RENMIN TIANLI GROUP, INC. - FORM 10-Q

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EX-31.1 - RENMIN TIANLI GROUP, INC.	e612250_ex31-1.htm
EX-31.2 - RENMIN TIANLI GROUP, INC.	e612250_ex31-2.htm
EX-32.2 - RENMIN TIANLI GROUP, INC.	e612250_ex32-2.htm
EXCEL - IDEA: XBRL DOCUMENT - RENMIN TIANLI GROUP, INC.	Financial_Report.xls
EX-32.1 - RENMIN TIANLI GROUP, INC.	e612250_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2014

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number 001-34799

TIANLI AGRITECH, INC.

(Exact name of registrant as specified in its charter)


British Virgin Islands		Not applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

SuiteK, 12th Floor, Building A, Jiangjing Mansion

228 Yanjiang Ave., Jiangan District, Wuhan City

Hubei Province, China 430010

(Address of principal executive offices and zip code)

(+86) 27 8274 0726

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.		Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.


Large accelerated filer	¨		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 9, 2014, the Registrant had outstanding 19,564,000 shares of common stock, par value $0.001 per share.

TIANLI AGRITECH, INC.

FORM 10-Q

INDEX


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		2
PART I FINANCIAL INFORMATION		4
Item 1.	Financial Statements.	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	34
Item 4.	Controls and Procedures	34
PART II OTHER INFORMATION		35
Item 1A.	Risk Factors	35
Item 6.	Exhibits	35

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains certain statements of a forward-looking nature. Such forward-looking statements, including but not limited to projected growth, trends 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 the control of the Company. Forward-looking statements typically are identified by the use of terms such as “look,” “may,” “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 those set forth herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 13, 2014.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by the federal securities laws, the Company undertakes no obligation to update forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

NASDAQ CORPORATE GOVERNANCE

We are a foreign private issuer, having been organized under the laws of the British Virgin Islands (“BVI”). Nasdaq Marketplace Rule 5615(a)(3) permits a foreign private issuer to follow its home country practice in lieu of most of the requirements of the 5600 Series of the NASDAQ Marketplace Rules. In order to claim such an exemption, we must disclose the significant differences between our corporate governance practices and those required to be followed by U.S. domestic issuers under NASDAQ’s corporate governance requirements.

Shareholder Approval Requirements

NASDAQ Marketplace Rule 5635 requires each issuer to obtain shareholder approval prior to certain dilutive events, including a transaction other than a public offering involving the sale of 20% or more of the issuer’s common shares outstanding prior to the transaction for less than the greater of book or market value of the stock and a transaction that would result in a change in control of the issuer. There are no comparable provisions under the laws of the BVI and we have determined to not follow these NASDAQ Marketplace Rules.

From time to time we may consider whether it is appropriate to follow other requirements of the 5600 Series of the NASDAQ Marketplace Rules. Should we determine not to follow one or more of such Rules in favor of the laws of the BVI, we will advise our shareholders before doing so.

Table of Contents

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements.

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(AMOUNTS EXPRESSED IN US DOLLARS)

	March 31, 2014		December 31, 2013
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	19,531,022	$	10,087,694
Accounts receivable		181,849		256,607
Inventories		9,985,633		11,484,786
Advances to suppliers		2,129,898		1,612,492
Prepaid expenses		153,436		204,106
Other receivables		281,889		1,181,078
Total Current Assets		32,263,727		24,826,763

Long-term prepaid expenses		1,571,432		1,606,188
Plant and equipment, net		22,434,283		23,185,732
Construction in progress		50,471		50,897
Biological assets, net		2,851,542		3,276,840
Intangible assets, net		1,455,399		1,480,631
Total Assets	$	60,626,854	$	54,427,051

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term loans	$	7,952,093	$	6,382,561
Accounts payable and accrued liabilities		7,497		48,896
Other payables		3,146,825		3,309,246
Due to related party		127,978		139,430
Total Liabilities		11,234,393		9,880,133

Stockholders’ Equity:
Common stock ($0.001 par value, 50,000,000 shares
authorized, 16,964,000 shares and 13,964,000 shares issued and outstanding on March 31, 2014 and December 31, 2013)		16,964		13,964
Additional paid in capital		23,291,398		18,094,200
Statutory surplus reserves		2,416,647		2,416,647
Retained earnings		19,966,549		19,538,507
Accumulated other comprehensive income		3,700,903		4,046,055
Stockholders’ Equity – Tianli Agritech Inc., and Subsidiaries		49,392,461		44,109,373
Noncontrolling interest		-		437,545
Total Stockholders’ Equity		49,392,461		44,546,918
Total Liabilities and Stockholders’ Equity	$	60,626,854	$	54,427,051

See notes to financial statements.

Table of Contents

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(AMOUNTS EXPRESSED IN US DOLLARS)

(UNAUDITED)

	For the Three Months Ended March 31,
	2014			2013
Revenue	$	9,716,629		$	7,386,534
Cost of goods sold		8,254,511			6,581,233
Gross profit		1,462,118			805,301

General and administrative expenses		773,411			902,498
Selling expenses		282,767			36,042
Operating expenses		1,056,178			938,540

Income (loss) from operations		405,940			(133,239	)

Other income (expense):
Interest expenses and bank charges		(89,676	)		(166,817	)
Subsidy income		-			95,589
Other income (expense)		(15,239	)		25,904
Total other income (expense)		(104,915	)		(45,324	)

Income (loss) before income taxes		301,025			(178,563	)
Income taxes		-			-
Net income (loss)		301,025			(178,563	)


Add:
Net loss attributable to the noncontrolling interest		(127,017	)		(68,495	)
Net income (loss) attributable to Tianli Agritech Inc. and Subsidiaries	$	428,042		$	(110,068	)

Earnings (loss) per share attributable to the stockholders of Tianli Agritech Inc. and Subsidiaries – Basic and Diluted	$	0.03		$	(0.02	)
Weighted average shares outstanding – Basic and Diluted		13,964,000			11,194,000


Comprehensive income:
Net income (loss) attributable to Tianli Agritech Inc. and Subsidiaries	$	428,042		$	(110,068	)
Unrealized foreign currency translation adjustment		(365,368	)		252,565
Comprehensive income	$	62,674		$	142,497

See notes to financial statements.

Table of Contents

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS EXPRESSED IN US DOLLARS)

(UNAUDITED)

	For the Three Months Ended March 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	301,025		$	(178,563	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		884,027			800,471
Amortization of prepaid rental expenses and long-term prepaid expenses		110,316			100,446
Provision for doubtful accounts		8,486			-
Loss from inventory LCM		86,917			-
Changes in operating assets and liabilities:
Accounts receivable		64,678			(28,681	)
Inventories		1,326,872			(317,839	)
Advances to suppliers		(534,902	)		79
Prepaid expenses		(39,488	)		-
Other receivables		896,107			7,003
Accounts payable and accrued liabilities		(41,301	)		(4,196	)
Other payables		(40,578	)		546,572
Net cash provided by operating activities		3,022,159			925,292

CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchase of noncontrolling interest		(1,090,114	)		-
Purchase of biological assets		-			(58,570	)
Purchase of plant and equipment		(3,467	)		(432,941	)
Net cash used in investing activities		(1,093,581	)		(491,511	)

CASH FLOWS FROM FINANCING ACTIVITIES
Due to related party		(10,990	)		-
Proceeds from capital contribution		6,000,000			-
Proceeds from short-term loans		1,635,163			-
Net cash provided by financing activities		7,624,173			-

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(109,423	)		65,687
NET INCREASE IN CASH		9,443,328			499,468
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		10,087,694			7,477,205
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	19,531,022		$	7,976,673


SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest expense paid	$	146,661		$	173,021
Income tax paid	$	-		$	-

See notes to financial statements.

Table of Contents

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 1—ORGANIZATION AND DESCRIPTION OF BUSINESS

The consolidated financial statements include the financial statements of Tianli Agritech, Inc. (referred to herein as “Tianli”); its wholly-owned subsidiary, HC Shengyuan Limited, a Hong Kong limited liability company (“HCS”); HCS’s wholly-owned subsidiary, Wuhan Fengxing Agricultural Science and Technology Development Co., Ltd., a Chinese limited liability company and a wholly foreign owned entity (“WFOE”); WFOE’s variable interest entity, Wuhan Fengze Agricultural Science and Technology Development Co., Ltd., a Chinese limited liability company (“Fengze” or the “VIE”), where WFOE is deemed the primary beneficiary; and Fengze’s subsidiary, Hubei Tianzhili Breeder Hog Co., Ltd., a Chinese limited liability company (“Tianzhili”). All of Tianli’s operations are conducted by Fengze and Tianzhili whose results of operations are consolidated into those of Tianli. HCS and WFOE are sometimes referred to as the “subsidiaries”. Tianli, its consolidated subsidiaries and Fengze and Tianzhili are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.

Tianli was incorporated in the British Virgin Islands on November 9, 2009 as a limited liability company. The Company is engaged in the business of breeding, raising, and selling hogs for use in China’s pork meat production and hog breeding by other hog producers. The Company also sold pork products through its retail operation operated until June 2012. The Company operates eleven production farms in areas around Wuhan City, within Hubei Province, People’s Republic of China (“PRC”). Its wholly owned subsidiary, HCS, was incorporated in Hong Kong on November 24, 2009 as a limited liability company. Other than its equity interest in HCS, Tianli does not own any assets or conduct any operations.

WFOE was incorporated in Wuhan City on June 2, 2005. On November 26, 2009, HCS entered into a stock purchase agreement with WFOE where HCS would acquire a 100% equity interest of WFOE. On January 19, 2010, the Wuhan Municipal Commission of Commerce approved the ownership change. On January 27, 2010, the ownership change was declared effective by the Wuhan Administrator for Industry & Commerce. HCS acquired WFOE and became the holder of 100% of the equity interest of WFOE, and WFOE effectively became the wholly-owned subsidiary of the Company. Other than the equity interest in WFOE, HCS does not own any assets or conduct any operations.

WFOE conducts its business through Fengze, which is consolidated as a variable interest entity, as discussed below.

Chinese laws and regulations currently do not prohibit or restrict foreign ownership in hog breeding businesses. However, Chinese laws and regulations do prevent direct foreign investment in certain industries. On December 1, 2009, to protect the Company’s stockholders from possible future foreign ownership restrictions, Fengze and all of the stockholders of Fengze (“Principal Stockholders”) entered into an Entrusted Management Agreement (the “EMA”) with WFOE, which provides that WFOE will be fully and exclusively responsible for the management of Fengze. WFOE is also entitled to receive the residual return of Fengze. As a result of the agreement, WFOE will absorb 100% of the expected losses and gains of Fengze, which results in WFOE being the primary beneficiary of Fengze.

WFOE also entered into a Pledge of Equity Agreement (the “PEA”) with the Principal Stockholders, who pledged all their equity interest in these entities to WFOE. The PEA, which was entered into by each Principal Shareholder, pledged each of the Principal Stockholders’ equity interest in WFOE as a guarantee for the entrustment payment under the EMA.

In addition, WFOE entered into an Option Agreement (the “OA”) to acquire the Principal Stockholders’ equity interest in these entities if or when permitted by the PRC laws.

Table of Contents

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 1—ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

Collectively, the EMA, PEA and OA are referred to as the Exclusive Agreements, based upon which the Company consolidates the variable interest entity, Fengze, as required by generally accepted accounting principles in the United States (“US GAAP”), because the Company is the primary beneficiary of the VIE. The profits and losses of Fengze are allocated to WFOE and thus to the Company based upon the EMA.

The Company completed its Initial Public Offering (“IPO”) on July 19, 2010, whereby it issued 2,000,000 shares of its common stock at a price of $6.00 per share.

On May 12, 2011, the Company acquired its eleventh farm from An Puluo Development Co. (“An Puluo”), which is located in Enshi Tujia and Miao Autonomous Prefecture of Hubei Province, for a purchase price of $2.2 million.

On June 22, 2011, Fengze established Hubei Tianzhili Breeder Hog Co., Ltd., a wholly owned subsidiary (“Tianzhili”), in Enshi City, Hubei Province as a limited liability company. Tianzhili engaged in the business of raising and selling black hogs through several major Chinese retail channels in cooperation with An Puluo. This collaborative agreement commenced in the third quarter of 2011 and was terminated as of June 15, 2012.

On November 5, 2012, XMRJ LLP (“XMRJ”), a limited partner enterprise formed under Chinese law that engages in equity investments in China, agreed to invest RMB 10,000,000, or approximately $1,600,000, in Tianzhili. Until such investment, Tianzhili was a wholly-owned subsidiary of Fengze. Tianzhili conducts our black hog breeding operations. In consideration for its commitment to make the investment and an interest free loan, XMRJ received a 40% equity interest in Tianzhili. As of December 31, 2012, Tianzhili received $1,057,636 or RMB 6,666,670 from XMRJ. On March 22nd, 2014, Fengze entered into an equity purchase agreement with XMRJ to purchase the 40% minority equity interest in Tianzhili for RMB 6,666,700 or $1,090,114. As a result of this purchase, Tianzhili became the wholly owned subsidiary of the Company.

On January 16, 2013, Tianzhili established Hubei Tianzhili (Hefeng) Breeder Hog Co., Ltd (“Hefeng”), a wholly owned subsidiary of Tianzhili, in Enshi Tujia and Miao Autonomous Prefecture of Hubei Province, as a limited liability company. Hefeng will be engaged in managing black hog farming and operations in Hefeng county of Enshi Tujia and Miao Autonomous Prefecture.

Table of Contents

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The Company’s functional currency is the Chinese Renminbi (“RMB”); however the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”). All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights and biological assets, and assumptions used in assessing impairment for long-term assets.

Principles of Consolidation

Pursuant to US GAAP, Fengze is the VIE of the Company and the Company is the primary beneficiary of the VIE. Accordingly, the VIE has been consolidated in the Company’s financial statements.

Based on various VIE agreements, the Company is able to exercise control over the VIE, and obtain the financial interests such as the periodic income of the VIE through the EMA, PEA, and OA and to acquire the net assets of VIE through purchase of their equities at essentially no cost. The Company therefore concluded that its interest in the VIE is not a non-controlling interest and therefore is not classified as such. Based on the Exclusive Agreements the amount of controlling interest of the Fengze shareholders, who are holding shares of the VIE for the Company, is zero. They exercise no controls over the VIE and no financial interests of ownership are due to them either for periodic income or the net assets.

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Restricted cash is excluded from cash and cash equivalents.

Table of Contents

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

Accounts receivable is stated at cost, net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends.

The Company accrued allowance for doubtful accounts of $18,514 and $10,178 at March 31, 2014 and December 31, 2013.

Inventories

Inventories are stated at the lower of cost, as determined by the weighted-average method, or market. Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value if that is lower. Costs of raised animals include proportionate costs of breeding, including amortization of the breeding herd or biological assets, plus the costs of feed and other maintenance costs through the balance sheet date. Management inspects and monitors inventory on a continual basis.

Advances to Suppliers

Advances to suppliers at March 31, 2014 and December 31, 2013 totaled $2,129,898 and $1,612,492, respectively, and includes prepayments to suppliers for merchandise and raw materials that had not yet been shipped to us. We recognize prepayments as inventory or expense as suppliers make delivery of goods in compliance with our accounting policy. Included in advances to suppliers as of March 31, 2014 and December 31, 2013, the Company had prepayments of $1,992,258 and $1,440,167, respectively, to its premix feed supplier.

Plant and Equipment

The Company states plant and equipment at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to operations as incurred; additions, renewals and betterments are capitalized. When plant and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any resulting gain or loss is recorded as an operating expense. In accordance with US GAAP, the Company examines the possibility of decreases in the value of plant and equipment when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets with a residual value of 5% of plant and equipment.

Estimated useful lives of the Company’s assets are as follows:

		Useful Life
Buildings		20 years
Vehicles		5 years
Office equipment		5 years
Production equipment		5-10 years

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Construction in Progress

Construction in progress consists of amounts expended for building construction of new breeding and animal rearing facilities. Once the building construction is completed and the facilities are approved for adequate breeding and animal rearing activity, the construction in progress assets are categorized as buildings and production equipment and are then accounted for in plant and equipment. Assets accounted for as plant and equipment are used in the Company’s production process, whereupon they are depreciated over their estimated useful lives.

Biological Assets

Biological assets consist primarily of hogs purchased or selected from the Company’s own production for breeding and farrowing, which management believes will produce piglets that grow faster and have better quality breeding capabilities and carcasses with a high percentage of meat and a small quantity of fat. The costs to purchase and cultivate these breeding hogs and the expenditures related to labor and materials to feed the breeding hogs until they become commercially productive and breedable are capitalized. When these breeding hogs are entered into breeding and farrowing production, amortization of the costs of these breeding hogs commences. The estimated production life for breeding hogs is three years, and the costs are amortized to a residual value of $76 (RMB 500). After the breeding hogs have completed their production life of breeding, these breeding hogs are then transferred into inventory as the vast majority of these breeding hogs will then be sold for meat processing. Expenses incurred maintaining breeding hogs during gestation until piglets are weaned are capitalized into inventory and included in Work in process—biological assets, a component of inventories. If these breeding hogs produce piglets which are deemed appropriate for internal breeding purposes, the gestation and raising costs until weaned for these piglets are then allocated into biological assets.

Amortized expenses pertaining to biological assets are included in inventory costs for those piglets to be sold and ultimately become a component of cost of goods sold.

Intangible Assets

Included in the intangible assets are land use rights. According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Land use rights are being amortized using the straight-line method over their lease terms.

The Company carries land use rights at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of land use rights when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights.

Impairment of Long-lived Assets

In accordance with US GAAP, the Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the three months ended March 31, 2014 and 2013, the Company had recorded no impairment charges at its long-lived assets.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted ASC 820, Fair Value Measurements and Disclosure (“ASC 820”) for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

ASC 820 defines fair value as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The Company did not identify any assets and liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with the relevant accounting standards.

The carrying values of cash and cash equivalents, trade receivables and payables, and short-term bank loans and debts approximate their fair values due to the short maturities of these instruments.

Non-controlling Interest

Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

Revenue Recognition

The Company generates revenues from the business of breeding, raising, and selling hogs for use in Chinese pork meat production and the sale of hogs for breeding by other hog producers. From September 30, 2011 until June 15, 2012, the Company also generated revenue from selling specialty pork products to retailers. In the second quarter of 2013, the Company resumed selling specialty pork products to retailers.

Revenues generated from the sales of breeding and meat hogs and specialty pork are recognized when these products are delivered to customers in accordance with previously agreed upon pricing and delivery arrangements, and the collectability of these sales is reasonably assured. Cash payment, which sometimes is in the form of wired cash transfers to the Company’s bank account, is usually received by the Company at the time the hogs are sold. Sold hogs and specialty pork are not returnable and accordingly, no provision has been made for returnable goods. The customers are responsible for the shipping of the hogs that they have purchased.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Segment Information

Starting from the second quarters of 2013, the Company entered into distribution agreements with supermarkets whereby the Company is permitted to sell specialty pork products in the supermarkets’ retail facilities. Consequently, management has determined that the Company is operating in two segments, hog farming and retail.

Income Taxes

The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of March 31, 2014 and December 31, 2013.

The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. However, according to the EIT, companies that are engaged in the agricultural business and primary processing of agricultural products are exempt from the 25% enterprise income tax. The Company is engaged in breeding, raising, and selling hogs for use in Chinese pork meat production and hog breeding, which is exempt from the Chinese income tax. Tianli is incorporated in the British Virgin Islands. Under the current tax laws of the British Virgin Islands, the Company is not subject to income taxes.

In addition, the Company is not subject to the PRC’s 17% VAT tax for hog sales or the 5% business tax levied on incomes from services rendered. According to the PRC tax regulations, companies engaging in the agricultural business are exempt from these taxes. With respect to the Company’s retail operations, the Company is engaged in breeding, processing, and distributing black hogs and black hog meats which are exempt from VAT taxes and corporate income tax as well.

Basic and Diluted Earnings per Share

The Company reports earnings per share in accordance with FASB ASC 260 “Earnings per share”. The Company’s basic earnings per share are computed using the weighted average number of shares outstanding for the periods presented. Diluted earnings per share are computed based on the assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, the Company’s outstanding stock warrants are assumed to be exercised, and funds thus obtained were assumed to be used to purchase common stock at the average market price during the period. There were no dilutive instruments outstanding during the three month periods ended March 31, 2014 and 2013.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translation

As of March 31, 2014 and December 31, 2013, the accounts of Tianli were maintained and its financial statements were expressed in Chinese Renminbi (RMB). Such financial statements were translated into United States Dollars (USD) in accordance with US GAAP, with the RMB as the functional currency. All assets and liabilities are translated at the current exchange rates as of the balance sheet dates. These rates were RMB 6.16 per US dollar and RMB 6.11 per US dollar as of March 31, 2014 and December 31, 2013, respectively. Stockholders’ equity is translated at the historical rates and items in the statements of operations and cash flows are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with US GAAP as a component of stockholders’ equity.

During the three months ended March 31, 2014 and 2013, the transactions of Tianli were denominated and recorded in RMB and are translated at the average rates of exchange for the period. There rates were RMB 6.12 and RMB 6.28 per US dollar for the three months ended March 31, 2014 and 2013, respectively. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC 718-10-55 - Compensation-Stock Compensation, or ASC 718-10-55. Under ASC 718-10-55, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. In addition, FASB ASC 825-10-50-10 – Financial Instruments – Overall – Disclosures, or ASC 825-10-50-10, expresses views of the Securities and Exchange Commission, or the SEC, staff regarding the interaction between ASC 718-10-55 and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. The Company’s compensation cost is measured on the date of grant at its fair value. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Accrual of Environmental Obligations

ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:

a) Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements.

b) The amount of the loss can be reasonably estimated.

As of March 31, 2014 and December 31, 2013, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements.

Recently Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard that raises the threshold for disposals to qualify as discontinued operations and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard revised the definition of a discontinued operation to cover only asset disposals that are considered to be a strategic shift with a major impact on an entity's operations and finances, such as the disposal of a major geographic area or a significant line of business. Application of the standard, which is to be applied prospectively, is required for fiscal years beginning on or after December 15, 2014, and for interim periods within that year. The Company currently plans to adopt the standard in January 2015.

Based on the Company’s initial assessment of the standard, the Company expects that any potential future disposals of its hog farms will not be reported as discontinued operations and that the results of operations of any such disposed hog farms, including revenues, costs and any gains or losses on disposal, will be classified as continuing operations within the Consolidated Statements of Operations and Comprehensive Income for all periods presented through the date of disposition.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 3—ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	March 31,			December 31,
	2014			2013
Accounts receivable	$	200,363		$	266,785
Less: Allowance for doubtful accounts		(18,514	)		(10,178	)
	$	181,849		$	256,607

The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. After evaluating the collectability of individual receivable balances, the Company increased the allowance for doubtful accounts in the amount of $8,336 and $10,178 for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively.

NOTE 4—INVENTORIES

Inventories consisted of the following:

	March 31,			December 31,
	2014			2013
Raw materials	$	1,295,898		$	1,750,125
Work in process—biological assets		3,928,751			4,643,256
Infant hogs		4,738,544			4,968,112
Finished goods—specialty pork products		193,898			209,205
Less: inventory reserve		(171,458	)		(85,912	)
	$	9,985,633		$	11.484,786

Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value, if lower. As of March 31, 2014 and December 31, 2013, the Company determined that there were write downs of $171,458 and $85,912, respectively. The term “Work in process—biological assets” has the meaning set forth above in Note 2—Biological Assets.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 5—ADVANCES TO SUPPLIERS

The Company makes advances for materials or services the Company uses in its operations. As of March 31, 2014 and December 31, 2013, advances to suppliers amounted to $2,129,898 and $1,612,492, respectively.

Included in advances to suppliers as of March 31, 2014 and December 31, 2013, the Company had prepaid $1,992,258 and $1,440,167 to the Company’s premix feed supplier.

NOTE 6—OTHER RECEIVABLES

At March 31, 2014 and December 31, 2013, the Company reported other receivables of $281,889 and $1,181,078, respectively, including an allowance for doubtful receivables of $60,971 and $61,485.

The balances as of March 31, 2014 and December 31, 2013 included a deposit of $240,186 and $163,655 to a professional loan guarantee service company for short-term loans from Shanghai Pudong Development Bank.

In August 2013, the Company entered into a promotional agreement with a marketing company to prepare a series of nationwide promotional activities to promote “Tianli-Xiduhei” black hogs for the 2014 Chinese New Year holiday. According to the agreement, the Company provided a security deposit of $981,932 to the marketing company as of December 31, 2013. The deposit had been returned at March 7, 2014 after the end of the promotional activities.

NOTE 7—PLANT AND EQUIPMENT

Plant and equipment consist of the following:

	March 31,			December 31,
	2014			2013
Buildings	$	26,083,314		$	26,254,084
Vehicles		732,266			738,438
Office equipment		486,912			535,206
Production equipment		2,596,286			2,618,167
		29,898,778			30,145,895
Less: Accumulated depreciation		(7,464,495	)		(6,960,163	)
	$	22,434,283		$	23,185,732

Depreciation expense was $565,355 and $449,022 for the three months ended March 31, 2014 and 2013, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 8—CONSTRUCTION IN PROGRESS

Construction in progress consists of amounts expended for the construction of new breeding and animal rearing facilities. Once construction is completed and the facilities are approved to be used for breeding and animal rearing activity, the construction in progress assets are placed into production and transferred into plant and equipment, whereupon they are depreciated over their estimated useful lives. As of March 31, 2014 and December 31, 2013, the construction in progress was $50,471 and $50,897, respectively, for upgrading the feed processing facility and improvements of several of the Company’s hog farms.

NOTE 9—BIOLOGICAL ASSETS

Biological assets consist of the following:

	March 31,			December 31,
	2014			2013
Breeding hogs	$	7,042,711		$	7,120,342
Less: Accumulated amortization		(4,191,169	)		(3,843,502	)
	$	2,851,542		$	3,276,840

Amortization of the biological assets, included as a component of inventory, for the three month periods ended March 31, 2014 and 2013 was $400,923 and $350,405, respectively.

NOTE 10—LONG-TERM PREPAID EXPENSES

Long-term prepaid expenses primarily consist of prepaid rental expenses for three parcels of land comprising the Company’s eleventh farm. The prepaid rental expenses are being amortized using the straight-line method over the lease term of 21.33 years.

Long-term prepaid expenses at March 31, 2014 and December 31, 2013 are as follows:

	March 31,			December 31,
	2014			2013
Long-term prepaid rental expenses	$	1,820,302		$	1,835,644
Less: Accumulated amortization		(248,870	)		(229,456	)
	$	1,571,432		$	1,606,188

Amortization expense for the three months ended March 31, 2014 and 2013 was $21,493 and $28,110, respectively.

The estimated amortization expense of long-term prepaid expenses over each of the next five years and thereafter will be $85,972 per annum.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 11—INTANGIBLE ASSETS

According to the laws of PRC, the government owns all the land in PRC. Companies or individuals are authorized to possess and use land only through land use rights granted by the Chinese government. Land use rights are being amortized using the straight-line method over the lease terms.

Land use rights at March 31, 2014 and December 31, 2013 are as follows:

	March 31,			December 31,
	2014			2013
Land use rights	$	1,720,541		$	1,735,042
Less: Accumulated amortization		(265,142	)		(254,411	)
	$	1,455,399		$	1,480,631

Amortization expense for the three month periods ended March 31, 2014 and 2013 was $12,954 and $12,508, respectively.

The estimated amortization expense of land use rights over each of the next five years and thereafter will be $51,816 per annum.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 12—SHORT-TERM LOANS

As of March 31, 2014 and December 31, 2013, the short-term loans are as follows:

	March 31, 2014		December 31, 2013
Loan payable to Wuhan Rural Commercial Bank, annual interest rate of 8.4%, due by June 19, 2014, guaranteed by Wuhan Science and Technology Guarantee Co., Ltd.	$	778,981	$	785,546
Loan payable to Shanghai Pudong Development Bank, annual interest rate of 7.2%, due by December 4, 2014, guaranteed by Wuhan Agriculture Guarantee Co., Ltd. and Tianzhili,, secured by certain assets of the Company.		1,622,876		1,636,554
Loan payable to Communication Bank of China, annual interest rate of 7.28%, due by December 16, 2014, guaranteed by Wuhan Science and Technology Guarantee Co., Ltd.		1,622,876		1,636,554
Loan payable to Wuhan Rural Commercial Bank, annual interest rate of 8.4%, due by November 6, 2014 with collateral provided by Mr. Xin Zhang.		843,896		851,008
Loan payable to Industrial and Commercial Bank of China, annual interest rate of 7.8%, due by December 3, 2014, with collateral provided by Wuhan East Lake Hi-Tech Innovation Center		1,460,588		1,472,899
Loan payable to Shanghai Pudong Development Bank, annual interest rate of 8.4%, due by February 6, 2015, guaranteed by Wuhan Agriculture Guarantee Co., Ltd. and Tianzhili and secured by certain assets of the Company.		1,136,013		-
Loan payable to Shanghai Pudong Development Bank, annual interest rate of 8.4%, due by January 21, 2015, guaranteed by Wuhan Agriculture Guarantee Co., Ltd. and Tianzhili and secured by certain assets of the Company.		486,863		-

	$	7,952,093	$	6,382,561

In the first quarter of 2014, the Company paid $40,572 to a guarantee service provider for providing the guarantee of the loans from Shanghai Pudong Development Bank. No such payment was made during the three months ended March 31, 2013. Amount of $146,661 and $173,021 was recorded as interest expense for the three months ended March 31, 2014 and 2013, respectively.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 13—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

As of March 31, 2014 and December 31, 2013, accounts payable and accrued liabilities are as follows:

	March 31,		December 31,
	2014		2013
Accounts payable	$	7,078	$	157
Other taxes payable		419		542
Others		-		48,197
	$	7,497	$	48,896

NOTE 14—OTHER PAYABLES

Other payables at March 31, 2014 and December 31, 2013 were $3,146,825 and $3,309,246, respectively. Included in other payables as of March 31, 2014 and December 31, 2013 were mainly deposit payables of $3,133,807 and $3,255,504.

Since the year ended December 31, 2011, the Company signed 8 joint development agreements with 8 local cooperatives in the Enshi Autonomous Prefecture in Hubei Province. Under these agreements, the Company provides funding to local independent farmers to construct small-scale hog farms in which the farmers will grow black hogs for sale to the Company.

According to the joint development agreements, each participating farmer paid a deposit of approximately one-third of the construction cost of the hog farm to the Company upon completion of the respective hog farm. The deposit is amortized against the depreciation expense over a period of 10 years. Should the farmer withdraw from the program within this period, the deposit will be refunded proportionately. As of March 31, 2014 and December 31, 2013, deposits from farmers were $3,133,807 and $3,255,504, respectively.

The amortization of deposit payables for the three months ended March 31, 2014 and 2013 was $95,205 and $39,573, respectively. The following table sets forth the aggregate future amortization expected for the next five years:

	Amortization
2014	$	380,820
2015	$	380,820
2016	$	380,820
2017	$	380,820
2018	$	380,820
Thereafter	$	1,229,707

NOTE 15—RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The amount due to related party was $127,978 and $139,430 as of March 31, 2014 and December 31, 2013, respectively. The amount represented the advances from the Company’s shareholder and former chief executive officer, Hanying Li, for operating purposes. Such advances are non-interest bearing and due upon demand.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 16—CAPITAL STOCK

The Company is authorized to issue 50,000,000 shares of common stock, $0.001 par value, and as of March 31, 2014 and December 31, 2013, it had 16,964,000 shares and 13,964,000 shares issued and outstanding, respectively.

The Company granted to its investor relation firm 44,000 shares of the Company’s common stock for services to be rendered up through October 2011 pursuant to an agreement made in October 2010. The shares were valued at $234,080 and amortized over the service term. The amortization of this grant was $234,080 for the year ended December 31, 2011. In July 2011, the Company issued 10,000 shares of the 44,000 shares to the investor relationship consulting firm. The remaining 34,000 shares were issued on October 11, 2012.

On December 6, 2010 the Company granted 26,000 options with exercise price of $6.00 to a director with vesting of one-third as of the date of grant, one-third vesting in December 2011, and the final one-third vesting in December 2012, contingent on the director continuing to serve as a board member. The option can be exercised through January, 2017. The Company recognizes the compensation cost over the award’s service period based on a Black Scholes valuation of the options as of the date of the grant.

On July 12, 2012, the Company issued 1,000,000 shares of common stock as compensation to its consultants and employees, comprised of 960,000 shares to marketing consultants for black hog sales and 40,000 shares to its employees. The Company recognizes the compensation cost of $1,130,000 as part of its selling expense.

On October 11, 2012, the Company issued 25,000 shares of the Company’s common stock to the investor relationship consulting firm for its 2012 consulting services. The shares were valued at $37,000 and recognized as compensation cost as part of the Company’s general and administrative expenses.

On August 15, 2013, the Company issued 10,000 shares of the Company’s common stock to the investor relationship consulting firm for its 2013 consulting services. The shares were valued at $6,900 and recognized as compensation cost as part of the Company’s general and administrative expenses.

On October 28, 2013, the Company sold and issued 2,760,000 shares of the Company’s common stock to Mr. Wei Gong at $1.16 per share. The shares were valued at $3,201,600.

On March 24, 2014, the Company sold and issued 3,000,000 shares of the Company’s common stock to Mr. Ping Wang, who had been appointed as Chairman of the board of directors and Chief Executive Officer of the Company on March 28, 2014, at $2 per share. The shares were valued at $6,000,000.

The fair value of the director options and the placement agent warrants were estimated as of the grant date using the Black Scholes options pricing model. The determination of the fair value is affected by the price of the Company’s common stock at the date of the grant as well as assumptions made regarding the expected price volatility of the common stock over the terms of the grant, the risk-free interest rate and any expected dividends.

The table below provides the estimated fair value of the director options, and the significant assumptions used to determine their values.

	Director Options		Placement Agent \Warrants
Estimated Fair Value Per Option or Warrant	$	2.47	$	0.56
Stock Price at Date of Grant	$	5.66	$	4.36
Assumptions:
Dividend Yield		0%		0%
Stock Price Volatility		50.8%		31.3%
Risk-Free Interest Rate		1.60%		1.40%

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 16—CAPITAL STOCK (CONTINUED)

The following table summarizes the stock options and warrants outstanding as of March 31, 2014 and December 31, 2013 and the activity during the three months ended March 31, 2014.

	Options		Weighted Average Exercise Price		Warrants		Weighted Average Exercise Price
Outstanding as of December 31, 2013		26,000	$	6.00		210,000	$	7.21
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding at March 31, 2014		26,000	$	6.00		210,000	$	7.21
Exercisable at March 31, 2014		26,000	$	6.00		210,000	$	7.21

The weighted average remaining contractual life for the options and the warrants is 2.75 years and 1.25 years, respectively. The market value of the Company’s common stock was $1.86 and $2.18 as of March 31, 2014 and December 31, 2013, respectively. The intrinsic value of the outstanding options and the warrants as of March 31, 2014 and December 31, 2013 was $0.

NOTE 17—STATUTORY RESERVES

As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

•

Making up cumulative prior years’ losses, if any;

•

Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;

•

Allocations to the discretionary surplus reserve, if approved by the stockholders;

•

The transfer to this reserve must be made before distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholdings or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

In accordance with the Chinese Company Law, the Company has allocated 10% of its net income as the statutory reserve contributions. The reserves amounted to $2,416,647 as of March 31, 2014 and December 31, 2013.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 18—CERTAIN RISKS AND CONCENTRATION

Credit risk and major customers

As of March 31, 2014 and December 31, 2013, all of the Company’s cash including cash on hand and deposits in accounts were maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of a bank’s failure. However, the Company has not experienced any such losses and believes it is not exposed to any significant risks on its cash in bank accounts

The Company’s key customers are principally hog brokers, hog farmers and slaughterhouses, all of which are located in the PRC. The Company has not entered into long-term supply contracts with any of these major customers.

During the three months ended March 31, 2014 and 2013, there was no customer that accounted for more than 10% of the Company’s revenue.

Risk arising from operations in foreign countries

Substantially all of the Company’s operations are conducted in China. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

Risk arising from contractual arrangements with Fengze

The Company conducts substantially all of its operations, and generates substantially all of its revenues, through contractual arrangements with Fengze that provide the Company with effective control over Fengze. The Company depends on Fengze to hold and maintain contracts with its customers. Fengze owns substantially all of the Company’s intellectual property, facilities and other assets relating to the operation of the Company’s business, and employs the personnel for substantially all of its business. Neither Tianli, nor HCS nor WFOE has any ownership interest in Fengze. Although WFOE’s contractual arrangements with Fengze are valid, binding and enforceable under current PRC laws and regulations, these contractual arrangements may not be as effective in providing the Company with control over Fengze as direct ownership of Fengze would.

NOTE 19—GOVERNMENT SUBSIDIES

The Company received subsidies of $0 and $95,589 in the three months ended March 31, 2014 and 2013, respectively for recurring breeder hog subsidies and an award from the provincial government for the Company becoming a public company in the United States. All such subsidies are recorded as “subsidy income” in the financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 20—COMMITMENTS AND CONTINGENCIES

General

The Company follows ASC 450, Accounting for Contingencies, in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be been incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred. The Company has not accounted for any loss contingencies as of March 31, 2014 and December 31, 2013.

Lease obligations

The Company leases office space that has a remaining term of nine years. Also as a condition of being the holder of the land use rights for its hog farms, the Company makes rental payments to the government over the term of the land use rights, which range from 19 years to 50 years. The Company does not have capital leases. In most cases, management expects that, in the normal course of business, leases will be renewed or replaced. Net rental expense relating to the Company’s operating leases for the three month periods ended March 31, 2014 and 2013 was $21,537 and $20,785, respectively.

The following table sets forth the aggregate minimum future annual rental commitments at March 31, 2014 under all non-cancelable leases for years ending December 31:

	Operating Leases
2014 (full year)	$	86,149
2015	$	86,149
2016	$	86,149
2017	$	85,945
2018	$	85,332
Thereafter	$	1,642,284

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 20—COMMITMENTS AND CONTINGENCIES (CONTINUED)

Capital expenditures

The Company’s execution of the Enshi Black Hog program will require the Company to incur various costs and contribute various amounts to cover the costs of different aspects of the program as more fully described above. As of March 31, 2014, the Company had provided funds totaling RMB 69,194,000 or $11.23 million. to local independent farmers to construct small-scale hog farms in which the farmers will grow the black hogs for sale to the Company. All construction had been completed in 2013 and became fixed assets of the Company. No additional investment was made after December 31, 2013.

Environmental matters

Environmental laws and regulations to which the Company is subject mandate additional concerns and requirements of the Company. Failure to comply with applicable laws, regulations and permits can result in injunctive actions, damages and civil and criminal penalties. The laws and regulations applicable to the Company's activities change frequently and it is not possible to predict the potential impact on the Company from any such future changes.

Although management believes that the Company is in material compliance with the statutes, laws, rules and regulations of every jurisdiction in which it operates, no assurance can be given that the Company’s compliance with the applicable statutes, laws, rules and regulations will not be challenged by governing authorities or private parties, or that such challenges will not lead to material adverse effects on the Company’s financial position, results of operations, or cash flows.

The Company is not involved in any legal matters. While incapable of estimation, in the opinion of the management, the individual regulatory and legal matters in which it might be involved in the future are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 21—SEGMENT INFORMATION

The Company follows FASB ASC 280-Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. As of March 31, 2014 and December 31, 2013, the Company has two operating segments identified by products, “Hog Farming” and “Retail”. The hog farming segment consists of sales of breeder hogs and market hogs raised by the Company and participants in the black hog program that were sold to meat processors. The Company’s retail segment consists of the selling of specialty pork products through supermarkets, restaurants, and hotels.

The Company primarily evaluates performance based on income before income taxes and excluding non-recurring items.

Condensed financial information with respect to these reportable business segments for the three months ended March 31, 2014 and 2013 is as follows:

Three Months Ended March 31, 2014	Hog Farming		Retail		Consolidated
Segment revenues	$	9,238,940	$	477,689	$	9,716,629
Inter-segment revenues		-		-		-
Revenues from external customers	$	9,238,940	$	477,689	$	9,716,629
Segment income	$	202,508	$	188,193	$	390,701
Unallocated corporate loss						(89,676	)
Income before income taxes						301,025
Income taxes						-
Net income					$	301,025
Other segment information:
Depreciation and amortization	$	879,498	$	4,529	$	884,027

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

NOTE 21—SEGMENT INFORMATION (CONTINUED)

Three Months Ended March 31, 2013	Hog Farming			Retail		Consolidated
Segment revenues	$	7,386,534		$	-	$	7,386,534
Inter-segment revenues		-			-		-
Revenues from external customers	$	7,386,534		$	-	$	7,386,534
Segment loss	$	(133,239	)	$	-	$	(133,239	)
Unallocated corporate loss							-
Loss before income taxes							(133,239	)
Income taxes							(45,324	)
Net loss						$	(178,563	)
Other segment information:
Depreciation and amortization	$	800,471		$	-	$	800,471

As of March 31, 2014	Hog Farming		Retail		Consolidated
Total segment assets	$	60,305,516	$	202,334	$	60,507,850
Other unallocated corporate assets						119,004
					$	60,626,854
Other segment information:
Expenditures for segment assets	$	3,467	$	-	$	3,467

As of December 31, 2013
Total segment assets	$	53,991,058	$	414,078	$	54,405,136
Other unallocated corporate assets						21,915
					$	54,427,051
Other segment information:
Expenditures for segment assets	$	701,923	$	48,636	$	750,559

NOTE 22—SUBSEQUENT EVENT

On April 10, 2014, the Company entered into a subscription agreement with Mr. Ping Wang, the Chairman and CEO, for the issuance and sale of 2,600,000 of the common shares (the “Shares”), representing approximately 15.33% of the Company’s outstanding 16,964,000 common shares, for a total purchase price of $5,720,000, or $2.20 per share. After giving effect to the sale, Mr. Wang will own 5,600,000 common shares, representing approximately 28.6% of the Company’s outstanding common shares.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this report and with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements.

Overview

Our Company is in the business of breeding, raising, and selling hogs in the Wuhan City area of the PRC, and has recently begun to distribute specialty processed black hog products through supermarkets and to restaurants, hotels and other retailers. More recently we initiated sales of specialty processed black hog meat through the internet. On November 6, 2013, the Animal Husbandry and Veterinary Bureau of Caidian District, Wuhan City, directed us to close one of our farms located in the Caidian District. We were advised that all agricultural and manufacturing activities in the area of Dacha Lake in the Caidian District were ordered to shut down before the end of 2013 as part of the government's effort to restore the lake to its natural condition. We finished our evacuation of this farm during the first quarter of 2014. However, the amount of our evacuation cost and loss from the farm shutdown that we will be reimbursed by Caidian District were still undetermined. We still maintain minimum personnel in the Caidian Farm or Farm #8 before the reimbursements of our evacuation cost and loss have been determined.

We control Fengze, pursuant to a series of control agreements between Fengze and our wholly owned subsidiary, WFOE. Fengze mainly produces and sells hogs for breeding stock and slaughter. During the first quarter of 2014, Fengze owned and operated nine commercial farms in the Wuhan City area and one commercial farm in Enshi Autonomous Prefecture, Hubei Province. In addition, One of Fengze’s subsidiaries, Tianzhili, operates in the Enshi Autonomous Prefecture (“Enshi”). On March 24, 2014, Fengze entered into an equity purchase agreement with Tianzhili’s 40% interest holder, XMRJ LLP, to purchase the 40% interest of Tianzhili for RMB 6,666,700 or $1,090,114. As a result of this purchase, Tianzhili became Fengze’s wholly owned subsidiary. Tianzhili mainly raises and sells black hogs in conjunction with local hog farmers in Enshi. In addition, it will distribute black hogs to supermarkets, restaurants, hotels and other retailers in greater Wuhan City, including Zhongbai, Xinyijia and Wushang Mart.

Our business has grown rapidly as a result of the expansion of our annual capacity levels and China’s strengthening economy, and the resulting strong demand for our hogs, particularly for our breeder hogs.

In an effort to significantly increase the scale of our operations, in 2012 we concluded a series of agreements (the “Exclusivity Agreements”) with the Animal Husbandry and Veterinary Bureau of Enshi Tujia and Miao Autonomous Prefecture of Hubei Province, the Animal Husbandry and Veterinary Bureau of Xianfeng County of Hubei Province, the Xuwang Hog Farming Professional Cooperatives of Xianfeng County, and the Qiming Hog Farming Professional Cooperatives of Xianfeng County, whereby we were granted the exclusive right to breed and sell Enshi black hogs in Enshi Autonomous Prefecture in Hubei Province. The agreements call for the joint development, funding and operation of local cooperatives in the Enshi Autonomous Prefecture in Hubei Province whereby the Company, the relevant governmental agencies and the cooperatives will assist participating farmers to breed and raise Enshi black hogs which will be purchased by the Company for resale as meat hogs or retained or sold as breeders at the Company’s discretion. If successfully implemented, this program should allow us to profit from the black hogs grown by the participating farmers who will be obligated to purchase feed, vaccines and other supplies from us and then sell us their hogs at a price which is comparable to the costs at which we currently grow our own hogs.

The Exclusivity Agreements envision that we will work with the Animal Husbandry and Veterinary Bureaus of Xianfeng County and Enshi Tujia and Miao Autonomous Prefecture, respectively, to develop a regional breeding and distribution program whereby local farmers will be trained and supervised by us, the relevant governmental agencies and their cooperatives in raising a breed of black hogs genetically developed and monitored by us with the approval of the local government agency. By the end of the first quarter of 2014 we had funded and completed the construction of 798 farms for local farmers. Achievement of any of the program’s goals and the need for financing are dependent upon the participation, cooperation and skills of local farmers. Given the long term of this project, it is likely that there will be continued negotiation of various issues that arise during the life of the project. After providing the financing necessary for completion of the construction for 798 farms, we have decided to temporarily stop providing capital to the program and focus on our black hog retail operations.

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Principal Factors Affecting our Results of Operations

Revenues

We derive the bulk of our revenues from the sale of hogs to other hog farms for breeding purposes, to brokers who sell our hogs both to other hog farms for breeding purposes and to slaughterhouses, and directly to slaughterhouses. We breed and raise hogs that are eventually sold as either breeder or market hogs which will be sold to slaughter houses for conversion into pork products. Some of the hogs are bred and raised for the purpose of sale as market hogs, while others become market hogs because customers do not select them as breeder hogs. Also very few boars are required for breeding purposes, as compared with sows. As approximately half of a litter will be males, most of these males will be sold as market hogs. The average sales price for a breeder is significantly higher than that of a market hog, and since breeder hogs are sold at a younger age than market hogs and usually weigh about 110 pounds at the date they are sold, as compared to the average weight of about 220 pounds for a market hog on sale date, the direct cost of feeding and otherwise raising a breeder hog is less than a market hog. Thus the gross margin for breeder hogs is substantially higher than that of market hogs. Consequently, the Company has focused its operations to increase the proportion of its sales represented by breeder hogs, and its success in so doing has been a major contribution to its operating profit.

We receive some subsidies from the government for operating our farms. Some of these subsidies are non-recurring, such as the payment we receive when we reach specified annual production capacities, or for the acquisition of certain operating equipment. Others, such as subsidies for breeder hog insurance, are ongoing so long as we qualify. Of course, there is no assurance the government will continue any of its policies for granting subsidies.

More recently we have begun to distribute black hog products processed by us through supermarkets, to restaurants, hotels and other retailers in the area of Wuhan City and through the internet.

Factors Affecting Revenues and Profitability

The following factors, among others, affect the revenues and profitability that we derive from our operations. For other factors affecting our revenues, see “Risk Factors—Risks Related to Our Business,” included in the Company’s Annual Report on Form 10-K. for the fiscal year ended December 31, 2013 filed on March 13, 2014.

Consumer demand for pork products. Consumer demand for pork products is closely linked to the performance of the general Chinese economy and is sensitive to business and personal discretionary spending levels.

Declines in consumer demand may occur as a result of adverse general economic conditions. Lower consumer confidence and changes in consumer preferences for pork as compared with other meats can lower the revenues and profitability of our operations. As a result, changes in consumer demand and general business cycles can subject our revenues to volatility.

Revenues resulting from the sale of breeder hogs. A significant amount of our revenues and operating margin result from the sale of young breeder hogs for use by other hog farmers. Because these breeder hogs command a price significantly higher than market hogs, and are sold at a younger age, thus incurring less feed and related finishing expenses, the profitability of the sale of a breeder hog is higher than that for the sale of a market hog. A significant reduction in the proportion of our sales that are breeder hogs would very likely significantly reduce our overall profit margin.

Government action in our industry. Because pork occupies such a central role in the Chinese diet, the government has occasionally taken action to prevent the price of pork from dropping below specified levels and has provided subsidies to companies engaged in hog farming. We benefit from this protection, and we could be harmed if the government terminated such practices. In addition, the government has taken actions to prevent the spread of diseases among livestock, including mandatory culls of affected animals. These actions have occasionally resulted in relative shortages, which tend to lead to higher prices for healthy animals, and could result in a reduction of our stock, thus reducing revenues and profit. Likewise it is possible that the government could implement some form of price controls that could adversely impact our ability to price our products so as to recover increases in costs such as feed.

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Competition and subsidies. While the hog farming industry in Hubei province and the Wuhan City area includes a large number of farms, many of those farms are smaller farms that sell relatively few hogs per year. We believe the incentives being given to farms that reach specified annual production capacities are likely to result in a consolidation of the industry. Our ability to increase our production capacity and thus to qualify for these incentives for our operations allows us to receive non-recurrent benefits from these subsidies, as well as to benefit from increased economies of scale in our operations.

Expansion. We believe we must continue to expand our production capacity to attain additional market share. Since 2006, we have acquired or built eleven hog farms. If we fail to make acquisitions or expand our production capacity, our revenue growth could slow.

Epidemic outbreaks. The outbreak of animal diseases could adversely affect our revenues. An occurrence of serious animal diseases, such as foot-and-mouth disease, or any outbreak of other epidemics in the PRC affecting animals or humans might result in material disruptions to our sales.

Taxes. We believe that the provisions of the PRC’s Enterprise Income Tax law currently provide our hog breeding operations with an exemption from PRC income taxes, VAT taxes and business service taxes. If this understanding is incorrect or if the law or interpretations of the law change, this could significantly impact the Company’s net operating results.

Contractual arrangements with Fengze. We conduct substantially all of our operations, and generate substantially all of our revenues, through contractual arrangements with Fengze that provide us with effective control over Fengze. We depend on Fengze to hold and maintain contracts with our customers. Fengze owns substantially all of our intellectual property, facilities and other assets relating to the operation of our business, and employs the personnel for substantially all of our business. Neither Tianli, nor HCS nor WFOE has any ownership interest in Fengze. Although WFOE’s contractual arrangements with Fengze are valid, binding and enforceable under current PRC laws and regulations, these contractual arrangements may not be as effective in providing the Company with control over Fengze as direct ownership of Fengze would.

Costs and Expenses

We primarily incur the following costs and expenses:

Costs of goods sold. In raising hogs for sale, we incur a number of costs that represent the costs of goods sold. We must purchase hog feed, premix components, medicines and other supplies to grow our hogs and keep them healthy. In addition to these items, cost of goods sold includes expenses such as the amortization of the sows (referred to as biological assets), farm employee wages, water, electricity, equipment depreciation expense, maintenance expense, quarantine expense, equipment costs, insurance expense, and sewage charges.

General and administrative expenses. General and administrative expenses consist primarily of compensation expense for our corporate staff, professional fees (including consulting, audit and legal fees), communication costs, research and development costs, gasoline, welfare expenses, education expenses, travel and business hospitality expenses, land rent, and other office administrative and related expenses.

Sales and marketing costs. Sales and marketing costs include salaries, wages, and promotion expenses.

Factors Affecting Expenses

Supplies and commodity prices. The largest component of our expenses relates to the price of materials required to breed and raise hogs for sale. Specifically, while we ordinarily breed our own hogs, we periodically purchase breeding stock to continue to improve our genetic breeding pool. Similarly, the prices of corn and soybean husks in China are important to our operations, because corn and soybean husks are the primary component of the hogs’ diet. To the extent the prices of these materials vary, our cost of goods will fluctuate, and we may not be able to recover higher costs by higher prices for our products. For this reason, we may be affected by droughts, floods, crop diseases and the like, which tend to make feed scarcer and thus more expensive.

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Transition to public company. As we are now a public company, our administrative costs have increased materially, including audit, legal, travel to the United States, investor relations and advisor costs as well as the need to comply with detailed reporting requirements.

Number of customers. The more customers we have, the greater the likelihood that related selling expenses, travel expenses and other similar costs will increase. At present, we sell substantially all of our hogs to a relatively small number of customers. We believe this concentration of customers has allowed us to focus our marketing and selling efforts.

Number of farms we operate. We have acquired or constructed a number of hog farms in the last several years. As we operate more farms, our administrative expenses tend to increase in dollars terms.

Retail expenses. As we pursue a strategy of providing our branded product to retail outlets, we expect that we will face additional costs such as promotion and advertising expenses to establish our brand image and retail recognition.

In connection with the Enshi Black Hog program described above, we have agreed to incur various costs and contribute various amounts to cover the costs of different aspects of the program. Since 2011, we signed 8 joint development agreements, generally for periods of 10 years, with 8 local cooperatives in the Enshi Autonomous Prefecture in Hubei Province whereby the Company, the relevant governmental agencies and the cooperatives will assist participating farmers to breed and raise Enshi black hogs which will be purchased by us for resale as meat hogs or retained or sold as breeders at our discretion. Under these agreements, we provide funding to local independent farmers to construct small-scale hog rearing facilities on which the farmers will grow black hogs for sale to us. Pursuant to these joint development agreements, title to these small-scale hog rearing facilities belongs to us and the local cooperatives (and the individual farmers) have the right to use them. As of March 31, 2014, we have purchased $11.23 million dollars of hog rearing facilities and equipment that has been completed and is operational and included in plant and equipment. After providing the financing necessary for completion of the construction for 798 farms, we have decided to temporarily stop providing capital to the program and focus on our black hog retail operations.

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Comparison of the Results of Operations for the Three Months Ended March 31, 2014 and 2013

All amounts, other than percentages, are in U.S. dollars

	For Three Months Ended March 31,									Percentage of
	2014			2013			Net Change			Change
Sales	$	9,716,629		$	7,386,534		$	2,330,095			32%
Cost of goods sold		8,254,511			6,581,233			1,673,278			25%
Gross profit		1,462,118			805,301			656,817			82%
Selling, general and administrative expenses		1,056,178			938,540			117,638			13%
Income (loss) from operations		405,940			(133,239	)		539,179			(405%)
Interest expense, net		(89,676	)		(166,817	)		77,141			(46%)
Subsidy income		-			95,589			(95,589	)		(100%)
Other income		(15,239	)		25,904			(41,143	)		(159%)
Net other income (expense)		(104,915	)		(45,324	)		(59,591	)		131%
Income (loss) before income taxes		301,025			(178,563	)		479,588			(269%)
Income taxes		-			-			-			-
Net income (loss)	$	301,025		$	(178,563	)	$	479,588			(269%)

The following table sets forth information as to the gross margin for our two business segments for the three months ended March 31, 2014 and 2013 (dollars in thousands).

	Hog Farming		Retail		Total
	Three Months Ended March 31, 2014
Revenues	$	9,239	$	478	$	9,717
Cost of goods sold	$	8,008	$	246	$	8,255
Gross profit	$	1,231	$	231	$	1,462
Gross margin %		13%		48%		15%

	Hog Farming		Retail		Total
	Three Months Ended March 31, 2013
Revenues	$	7,387	$	-	$	7,387
Cost of goods sold	$	6,581	$	-	$	6,581
Gross profit	$	805	$	-	$	805
Gross margin %		11%		-		11%

Revenues. For the three months ended March 31, 2014, we had revenues of $9,716,629, as compared to revenues of $7,386,534 for the same period of 2013. Our revenues increased by $2,330,095 or approximately 32%. This growth in revenues was primarily attributable to sales of market hogs raised by us, black hogs raised by farmers participating in our black hog program, and the initiation of our retail sales of specialty black hog products.

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The tables below illustrate our sales of breeder hogs, market hogs, black hogs and specialty pork products for the three months ended March 31, 2014 and 2013.

Sales by Products

	Three Months Ended March 31,
	2014						2013
	No. of Hogs Sold		Average Price/Hog		Sales		No. of Hogs Sold		Average Price/Hog		Sales
Breeder Hogs – regular hogs		7,069	$	281	$	1,989,004		7,690	$	277	$	2,129,411
Market Hogs – regular hogs		22,583	$	203		4,580,243		21,722	$	209		4,547,105
Market Hogs – black hogs		11,700	$	228		2,669,693		3,101	$	229		710,018

Total		41,352	$	223	$	9,238,940		32,513	$	227	$	7,386,534

	Three Months Ended March 31,
	2014						2013
	Kilogram		Average Price/kg		Sales		Kilogram		Average Price/kg		Sales
Market Hogs – specialty black hog pork products		89,483	$	5	$	477,689		-	$	-		-
Total		89,483	$	5	$	477,689		-	$	-	$	-

We sold approximately 8% less breeder hogs and 4% more market hogs in the first quarter of 2014 than in 2013. The selling prices for breeder hogs and regular market hogs in the first quarter of 2014 were essentially flat. The price per market hog decreased 3% and the price per breeder hog increased 1%. As a result, sales revenue attributable to breeder hogs decreased by 7% and sales attributable to market hogs increased by 1%. The decreases in the selling price per hog of regular market hogs were primarily attributable to: (1) an apparent decline in China pork market demand impacted by H7N9 avian flu; (2) a number of preferential policies for hog raising instituted by the government of China since 2011, such as government subsidies, which attracted more investment into the hog farming industry and resulted in an increase in the supply of market hogs, and (3) the central government’s new policies to promote frugality and thrift, which forbid extravagance from the government’s spending binge wasting in gifts and unnecessary parties. This gradually changed the food consumption habit and reduced the pork demand as well. The decline in our breeder hog sales was primarily because after almost a 3 year downturn in the China pork market, more and more hog farmers were shrinking their farm sizes resulting in lower demand for breeder hogs.

For the first quarter of 2014, we generated $3,147,382 in revenues through the sale of black hogs and black hog specialty pork products. We sold 11,700 black hogs as breeder and market hogs and 89,483 kilograms of black hog meat were used to produce the specialty pork products sold in our retail business. In the same period of 2013, we sold 3,101 black hogs as breeder and market hogs which contributed $710,018 to our revenues.

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Since the fourth quarter of 2013 we have distributed specialty black hog products through supermarkets and to chain restaurants and hotels. Our black hog product portfolio includes fresh pork meats sold to supermarkets and meat shops, various vacuumed pork meats sold in gift boxes or portable thermo coolers.

Cost of goods sold. Cost of goods sold includes the cost of feeds, labor, depreciation and other overhead costs. For the three months ended March 31, 2014, cost of goods sold was $8,254,511 as compared to $6,581,233 for the same period of 2013, an increase of $1,673,278, or 25%. Cost of goods sold related to the hog farming segment was $8,008,398 for the first quarter of 2014 as compared to $6,581,233 for 2013. Cost of goods sold for the retail segment was $246,113 for the first quarter of 2014.

Profit Margins. Our gross margin increased to 15% in the first quarter of 2014 from 11% in 2013. Our gross profit was $1,462,118 for 2014 as compared to $805,301 for 2013. This increase in our gross margin reflected the impact of our higher margin black hog meat products.

Our gross margin from hog farming was 13% in 2014 as compared to 11% in 2013. Our retail margin was 48% in 2014. The gross margins for breeder hogs were 36% and 30% in the first three months of 2014 and 2013, respectively, and the gross margins for regular market hogs were 6% and 11% in the same period of 2014 and 2013. The gross margins for black market hogs were 9% and 4% in 2014 and 2013. The gross margin from our specialty black hog pork products was 48%. The increase in our gross margin for our regular breeder hogs and black hogs was a result of a decrease in the number of breeder hog farmers due to the poor pork market performance and reduced purchase price of feeds. However, due to the lack of improvement in pork demand, the margin from our regular market hog sales kept declining.

Expenses. Selling, general and administrative expenses increased by $117,638 in the first quarter of 2014 as compared to the same period in 2013. The increase was primarily the result of a loss in inventory of $86,917, our black hog operations which used an additional $246,725 in promoting and marketing expenses which offset reduced administrative expenses of $216,004.

Net Other Income (Expense). Net other expense increased from $45,324 for the three months ended March 31, 2013 to net other expenses of $104,915 for the three months ended March 31, 2014, an increase of $59,591, which was primarily due to the decrease of $95,589 in the subsidy income received from the Chinese government and a decrease of $77,141 from the prepaid bank loan guarantee service fee which had been amortized and recognized as part of our interest expense during the three months ended March 31, 2013.

Income Taxes. As an agricultural business, the Company is exempt from the Chinese income tax and our hog farming operations are exempt from VAT. With respect to our wholesale operations, we are engaged in breeding, processing, and distributing black hogs and black hog meats which are exempt from VAT taxes and corporate income tax as well.

Net Income (Loss). Our net income (loss) for the three months ended March 31, 2014 and 2013 was $301,025 and ($178,563), respectively. The improvement from a net loss to net income is primarily the result of stable hog feed costs, which helped us control our cost of goods sold and higher margin contributed by black hog sales, including black market hogs and specialty black hog meat sales.

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Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At March 31, 2014 our working capital was $21,029,334 as compared to $14,946,630 at December 31, 2013, reflecting the $6 million capital contribution from a private placement concluded during the first quarter of 2014. These funds are deposited in financial institutions located as follows:

	March 31, 2014				December 31, 2013
Country	Dollar		%		Dollar		%
United States	$	-		-	$	-		-
China		19,531,022		100%		10,087,694		100%
	$	19,531,022		100%	$	10,087,694		100%

Consolidated Statement of Cash Flows

	Three Months Ended March 31,
	2014			2013
Net cash provided by operating activities	$	3,022,159		$	925,292
Net cash used in investing activities		(1,093,581	)		(491,511	)
Net cash provided by financing activities		7,624,173			-
Exchange rate effect on cash		(109,423	)		65,687
Net cash inflow	$	9,443,328		$	499,468

Cash Provided by Operating Activities

Net cash provided by operating activities in the three months ended March 31, 2014 totaled $3,022,159. Cash flow pertaining to operating activities included depreciation and amortization of $884,027, amortization of prepaid expenses of $110,316, a decrease from inventory of $1,326,872 and collections from other receivables of $896,107. These favorable factors were offset by a prepayment made in the first quarter of 2014 to one of our feed suppliers of $552,000.

Net cash provided by operating activities in the three months ended March 31, 2013 totaled $925,292. Cash flow pertaining to operating activities included depreciation and amortization of $800,471, amortization of prepaid expenses of $100,446 and an increase from other payables of $546,572. These favorable factors were offset by the Company’s net loss for the first three months of 2013 of ($178,563) and an increase in inventory of $317,839.

Cash Used in Investing Activities

Net cash used in investing activities for the three months ended March 31, 2014 totaled $1,093,581. This included $1,090,114 paid for purchase of a 40% interest in one of our subsidiaries, Tianzhili.

Net cash used in investing activities for the three months ended March 31, 2013 totaled $491,511. This included $432,941 of plant and equipment investments, and $58,570 for additions to our breeder stock.

Cash Provided by Financing Activities

For the three months ended March 31, 2014, we had net cash provided by financing activities of $7,624,173. This included proceeds of $6 million from a capital contribution from the sale of 3 million shares to our current Chairman and CEO, Mr. Ping Wang, and proceeds from a renewed short-term loan of $1,635,163.

For the three months ended March 31, 2013, there was no financing activity.

Commitments for Capital Expenditures

Our capital requirements for the next twelve months relate to purchasing breeder hogs as well as additional investment in our retail segment to expand our marketing and distribution channels. We also expect to incur modest expenses in maintaining our hog farms. We believe that our cash flow from operations will be sufficient to meet our anticipated cash requirements for the next twelve months.

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Contractual Obligations and Off Balance Sheet Items

Contractual Obligations

We have certain fixed contractual obligations that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may cause actual payments to differ 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, 2014 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period
	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		Over 5 Years
Contractual obligations
Bank loans	$	7,952	$	7,952	$	-	$	-	$	-
Others		-		-		-		-		-
	$	7,952	$	7,952	$	-	$	-	$	-

Bank loans consist of short term bank loans. Historically, we have refinanced these bank loans for an additional term of one year and we expect to continue to refinance these loans upon expiration.

Off Balance Sheet Items

Under SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

•

any obligation under certain guarantee contracts,

•

any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,

•

any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in shareholder equity in our statement of financial position, and

•

any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial statements and our management’s discussion and analysis.

Variable Interest Entities

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our consolidated financial statements the financial statements of variable interest entities (“VIEs”). The accounting standards require a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity.

Wuhan Fengze Agricultural Science and Technology Development Co., Ltd. and its subsidiaries (“Fengze”) are considered the VIEs of the Company and we are the primary beneficiary. On December 1, 2009, we entered into agreements with Fengze and all of the stockholders of Fengze pursuant to which we shall receive 100% of Fengze’s net income. In accordance with these agreements, Fengze shall pay consulting fees equal to 100% of its net income to our wholly-owned subsidiary, Wuhan Fengxing Agricultural Science and Technology Development Co., Ltd. (“Fengxing”), and Fengxing shall supply the technology and administrative services needed to service Fengze.

The accounts of Fengze are consolidated in the accompanying financial statements. As VIEs, Fengze’s sales are included in our total sales, their income from operations is consolidated with ours, and our net income includes all of Fengze’s net income, and their assets and liabilities are included in our consolidated balance sheets. Because of the contractual arrangements, we have pecuniary interest in Fengze that require consolidation of Fengze’s financial statements with our financial statements.

Accounts Receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

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As a basis for estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories, consisting principally of our hogs held for sale, are stated at the lower of cost, as determined by the weighted-average method, or market. We compare the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value if that is lower. Costs of raised animals include proportionate costs of breeding, including amortization of the breeding herd or biological assets, plus the costs of feed and other maintenance. The price of hogs could fluctuate upward or downward. If prices were to decrease below the amounts we use in determining the carrying value of our inventory, any profit we might achieve on the sale of our inventories would be less than anticipated. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.

Plant and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

Estimated useful lives of the Company’s assets are as follows:

		Useful Life
Buildings		20 years
Vehicles		5 years
Office equipment		5 years
Production equipment		5-10 years

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in disposition.

We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

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Construction in Progress

Construction in progress consists of amounts expended for building construction of new breeding and animal rearing facilities. Once construction of a building is completed and the facilities are approved for adequate breeding and animal rearing activity, and have commenced of animal rearing activities, the construction in progress assets are categorized as buildings and production equipment and accounted for in plant and equipment, whereupon they are depreciated over their estimated useful lives.

Included in construction in progress are new breeding and animal rearing facilities under construction and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.

Biological Assets

Biological assets consist primarily of hogs purchased or selected from the Company’s own production for breeding and farrowing. The costs to purchase and cultivate breeding hogs and the expenditures related to labor and materials to feed breeding hogs until they become commercially productive and breedable are capitalized. When breeding hogs are entered into breeding and farrowing, amortization of the costs incurred until they became commercially productive commences. The estimated production life for breeding hogs is three years, and the costs are amortized to a residual value, currently $76 (RMB 500). After the breeding hogs have completed their production life of breeding, these breeding hogs are then transferred into inventory as the vast majority of these breeding hogs will then be sold for meat processing. Expenses incurred maintaining breeding hogs during gestation until piglets are weaned are capitalized into inventory and included in Work in process—biological assets, a component of inventories. If these breeding hogs produce piglets which are deemed appropriate for internal breeding purposes, the gestation and raising costs until weaned for these piglets are then allocated into biological assets.

Amortized expenses pertaining to biological assets are included in inventory costs for those piglets to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value, will negatively impact our operating results.

Revenue Recognition

We generates revenue principally from the business of breeding, raising, and selling hogs for use in meat production and breeding, and, to a small degree, as processed pork. Revenues generated from the sales of breeding and meat hogs and specialty pork are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. Cash payment, is usually received by the Company at the time the hogs are sold. Sold hogs and specialty pork are not returnable and accordingly, no provision has been made for returnable goods.

Currency Exchange Rates

Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries and VIE is the RMB. All of our sales are denominated in 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 of our operations are translated into U.S. dollars for reporting purposes. In particular, fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.

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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 subsidiaries. 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 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 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.

Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.

Stock Based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Item 3.	Quantitative and Qualitative Disclosures about Market Risk. Not applicable as the Company is a smaller reporting company.
Item 4.	Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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Based upon the controls evaluation, our management, including the Chief Executive Officer and Chief Financial Officer has concluded that our Disclosure Controls are not effective as of the end of the period covered by this report, due to a material weakness identified below.

During this evaluation, the Company identified a material weakness in its internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness consists of, as of the end of the period covered by this report, an understaffed financial and accounting function and the need for additional personnel to prepare and analyze financial information in a timely manner and to allow review and on-going monitoring and enhancement of our controls.

Based on our assessment and the criteria discussed above, our management, including the Chief Executive Officer and Chief Financial Officer has concluded that, as of March 31, 2014, the Company’s internal control over financial reporting was not effective as a result of the aforementioned material weakness.

Management’s Report of Internal Control over Financial Reporting.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, a public company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”) including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of March 31, 2014. In making this assessment, our management used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

During this evaluation, the Company identified a material weakness in its internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness consists of, as of the end of the period covered by this report, an understaffed financial and accounting function, and the need for additional personnel to prepare and analyze financial information in a timely manner and to allow review and on-going monitoring and enhancement of our controls.

Based on our assessment and the criteria discussed above, the Company has concluded that, as of March 31, 2014, the Company’s internal control over financial reporting was not effective as a result of the aforementioned material weakness.

Notwithstanding the material weakness in the Company’s internal control over financial reporting and the Company’s consequently ineffective disclosure controls and procedures discussed above, management believes that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with the U.S. generally accepted accounting principles.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II OTHER INFORMATION

Item 1A.

Risk Factors

Our business is subject to numerous risks and uncertainties including but not limited to those discussed in "Risk Factors" in our Annual Report on Form 10-K for fiscal year ended December 31, 2013, filed with the Securities and Exchange Commission on March 13, 2014 which are incorporated by reference into this report.

Item 6.

Exhibits

The following exhibits are filed herewith:

Exhibit Number		Document

31.1		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



32.1		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TIANLI AGRITECH, INC.

May 12, 2014	By:	/s/Ping Wang
		Ping Wang Chief Executive Officer (Principal Executive Officer)

May 12, 2014	By:	/s/Jun WANG
		Jun Wang Chief Financial Officer (Principal Financial and Accounting Officer)

RENMIN TIANLI GROUP, INC. - FORM 10-Q - May 12, 2014

Attached files

RENMIN TIANLI GROUP, INC. Reports