Energroup
Holdings Corporation
Consolidated
Balance Sheets
At
December 31, 2008, 2007, and 2006
(Stated
in US Dollars)
|
|
Notes
|
|
|
At
|
|
|
At
|
|
|
At
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
ASSETS
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
2
(D)
|
|
$
|
5,695,798
|
|
|
$
|
14,031,851
|
|
|
$
|
3,075,787
|
|
Restricted
Cash
|
|
|
3
|
|
|
|
2,177,091
|
|
|
|
4,250,000
|
|
|
|
-
|
|
Accounts
Receivable
|
|
|
2
(E)
,4
|
|
|
18,661,065
|
|
|
|
622,433
|
|
|
|
1,798,397
|
|
Other
Receivable
|
|
|
|
|
|
|
2,162,412
|
|
|
|
1,068,939
|
|
|
|
679,019
|
|
Related
Party Receivable
|
|
|
5
|
|
|
|
10,919,777
|
|
|
|
3,964,357
|
|
|
|
13,148,788
|
|
Inventory
|
|
|
2
(F)
,6
|
|
|
6,051,109
|
|
|
|
2,916,016
|
|
|
|
2,385,447
|
|
Advance
to Suppliers
|
|
|
2(G)
|
|
|
1,453,861
|
|
|
|
267,807
|
|
|
|
1,110,449
|
|
Prepaid
Expenses
|
|
|
|
|
|
|
62,734
|
|
|
|
46,401
|
|
|
|
90,913
|
|
Prepaid
Taxes
|
|
|
|
|
|
|
334,413
|
|
|
|
185,319
|
|
|
|
-
|
|
Deferred
Tax Asset
|
|
|
2
(Q)
|
|
|
643,609
|
|
|
|
613,844
|
|
|
|
574,316
|
|
Total
Current Assets
|
|
|
|
|
|
|
48,161,869
|
|
|
|
27,966,967
|
|
|
|
22,863,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant & Equipment,
net
|
|
|
2
(H)
,7
|
|
|
25,794,151
|
|
|
|
24,836,496
|
|
|
|
20,875,462
|
|
Land
Use Rights,
net
|
|
|
2
(I)
,8
|
|
|
13,430,435
|
|
|
|
12,855,980
|
|
|
|
8,911,119
|
|
Construction
in Progress
|
|
|
2
(J)
|
|
|
3,262,146
|
|
|
|
927,866
|
|
|
|
4,165,407
|
|
Other
Assets
|
|
|
|
|
|
|
34,807
|
|
|
|
32,619
|
|
|
|
30,519
|
|
Total
Assets
|
|
|
|
|
|
$
|
90,683,408
|
|
|
$
|
66,619,928
|
|
|
$
|
56,845,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Loans
|
|
|
9
(A)
|
|
$
|
6,419,422
|
|
|
$
|
7,383,095
|
|
|
$
|
6,971,538
|
|
Accounts
Payable
|
|
|
|
|
|
|
7,695,208
|
|
|
|
3,779,274
|
|
|
|
4,207,992
|
|
Taxes
Payable
|
|
|
|
|
|
|
2,341,971
|
|
|
|
1,677,194
|
|
|
|
2,259,465
|
|
Other
Payable
|
|
|
|
|
|
|
2,318,142
|
|
|
|
1,471,381
|
|
|
|
1,362,607
|
|
Accrued
Liabilities
|
|
|
|
|
|
|
1,724,266
|
|
|
|
3,347,013
|
|
|
|
912,707
|
|
Customer
Deposits
|
|
|
2
(L)
|
|
|
3,258,752
|
|
|
|
24,161
|
|
|
|
1,049,212
|
|
Related
Party Payable
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
Current Liabilities
|
|
|
|
|
|
|
23,757,761
|
|
|
|
17,682,118
|
|
|
|
16,763,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Loans
|
|
|
9
(B)
|
|
|
-
|
|
|
|
-
|
|
|
|
17,908,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
|
|
|
$
|
23,757,761
|
|
|
$
|
17,682,118
|
|
|
$
|
34,672,060
|
|
See Notes
to Financial Statements and Accountant’s Report
Energroup
Holdings Corporation
Consolidated
Balance Sheets
At
December 31, 2008, 2007, and 2006
(Stated
in US Dollars)
|
|
|
At
|
|
|
At
|
|
|
At
|
|
|
Notes
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Stockholders' Equity
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock - $0.001 Par Value 10,000,000 Shares Authorized; 0 Shares Issued
& Outstanding at December 31, 2008, 2007, and 2006,
respectively.
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Common
Stock - $0.001 Par Value 21,739,130 Shares Authorized; 21,136,392 Shares
Issued & Outstanding at December 31, 2008 and 2007, and 17,272,756
Shares Issued & Outstanding at December 31, 2006.
|
10
|
|
|
21,137
|
|
|
|
21,137
|
|
|
|
17,273
|
|
Additional
Paid in Capital
|
|
|
|
26,062,337
|
|
|
|
15,440,043
|
|
|
|
2,396,079
|
|
Statutory
Reserve
|
2
(M),
11
|
|
|
2,077,488
|
|
|
|
751,444
|
|
|
|
751,444
|
|
Retained
Earnings
|
|
|
|
35,275,457
|
|
|
|
29,764,236
|
|
|
|
18,112,089
|
|
Accumulated
Other Comprehensive Income
|
2
(N)
|
|
|
3,489,228
|
|
|
|
2,960,951
|
|
|
|
896,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
|
66,925,647
|
|
|
|
48,937,811
|
|
|
|
22,173,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities & Stockholders' Equity
|
|
|
$
|
90,683,408
|
|
|
$
|
66,619,928
|
|
|
$
|
56,845,623
|
|
See Notes
to Financial Statements and Accountant’s Report
Energroup
Holdings Corporation
Consolidated
Statements of Operations
For
the years ended December 31, 2008, 2007, and 2006
(Stated
in US Dollars)
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
|
year ended
|
|
|
year ended
|
|
|
year ended
|
|
|
Note
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Sales
|
2
(O)
|
|
$
|
176,360,013
|
|
|
$
|
124,696,036
|
|
|
$
|
70,396,439
|
|
Cost
of Sales
|
2
(P)
|
|
|
149,794,249
|
|
|
|
104,378,909
|
|
|
|
57,794,853
|
|
Gross
Profit
|
|
|
|
26,565,764
|
|
|
|
20,317,127
|
|
|
|
12,601,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
Expenses
|
2
(Q)
|
|
|
5,147,366
|
|
|
|
4,672,862
|
|
|
|
1,556,805
|
|
General
& Administrative Expenses
|
2
(R)
|
|
|
2,675,661
|
|
|
|
1,572,836
|
|
|
|
1,334,866
|
|
Total
Operating Expense
|
|
|
|
7,823,027
|
|
|
|
6,245,698
|
|
|
|
2,891,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income/(Loss)
|
|
|
|
18,742,737
|
|
|
|
14,071,429
|
|
|
|
9,709,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
|
5,780
|
|
|
|
114,496
|
|
|
|
-
|
|
Interest
Income
|
|
|
|
284,774
|
|
|
|
-
|
|
|
|
147
|
|
Other
Expenses
|
|
|
|
(100,183
|
)
|
|
|
(90,508
|
)
|
|
|
(126,098
|
)
|
Interest
Expense
|
|
|
|
(953,460
|
)
|
|
|
(1,475,730
|
)
|
|
|
(1,457,204
|
)
|
Release
of Escrowed Make Good Shares
|
|
|
|
(10,622,294
|
)
|
|
|
-
|
|
|
|
-
|
|
Total
Other Income (Loss) and Expense
|
|
|
|
(11,385,383
|
)
|
|
|
(1,451,742
|
)
|
|
|
(1,583,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before Tax
|
|
|
|
7,357,354
|
|
|
|
12,619,687
|
|
|
|
8,126,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income
Tax Expense)/Deferred Tax Benefit
|
2
(V)
,13
|
|
|
(520,089
|
)
|
|
|
(967,540
|
)
|
|
|
1,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
$
|
6,837,265
|
|
|
$
|
11,652,147
|
|
|
$
|
8,128,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share
|
2(Z),16
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
$
|
0.40
|
|
|
$
|
0.87
|
|
|
$
|
0.61
|
|
- Diluted
|
|
|
$
|
0.32
|
|
|
$
|
0.67
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
|
17,272,756
|
|
|
|
13,409,120
|
|
|
|
13,409,120
|
|
- Diluted
|
|
|
|
21,182,756
|
|
|
|
17,272,756
|
|
|
|
17,272,756
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
|
year ended
|
|
|
year ended
|
|
|
year ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Accumulated
|
|
Comprehensive Income
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Totals
|
|
Net
Income
|
|
$
|
6,837,265
|
|
|
$
|
11,652,147
|
|
|
$
|
8,128,371
|
|
|
|
26,617,783
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation Adjustment
|
|
|
528,277
|
|
|
|
2,064,272
|
|
|
|
610,696
|
|
|
|
3,203,245
|
|
|
|
$
|
7,365,542
|
|
|
$
|
13,716,419
|
|
|
$
|
8,739,067
|
|
|
$
|
29,821,028
|
|
See Notes
to Financial Statements and Accountant’s Report
Energroup
Holdings Corporation
Consolidated
Statements of Changes in Stockholders’ Equity
For
the years ended December 31, 2008, 2007, and 2006
(Stated
in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Paid in
|
|
|
Statutory
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
Reserve
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
Balance,
January 1, 2006
|
|
|
17,272,756
|
|
|
$
|
17,273
|
|
|
$
|
2,396,079
|
|
|
$
|
72,508
|
|
|
$
|
10,662,654
|
|
|
$
|
285,983
|
|
|
$
|
13,434,497
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,128,371
|
|
|
|
|
|
|
|
8,128,371
|
|
Appropriations
of Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
678,936
|
|
|
|
(678,936
|
)
|
|
|
|
|
|
|
-
|
|
Foreign
Currency Translation Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
610,696
|
|
|
|
610,696
|
|
Balance,
December 31, 2006
|
|
|
17,272,756
|
|
|
$
|
17,273
|
|
|
$
|
2,396,079
|
|
|
$
|
751,444
|
|
|
$
|
18,112,089
|
|
|
$
|
896,679
|
|
|
$
|
22,173,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
17,272,756
|
|
|
$
|
17,273
|
|
|
$
|
2,396,079
|
|
|
$
|
751,444
|
|
|
$
|
18,112,089
|
|
|
$
|
896,679
|
|
|
$
|
22,173,564
|
|
Issuance
of Common Stock & Warrants
|
|
|
3,863,636
|
|
|
|
3,864
|
|
|
|
13,043,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,047,828
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,652,147
|
|
|
|
|
|
|
|
11,652,147
|
|
Appropriations
of Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Foreign
Currency Translation Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,064,272
|
|
|
|
2,064,272
|
|
Balance,
December 31, 2007
|
|
|
21,136,392
|
|
|
$
|
21,137
|
|
|
$
|
15,440,043
|
|
|
$
|
751,444
|
|
|
$
|
29,764,236
|
|
|
$
|
2,960,951
|
|
|
$
|
48,937,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2008
|
|
|
21,136,392
|
|
|
$
|
21,137
|
|
|
$
|
15,440,043
|
|
|
$
|
751,444
|
|
|
$
|
29,764,236
|
|
|
$
|
2,960,951
|
|
|
$
|
48,937,811
|
|
Release
of Shares Placed in Escrow
|
|
|
|
|
|
|
|
|
|
|
10,622,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,622,294
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,837,265
|
|
|
|
|
|
|
|
6,837,265
|
|
Appropriations
of Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,326,044
|
|
|
|
(1,326,044
|
)
|
|
|
|
|
|
|
-
|
|
Foreign
Currency Translation Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
528,277
|
|
|
|
528,277
|
|
Balance,
December 31, 2008
|
|
|
21,136,392
|
|
|
$
|
21,137
|
|
|
$
|
26,062,337
|
|
|
$
|
2,077,488
|
|
|
$
|
35,275,457
|
|
|
$
|
3,489,228
|
|
|
$
|
66,925,647
|
|
See Notes
to Financial Statements and Accountant’s Report
Energroup
Holdings Corporation
Consolidated
Statements of Cash Flows
For
the years ended December 31, 2008, 2007, and 2006
(Stated
in US Dollars)
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
year ended
|
|
|
year ended
|
|
|
year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
Flow from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Received from Customers
|
|
$
|
153,507,080
|
|
|
$
|
112,741,680
|
|
|
$
|
59,979,793
|
|
Cash
Paid to Suppliers & Employees
|
|
|
(155,266,953
|
)
|
|
|
(108,527,656
|
)
|
|
|
(65,116,627
|
)
|
Interest
Received
|
|
|
284,774
|
|
|
|
-
|
|
|
|
147
|
|
Interest
Paid (net of amount capitalized)
|
|
|
(1,763,404
|
)
|
|
|
(1,247,575
|
)
|
|
|
(1,580,310
|
)
|
Income
Tax Paid
|
|
|
-
|
|
|
|
(1,007,067
|
)
|
|
|
(400,065
|
)
|
Miscellaneous
Receipts
|
|
|
5,780
|
|
|
|
9,182
|
|
|
|
-
|
|
Cash
Sourced/(Used) in Operating Activities
|
|
|
(3,232,723
|
)
|
|
|
1,968,564
|
|
|
|
(7,117,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escrowed
Funds from Private Placement Placed in Restricted Cash
|
|
|
2,072,909
|
|
|
|
(4,250,000
|
)
|
|
|
-
|
|
Payments
for Purchases of Equipment & Construction of Plant
|
|
|
(5,832,731
|
)
|
|
|
(2,882,433
|
)
|
|
|
(1,655,077
|
)
|
Payments
for Purchases of Land Use Rights
|
|
|
-
|
|
|
|
(4,198,178
|
)
|
|
|
(265,509
|
)
|
Payments
for Deposits
|
|
|
-
|
|
|
|
(2,100
|
)
|
|
|
-
|
|
Cash
Sourced/(Used) in Investing Activities
|
|
|
(3,759,822
|
)
|
|
|
(11,333,712
|
)
|
|
|
(1,920,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Transaction - Proceeds Allocated to Accrued Liabilities for Liquidated
Damages
|
|
|
-
|
|
|
|
1,700,000
|
|
|
|
-
|
|
Financing
Transaction - Proceeds of Issuance
of Common Stock &
Warrants
|
|
|
-
|
|
|
|
13,047,828
|
|
|
|
-
|
|
Proceeds
from Bank Borrowings
|
|
|
9,264,246
|
|
|
|
5,725,377
|
|
|
|
1,753,971
|
|
Repayment
of Bank Loans
|
|
|
(10,700,664
|
)
|
|
|
(2,217,265
|
)
|
|
|
-
|
|
Cash
Sourced/(Used) in Financing Activities
|
|
|
(1,436,417
|
)
|
|
|
18,255,939
|
|
|
|
1,753,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase/(Decrease) in Cash & Cash Equivalents for the
Year
|
|
|
(8,428,962
|
)
|
|
|
8,891,791
|
|
|
|
(7,283,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Currency Translation
|
|
|
92,910
|
|
|
|
2,064,273
|
|
|
|
180,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
& Cash Equivalents at Beginning of Year
|
|
|
14,031,851
|
|
|
|
3,075,787
|
|
|
|
10,179,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
& Cash Equivalents at End of Year
|
|
$
|
5,695,798
|
|
|
$
|
14,031,851
|
|
|
$
|
3,075,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Financing Activity
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Extinguishment
of Debt by Setoff Against Related Party Receivables
|
|
$
|
-
|
|
|
$
|
21,005,094
|
|
|
$
|
-
|
|
Release
of shares held in escrow
|
|
$
|
10,622,294
|
|
|
$
|
-
|
|
|
$
|
-
|
|
See Notes
to Financial Statements and Accountant’s Report
Energroup
Holdings Corporation
Reconciliation
of Net Income to Cash Provided/(Used) in Operating Activities
For
the years ended December 31, 2008, 2007, and 2006
(Stated
in US Dollars)
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
year ended
|
|
|
year ended
|
|
|
year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
6,837,265
|
|
|
$
|
11,652,147
|
|
|
$
|
8,128,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to Reconcile Net Income to Net Cash Provided by Cash
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Cash Expense Recorded for the Release of Escrowed Shares
|
|
|
10,622,294
|
|
|
|
-
|
|
|
|
-
|
|
Extinguishment
of Debt by Setting Off Against Related Party Receivable
|
|
|
-
|
|
|
|
(21,005,094
|
)
|
|
|
-
|
|
Liquidated
Damages Included in Accrued Liabilities
|
|
|
-
|
|
|
|
(1,700,000
|
)
|
|
|
-
|
|
Amortization
|
|
|
331,468
|
|
|
|
253,317
|
|
|
|
160,782
|
|
Depreciation
|
|
|
2,540,797
|
|
|
|
2,158,940
|
|
|
|
1,651,055
|
|
Provision
for Bad Debt
|
|
|
103,773
|
|
|
|
5,456
|
|
|
|
-
|
|
Decrease/(Increase)
in Accounts Receivable
|
|
|
(18,142,404
|
)
|
|
|
1,170,508
|
|
|
|
1,523,176
|
|
Decrease/(Increase)
in Other Receivable
|
|
|
(1,093,473
|
)
|
|
|
(389,920
|
)
|
|
|
353,046
|
|
Decrease/(Increase)
in Related Party Receivable
|
|
|
(6,955,420
|
)
|
|
|
9,184,432
|
|
|
|
(12,877,984
|
)
|
Decrease/(Increase)
in Inventory
|
|
|
(3,135,093
|
)
|
|
|
(530,569
|
)
|
|
|
546,573
|
|
Decrease/(Increase)
in Advance to Suppliers
|
|
|
(1,186,054
|
)
|
|
|
842,641
|
|
|
|
(374,793
|
)
|
Decrease/(Increase)
in Prepaid Taxes
|
|
|
(149,096
|
)
|
|
|
(185,317
|
)
|
|
|
-
|
|
Decrease/(Increase)
in Prepaid Expenses
|
|
|
(16,333
|
)
|
|
|
44,512
|
|
|
|
(40,297
|
)
|
Decrease/(Increase)
in Deferred Tax Benefit
|
|
|
(29,764
|
)
|
|
|
(39,528
|
)
|
|
|
(401,674
|
)
|
Increase/(Decrease)
in Accounts Payable
|
|
|
3,915,934
|
|
|
|
(428,718
|
)
|
|
|
(3,611,921
|
)
|
Increase/(Decrease)
in Taxes Payable
|
|
|
664,777
|
|
|
|
(582,271
|
)
|
|
|
1,371,696
|
|
Increase/(Decrease)
in Other Payable
|
|
|
846,762
|
|
|
|
108,773
|
|
|
|
482,075
|
|
Increase/(Decrease)
in Related Party Payable
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,506,002
|
)
|
Increase/(Decrease)
in Accrued Liabilities
|
|
|
(1,622,747
|
)
|
|
|
2,434,306
|
|
|
|
(106,278
|
)
|
Increase/(Decrease)
in Customer Advances
|
|
|
3,234,591
|
|
|
|
(1,025,051
|
)
|
|
|
585,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
of all adjustments
|
|
|
(10,069,987
|
)
|
|
|
(9,683,583
|
)
|
|
|
(15,245,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by/(Used in) Operating Activities
|
|
$
|
(3,232,723
|
)
|
|
$
|
1,968,564
|
|
|
$
|
(7,117,062
|
)
|
See Notes
to Financial Statements and Accountant’s Report
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and
2006
1.
The Company and Principal
Business Activities
Energroup
Holdings Corporation (the “Company”) (OTCBB: ENHD) is a holding company
incorporated in the state of Nevada in the United States of America whose
primary business operations are conducted through its three operating
subsidiaries: (1) Dalian Chuming Processed Foods Company Ltd., (“Food Company”)
(2) Dalian Chuming Slaughter and Packaging Pork Company Ltd. (“Meat Company”),
and (3) Dalian Chuming Sales Company Ltd. (“Sales Company”), which are
incorporated in the People’s Republic of China (“PRC”). The
Company is headquartered in the City of Dalian, Liaoning Province of
China.
The three
operating subsidiaries were spun-off constituents of the former parent company,
Dalian Chuming Group Co. Ltd (“Group”). The Company indirectly holds
the three operating subsidiary companies through its wholly owned intermediary
subsidiaries: (A) Precious Sheen Investments Limited (“PSI”), a British Virgin
Islands corporation, and (B) Dalian Chuming Precious Sheen Investments
Consulting Co., Ltd., (“Chuming”), a wholly foreign owned enterprise
incorporated in the PRC.
The
Company’s primary business activities are the production and packing of fresh
pork and also production of processed meat products for distribution and sale to
clients throughout the PRC and Russia.
Corporate
Reorganization
PRC law
currently has limits on foreign ownership of certain companies. To
enable Chuming to raise equity capital from investors outside of China, it
established an offshore holding company by incorporating Precious Sheen
Investments Limited in the British Virgin Islands in May 2007. On
September 26, 2007, Chuming entered into share transfer agreements with Dalian
Chuming Group Co., Ltd., under which Dalian Chuming Group Co., Ltd. agreed to
transfer ownership of three operating subsidiaries (collectively known as
“Chuming Operating Subsidiaries”) to Chuming. On October 23, 2007,
Chuming completed all required registrations to complete the share transfer, and
became the 100% owner of the Chuming Operating Subsidiaries. On
November 14, 2007 the Dalian Commerce Bureau approved the transfer of Dalian
Chuming Group Co., Ltd’s 68% interest in Chuming to PSI, and upon this transfer,
Chuming became a wholly foreign owned enterprise, with PSI as the 100% owner of
Chuming (including its subsidiaries). On December 13, 2007, the PRC government
authorities issued Chuming a business license formally recognizing it as a
wholly foreign owned enterprise, of which PSI is the sole
shareholder.
The
following is a description of the Chuming Operating Subsidiaries:
A. Dalian
Chuming Slaughter and Packaging Pork Company Ltd., whose primary business
activity is acquiring, slaughtering, and packaging of pork and
cattle;
B. Dalian
Chuming Processed Foods Company Ltd., whose primary business activity is the
processing of raw and cooked meat products; and
C. Dalian
Chuming Sales Company Ltd., which is responsible for Chuming’s sales, marketing,
and distribution operations.
Share
Exchange Transaction
On
December 31, 2007, the Company acquired all of the outstanding shares of PSI in
exchange for the issuance of 16,850,000 restricted shares of our common stock to
the shareholders of PSI, which represented approximately 97.55% of the
then-issued and outstanding common stock of the Company (excluding the shares
issued in the Financing). As a result of that transaction, PSI became our wholly
owned subsidiary and we acquired the business and operations of the three
operation subsidiaries.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
The share
exchange transaction has been accounted for as a recapitalization of PSI where
the Company (the legal acquirer) is considered the accounting acquiree and PSI
(the legal acquiree) is considered the accounting acquirer. As a
result of this transaction, the Company is deemed to be a continuation of the
business of PSI.
Accordingly,
the financial data included in the accompanying consolidated financial
statements for all periods prior to December 31, 2007 is that of the accounting
acquirer (PSI). The historical stockholders’ equity of the accounting
acquirer prior to the share exchange has been retroactively restated as if the
share exchange transaction occurred as of the beginning of the first period
presented.
2.
Summary of Significant
Accounting Policies
The
Company maintains its general ledger and journals with the accrual method
accounting for financial reporting purposes. The financial statements
and notes are representations of management. Accounting policies
adopted by the Company conform to generally accepted accounting principles in
the United States of America and have been consistently applied in the
presentation of financial statements, which are compiled on the accrual basis of
accounting.
|
(B)
|
Principles
of Consolidation
|
The
consolidated financial statements, which include the Company and its
subsidiaries, are compiled in accordance with generally accepted accounting
principles in the United States of America. All significant
inter-company accounts and transactions have been eliminated. The
consolidated financial statements include 100% of assets, liabilities, and net
income or loss of those wholly-owned subsidiaries.
The
Company owned the three operating subsidiaries since its
inception. The Company also owns two intermediary holdings
companies. As of December 31, 2008, the detailed identities of
the consolidating subsidiaries are as follows:
Name of Company
|
|
Place
of
Incorporation
|
|
Attributable
Equity
Interest
|
|
Registered
Capital
|
Precious
Sheen Investments Limited
|
|
BVI
|
|
100%
|
|
USD
10,000
|
Dalian
Chuming Precious Sheen Investment Consulting Co., Ltd.
|
|
PRC
|
|
100%
|
|
RMB
29,400,682
|
Dalian
Chuming Slaughtering & Pork Packaging Co.
Ltd.
|
|
PRC
|
|
100%
|
|
RMB
10,000,000
|
Dalian
Chuming Processed Foods Co. Ltd.
|
|
PRC
|
|
100%
|
|
RMB
5,000,000
|
Dalian
Chuming Sales Co. Ltd.
|
|
PRC
|
|
100%
|
|
RMB
5,000,000
|
The
consolidation of these operating subsidiaries into a newly formed holding
company i.e. “the Company” is permitted by United States GAAP: ARB51 paragraph
22 and 23.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could
differ materially from these estimates.
For
purposes of the statement of cash flows, the Company considers all highly liquid
equity or debt instruments purchased with a maturity of three months or less to
be cash equivalents.
The
Company extends unsecured, non-interest bearing credit to its customers;
accordingly, the Company carries an allowance for doubtful accounts, which is an
estimate, made by management. Management makes its estimate based on
prior experience rates and assessment of specific outstanding customer
balances. Management may extend credit to new customers who have met
the criteria of the Company’s credit policy.
|
(F)
|
Inventory
Carrying Value
|
Inventory,
consisting of raw materials in the form of livestock, work in progress, and
finished products, is stated at the lower of cost or market
value. Finished products are comprised of direct materials, direct
labor and an appropriate proportion of overhead. Periodic evaluation
is made by management to identify if inventory needs to be written down because
of damage, or spoilage. Cost is computed using the weighted average
method.
Purchase
deposit represents the cash paid in advance for purchasing raw
materials. The purchase deposit is interest free and
unsecured.
|
(H)
|
Property,
Plant, and Equipment
|
Property,
Plant, and Equipment are stated at cost. Repairs and maintenance to
these assets are charged to expense as incurred; major improvements enhancing
the function and/or useful life are capitalized. When items are sold
or retired, the related cost and accumulated depreciation are removed from the
accounts and any gains or losses arising from such transactions are
recognized.
Property
and equipment are depreciated using the straight-line method over their
estimated useful life with a 5% salvage value. Their useful lives are
as follows:
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Fixed Asset Classification
|
|
Useful Life
|
Land
Improvements
|
|
10
years
|
Buildings
|
|
20
years
|
Building
Improvements
|
|
10
years
|
Manufacturing
Machinery & Equipment
|
|
10
years
|
Office
Equipment
|
|
5
years
|
Furniture
& Fixtures
|
|
5
years
|
Vehicles
|
|
5
years
|
Land Use
Rights are stated at cost less accumulated amortization. Amortization
is provided over its useful life, using the straight-line method. The
useful life of the land use right is 50 years.
|
(J)
|
Construction
in Progress
|
Construction
in progress represents the direct costs of design, acquisition, and construction
of buildings, building improvements, and land improvements. These
costs are capitalized in the Construction-in-Progress account until
substantially all activities necessary to prepare the assets for their intended
use are completed. At such point, the Construction-in-Progress
account is closed and the capitalized costs are transferred to their appropriate
asset classification. No depreciation is provided until the assets
are completed and ready for their intended use.
|
(K)
|
Accounting
for Impairment of Assets
|
The
Company reviews the recoverability of its long-lived assets, such as property
and equipment, when events or changes in circumstances occur that indicate the
carrying value of the asset group may not be recoverable. The
assessment of possible impairment is based on the Company’s ability to recover
the carrying value of the asset from the expected future cash flows,
undiscounted and without interest charges, of the related
operations. If these cash flows are less than the carrying value of
such assets, an impairment loss is recognized for the difference between
estimated fair value and carrying value. The measurement of
impairment requires management to estimate future cash flows and the fair value
of long-lived assets.
Customer
Deposits represents money the Company has received in advance for purchases of
pork and pork products. The Company considers customer deposits as a
liability until products have been shipped and revenue is earned.
The
Company collects a damage deposit (as a deterrent) recorded in Other Payable
from showcase store operators as a means of enforcing proper use of the
Company’s trademarks. These are not fees, but deposits that are
carried as current liabilities until and unless an operator violates the
Company’s policies (e.g. misuse of Company brand names, or sale of substandard
or counterfeit products, or unacceptably poor customer service), or if the
proprietor ceases to operate the showcase store. If no violations
have been committed by the showcase store operator, the deposit is returned to
the operator. The Company carries the amount of these deposits as a
current liability because the Company will return the deposit immediately to the
operator when the Company ceases to conduct business with the
operator.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Statutory
reserve refer to the amount appropriated from the net income in accordance with
laws or regulations, which can be used to recover losses and increase capital,
as approved, and, are to be used to expand production or
operations. PRC laws prescribe that an enterprise operating at a
profit, must appropriate, on an annual basis, from its earnings, an amount to
the statutory reserve to be used for future company development. Such
an appropriation is made until the reserve reaches a maximum equaling 50% of the
enterprise’s capital.
|
(N)
|
Other
Comprehensive Income
|
Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, all items that are required to be recognized under current
accounting standards as components of comprehensive income are required to be
reported in a financial statement that is presented with the same prominence as
other financial statements. The Company’s current component of other
comprehensive income is the foreign currency translation
adjustment.
|
(O)
|
Recognition
of Revenue
|
Revenue
from the sale of pork products, etc., is recognized on the transfer of risks and
rewards of ownership, which generally coincides with the time when the goods are
delivered to customers and the title has passed.
The
Company supplies pork products, equipment, uniforms, and technical support to
the proprietors of showcase stores, who are granted the right to use the
Company’s trademarks to sell pork products. Start-up fees relating to
uniforms are immaterial and are charged to the showcase store operators merely
to recoup setup costs. Any funds collected from store operators in
conjunction with initial startup and operation is minimal and
immaterial. The Company does not charge any fees for providing
equipment to the showcase stores. The Company provides equipment at
its own cost, and the Company owns all such equipment. Considering
the foregoing, the Company takes the position that any amount it receives from
the store operators is not material in accordance with Rule 5-03.1 of Regulation
S-X. In addition, since the Company does not receive any material
franchise fee revenue, SFAS 45 is not applicable.
The
Company’s cost of sales is comprised of raw materials, factory worker salaries
and related benefits, machinery supplies, maintenance supplies, depreciation,
utilities, inbound freight, purchasing and receiving costs, inspection and
warehousing costs
Selling
expenses are comprised of outbound freight, salary for the sales force, client
entertainment, commissions, depreciation, advertising, and travel and lodging
expenses.
|
(R)
|
General
& Administrative
|
General
and administrative costs include executive compensation, quality control, and
general overhead such as the finance department, administrative staff, and
depreciation and amortization expense.
|
(S)
|
Shipping
and handling
|
All
shipping and handling are expensed as incurred and are included as a component
of cost of sales.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Costs
related to advertising and promotion expenditures are expensed as incurred
during the year. Advertising costs are charged to selling
expense
Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to the statement of operations as
incurred.
The
Company uses the accrual method of accounting to determine and report its
taxable reduction of income taxes for the year in which they are available. The
Company has implemented Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. Income tax liabilities computed according to
the United States and People’s Republic of China (PRC) tax laws are provided for
the tax effects of transactions reported in the financial statements and
consists of taxes currently due plus deferred taxes related primarily to
differences between the basis of fixed assets and intangible assets for
financial and tax reporting. The deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will be either
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are available to
offset future income taxes. A valuation allowance is created to evaluate
deferred tax assets if it is more likely than not that these items will either
expire before the Company is able to realize that tax benefit, or that future
realization is uncertain.
In
respect of the Company’s subsidiaries domiciled and operated in
China:
|
·
|
Chuming
and Chuming Operating Subsidiaries are located in the PRC and PSI is
located in the British Virgin Islands; all of these entities are subject
to the relevant tax laws and regulations of the PRC and British Virgin
Islands in which the related entity domiciled. The maximum tax
rates of the subsidiaries pursuant to the countries in which they domicile
are: -
|
Subsidiary
|
|
Country of Domicile
|
|
Income Tax Rate
|
|
Chuming
and Chuming Operating Subsidiaries
|
|
PRC
|
|
|
25.00
|
%
|
PSI
|
|
British
Virgin Islands
|
|
|
0.00
|
%
|
|
·
|
Effective
January 1, 2008, PRC government implements a new 25% tax rate across the
board for all enterprises regardless of whether domestic or foreign
enterprise without any tax holiday which is defined as "two-year exemption
followed by three-year half exemption" hitherto enjoyed by tax payers. As
a result of the new tax law of a standard 15% tax rate, tax holidays
terminated as of December 31, 2007. However, PRC government has
established a set of transition rules to allow enterprises already started
tax holidays before January 1, 2008, to continue enjoying the tax holidays
until being fully utilized.
|
|
·
|
The
Company is subject to United States Tax according to Internal Revenue Code
Sections 951 and 957. Corporate income tax is imposed on progressive rates
in the range of: -
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Taxable Income
|
|
Rate
|
|
Over
|
|
|
But Not Over
|
|
|
Of Amount Over
|
|
15%
|
|
|
0
|
|
|
|
50,000
|
|
|
|
0
|
|
25%
|
|
|
50,000
|
|
|
|
75,000
|
|
|
|
50,000
|
|
34%
|
|
|
75,000
|
|
|
|
100,000
|
|
|
|
75,000
|
|
39%
|
|
|
100,000
|
|
|
|
335,000
|
|
|
|
100,000
|
|
34%
|
|
|
335,000
|
|
|
|
10,000,000
|
|
|
|
335,000
|
|
35%
|
|
|
10,000,000
|
|
|
|
15,000,000
|
|
|
|
10,000,000
|
|
38%
|
|
|
15,000,000
|
|
|
|
18,333,333
|
|
|
|
15,000,000
|
|
35%
|
|
|
18,333,333
|
|
|
|
-
|
|
|
|
-
|
|
Based on
the consolidated net income for the year ended December 31, 2008, the Company
shall not be subject to income tax.
|
(W)
|
Economic
and Political Risks
|
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
|
(X)
|
Foreign
Currency Translation
|
The
Company maintains its financial statements in the functional
currency. The functional currency of the Company is the Renminbi
(RMB). Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet
dates. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction. Exchange gains or
losses arising from foreign currency transactions are included in the
determination of net income for the respective periods.
For
financial reporting purposes, the financial statements of the Company which are
prepared using the functional currency have been translated into United States
dollars. Assets and liabilities are translated at the exchange rates
at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and stockholders’ equity is translated at historical
exchange rates. Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders’
equity.
Exchange Rates
|
|
12/31/2008
|
|
|
12/31/2007
|
|
|
12/31/2006
|
|
Period
end RMB : US$ exchange rate
|
|
|
6.85420
|
|
|
|
7.3141
|
|
|
|
7.8175
|
|
Average
period RMB : US$ exchange rate
|
|
|
6.96225
|
|
|
|
7.6172
|
|
|
|
7.9819
|
|
RMB is
not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at the rates used in translation.
The
Company computes earnings per share (“EPS”) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per share” (“SFAS No. 128”),
and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires
companies with complex capital structures to present basic and diluted EPS.
Basic EPS is measured as the income or loss available to common shareholders
divided by the weighted average common shares outstanding for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per
share basis of potential common shares (e.g., contingent shares, convertible
securities, options, and warrants) as if they had been converted at the
beginning of the periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted
EPS.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
|
(Z)
|
Recent
Accounting Pronouncements
|
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
("SFAS 161"). SFAS 161 applies to all derivative instruments and
related hedged items accounted for under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 161
requires entities to provide greater transparency about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged
items affect an entity's financial position, results of operations and cash
flows. SFAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008.
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). Statement 162 will become effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles."
In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate. FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 on a retroactive basis.
The
Company is currently evaluating the potential impact, if any, of the adoption of
the above recent accounting pronouncements on its consolidated results of
operations and financial condition.
The
restricted cash reflects funds received from the financing transaction described
in Note 18 that are held in an escrow with US Bank in the United
States. These funds are restricted until fulfilment of the following
criteria: (1) the hiring of a Chief Financial Officer that meets the approval of
the investors within 90 days of the closing (subsequently extended to 120 days),
at such point the Company will release $1.5 million from restriction, (2)
appointment of a Board of Directors that has majority of independent members, at
such point $2.0 million will be released from restriction, and (3) appoint a
successor auditor, at which point $500,000 will be released from
restriction. There is $250,000 in the escrow account that has already
been earmarked for investor relations purposes.
At
December 31, 2008, the Company has not fulfilled requirement (3), and did not
fulfill requirement (1). The Company has requested bids for
consideration from auditing firms that were on an approved list submitted by,
Pinnacle Fund, whom was the lead investor in the Company’s financing transaction
in December 2007, detailed in
Note 18 – Financing
Transaction
.
Accounts
Receivable at December 31, consisted of the following:
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
|
|
At
|
|
|
At
|
|
|
At
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Accounts
Receivable – Trade
|
|
|
18,849,560
|
|
|
$
|
707,156
|
|
|
$
|
1,877,664
|
|
Less
:
Allowance for
Doubtful Accounts
|
|
|
(188,495
|
)
|
|
|
(84,723
|
)
|
|
|
(79,267
|
)
|
Net
Accounts Receivable
|
|
|
18,661,065
|
|
|
$
|
622,433
|
|
|
$
|
1,798,397
|
|
|
|
At
|
|
|
At
|
|
|
At
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Allowance for Bad Debts
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Beginning
Balance
|
|
$
|
(84,723
|
)
|
|
$
|
(79,267
|
)
|
|
$
|
(76,754
|
)
|
Allowance
Provided
|
|
$
|
(103,772
|
)
|
|
|
(5,456
|
)
|
|
|
(2,513
|
)
|
Charged
Against Allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending
Balance
|
|
$
|
(188,495
|
)
|
|
$
|
(84,723
|
)
|
|
$
|
(79,267
|
)
|
During
the second quarter of the 2008 fiscal year, management revised the Company’s
credit policy. Based on management’s review, the Company began
extending more favorable credit terms to its top tier
customers. Those customers that qualified as top tier were extended
approximately 45 to 60 days of credit. The Company previously
extended one to two days of credit. As of December 31, 2008, the
Company has not had any receivables that were unrecoverable.
Accounts
Receivable Aging Analysis
At
December 31, 2008
0-30
Days
|
|
31-60
Days
|
|
|
61-90
Days
|
|
|
91-120
Days
|
|
|
Total
Outstanding
|
|
$
10,478,579
|
|
$
|
1,627,515
|
|
|
$
|
168,045
|
|
|
$
|
6,575,420
|
|
|
$
|
18,849,560
|
|
|
5.
|
Related Party
Receivable
|
In the
normal course of business which includes the purchases of hogs and other raw
materials, sale of pork and pork products, the Company conducts transactions
with the following related parties: Dalian Chuming Group Co., Ltd (“Group”) and
the Group subsidiaries, that are not consolidated into Energroup Holdings or
Energroup’s subsidiary, Dalian Chuming Precious Sheen Investments Consulting Co.
Ltd. (Chuming): (1) Dalian Chuming Industrial Development Co., Ltd.,
(“Industrial Development Co.”) (2) Dalian Chuming Trading Co., Ltd, (“Trading
Co.”) (3) Dalian Mingxing Livestock Product Co. Ltd., (“Mingxing”) (4) Dalian
Chuming Stockbreeding Combo Development Co., Ltd., (“Combo Development Co.”) (5)
Dalian Chuming Fodder Co., Ltd. (“Fodder Co.”), and (6) Dalian Chuming
Biological Technology Co., Ltd., (“Biological Co.”) and (7) Dalian Huayu Seafood
Food Co., Ltd. (“Huayu”). The Company and the aforementioned related
parties share common beneficial ownership. All transactions with
related parties are generally performed at arm’s length.
In the
event that the Company has both receivables from, and payables to the Group it
will, in accordance with FIN 39, setoff the balances in order to arrive at a
single balance that is either due from, or due to the Group. The
Company’s net receivable balance of $10,919,777
at December 31, 2008 is
shown in the following table.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Ref.
|
|
Subsidiary
Due to:
|
|
Nature of Balance
|
|
Related Party
|
|
Balance
|
|
Description of
Transaction
|
A
|
|
Food
Company
|
|
Sale
of Products resulting in Trade Receivable from
|
|
Dalian
Huayu Seafood Food Co., Ltd.
|
|
|
234,699
|
|
Food
Company sold cooked food to Huayu dating back to
1/2007.
|
|
|
|
|
Subtotal
of Related Party Sales
|
|
$
|
234,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
|
|
Food
Company
|
|
Loan
Receivable from
|
|
Dalian
Huayu Seafood Co., Ltd.
|
|
|
2,917,918
|
|
Huayu
borrowed loan from Food Company back to 11/2008
|
C
|
|
Food
Company
|
|
Loan
Receivable from
|
|
Dalian
Mingxing Livestock Product Co. Ltd.,
|
|
|
4,376,878
|
|
Mingxing
borrowed loan from Food Company back to 12/2008
|
D
|
|
Meat
Company
|
|
Loan
Receivable from
|
|
Dalian
Chuming Fodder Co., Ltd.
|
|
|
34,714
|
|
Meat
Companypaid utility fees for Fodder Co. dating back to
7/2008.
|
E
|
|
Meat
Company
|
|
Loan
Receivable from
|
|
Dalian
Chuming Stockbreeding Combo Development Co., Ltd.
|
|
|
3,445,292
|
|
Prepayment
to Group for Purchase of hogs dating back to 7/2008.
|
F
|
|
Meat
Company
|
|
Loan
Receivable from
|
|
Dalian
Chuming Group Co., Ltd.
|
|
|
68,211
|
|
Meat
Company purchased office supplies on behalf of the Group dating back to
11/2005
|
G
|
|
Food
Company
|
|
Loan
Receivable from
|
|
Dalian
Chuming Group Co., Ltd.
|
|
|
1,458,959
|
|
Food
Company paid bank loan principal and interest on behalf of Industrial Co.
dating back to 1/2008
|
H
|
|
Sales
Company
|
|
Loan
Receivable from
|
|
Dalian
Huayu Seafood Co., Ltd.
|
|
|
1,562,263
|
|
Sales
Company paid Huayu to help it buy materials dating back to
9/2008.
|
I
|
|
Sales
Company
|
|
Loan
Receivable from
|
|
Dalian
Chuming Group Co., Ltd.
|
|
|
5,212,167
|
|
Sales
Company paid the Group to help it buy materials dating back to
7/2008.
|
J
|
|
Sales
Company
|
|
Loan
Receivable from
|
|
Dalian
Chuming Stockbreeding Combo Development Co., Ltd.
|
|
|
19,568,483
|
|
Sales
Company paid for Stockbreeding to buy hogs from farmer dating back
7/2008
|
K
|
|
Sales
Company
|
|
Loan
Receivable from
|
|
Dalian
Chuming Fodder Co., Ltd.
|
|
|
2,509,410
|
|
Sales
Company paid for feeding materials on behalf of Fodder dating
back to 9/2008.
|
|
|
|
|
Subtotal
of Loans to Related Parties
|
|
$
|
41,154,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Related Party Receivable
|
|
$
|
41,388,994
|
|
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
|
|
Subsidiary
Due from:
|
|
Nature
of Balance
|
|
Related
Party
|
|
Balance
|
|
Description
of
Transaction
|
L
|
|
Meat
Company
|
|
Purchase
of Raw Materials resulting in Trade Payable to
|
|
Dalian
Chuming Group Co., Ltd.
|
|
|
5,396,217
|
|
Purchase
of hogs from Group dating back to 12/1/2004.
|
M
|
|
Meat
Company
|
|
Purchase
of Raw Materials resulting in Trade Payable to
|
|
Dalian
Chuming Group Co., Ltd.
|
|
|
7,365,945
|
|
Purchase
of hogs from Group dating back to 7/2008.
|
N
|
|
Food
Company
|
|
Purchase
of Raw Materials resulting in Trade Payable to
|
|
Dalian
Huayu Seafood Food Co., Ltd
|
|
|
2,621,251
|
|
Advance
from Huayu for the purchase of product dating back to
12/2007.
|
|
|
|
|
Subtotal
of Purchases from Related Parties
|
|
$
|
15,383,413
|
|
|
O
|
|
Food
Company
|
|
Loan
Payable to
|
|
Dalian
Chuming Group Co., Ltd.
|
|
|
950,134
|
|
Group
paid for salaries and other G&A expenses on behalf of Food dating back
to 1/2004.
|
P
|
|
Meat
Company
|
|
Loan
Payable to
|
|
Dalian
Chuming Stockbreeding Combo Development Co., Ltd.
|
|
|
123,210
|
|
Meat
Company collected bank loans for Stockbreeding Co. dating back to
7/2008
|
Q
|
|
Meat
Company
|
|
Loan
Payable to
|
|
Dalian
Chuming Industrial Development Co., Ltd.
|
|
|
6,477
|
|
Industrial
Development paid salaries on behalf of Meat Company dating back to
1/2005.
|
R
|
|
Meat
Company
|
|
Loan
Payable to
|
|
Dalian
Mingxing Livestock Product Co. Ltd.,
|
|
|
393,919
|
|
Meat Company collected
bank loans on behalf of Mingxing dating back to 8/2008
|
S
|
|
Meat
Company
|
|
Loan
Payable to
|
|
Dalian
Huayu Seafood Food Co., Ltd
|
|
|
541,738
|
|
Huayu
lent funds to Meat Company for necessary operation activities dating
12/2008
|
T
|
|
Sales
Company
|
|
Loan
Payable to
|
|
Dalian
Mingxing Livestock Product Co. Ltd.,
|
|
|
986,256
|
|
Sales
Company borrowed funds from Mingxing for operations purpose dating back to
12/2008
|
U
|
|
WFOE
|
|
Loan
Payable to
|
|
Dalian
Chuming Group Co.
|
|
|
12,084,070
|
|
Group
loaned funds to WFOE (incl. funds transferred from Meat for US
RTO.
|
|
|
|
|
Subtotal
of Loans from Related Parties
|
|
$
|
15,085,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Related Party Payable
|
|
$
|
30,469,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Setoff Related Party
Receivable
(Receivables have been setoff against
payables)
|
|
$
|
10,919,777
|
|
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
|
A.
|
The
Food Company sold USD 235 thousand (RMB 1.6 million) worth of cooked food
to Huayu on credit. This transaction impacted the statement of
income. After applying a 17% valued added tax, the Food Company
generated USD 200 thousand (RMB 1.4 million) in sales revenue from this
transaction.
|
|
B.
|
Food
Company loaned USD 2.9 million (RMB 20 million) to Huayu in November
2008.
|
|
C.
|
Food
Company loaned USD 4.4 million (RMB 30 million) to Mingxing in December
2008.
|
|
D.
|
Meat
Company paid USD 35 thousand (RMB 237 thousand) for utility fees on behalf
of Fodder Co. in the 3rd quarter of 2008, which resulted in this
receivable.
|
|
E.
|
The
prepayment of USD 3.5 million (RMB 23.6 million) from Meat Company to the
Group for hogs was increased by USD 96 thousand (RMB 0.6 million), USD
0.15 million (RMB 1 million), and USD 4.1 million (RMB 28.3 million) in
July, August, and September respectively. Simultaneously, the
Group paid down its balance in the amounts of USD 1.3 million (RMB 8.9
million) and USD 230 thousand (RMB 1.54 million) to Meat
Company.
|
|
F.
|
The
balance of USD 68 thousand (RMB 467 thousand) for the purchase of office
supplies by Meat Company for the Group, was still outstanding as of
December 31, 2008.
|
|
G.
|
Food
Company paid certain bank loan interest and principal on behalf of
Industrial Co. prior to 2008. This resulted in a receivable of
USD 1.5 million (RMB 10 million) owed by Industrial Co. to the Food
Company. A balance of USD 1.5 million (RMB 10 million) remained
outstanding as of December 31,
2008.
|
|
H.
|
The
Sales Company advanced USD 1.6 million (RMB10.7 million) to Huayu for the
purchase of raw materials, resulting in this
receivable.
|
|
I.
|
The
Sales Company paid for the purchase of certain materials for the Group,
resulting in a balance of USD 5.2 million (RMB 35.7 million) receivable
from Group to Sales Company. This balance was increased
by USD 5.8 million (RMB 39.6 million) and USD 3.9 million (RMB 20.6
million) in the 3rd and 4th quarters of 2008, in connection with the
purchase of additional materials by Sales Company. The Group
has paid down USD 4.5 million (RMB 20.3 million) of this balance,
resulting in an ending balance of USD 5.2 million (RMB 35.7
million).
|
|
J.
|
Sales
Company paid USD 19.6 million (RMB 134.1 million) to local farmers for the
purchase of hogs, on behalf of the Group, which gave rise to this
receivable from the Group to Sales
Company.
|
|
K.
|
Sales
Company purchase feed materials, paid construction fees, and utility costs
for Fodder Co., resulting in a receivable of USD 2.5 million (RMB17.2
million) due from Fodder Co. to Sales Company. In 2008, the
following transactions affected the balance of this
receivable: USD 0.8 million (RMB 5.4 million) was paid to buy
feeding materials, USD 1.1 million (RMB 7.7 million) was paid for
construction fees, and USD 0.6 million (RMB 4 million) for
utilities.
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
|
L.
|
The
Company acquired hogs from the Group, resulting in a balance payable from
the Company to the Group of USD 5.4 million (RMB 36.9
million). In 2008, this balance was affected by the following
transactions: increases by USD 3.9 million (RMB 27.4 million),
USD 5.5 million (RMB 37.7 million), USD 5.2 million (RMB 35.1 million),
and USD 480 thousand (RMB 3.3 million) in July, August, September, and
December respectively. The Company paid USD 9.8 million (RMB
67.4 million) to settle this balance in September 2008. The increase in
the balance as result of the purchase hogs would impact the statements of
income; however, the effect of the repayment is isolated to the Company’s
balance sheet.
|
|
M.
|
The
Group sold hogs to Meat Company on August 12, 2008 which were not
immediately paid for, which resulted in a net payable from the Meat
Company to Group in the amount of USD 7.4 million (RMB 50.5
million).
|
|
N.
|
The
USD 2.6 million (RMB 18 million) deposit owed to Huayu was still
outstanding at December 31, 2008.
|
|
O.
|
The
Group paid USD 954 thousand (RMB 6.5 million) in salaries and general
administrative expense on behalf of Food Company, resulting in this
payable.
|
|
P.
|
The
outstanding balance of USD 123 thousand (RMB 84 thousand) due from Meat
Company to Combo Development Co. resulted from the fact that Meat Company
collected USD 52 thousand (RMB 0.4 million) hogs sales and USD 1.5 million
(RMB 10.4 million) in proceeds from a bank loan on behalf of Combo
Development Co. in August and September, 2008 respectively.
Simultaneously, the Meat Company repaid USD 1.5 million (RMB 10 million)
to Combo Development Co.
|
|
Q.
|
The
a balance of USD 6 thousand (RMB 44 thousand) owed by Industrial
Development Co. to Meat Company was still outstanding at December 31,
2008.
|
|
R.
|
Meat
Company collected bank loans on behalf of Mingxing dating back to August
2008.
|
|
S.
|
Meat
Company borrowed USD 542 thousand (RMB 3.7 million) operating funds from
Huayu in December 2008.
|
|
T.
|
Sales
Company borrowed USD 986 thousand (RMB 6.7 million) from Mingxing in
December 2008.
|
|
U.
|
The
outstanding payable balance of USD 12.1 million (RMB 83.2 million) due to
the Group has been transferred to the books of Chuming, i.e., WFOE owes
Chuming the amount stated above. This balance was
increased by USD 250 thousand (RMB 1.7 million) in the fourth quarter of
2008.
|
The
related party receivable balance detailed above, and the related transactions
that comprise that balance were integral and material to the Company’s
operations. The Company was reliant on transactions with the above
related parties in order to conduct its business normally. The
Company acknowledges that it has the responsibility to comply with paragraph c
of SFAS 57 which calls for the dollar amounts of transactions for each of the
periods for which income statements are presented and the effects of any change
in the method of establishing the terms from that used in the preceding
period. The Company’s accounting system in the past was manual and
accordingly is not able to, from a cost benefit perspective, summarize and
provide further detail on the related party transactions. Also, the
Company’s current accounting department does not have sufficient staff in order
to perform an exercise to further detail the related party payables and
receivables beyond what has been provided above; however the Company is taking
steps to update its accounting systems and methods to provide fuller detail
regarding these transactions for future periods. The Company does
represent that the balances disclosed above are both accurate and reliable
within acceptable thresholds of materiality.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
The
Company’s related party receivables and payables in the period presented were in
the form of either short-term loans bearing no interest, or trade payables and
receivables relating to the purchase of raw materials, supplies or products for
which payment was due within a short period of time. Management
believes that the net receivables from related parties are fully
recoverable.
Of the
$10,919,777 net
receivable owed by the
Group to the Company, the entire amount has been securitized by bank drafts
issued by the bank on behalf of subsidiaries of the Group to the
Company. These notes are collateralized by deposits at the bank by
those particular subsidiaries of the Group. The drafts can be
endorsed and discounted to the bank for cash; however the Company currently
intends to hold these drafts until maturity. The following table
summarizes the amounts of each draft.
Subsidiary
of the Group
|
|
Amount
|
|
Huayu
|
|
$
|
2,917,919
|
|
Mingxing
|
|
|
4,376,878
|
|
Combo
Development
|
|
|
2,188,439
|
|
Group
|
|
|
1,436,540
|
|
|
|
$
|
10,919,777
|
|
|
|
|
At
|
|
|
At
|
|
|
At
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Raw
Materials
|
|
$
|
867,549
|
|
|
$
|
1,039,440
|
|
|
$
|
875,223
|
|
Work
in Progress
|
|
|
241,738
|
|
|
|
547,889
|
|
|
|
365,961
|
|
Finished
Goods
|
|
|
4,941,822
|
|
|
|
1,328,688
|
|
|
|
1,144,263
|
|
|
|
$
|
6,051,109
|
|
|
$
|
2,916,016
|
|
|
$
|
2,385,447
|
|
|
7.
|
Property, Plant &
Equipment
|
At
|
|
|
|
|
Accumulated
|
|
|
|
|
December 31, 2008:
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
21,604,325
|
|
|
$
|
(3,607,219
|
)
|
|
$
|
17,997,105
|
|
Manufacturing
Equipment
|
|
|
10,061,608
|
|
|
|
(3,132,725
|
)
|
|
|
6,928,883
|
|
Office
Equipment
|
|
|
195,577
|
|
|
|
(150,670
|
)
|
|
|
44,907
|
|
Vehicles
|
|
|
913,816
|
|
|
|
(477,265
|
)
|
|
|
436,551
|
|
Furniture
& Fixture
|
|
|
524,020
|
|
|
|
(137,317
|
)
|
|
|
386,704
|
|
|
|
$
|
33,299,346
|
|
|
$
|
(7,505,196
|
)
|
|
$
|
25,794,151
|
|
At
|
|
|
|
|
Accumulated
|
|
|
|
|
December 31, 2007:
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
19,910,391
|
|
|
$
|
(2,522,257
|
)
|
|
$
|
17,388,134
|
|
Manufacturing
Equipment
|
|
|
9,066,948
|
|
|
|
(2,041,694
|
)
|
|
|
7,025,254
|
|
Office
Equipment
|
|
|
122,124
|
|
|
|
(60,298
|
)
|
|
|
61,826
|
|
Vehicles
|
|
|
652,231
|
|
|
|
(321,138
|
)
|
|
|
331,093
|
|
Furniture
& Fixture
|
|
|
49,204
|
|
|
|
(19,015
|
)
|
|
|
30,189
|
|
|
|
$
|
29,800,898
|
|
|
$
|
(4,964,402
|
)
|
|
$
|
24,836,496
|
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
At
|
|
|
|
|
Accumulated
|
|
|
|
|
December 31, 2006:
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Buildings
|
|
$
|
14,663,106
|
|
|
$
|
(1,174,049
|
)
|
|
$
|
13,489,057
|
|
Manufacturing
Equipment
|
|
|
8,346,776
|
|
|
|
(1,403,176
|
)
|
|
|
6,943,600
|
|
Office
Equipment
|
|
|
68,198
|
|
|
|
(14,165
|
)
|
|
|
54,033
|
|
Vehicles
|
|
|
572,290
|
|
|
|
(203,600
|
)
|
|
|
368,690
|
|
Furniture
& Fixture
|
|
|
30,550
|
|
|
|
(10,468
|
)
|
|
|
20,082
|
|
|
|
$
|
23,680,920
|
|
|
$
|
(2,805,458
|
)
|
|
$
|
20,875,462
|
|
The
Company had the following intangible assets outstanding at December
31:
|
|
At
|
|
|
At
|
|
|
At
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Land
Use Rights, at Cost
|
|
$
|
14,407,503
|
|
|
$
|
13,501,580
|
|
|
$
|
9,303,402
|
|
Less
:
Accumulated
Amortization
|
|
|
(977,068
|
)
|
|
|
(645,600
|
)
|
|
|
(392,283
|
)
|
|
|
$
|
13,430,435
|
|
|
$
|
12,855,980
|
|
|
$
|
8,911,119
|
|
|
(A)
|
Short
Term Bank Loans
|
At
December 31, 2008 the Company had the following short term loans
outstanding:
Bank
|
|
Interest
Rate
|
|
Due Date
|
|
Amount
|
|
Bank
of China
|
|
|
6.1586
|
%
|
10/26/2009
|
|
$
|
4,376,878
|
|
Bank
of China
|
|
|
7.3260
|
%
|
10/17/2009
|
|
|
2,042,543
|
|
|
|
|
|
|
|
|
$
|
6,419,422
|
|
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). Also, the Shanghai Pudong Development Bank loan has been
guaranteed by the Dalian Chuming Group Co., Ltd.
|
(B)
|
Bank
Loan through Group
|
The
Company 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 the Company. The loan
carries a fixed interest of 5.76% per annum. The Company pledged both
land use rights and buildings to the Bond Issuer. The Company pursued
a loan from the Group as the financing solution of choice because the Company’s
tangible assets, at the time of origination, were insufficient to collateralize
the loan. Additionally, the Company lacked the favorable credit history to
directly establish credit facility with the bank.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
At
December 31, 2007, the Company repaid its debt, in its entirety to the Group by
setting off receivables owed by the Group to the Company. The Company
repaid the loan in order to meet the requirements of the equity financing
transaction detailed in Note 18. 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, the Company’s assets, namely the buildings and land use
rights are at risk if the Group were to default on this loan.
As a
result of a reverse-acquisition on December 31, 2007 that was consummated via a
share exchange, and a concurrent equity financing, in the form of a private
placement by issuing common stock to ten accredited investors, the Company’s
capitalization is now reflected by the table shown below:
Name of Shareholder
|
|
Number
of
Shares
|
|
|
Common
Stock
Capital
|
|
|
Additional
Paid in
Capital
|
|
|
Equity %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Companies Founders
|
|
|
14,688,948
|
|
|
$
|
14,689
|
|
|
$
|
2,396,079
|
|
|
|
69.50
|
%
|
Pre-RTO
Shareholders
|
|
|
422,756
|
|
|
|
423
|
|
|
|
-
|
|
|
|
2.00
|
%
|
Advisors
& Consultants
|
|
|
2,161,052
|
|
|
|
2,161
|
|
|
|
-
|
|
|
|
10.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Investors
|
|
|
3,863,636
|
|
|
|
3,864
|
|
|
|
13,043,964
|
|
|
|
18.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,136,392
|
|
|
$
|
21,137
|
|
|
$
|
15,440,043
|
|
|
|
100.00
|
%
|
11.
|
Commitments of Statutory
Reserve
|
In
compliance with PRC laws, the Company is required to appropriate a portion of
its net income to its statutory reserve up to a maximum of 50% of an
enterprise’s registered capital in the PRC. The Company had future
unfunded commitments, as provided below.
|
|
At
|
|
|
At
|
|
|
At
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
PRC
Registered Capital
|
|
|
15,566,849
|
|
|
|
3,642,866
|
|
|
|
2,413,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Statutory Reserve Ceiling based on 50% of Registered
Capital
|
|
|
7,783,424
|
|
|
|
1,821,433
|
|
|
|
1,206,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
:
- Retained
Earnings appropriated to Statutory Reserve
|
|
|
(2,077,488
|
)
|
|
|
(751,444
|
)
|
|
|
(751,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
Commitment Outstanding
|
|
$
|
5,705,936
|
|
|
$
|
1,069,989
|
|
|
$
|
455,232
|
|
Advertising
expenses were $2,629,853, $3,611,666, and $869 for the years ended December 31,
2008, 2007, and 2006, respectively.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
The
Company’s different operating subsidiaries are subject to different income tax
regulations under PRC law.
The
operating subsidiary, Meat Company, has been given special tax-free status by
the PRC government because of the Company standing as leader in its industry in
Dalian; therefore, no provision for income tax in the PRC was made for years
2008, 2007, and 2006.
The
Company’s operating subsidiary, Food Company, has provided provisions for income
taxes in years 2008, 2007, and 2006, of $508,844, $967,539, and
$400,605, respectively.
The
Company’s operating subsidiary, Sales Company, has not provided provisions for
income taxes in years 2008, 2007, and 2006 as it has incurred operating losses
for those respective years. The Company has determined that deferred
tax assets arising from net operating losses in prior years may not realized,
accordingly, the company has recognized a tax expense to the income statement in
the amount of $11,246.
After
adjusting for special tax-free status and net operating loss, the consolidated
taxable earnings were determined, and the results were as follows:
-
i.
|
2007
|
Tax
expense
|
(520,089)
|
ii.
|
2006
|
Tax
expense
|
(967,539)
|
iii.
|
2005
|
Tax
benefit
|
1,609
|
Beginning
December 31, 2007, the Company’s foreign subsidiaries became subject to U.S.
income tax liability; however, the tax is deferred until foreign source income
is repatriated to the Company and the Company has not currently determined when
foreign source income will be repatriated. Accordingly, the company
has not made any provisions for U.S. income tax liability.
On March
16, 2007, the PRC government passed new tax legislation that repealed
preferential tax treatment for foreign investment enterprises in the PRC and
enacted new tax regulations. Under such regulations, with certain
exceptions, both domestic and foreign enterprises will be taxed at a standard
enterprise income tax rate of 25%. The Company’s two operating
subsidiaries, Food Company, and Sales Company are subject to the 25% income
tax rate beginning January 1, 2008. Based on current PRC legislation,
Meat Company should be expected to continue benefiting from a tax
holiday.
It is
company policy to develop plant facilities based on availability of cash
resources without incurring capital commitments. Therefore, the
Company did not have any capital commitments existing at December 31,
2008.
On
December 19, 2007, the Company entered into a hog purchase agreement whereby the
Group will provide at fair market price a minimum number of hogs to the
Company. At December 31, 2008, the Company expects minimum quantities
of hogs detailed in the following table:
Year
|
|
Hogs
|
|
|
Price Per Hog
|
|
|
Amount
|
|
2009
|
|
|
800,000
|
|
|
$
|
187.13
|
|
|
$
|
149,704,306
|
|
2010
|
|
|
800,000
|
|
|
$
|
205.84
|
|
|
|
164,674,737
|
|
|
|
|
|
|
|
|
|
|
|
$
|
314,379,043
|
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
The
Company believes that the fair market price of the hogs will increase by 10%
each year. The assumption of 10% reflects that Company expectations
in regards to inflation, and the rising costs of inputs in breeding
livestock.
The
Company individually tracks the performance of its three operating subsidiaries
Meat Company, Food Company, and Sales Company. Meat Company is
primarily engaged in the slaughter and processing of pork livestock for
wholesale and retail distribution. Food Company is primarily engaged
in the production of pork-based food products, such as sausages and cured meats,
for retail distribution. Sales Company is primarily engaged in the
sale and distribution of products produced by Food Company and Meat
Company.
The chief
operating decision maker is the Chief Executive Officer of the
Company. He evaluates each operating segment on the following
measures of profit or loss: gross profit, operating income, and earnings before
taxes, and net income. When he makes decisions on the strategic plans
of each operating segment, he considers the foregoing measures of profit or loss
and their impact on the overall performance of the Company as a
whole.
Below is
a presentation of the Company’s results of operations and financial position for
its operating subsidiaries at December 31, 2008, 2007, and 2006 and for the
years then ended. The Company has also provided reconciling
adjustments with the Company and its intermediate holding companies Dalian
Chuming Precious Sheen Investments Consulting Ltd. (“Chuming WFOE”) and Precious
Sheen Investments Ltd (PSI).
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
Chuming
WFOE,
|
|
|
|
|
For
the year ended
|
|
Meat
|
|
|
Food
|
|
|
Sales
|
|
|
PSI,
&
|
|
|
|
|
December
31, 2008
|
|
Company
|
|
|
Company
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
Sales
|
|
$
|
165,540,800
|
|
|
$
|
20,275,953
|
|
|
$
|
82,629,122
|
|
|
$
|
(92,085,862
|
)
|
|
$
|
176,360,013
|
|
Cost
of Sales
|
|
|
143,467,926
|
|
|
|
17,018,115
|
|
|
|
81,394,069
|
|
|
|
(92,085,862
|
)
|
|
|
149,794,249
|
|
Gross
Profit
|
|
|
22,072,873
|
|
|
|
3,257,837
|
|
|
|
1,235,054
|
|
|
|
-
|
|
|
|
26,565,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(Loss)/Profit
|
|
|
19,835,123
|
|
|
|
2,038,279
|
|
|
|
(2,475,995
|
)
|
|
|
(654,670
|
)
|
|
|
18,742,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
(684,408
|
)
|
|
|
(95,144
|
)
|
|
|
(6,952
|
)
|
|
|
(10,598,879
|
)
|
|
|
(11,385,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss)
before Tax
|
|
|
19,150,715
|
|
|
|
1,943,135
|
|
|
|
(2,482,947
|
)
|
|
|
(11,253,549
|
)
|
|
|
7,357,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income
Tax Expense)
|
|
|
-
|
|
|
|
(508,844
|
)
|
|
|
(11,246
|
)
|
|
|
-
|
|
|
|
(520,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
|
19,150,715
|
|
|
|
1,434,292
|
|
|
|
(2,494,193
|
)
|
|
|
(11,253,549
|
)
|
|
|
6,837,265
|
|
Eliminated Intercompany Sales of Products Sold during
|
|
Year ended December 31, 2008
|
|
Sold
From:
|
|
Sold
To:
|
|
Amount
|
|
Food
Company
|
|
Sales
Company
|
|
$
|
15,614,380
|
|
Meat
Company
|
|
Sales
Company
|
|
|
66,171,117
|
|
Meat
Company
|
|
Food
Company
|
|
|
10,300,365
|
|
|
|
|
|
$
|
92,085,862
|
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
Chuming
WFOE,
|
|
|
|
|
For
the year ended
|
|
Meat
|
|
|
Food
|
|
|
Sales
|
|
|
PSI,
&
|
|
|
|
|
December
31, 2007
|
|
Company
|
|
|
Company
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
Sales
|
|
$
|
113,777,514
|
|
|
$
|
18,224,294
|
|
|
$
|
26,110,284
|
|
|
$
|
(33,416,057
|
)
|
|
$
|
124,696,035
|
|
Cost
of Sales
|
|
|
99,779,158
|
|
|
|
12,672,576
|
|
|
|
25,343,231
|
|
|
|
(33,416,057
|
)
|
|
|
104,378,908
|
|
Gross
Profit
|
|
|
13,998,356
|
|
|
|
5,551,718
|
|
|
|
767,053
|
|
|
|
-
|
|
|
|
20,317,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(Loss)/Profit
|
|
|
10,842,549
|
|
|
|
3,624,143
|
|
|
|
(368,002
|
)
|
|
|
(27,261
|
)
|
|
|
14,071,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
(691,006
|
)
|
|
|
(712,807
|
)
|
|
|
(47,929
|
)
|
|
|
-
|
|
|
|
(1,451,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss)
before Tax
|
|
|
10,151,543
|
|
|
|
2,911,336
|
|
|
|
(415,931
|
)
|
|
|
(27,261
|
)
|
|
|
12,619,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income
Tax Expense)/Credit
|
|
|
-
|
|
|
|
967,539
|
|
|
|
-
|
|
|
|
-
|
|
|
|
967,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
$
|
10,151,543
|
|
|
$
|
1,943,797
|
|
|
$
|
(415,931
|
)
|
|
$
|
(27,261
|
)
|
|
$
|
11,652,147
|
|
Eliminated
Intercompany Sales of Products Sold during
|
|
Year
ended December 31, 2007
|
|
Sold
From:
|
|
Sold
To:
|
|
Amount
|
|
Food
Company
|
|
Sales
Company
|
|
$
|
4,221,813
|
|
Meat
Company
|
|
Sales
Company
|
|
|
20,435,143
|
|
Meat
Company
|
|
Food
Company
|
|
|
8,759,101
|
|
|
|
|
|
$
|
33,416,057
|
|
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
Chuming
WFOE,
|
|
|
|
|
For
the year ended
|
|
Meat
|
|
|
Food
|
|
|
Sales
|
|
|
PSI,
&
|
|
|
|
|
December
31, 2006
|
|
Company
|
|
|
Company
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
Sales
|
|
$
|
64,169,418
|
|
|
$
|
7,351,567
|
|
|
$
|
17,277,285
|
|
|
$
|
(18,401,830
|
)
|
|
$
|
70,396,439
|
|
Cost
of Sales
|
|
|
54,146,375
|
|
|
|
4,855,542
|
|
|
|
16,923,680
|
|
|
|
(18,130,743
|
)
|
|
|
57,794,853
|
|
Gross
Profit
|
|
|
10,023,044
|
|
|
|
2,496,025
|
|
|
|
353,605
|
|
|
|
(271,087
|
)
|
|
|
12,601,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(Loss)/Profit
|
|
|
9,253,704
|
|
|
|
1,930,499
|
|
|
|
(1,203,200
|
)
|
|
|
(271,087
|
)
|
|
|
9,709,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
(849,450
|
)
|
|
|
(718,182
|
)
|
|
|
(15,522
|
)
|
|
|
-
|
|
|
|
(1,583,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss)
before Tax
|
|
|
8,404,254
|
|
|
|
1,212,317
|
|
|
|
(1,218,722
|
)
|
|
|
(271,087
|
)
|
|
|
8,126,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income
Tax Expense)/Credit
|
|
|
-
|
|
|
|
400,065
|
|
|
|
(401,674
|
)
|
|
|
-
|
|
|
|
(1,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
$
|
8,404,254
|
|
|
$
|
812,252
|
|
|
$
|
(817,049
|
)
|
|
$
|
(271,087
|
)
|
|
$
|
8,128,371
|
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Eliminated
Intercompany Sales of Products Sold during
|
|
Year
ended December 31, 2006
|
|
Sold
From:
|
|
Sold
To:
|
|
Amount
|
|
Food
Company
|
|
Sales
Company
|
|
$
|
3,735,082
|
|
Meat
Company
|
|
Sales
Company
|
|
|
12,709,432
|
|
Meat
Company
|
|
Food
Company
|
|
|
1,686,229
|
|
|
|
|
|
$
|
18,130,743
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
Chuming
WFOE,
|
|
|
|
|
At
|
|
Meat
|
|
|
Food
|
|
|
Sales
|
|
|
PSI,
&
|
|
|
|
|
December
31, 2008
|
|
Company
|
|
|
Company
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
Current
Assets
|
|
|
74,713,237
|
|
|
|
21,126,826
|
|
|
|
41,826,291
|
|
|
|
(89,504,485
|
)
|
|
|
48,161,868
|
|
Non
Current Assets
|
|
|
22,624,642
|
|
|
|
19,570,329
|
|
|
|
325,480
|
|
|
|
1,088
|
|
|
|
42,521,540
|
|
Total
Assets
|
|
$
|
97,337,879
|
|
|
$
|
40,697,155
|
|
|
$
|
42,151,770
|
|
|
$
|
(89,503,397
|
)
|
|
$
|
90,683,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
42,293,137
|
|
|
|
34,796,536
|
|
|
|
45,747,946
|
|
|
|
(99,079,857
|
)
|
|
|
23,757,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
42,293,137
|
|
|
|
34,796,536
|
|
|
|
45,747,946
|
|
|
|
(99,079,857
|
)
|
|
|
23,757,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Assets
|
|
|
55,044,742
|
|
|
|
5,900,619
|
|
|
|
(3,596,176
|
)
|
|
|
9,576,460
|
|
|
|
66,925,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
&
Net Assets
|
|
$
|
97,337,879
|
|
|
$
|
40,697,155
|
|
|
$
|
42,151,770
|
|
|
$
|
(89,503,397
|
)
|
|
$
|
90,683,408
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
Chuming
WFOE,
|
|
|
|
|
At
|
|
Meat
|
|
|
Food
|
|
|
Sales
|
|
|
PSI,
&
|
|
|
|
|
December
31, 2007
|
|
Company
|
|
|
Company
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
Current
Assets
|
|
$
|
36,387,010
|
|
|
$
|
19,361,784
|
|
|
$
|
24,500,857
|
|
|
$
|
(52,282,684
|
)
|
|
$
|
27,966,967
|
|
Non
Current Assets
|
|
|
22,256,798
|
|
|
|
16,228,202
|
|
|
|
167,961
|
|
|
|
-
|
|
|
|
38,652,961
|
|
Total
Assets
|
|
$
|
58,643,808
|
|
|
$
|
35,589,986
|
|
|
$
|
24,668,818
|
|
|
$
|
(52,282,684
|
)
|
|
$
|
66,619,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
$
|
25,289,655
|
|
|
$
|
31,425,683
|
|
|
$
|
25,664,664
|
|
|
$
|
(64,697,884
|
)
|
|
$
|
17,682,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
25,289,655
|
|
|
|
31,425,683
|
|
|
|
25,664,664
|
|
|
|
(64,697,884
|
)
|
|
|
17,682,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Assets
|
|
|
33,354,152
|
|
|
|
4,164,303
|
|
|
|
(995,846
|
)
|
|
|
12,415,200
|
|
|
|
48,937,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
&
Net Assets
|
|
$
|
58,643,808
|
|
|
$
|
35,589,986
|
|
|
$
|
24,668,818
|
|
|
$
|
(52,282,684
|
)
|
|
$
|
66,619,928
|
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
Chuming
WFOE,
|
|
|
|
|
At
|
|
Meat
|
|
|
Food
|
|
|
Sales
|
|
|
PSI,
&
|
|
|
|
|
December
31, 2006
|
|
Company
|
|
|
Company
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
Current
Assets
|
|
$
|
27,676,447
|
|
|
$
|
18,497,318
|
|
|
$
|
27,870,908
|
|
|
$
|
(51,181,557
|
)
|
|
$
|
22,863,116
|
|
Non
Current Assets
|
|
|
21,257,469
|
|
|
|
12,561,441
|
|
|
|
163,596
|
|
|
|
-
|
|
|
|
33,982,507
|
|
Total
Assets
|
|
$
|
48,933,916
|
|
|
$
|
31,058,759
|
|
|
$
|
28,034,504
|
|
|
$
|
(51,181,557
|
)
|
|
$
|
56,845,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
16,426,173
|
|
|
|
22,340,903
|
|
|
|
28,560,949
|
|
|
|
(50,564,504
|
)
|
|
|
16,763,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
27,619,010
|
|
|
|
29,056,605
|
|
|
|
28,560,949
|
|
|
|
(50,564,504
|
)
|
|
|
34,672,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Assets
|
|
|
21,314,906
|
|
|
|
2,002,154
|
|
|
|
(526,445
|
)
|
|
|
(617,053
|
)
|
|
|
22,173,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
&
Net Assets
|
|
$
|
48,933,916
|
|
|
$
|
31,058,759
|
|
|
$
|
28,034,504
|
|
|
$
|
(51,181,557
|
)
|
|
$
|
56,845,623
|
|
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
Components
of basic and diluted earnings per share were as follows: -
|
|
For
the
|
|
|
For
the
|
|
|
For
the
|
|
|
|
year
ended
|
|
|
year
ended
|
|
|
year
ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (A)
|
|
$
|
6,837,265
|
|
|
$
|
11,652,147
|
|
|
$
|
8,128,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Weighted Average Shares Outstanding (B)
|
|
|
17,272,756
|
|
|
|
13,409,120
|
|
|
|
13,409,120
|
|
Dilutive
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
-Addition
to Common Stock from Exercise of Placement Warrants
|
|
|
46,364
|
|
|
|
-
|
|
|
|
-
|
|
-Addition
to Common Stock from Contingent Shares Held in Escrow (Please refer to
Note 18)
|
|
|
3,863,636
|
|
|
|
3,863,636
|
|
|
|
3,863,636
|
|
Diluted
Weighted Average Shares Outstanding: (C)
|
|
|
21,182,756
|
|
|
|
17,272,756
|
|
|
|
17,272,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
(A)/(B)
|
|
$
|
0.40
|
|
|
$
|
.87
|
|
|
$
|
0.61
|
|
-Diluted
(A)/(C)
|
|
$
|
0.32
|
|
|
$
|
.67
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
17,272,756
|
|
|
|
13,409,120
|
|
|
|
13,409,120
|
|
-Diluted
|
|
|
21,182,756
|
|
|
|
17,272,756
|
|
|
|
17,272,756
|
|
17.
|
Concentration of
Risk
|
The
Company had concentrations of risk in demand for its products because its sales
were made to a small number of customers.
The
Company is subject to concentration of supply shortage risk because it purchases
its materials for resale from a few select vendors. The Company’s availability
of supply is correlated with the few select vendors’ ability to meet the market
demand. In 2007, the entire industry in the PRC faced a shortage in
the supply of hogs.
18.
|
Financing
Transaction
|
|
|
On
December 31, 2007, the Company, a Nevada corporation (“Energroup” or the
“Company”), acquired Precious Sheen Investments Ltd. (“PSI”) in a reverse
take-over transaction, by executing a Share Exchange Agreement (“Exchange
Agreement”) by and among Energroup, PSI, and all of the shareholders of
PSI’s
issued
and outstanding share capital (the “PSI Shareholders”). PSI owned 100% of the
equity in Chuming WFOE. Chuming WFOE is a holding company for the following
three operating subsidiaries: (i) Meat Company, (ii) Food Company, and (iii)
Sales Company, each of which is a limited liability company headquartered in,
and organized under the laws of, China (also referred to elsewhere as the
“Chuming Operating Subsidiaries”).
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
As a
result of the reverse take-over transaction, PSI’s Shareholders became
Energroup’s controlling shareholders and PSI became Energroup’s wholly-owned
subsidiary. As a result of PSI becoming Energroup’s wholly-owned subsidiary,
Energroup acquired the business and operations of Chuming and the Chuming
Operating Subsidiaries.
Under the
Exchange Agreement, Energroup completed the acquisition of all of the issued and
outstanding shares of PSI through the issuance of 16,850,000 restricted shares
of common stock of Energroup to PSI’s Shareholders. Immediately prior to the
Exchange Agreement transaction, the Company had 422,756 shares of common stock
issued and outstanding. Immediately after the issuance of the shares to PSI’s
Shareholders, the Company had 17,272,756 shares of common stock issued and
outstanding. The 422,756 shares of PSI were cancelled and 17,272,756 shares of
Energroup were issued to reflect this reverse take-over
transaction.
Concurrently
with the Exchange Agreement, Energroup also entered into a Securities Purchase
Agreement (the “Purchase Agreement”) pursuant to which Energroup agreed to issue
and sell 3,863,635 shares of its common stock to ten accredited investors for an
aggregate purchase price of $17,000,000 or $4.40 per share (the “Financing”).
The closing of the Financing coincided with the Closing of the reverse take-over
transaction.
In
connection with the sales of securities to accredited investors under the
securities purchase agreement, Hunter Wise Financial Group, LLC (the “Placement
Agent”), was compensated with a commission of $1,190,000 which is equal to 7.00%
of the aggregate purchase price and a warrant to purchase the 386,364 shares of
the Company’s common stock at an exercise price of $4.40 per share. At
December 31, 2007, the Company had adequate authorized capital to issue common
shares upon the exercise of the warrant.
At
December 31, 2008, the total number of shares outstanding, on a fully diluted
basis, is shown in the following table:
i.
|
Common
shares outstanding prior to offering of securities
|
|
|
17,272,756
|
|
ii.
|
Common
shares issued under securities purchase agreement
|
|
|
3,863,636
|
|
iii.
|
Common
shares issuable upon exercise of placement agent warrants
|
|
|
386,364
|
|
|
|
|
|
21,522,756
|
|
Concurrent
with the Company’s financing transaction, the Company agreed to register for
resale the common shares that were sold under the securities purchase
agreement. Pursuant to filing a Form S-1 registration statement with
the U.S. Securities and Exchange Commission, the Company entered into a
Registration Rights Agreement with the Investors. The agreement calls
for liquidated damages to be paid by the Company, if in the event the
registration statement is not declared effective within 135 days of the closing
of the financing transaction. The liquidated damages will be 1% of
the total financing amount in cash per month for each month after the 135
period. The agreement states a maximum penalty of $1.70 million or
10% of the financing amount. At December 31, 2007, the Company
accounted for the liability under the registration rights agreement in
accordance with FASB Staff Position No. EITF 00-19-2
Accounting for Registration Payment
Arrangements
. Under such accounting treatment, the liquidated
damages are accounted for as a reduction of the proceeds. In
asserting the most conservative position, the Company has accrued the maximum
liability of $1.7 million and is carrying that balance in the accrued
liabilities account. In the event that the registration becomes
effective in a timeframe that is earlier than February 15, 2009, the portion
that is not legally owed, or in the event that investors waive any liquidating
damages, the accrual will be reversed and the funds will be added back to the
Company’s additional paid in capital.
Energroup
Holdings Corporation
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2008, 2007, and 2006
In
connection with a make good agreement related to the financing transaction on
December 31, 2007, the Company’s Chairman and CEO, Mr. Shi Huashan placed in
escrow 3,863,636 shares, which were beneficially owned by him. These
shares are to be released back to him if the Company meets the following
earnings targets of $15.9 million, and $20.9 million in after-tax net income for
the years ended December 31, 2008, and 2009 respectively. In the
event that the Company does not meet the aforementioned financial targets, the
escrowed shares will be released, on a pro-rata basis, to the investors in the
financing transaction. In accordance with SFAS 128,
Earnings Per Share
, for the
sake of calculating the Company’s earnings per share, the Company has accounted
for the 3,863,636 escrowed shares as contingently issuable shares as such they
are not included in the weighted average basic shares outstanding but are
included in the weighted average diluted shares outstanding. Please
refer to Note 16.
In
accordance with Topic 5.T of the Staff Accounting Bulletins (SAB 79), the
Company expects to record a compensatory expense for the shares upon their
release from escrow. Whether the shares are released to the
accredited investors or released to Mr. Shi the Company will record an expense
with a corresponding credit to the Company’s contributed paid in
capital. The Company anticipates that compensatory expense to be
recognized in future operating periods could be in a range between $17.0 million
to $29.2 million. The Company approximates this range based on the
per share offering price of $4.40 at December 31, 2007 and a potential future
stock price of $7.57 based on a $20.0 million net income (short of the target of
$20.9 million net income) with a price-to-earnings ratio of 8.0, which is
comparable to the valuation used in the offering at December 31,
2007.
For the
year ended December 31, 2008, the Company recorded an expense for the expected
release of shares deposited in the escrow account. The Company
expects that 1,931,818 shares will be released from escrow. The
amount of expense recorded was $10,622,294. The impact on earnings
per share, on a basic and diluted basis, was $0.61 and $0.50,
respectively.
19.
|
Change of Chief Financial
Officer
|
The
Company filed an 8-K on December 29, 2008 in connection with the change of Chief
Financial Officer where Mr. Zhang Yizhao resigned his position and Ms. Wang Shu
was appointed to this position that she had previously held until September 28,
2008. Mr. Zhang Yizhao's total remuneration during his term of service at
the Company was approximately $71,000 (RMB 500,000).
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on the 6th day of May,
2009.
|
|
|
|
ENERGROUP
HOLDINGS CORPORATION
|
|
|
|
|
|
|
By:
|
/s/
Shi Huashan
|
|
|
|
Shi
Huashan
|
|
|
|
President,
Chief Executive Officer
and
Chairman of the Board
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
Chief
Executive Officer,
|
|
May
6, 2009
|
Shi
Huashan
|
|
President,
and Director
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Wang Shu
|
|
|
|
|
Wang
Shu
|
|
Chief
Financial Officer and Director
(Principal
Financial and Accounting Officer)
|
|
May
6, 2009
|
|
|
|
|
|
|
|
Director
|
|
May
6, 2009
|
Wang
Shuying
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
May
6, 2009
|
Ma
Fengqin
|
|
|
|
|