duties pursuant to Nevada Revised Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

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(c) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.

Charter Provisions and Other Arrangements of the Registrant

Article VII of our articles of incorporation provides for the indemnification of any and all persons who serve as our director or officer to the fullest extent permitted under Nevada law. We do not currently carry directors’ and officers’ liability insurance covering our directors and officers, however, we are considering obtaining such insurance coverage from an internationally recognized underwriter with terms of coverage appropriate for a company of our size and nature.

 

Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers, or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

 

The following is a summary of our transactions during the last three years involving sales of our securities that were not registered under the Securities Act:

On December 31, 2007, we entered into a Share Exchange Agreement (the “Exchange Agreement”) with Precious Sheen Investments Limited, a British Virgin Islands company (“PSI”) and all of the shareholders of PSI’s issued and outstanding share capital (the “PSI Shareholders”). Pursuant to the Exchange Agreement, we agreed to issue 16,850,000 shares of our common stock to the PSI Shareholders in exchange for 100% of the capital stock of PSI. The issuance of the common stock to the PSI Shareholders pursuant to the Exchange Agreement was exempt from registration under the Securities Act pursuant to Section 4(2) and Regulation D thereof. We made this determination based on the representations of the PSI Shareholders which included, in pertinent part, that such shareholders were “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, and that such shareholders were acquiring our common stock, for investment purposes for their own respective accounts and not as nominees or agents, and not with a view to the resale or distribution thereof, and that each member understood that the shares of our common stock may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

On December 31, 2007, in connection with the Exchange Agreement, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which we agreed to issue and sell 3,863,635 shares of our common stock to fifteen accredited investors for an aggregate purchase price of $17,000,000, or $4.40 per share (the “Financing”). The issuance of the common stock to the fifteen investors pursuant to the Purchase Agreement was exempt from registration under the Securities Act pursuant to Section 4(2) and Regulation D thereof. We made this determination based on the representations of the fifteen investors which included, in pertinent part, that such investors were “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, and that such investors were acquiring our common stock, for investment purposes for their own respective accounts and not as nominees or agents, and not with a view to the resale or distribution thereof, and that each member understood that the shares of our common stock may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption. We also issued a warrant to the placement agent for the purchase of 386,364 shares of the Company’s common stock at an exercise price of $4.40 per share.

 

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On May 3, 2007, prior to the reverse take-over transaction, Energroup, along with its then-current directors and executive officers, entered into a stock purchase agreement with Halter Financial Investments, L.P., a Texas limited partnership (“HFI”), pursuant to which Energroup agreed to sell to HFI 11,200,000 pre-reverse split shares (approximately 1,600,000 post-reverse split shares) of unregistered, restricted common stock for $350,000 cash. This transaction closed on May 22, 2007. The issuance of the common stock to HFI pursuant to the stock purchase agreement was exempt from registration under the Securities Act pursuant to Section 4(2) and/or Regulation D thereof. Energroup made this determination based on the representations of the HFI in the stock purchase agreement which included, in pertinent part, that such HFI was an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, and that such shareholder was acquiring our common stock, for investment purposes for their own respective accounts and not as nominees or agents, and not with a view to the resale or distribution thereof, and that each member understood that the shares of our common stock may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

On or about March 12, 2007, Energroup authorized the issuance of 5,462 shares of common stock in reconciliation of transfer records. Energroup received a General Release in conjunction with the issuance. Energroup completed the issuance because it believed the acquirer may be defined as a “Protected Purchaser” under Section 70A-8-303 of the Utah Code Annotated and Article 8 of the Uniform Commercial Code. These shares were issued because processing of a reverse stock split was inadvertently omitted for a share certificate representing 5,750 shares of common stock, which after proper adjustment, should have been reverse split to 288 shares (a difference of 5,462 shares). Bona fide purchasers bought the shares without knowledge that the shares were subject to a reverse stock split. Under Utah law (the jurisdiction in which the Company was then incorporated), “protected purchasers” are persons who acquire securities for value without notice of any adverse claim and who obtain control of a certificated or uncertificated security. In order to reconcile its share register, Energroup treated the error as the resale of 288 shares, plus the issuance of an additional 5,462 shares to the bona fide purchasers. Energroup relied upon Section 4(2) of the Securities Act, as the reconciliation shares issued in order to correct the error were issued in a transaction by the issuer not involving a public offering. The Company notes that no monetary consideration was received by the Company in connection with the issuance of these reconciliation shares.

Except as stated above, we have had no recent sales of unregistered securities within the past three fiscal years. There were no underwritten offerings employed in connection with any of the transactions described above.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

ITEM 17. UNDERTAKINGS

 

(a)   The undersigned registrant hereby undertakes:

I.   To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

(a)   Include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(b)   Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and

(c)   Include any additional or changed material information on the plan of distribution.

II.   For the purposes of determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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III.   File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of offering.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of this issue.

 

In addition, the undersigned registrant hereby undertakes that:

 

1.

For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective, and

 

2.

For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of these securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, on May 27, 2008.

 

	ENERGROUP HOLDINGS CORPORATION
	By:	/s/ Shi Huashan
		Shi Huashan Chairman and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Wang Shu
		Wang Shu Chief Financial Officer (Principal Financial and Accounting Officer)

 

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Shi Huashan, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, or any related registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and any other regulatory authority, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:

 

Signature		Title		Date
/s/ Shi Huashan		President, Chief Executive Officer,		May 27, 2008
Shi Huashan		and Chairman of the Board
		(Principal Executive Officer)
/s/ Wang Shu		Chief Financial Officer and Director		May 27, 2008
Wang Shu		(Principal Financial Officer)
/s/ Chen Fuyuan		Chief Operating Officer		May 27, 2008
Chen Fuyuan
/s/ Ma Fengqin		Vice President and Director		May 27, 2008
Ma Fengqin
/s/ Wang Shuying		Director		May 27, 2008
Wang Shuying
		Director		May 27, 2008
Matthew Dillon
		Director		May 27, 2008
Nestor Gounaris
		Director		May 27, 2008
James Boyle

 

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Exhibit Number		Description
2.1		Share Exchange Agreement by and among the Company, PSI and PSI Shareholders dated December 2007 (1)
2.2		Articles and Plan of Merger (change in domicile from Utah to Nevada) (2)

 

3.1		Articles of Incorporation of  Energroup Holdings Corporation (4)
3.2		Bylaws of Energroup Holdings Corporation (4)
3.3		Articles of Amendment to Articles of Incorporation of  Energroup Holdings Corporation (4)

 

3.4		Articles of Amendment to Articles of Incorporation of Energroup Technologies, Inc. (Reverse Split) (2)
3.5		Articles of Incorporation of Energroup Holdings Corporation (2)
3.6		Certificate of Amendment to Articles of Incorporation of Energroup Holdings Corporation (Reverse Split) (3)
4.1		Registration Rights Agreement dated December 2007 among Energroup and the investors signatory thereto (1)
4.2		Form of Common Stock Purchase Warrant issued to Placement Agent (December 2007) (1)

 

5.1

Opinion of Richardson & Patel LLP (4)

 

10.1		Lockup Agreement dated December 2007 among Energroup and the Shareholders signatory thereto (1)
10.2		Executive Employment Agreement dated December 2007 between Energroup and Mr. Shi Huashan (1)
10.3		Executive Employment Agreement dated December 2007 between Energroup and Ms. Wang Shu (1)
10.4		Executive Employment Agreement dated December 2007 between Energroup and Mr. Chen Fuyuan (1)
10.5		Long-Term Hog Procurement Agreement dated December 17,2007 between Dalian Chuming Group Co., Ltd. and Dalian Chuming Slaughter and Packaging Pork Company, Ltd. (1)

 

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10.6		Trademark License Contract (Chuming) dated December 2007 (English translation) (1)
10.7		Trademark License Contract (Huayu) dated December 2007 (English translation) (1)
10.8		Securities Purchase Agreement dated December 2007 among Energroup, PSI, Chuming, and the investors signatory thereto (1)
10.9		Make Good Escrow Agreement dated December 2007 among Energroup, Make Good Pledgor, Escrow Agent and the investors signatory thereto (1)
10.10		Holdback Escrow Agreement dated December 2007 among Energroup, Escrow Agent and the investors signatory thereto (1)
17.1		Letter of Resignation from Mr. Timothy Halter to the board of directors (1)

 

21.1

List of Subsidiaries (4)

 

23.1

Consent of Samuel H. Wong & Co., LLP, Certified Public Accountants*

 

24.1

Power of Attorney (included as part of the signature pages to this registration statement)

 

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* Filed herewith.

(1) Previously filed with our Current Report on Form 8-K on January 7, 2008 and incorporated herein by reference

(2) Previously filed with our Current Report on Form 8-K on August 22, 2007 and incorporated herein by reference.

(3) Previously filed with our Current Report on Form 8-K on December 14, 2007 and incorporated herein by reference.

(4) Previously filed with our Registration Statement on Form S-1 filed on February 11, 2008, and incorporated herein by reference.

 

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