10-Q 1 v113579_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number :

333-112111

Zhongpin Inc.

(Exact name of registrant as specified in its charter)

Delaware		54-2100419
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

21 Changshe Road, Changge City, Henan Province, People’s Republic of China
(Address of principal executive offices)		(Zip Code)

011 86 374-6216633

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 ninety (90) days. YES x NO o

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

Large accelerated filer o Accelerated filer x Non-accelerated filer o

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

As of May 1, 2008, 26,274,470 shares of the registrant’s common stock, and 3,125,000 shares of the registrant’s Series A preferred stock, each such share convertible into one share of the registrant’s common stock, were outstanding.

ZHONGPIN INC.

FORM 10-Q

INDEX

			Page
Part I	Financial Information

	Item 1.	Unaudited Financial Statements:

		Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007	2

		Consolidated Statements of Operations and Comprehensive Income (unaudited) for the three months ended March 31, 2008 and 2007	3

		Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2008	4

		Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2008 and 2007	5

		Notes to Consolidated Financial Statements (unaudited)	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

	Item 4.	Controls and Procedures	40

Part II	Other Information

	Item 1.	Legal Proceedings	42

	Item 1A.	Risk Factors	42

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

	Item 3.	Defaults Upon Senior Securities	42

	Item 4.	Submission of Matters to a Vote of Security Holders	42

	Item 5.	Other Information	42

	Item 6.	Exhibits	42

Signatures			43

ZHONGPIN INC.

Part I – Financial Information

Item 1. Financial Statements

The accompanying unaudited consolidated balance sheets, statements of operations and comprehensive income, of changes in stockholders’ equity, and of cash flows and related notes thereto, have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods.

The accompanying financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.

The results of operations for the three-month period ended March 31, 2008 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

ZHONGPIN INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in U.S. dollars)

	March 31, 2008		December 31, 2007
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	50,020,362	$	48,701,536
Accounts receivable and other receivables (net)		15,146,289		18,982,312
Purchase deposits		5,010,054		6,059,782
Prepaid expenses and deferred charges		1,854,928		1,680,679
Inventories		24,249,233		25,922,125
Tax refund receivables		2,341,377		4,148,119
Total current assets		98,622,243		105,494,553

Property, plant and equipment (net)		79,705,309		66,429,654
Other receivables		7,341,076		4,826,279
Construction contracts		31,118,712		16,811,740
Intangible assets		24,502,643		23,339,142

Total assets	$	241,289,983	$	216,901,368

LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	8,884,034	$	10,306,344
Other payables		10,522,471		8,746,845
Accrued liabilities		4,221,820		3,014,600
Short term loans payable		50,890,440		47,668,592
Deposits from clients		6,625,658		1,876,665
Research and development grants payable		478,776		490,288
Long term loans payable-current portion		145,671		145,671
Total current liabilities		81,768,870		72,249,005

Long term loans payable		1,634,769		1,634,769

Total liabilities		83,403,639		73,883,774

Equity
Preferred stock: par value $0.001; 25,000,000 authorized; 3,125,000 and 3,125,000 shares issued and outstanding		3,125		3,125
Common stock: par value $0.001; 100,000,000 authorized; 26,274,470 and 25,891,567 shares issued and outstanding		26,274		25,892
Additional paid in capital		101,711,685		100,070,571
Retained earnings		42,019,809		34,732,049
Accumulated other comprehensive income		14,125,451		8,185,957
Total equity		157,886,344		143,017,594

Total liabilities and equity	$	241,289,983	$	216,901,368

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amount in U.S. dollars) (Unaudited)

	Three Months Ended March 31,
	2008			2007
				(Restated)
Revenues
Sales revenues	$	108,727,750		$	55,791,778
Cost of sales		94,536,207			48,049,622
Gross profit		14,191,543			7,742,156

Operating expenses
General and administrative expenses		4,404,661			1,967,248
Operating expenses		1,984,233			1,125,945
Total operating expenses		6,388,894			3,093,193

Income from operations		7,802,649			4,648,963

Other income (expense)
Interest income		635,777			21,904
Other income (expenses)		65,893			(4,428	)
Allowances income		139,544			—
Exchange gain (loss)		(23,758	)		3,484
Interest expense		(806,264	)		(442,811	)
Total other income (expense)		11,192			(421,851	)

Net income before taxes		7,813,841			4,227,112
Provision for income taxes		526,081			217,353

Net income	$	7,287,760		$	4,009,759

Foreign currency translation adjustment	$	5,939,494		$	545,541
Comprehensive income	$	13,227,254		$	4,555,300

Basic earnings per common share	$	0.25		$	0.21
Diluted earnings per common share	$	0.24		$	0.19
Basic weighted average shares outstanding		26,208,383			12,627,854
Diluted weighted average shares outstanding		30,748,961			20,982,304

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Amount in U.S. dollars) ( Unaudited)

	Preferred Stock						Common Stock				Additional Paid In		Retained		Accumulated Other Comprehensive
	Shares			Par value			Shares		Par value		Capital		Earnings		Income		Total
January 1, 2007		6,900,000		$	6,900			12,132,311	$	12,133	$	34,788,651	$	16,206,768	$	1,682,767	$	52,697,219
Preferred stock converted to common		(3,775,000	)		(3,775	)		3,775,000		3,775		-		-		-		-
Common Stock and warrants (net of offering cost)		-			-			9,984,256		9,984		62,818,776		-		-		62,828,760
Compensation expense-release of escrow shares		-			-			-		-		2,250,116		-		-		2,250,116
Warrant expense		-			-			-		-		15,950		-		-		15,950
Compensation expense-option granted		-			-			-		-		197,078		-		-		197,078
Net income for the year		-			-			-		-		-		18,525,281		-		18,525,281
Foreign currency translation adjustment		-			-			-		-		-		-		6,503,190		6,503,190
Balance December 31, 2007		3,125,000			3,125			25,891,567		25,982		100,070,571		34,732,049		8,185,957		143,017,594

Common stock and warrants (net of offering cost)		-			-			382,903		382		1,236,541		-		-		1,236,923
Compensation expense-option granted		-			-			-		-		404,573		-		-		404,573
Net income for the period		-			-			-		-		-		7,287,760		-		7,287,760
Foreign currency translation adjustment		-			-			-		-		-		-		5,939,494		5,939,494
Balance March 31, 2008		3,125,000		$	3,125			26,274,470	$	26,274	$	101,711,685	$	42,019,809	$	14,125,451	$	157,886,344

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amount in U.S. dollars) ( Unaudited)

	Three Months Ended March 31,
	2008			2007
Cash flows from operating activities:					(Restated	)
Net income	$	7,287,760		$	4,009,759
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation		883,113			415,186
Amortization		145,662			47,177
Warrant expense		—			9,570
Non-cash compensation expense		404,573			562,529

Changes in operating assets and liabilities:
Accounts receivable and other receivables		4,513,744			(3,575,562	)
Other receivables		(2,271,651	)		(389,352	)
Purchase deposits		1,269,671			(336,695	)
Prepaid expense and deferred charges		(105,914	)		(72,955	)
Inventories		2,671,624			(1,387,368	)
Tax refunds receivable		1,934,948			(164,275	)
Accounts payable		(408,402	)		2,779,252
Other payables		1,410,183			382,072
Research and development grants payable		10,504			462
Accrued liabilities		1,071,048			344,605
Taxes payable		—			665,654
Deposits from clients		4,576,652			1,355,831
Net cash provided by operating activities		23,393,515			4,645,890

Cash flows from investing activities:
Construction in progress		(23,039,757	)		(9,534,346	)
Additions to property and equipment		(1,560,363	)		(497,433	)
Additional to intangible assets		(355,111	)		(87,143	)
Proceeds on sale of fixed assets		18,433			—
Net cash used in investing activities		(24,936,798	)		(10,118,922	)

Cash flows from financing activities:
Repayment of Bank notes		(1,395,440	)		—
Proceeds from short-term loans		15,768,468			11,724,610
Repayment of short-term loans		(14,518,378	)		(2,573,506	)
Proceeds from common stock		1,236,923			1,271
Net cash provided by financing activities		1,091,573			9,152,375

Effect of rate changes on cash		1,770,536			545,541
Increase in cash and cash equivalents		1,318,826			4,224,884
Cash and cash equivalents, beginning of period		48,701,536			21,692,814
Cash and cash equivalents, end of period	$	50,020,362		$	25,917,698

Supplemental disclosures of cash flow information:
Cash paid for interest	$	901,674		$	428,320
Cash paid for income taxes	$	424,919		$	106,925

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the three years ended December 31, 2007.

1. ORGANIZATION AND NATURE OF OPERATIONS

Zhongpin Inc. (“Zhongpin”) was incorporated on February 4, 2003 as Strong Technical Inc. in the State of Delaware for the purpose of operating a personnel outsourcing service that provides skilled workers to industry. On March 30, 2005, an 82.4% controlling interest in our company was acquired by Halter Capital Corporation and all previous operations were discontinued. On January 30, 2006, we acquired Falcon Link Investment Limited (“Falcon”) in a stock exchange by issuing 11,250,000 shares of our common stock in exchange for all of the issued and outstanding capital stock of Falcon. The acquisition transaction was accounted for as a reverse acquisition resulting in the recapitalization of Falcon. Accordingly, the historical financial statements of Falcon have been retroactively restated to give effect to the recapitalization as if it had occurred at the beginning of the first period presented. Zhongpin and its subsidiaries are collectively referred to herein as “our company,” “we,” “us” and “our.”

Falcon was incorporated in the Territory of the British Virgin Islands (“BVI”) on July 21, 2005 as a holding company for the purpose of owning all of the equity interests of Henan Zhongpin Food Co., Ltd. (“HZFC”), a People’s Republic of China (“PRC”) company. Falcon acquired 100% ownership of HZFC by paying 20,940,000 Renminbi (“RMB”) ($2,528,986) to the stockholders of HZFC, who also were the stockholders of Falcon. The transaction was accounted for as a transfer of entities under common control, wherein HZFC was the continuing entity. The historical financial statements of Falcon are essentially those of HZFC and are shown as if the transfer had taken place at the beginning of the first period presented.

HZFC was established in the PRC on May 20, 2005 for the sole purpose of holding the capital stock of Henan Zhongpin Food Share Company Limited (“Food Share”) and its subsidiaries. The owners of Food Share formed HZFC by investing 16,000,000 RMB ($1,932,367). HZFC acquired Food Share by paying 15,040,000 RMB ($1,816,425) to the stockholders of Food Share, who were also the stockholders of HZFC, in exchange for 100% ownership of Food Share. The transaction was accounted for as a transfer of entities under common control, wherein Food Share was the continuing entity with an increase in registered capital of 960,000 RMB ($115,942). The historical financial statements of HZFC are essentially those of Food Share shown with an increase in capital as if the transfer had taken place at the beginning of the first period presented.

Food Share was incorporated in the PRC. It is headquartered in Henan Province in the PRC and its corporate office is in Changge City. Through our subsidiaries, we are principally engaged in the production of pork, pork products and fruits and vegetables, and the retail sales of pork, processed pork products, fruits and vegetables and other grocery items to customers throughout the PRC and other export countries, either directly or through our subsidiaries.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS (continued)

On January 30, 2006, we consummated an agreement with the shareholders of Falcon whereby we issued 11,250,000 shares of our common stock in exchange for all of the issued and outstanding stock of Falcon. Immediately prior to the transaction there were 502,568 shares outstanding as compared to 11,752,568 shares outstanding immediately following the transaction. Consequently, Falcon became a wholly-owned subsidiary of our company. The transaction was accounted for as a reverse acquisition resulting in a recapitalization of Falcon, wherein Falcon’s historical financial statements became those of our company, retrospectively restated to reflect the adopted capital structure of our company as if the transaction had occurred at the beginning of the first period presented. These financial statements have been adjusted to reflect such restatement.

In conjunction with our acquisition of Falcon, on January 31, 2006, we sold for $8.00 per unit 3.45 million units, each consisting of two shares of Series A convertible preferred stock and a five-year warrant to purchase one common share at a purchase price of $5.00 per share. Each preferred share is convertible into one common share. The outstanding shares of Series A convertible preferred stock are convertible into an aggregate of 6,900,000 common shares and the outstanding warrants are exercisable to purchase an aggregate of 3,450,000 common shares.

On February 16, 2006, we amended our articles of incorporation to change our name from Strong Technical, Inc. to Zhongpin Inc. In the same amendment, we changed our authorized common stock to 100,000,000 shares with a par value of $0.001 per share and our authorized preferred stock to 25,000,000 shares with a par value of $0.001 per share.

On February 16, 2006, we effected a 1:35.349 reverse split of our outstanding common stock. Immediately prior to the split, 415,442,354 common shares were outstanding as compared to 11,752,568 common shares outstanding immediately following the split. The aggregate number of shares of common stock issuable upon conversion of our outstanding shares of Series A convertible preferred stock was reduced from 243,908,100 common shares to 6,900,000 common shares, and the aggregate number of shares of our common stock issuable upon the exercise of our outstanding warrants was reduced from 121,954,050 common shares to 3,450,000 common shares. These financial statements have been adjusted to show all stock transactions using post-split amounts.

In June 2006, Zhumadian Zhongpin Food Company Limited was registered with a registered capital of 5,000,000 RMB ($625,344), which is 100%-owned by Henan Zhongpin Food Share Company Limited. In August 2006, Anyang Zhongpin Food Company Limited was registered with a registered capital of 4,800,000 RMB ($606,927), which is 100%-owned by Henan Zhongpin Food Share Company Limited. In September 2006, Henan Zhongpin Fresh Food Logistics Company Limited, Deyang Zhongpin Food Company Limited and Henan Zhongpin Business Development Company Limited were registered with the registered capitals of 1,500,000 RMB ($189,665), 1,000,000 RMB ($126,443) and 5,000,000 RMB ($632,215), respectively, which are all 100%-owned by Henan Zhongpin Food Share Company Limited. In October 2006, Heilongjiang Zhongpin Food Company Limited was registered with a registered capital of 1,000,000 RMB ($126,406), which is 100%-owned by Henan Zhongpin Food Share Company Limited. In April 2007, Luoyang Zhongpin Food Company Limited was registered with a registered capital of 5,000,000 RMB ($647,677), which is 100%-owned by Henan Zhongpin Food Share Company Limited. In June 2007, Yongcheng Zhongpin Food Company Limited was registered with a registered capital of 1,000,000 RMB ($130,724), which is 100%-owned by Henan Zhongpin Food Share Company Limited. In September 2007, Tianjin Zhongpin Food Company Limited was registered with a registered capital of 5,000,000 RMB ($664,699), which is 100%-owned by Henan Zhongpin Food Share Company Limited.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS (continued)

Details of Food Share’s subsidiaries are as follows:

NAME	DOMICILE/DATE OF INCORPORATION		REGISTERED CAPITAL		PERCENTAGE OF OWNERSHIP

Henan Zhongpin Industrial Company Limited		PRC/Jan. 17, 2004		18,000,000 RMB		100.00	%
				($2,173,913)

Henan Zhongpin Import and Export Trading Company		PRC/Aug. 11, 2004		5,060,000 RMB ($611,111)		100.00	%

Zhumadian Zhongpin Food Company Limited		PRC/June 7, 2006		5,000,000 RMB ($625,344)		100.00	%

Anyang Zhongpin Food Company Limited		PRC/Aug. 21, 2006		4,800,000 RMB ($606,927)		100.00	%

Henan Zhongpin Fresh Food Logistics Company Limited		PRC/Sept. 14, 2006		1,500,000 RMB ($189,665)		100.00	%

Deyang Zhongpin Food Company Limited		PRC/Sept. 25, 2006		15,000,000 RMB ($1,967,799)		100.00	%

Henan Zhongpin Business Development Company Limited		PRC/Sept. 27, 2006		5,000,000 RMB ($632,215)		100.00	%

Heilongjiang Zhongpin Food Company Limited		PRC/Oct.17, 2006		1,000,000 RMB ($126,406)		100.00	%

Luoyang Zhongpin Food Company Limited		PRC/April 26, 2007		5,000,000 RMB ($647,677)		100.00	%

Yongcheng Zhongpin Food Company Limited		PRC/June 1, 2007		1,000,000 RMB ($130,724)		100.00	%

Tianjin Zhongpin Food Company Limited		PRC/Sept. 14, 2007		5,000,000 RMB ( $664,699)		100.00	%

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Zhongpin Inc. (formerly Strong Technical, Inc.), Falcon Link Investment Limited, Henan Zhongpin Food Co., Ltd., Henan Zhongpin Food Share Company Limited, Henan Zhongpin Industrial Company Limited, Henan Zhongpin Import and Export Trading Company, Zhumadian Zhongpin Food Company Limited, Anyang Zhongpin Food Company Limited, Henan Zhongpin Business Development Company Limited, Henan Zhongpin Fresh Food Logistics Company Limited, Deyang Zhongpin Food Company Limited ,Heilongjiang Zhongpin Food Company Limited, Luoyang Zhongpin Food Company Limited, Yongcheng Zhongpin Food Company Limited and Tianjin Zhongpin Food Company Limited. All material intercompany accounts and transactions have been eliminated in consolidation.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. U.S. GAAP differs from that used in the statutory financial statements of our PRC subsidiaries, which were prepared in accordance with the relevant accounting principles and financial reporting regulations as established by the Ministry of Finance of the PRC.

The Renminbi of the People’s Republic of China (RMB) has been determined to be our functional currency. The balance sheets of our company and our subsidiaries were translated at period end exchange rates. Expenses were translated at moving average exchange rates in effect during the quarter. The effects of rate changes on assets and liabilities are recorded as accumulated other comprehensive income.

FISCAL YEAR

Our financial statements have been prepared using December 31 as the fiscal year end.

RESTRICTIONS ON TRANSFER OF ASSETS OUT OF THE PRC

Dividend payments by HZFC are limited by certain statutory regulations in the PRC. No dividends may be paid by HZFC without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 85% of profits, after tax.

START-UP COSTS

In accordance with the provisions of the American Institute of Certified Public Accountants’ Statement of Position (SOP) 98-5, “Reporting on the Costs of Start-up Activities,” we expense all start-up and organizational costs as they are incurred.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

SIGNIFICANT ESTIMATES

Several areas require significant management estimates relating to uncertainties for which it is reasonably possible there will be a material change in the near term. The more significant areas requiring the use of management estimates relate to the valuation of receivables, equipment and accrued liabilities, and the useful lives for amortization and depreciation.

CASH EQUIVALENTS

We consider all highly-liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE

Accounts receivable are stated at cost, net of allowance for doubtful accounts. Based on our periodic review of our collection experience, the ability of our customers to pay and current practice and general economic conditions in the PRC, management provides for an allowance for doubtful accounts in an amount equal to the aggregate amount of those accounts that are not collected within one year plus an amount equal to 10% of the aggregate amount of accounts receivable less than one year old for Food Share and an amount equal to 5% of the aggregate amount of accounts receivable less than one year old for our other subsidiaries.

INVENTORIES

Inventories are stated at the lower of cost, determined on a weighted average basis, and net realizable value. Work-in-progress and finished goods are composed of direct material, direct labor and an attributable portion of manufacturing overhead. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose.

LAND USE RIGHTS

We adopted the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), effective January 1, 2002. Under SFAS 142, goodwill and indefinite lived intangible assets are not amortized, but are reviewed annually for impairment, or more frequently, if indications of possible impairment exist. We have performed the requisite annual impairment tests on intangible assets and determined that no impairment adjustments were necessary.

REVENUE RECOGNITION

We recognize revenue on the sales of our products as earned when the customer takes delivery of the product according to previously agreed upon pricing and delivery arrangements, and when we believe collectibility is reasonably assured. We sell primarily perishable and frozen food products. As such, any right of return is only for a few days and has been determined to be insignificant by management. Accordingly, no provision has been made for returnable goods.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

EARNINGS PER SHARE

Basic earnings per common share (“EPS”) are calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Our Series A convertible preferred stock is a participating security. Consequently, the two-class method of income allocation is used in determining net income available to common stockholders.

Diluted EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares of common stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase common stock at the average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation.

The numerators and denominators used in the computations of basic and diluted EPS are presented in the following table:

	Three Months Ended March 31,
	2008			2007
					(Restated)
NUMERATOR FOR BASIC AND DILUTED EPS
Net income (numerator for Diluted EPS)	$	7,287,760		$	4,009,759
Net income allocated to preferred stock		(803,111	)		(1,349,284	)
Net income to common stockholders (Basic)	$	6,484,649		$	2,660,475

DENOMINATORS FOR BASIC AND DILUTED EPS
Common stock outstanding		26,208,383			12,627,854
DENOMINATOR FOR BASIC EPS		26,208,383			12,627,854
Add: Weighted average preferred as if converted		3,125,000			6,404,457
Add: Weighted average stock warrants outstanding		1,415,578			1,949,993
DENOMINATOR FOR DILUTED EPS		30,748,961			20,982,304

EPS – Basic	$	0.25		$	0.21
EPS – Diluted	$	0.24		$	0.19

SHIPPING AND HANDLING COSTS

Shipping and handling amounts billed to customers in related sales transactions are included in sales revenues. Direct shipping costs, which are included in operating expenses, were approximately $1,218,000 and $575,000 for the three months ended March 31, 2008 and 2007, respectively. Handling costs, which are included in costs of sales, were approximately $790,000 and $261,000 for the three months ended March 31, 2008 and 2007, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

ADVERTISING COSTS

Advertising costs are expensed as incurred and included in general and administrative expenses. Advertising expenses were approximately $819,000 and $207,000 for the three months ended March 31, 2008 and 2007, respectively.

RESEARCH AND DEVELOPMENT COSTS

The PRC government has made a cash grant to our company specifically to fund research and development. We have recorded this grant as a liability titled “Research & development grants payable” on our balance sheet. Qualifying research and development costs reduce the liability while non-qualifying research and development costs are expensed as incurred. Research and development costs were approximately $445,000 and $385,000 for the three months ended March 31, 2008 and 2007, respectively.

PROPERTY AND EQUIPMENT

Impairment of long-lived assets is recognized when events or changes in circumstances indicate the carrying amount of an asset, or related groups of assets, may not be recoverable. Under the provisions of SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” we recognize an “impairment charge” when the expected net undiscounted future cash flows from an asset’s use and eventual disposition are less than the asset’s carrying value and the asset’s carrying value exceeds its fair value. Measurement of fair value for an asset, or related group of assets, may be based on appraisals, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset or assets.

Expenditures for maintenance, repairs and betterments, which do not materially extend the normal useful life of an asset, are charged to operations as incurred. Upon sale or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income.

Depreciation and amortization are provided for financial reporting purposes primarily on the straight-line method over the estimated useful lives, ranging from five to 50 years.

OPERATING LEASES

Operating leases represent those leases under which substantially all the risks and rewards of ownership of the leased assets remain with the lessors. Rental payments under operating leases are charged to expense on the straight-line basis over the period of the relevant leases.

INCOME TAXES

Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. In accordance with SFAS No. 109, “Accounting for Income Taxes,” these deferred taxes are measured by applying currently- enacted tax laws. We recorded income tax expenses of $526,081 and $217,353 for the three months ended March 31, 2008 and 2007, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

We withhold and pay income taxes on our employees’ wages, which fund the Chinese government’s sponsored health and retirement programs for all of our employees. For our employees, we were obligated to make contributions to the social insurance bureau under the laws of the PRC for pension and retirement benefits.

3. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES

We accrue an allowance for bad debts related to our receivables. The receivable and allowance balances at March 31, 2008 and December 31, 2007 were as follows:

	March 31, 2008			December 31, 2007
Accounts receivable	$	16,056,324		$	19,856,766
Other receivables		7,827,513			5,293,697
Allowance for bad debts		(1,396,472	)		(1,341,872	)
	$	22,487,365		$	23,808,591

Current	$	15,146,289		$	18,982,312
Non-current		7,341,076			4,826,279
	$	22,487,365		$	23,808,591

Other receivables consist primarily of cash advances to suppliers to ensure preferential pricing and delivery. These advances bear no interest and are expected to be repaid in cash. Repayment is typically required to be made in less than one year. Advances that are not expected to be repaid within one year are classified as non-current.

4. INVENTORIES

Inventories at March 31, 2008 and December 31, 2007 consisted of:

	March 31, 2008		December 31, 2007
Raw materials	$	1,116,265	$	1,242,717
Low value consumables & packaging		1,151,096		1,027,223
Work-in-progress		3,665,320		4,899,169
Finished goods		18,316,552		18,753,016
Net inventories	$	24,249,233	$	25,922,125

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at cost at March 31, 2008 and December 31, 2007 consisted of:

	March 31, 2008			December 31, 2007
Machinery and equipment	$	33,348,104		$	26,964,304
Furniture and office equipment		900,561			818,528
Motor vehicles		1,693,978			1,491,544
Buildings		50,426,554			42,711,397
Subtotal		86,369,197		$	71,985,773
Less: accumulated depreciation		(6,663,888	)		(5,556,119	)
Net property and equipment	$	79,705,309		$	66,429,654
Depreciation expense	$	883,113		$	2,087,551

6. INTANGIBLE ASSETS

Intangible assets consist of prepaid land use rights. According to the laws of the PRC, the government owns all of the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the PRC government. Accordingly, we paid in advance for certain land use rights. Prepaid land use rights are being amortized and recorded as lease expense using the straight-line method over the use terms of 20 to 50 years. Intangible assets at March 31, 2008 and December 31, 2007 consisted of the following:

	March 31, 2008			December 31, 2007
Land use rights	$	25,327,842		$	23,989,174
Accumulated amortization		(825,199	)		(650,032	)
	$	24,502,643		$	23,339,142
Amortization expense	$	145,662		$	397,975

7. CONSTRUCTION IN PROGRESS

Construction in progress at March 31, 2008 and December 31, 2007 consisted of:

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. CONSTRUCTION IN PROGRESS (continued)

Project	Date or Estimated Date Put in Service⁽¹⁾		March 31, 2008		December 31, 2007
Production facility for chilled pork in Zhumadian		July 2008	$	356,883	$	523,359
Production facility for chilled pork in Anyang		July 2008		4,913,239		2,069,446
Production line for prepared pork in Changge industrial plant		Dec. 2008		5,250,087		-
Production facility for chilled pork in Luoyang		Dec. 2008		17,012,206		6,481,730
Production facility for chilled pork in Yongcheng		Dec. 2008		2,226,347		55,347
Waste water solution system		Dec. 2008		564,757		8,214
Cooling storage and logistic hub		May 2008		-		7,673,644
Supplies storage		Oct. 2008		294,143		-
Production line for fruits and vegetables		Feb. 2009		27,723		-
The first phase of residential dormitory construction in Zhongpin Industrial Park		Dec. 2008		473,327		-
			$	31,118,712	$	16,811,740

___________________

(1)	Represents date all regulatory permits and approvals are received and project is placed in service. In certain cases, construction of a project may be substantially completed and the project may be operational during a testing period prior to such date.

8. LOANS PAYABLE

SHORT-TERM LOANS

Short-term loans are due within one year. Of the $50.89 million aggregate principal amount of short-term loans at March 31, 2008, loans in the principal amount of $29.49 million were secured by our land and plants located in the PRC and loans in the aggregate principal amount of $21.37 million were guaranteed by some of our subsidiaries. These loans bear interest at prevailing lending rates in the PRC ranging from 6.84% to 7.84% per annum. At March 31, 2008, there was approximately $141.47 million in available unused lines of credit.

LONG-TERM LOANS

Our long-term loan bears interest at the rate of 6.02% per annum.

The balances of loans payable at March 31, 2008 and December 31, 2007 were as follows:

	March 31, 2008		December 31, 2007
Short-Term Loans Payable	$	50,890,440	$	47,668,592
Long-Term Loans Payable		1,780,440		1,780,440
	$	52,670,880	$	49,449,032

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. LOANS PAYABLE (continued)

Long-Term Repayment Schedule

Payments due in 2008 – current portion	$	145,671
Payments due in 2009		145,671
Payments due in 2010		145,671
Payments due in 2011		145,671
Payments due in 2012		145,671
Payments due thereafter		1,052,085
	$	1,780,440

9. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

From time to time, we have disputes that arise in the ordinary course of our business. As of March 31, 2008, there was no material legal proceedings to which we were a party or to which any of our property was subject that will have a material adverse effect on our financial condition.

10. ALLOWANCES INCOME

“Allowances income” consists of grants from the government of the PRC for our participation in specific programs, such as import and export, branding, and city maintenance and construction. We received allowances income for the three months ended March 31, 2008 and 2007 as follows:

	Three Months Ended March 31,
	2008		2007
Allowances income	$	139,544		-

In addition to paying our company for our participation in ongoing programs, the PRC government has made a cash grant to our company specifically to fund research and development. We recorded this grant as a liability titled “Research & development grants payable” on our balance sheet rather than as revenue. As qualifying research and development costs are incurred, we reduce the liability rather than recording an expense.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”) requires entities to disclose the fair values of financial instruments except when it is not practicable to do so. Under SFAS No. 107, it is not practicable to make this disclosure when the costs of formulating the estimated values exceed the benefit when considering how meaningful the information would be to financial statement users.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

As a result of the difficulties presented in the valuation of the loans payable to related entities/parties because of their related party nature, estimating the fair value of these financial instruments is not considered practical. The fair values of all other assets and liabilities do not differ materially from their carrying amounts. None of the financial instruments held are derivative financial instruments and none were acquired or held for trading purposes during the three months ended March 31, 2008 and 2007.

12. NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R amends SFAS 141 and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. It is effective for fiscal years beginning on or after December 15, 2008 and will be applied prospectively. We are currently evaluating the impact of adopting SFAS No. 141R on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements. It also requires once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. It is effective for fiscal years beginning on or after December 15, 2008 and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements shall be applied prospectively. We are currently evaluating the impact of adopting SFAS No. 160 on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - an amendment of FASB Statement No. 115.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. T he objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. We expect the Statement will have no material impact on our consolidated financial statements.

13. PREFERRED STOCK

The principal terms of our Series A convertible preferred stock are as follows.

Dividends. The holders of our Series A convertible preferred stock are entitled to receive, when and as declared by our board of directors, dividends in such amounts as may be determined by our board of directors from time to time out of funds legally available therefor. No dividends (other than those payable solely in common stock) will be paid to the holders of common stock until there shall have been paid or declared and set apart during that fiscal year for the holders of our Series A convertible preferred stock a dividend in an amount per share that the holders would have received for the shares of common stock issuable upon conversion of their shares of Series A convertible preferred stock.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. PREFERRED STOCK (continued)

Preference on Liquidation. In the event of our merger or consolidation or the sale of all or substantially all of our assets or other liquidation of our company, holders of our Series A convertible preferred stock shall get a priority in payment over all other classes of stock. In such event, the Series A convertible preferred stock would be entitled to receive the greater of (i) the original purchase price of the Series A convertible preferred stock or (ii) the amount the holder would get if such holder converted all of such holder’s Series A convertible preferred stock into common stock.

Voting. The holder of each share of Series A convertible preferred stock (i) shall be entitled to the number of votes with respect to such share equal to the number of shares of common stock into which such share of Series A convertible preferred stock could be converted on the record date for the subject vote or written consent (or, if there is no such record date, then on the date that such vote is taken or consent is effective) and (ii) shall be entitled to notice of any stockholders’ meeting in accordance with our by-laws.

Appoint and Elect a Director. So long as the number of shares of common stock issuable upon conversion of the outstanding shares of Series A convertible preferred stock is greater than 10% of the number of outstanding shares of common stock (on a fully diluted basis), the holders of record of the shares of Series A convertible preferred stock, exclusively and as a separate class, shall be entitled to elect one of our directors.

Conversion Right. The holders of Series A convertible preferred stock may convert each share of Series A convertible preferred stock into common stock at an initial conversion price of $4.00. The conversion price will be adjusted for stock dividends, stock splits and similar events.

Automatic Conversion. Each share of Series A convertible preferred stock will automatically be converted into shares of common stock at the conversion price at the time in effect if (i) we consummate an underwritten public offering of our common stock giving us at least $30 million in net proceeds, (ii)(A) the closing price of our common stock equals or exceeds $10.00 (as adjusted) for the twenty (20) consecutive-trading-day period ending within two (2) days of the date on which we provide notice of such conversion as hereinafter provided and (B) either a registration statement registering for resale the shares of common stock issuable upon conversion of the Series A convertible preferred stock has been declared effective and remains effective and available for resale for the twenty (20)-day period, or Rule 144(k) under the Securities Act of 1933, as amended, is available for the resale of such shares, or (iii) by consent of at least 67% of the then-outstanding shares of Series A convertible preferred stock.

Protective Provisions. So long as at least 1,750,000 shares of Series A convertible preferred stock are outstanding (subject to adjustment for stock splits, combinations and the like), the holders of a majority of the outstanding shares of Series A convertible preferred stock shall be required (in addition to any consent or approval otherwise required by law) for us to take certain actions, including (1) the liquidation, dissolution or wind up of our company, (2) the amendment, alteration or repeal of any provision of our certificate of incorporation so as to affect the rights, preferences or privileges of the Series A convertible preferred stock, (3) the creation of a new class of preferred stock or any increase in the number of shares of Series A convertible preferred stock that can be issued, or (4) the purchase or redemption, or the payment or declaration of any dividend or the making of any distribution on, any securities junior in priority to the Series A convertible preferred stock; or (5) making any change in the size of our board of directors.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. SHARE-BASED PAYMENT ARRANGEMENTS

In conjunction with the issuance of preferred stock discussed in Note 14, we issued warrants for the purchase of 3,450,000 shares of our common stock.

Also in conjunction with the issuance of such preferred stock, we issued warrants to purchase 345,000 units at an initial exercise price of $8.00 per unit. The units that may be acquired upon exercise of such warrants consist of two shares of Series A convertible preferred stock and one warrant to purchase one share of common stock at an initial exercise price per share of $5.00. These warrants, if fully exercised and converted, would require the issuance of 1,035,000 shares of common stock.

On January 31, 2006, we completed a private placement in which we sold for an aggregate purchase price of $27.6 million, 3.45 million units, each unit consisting of two shares of our Series A convertible preferred stock and a warrant to purchase one share of our common stock. In connection with this financing, nine individuals, including six of our employees, including Mr. Xianfu Zhu, our Chairman of the Board, Chief Executive Officer and President, and Mr. Baoke Ben, our Executive Vice President and a director of our company, deposited into escrow an aggregate of 1,125,056 shares of our common stock. Under the terms of such escrow arrangement, 50% of such shares were to be released to the investors in the private placement if our audited net income for the fiscal year ended December 31, 2006, subject to certain adjustments, was less than $7.927 million, and the remaining 50% were to be released to such investors if our audited net income for the fiscal year ended December 31, 2007, subject to certain adjustments, was less than $15 million. Under U.S. generally accepted accounting principles, the release of any of such escrow shares to any of our employees based on our fulfillment of stated performance thresholds constitutes a compensatory plan to such employees, which requires us to record a corresponding compensation expense in our financial statements. The key provisions of SFAS-123R require that share-based compensation awards to employees be measured at the grant-date fair value and the cost recognized over the period during which the employee is required to provide service in exchange for the award. As we have satisfied the performance threshold for fiscal 2006 and fiscal 2007 for the release of the escrowed shares, 50% of such shares were released to employee stockholders in April 2007, and the remaining 50% of such shares were released to employee stockholders in April 2008. A non-cash expense in the amount of $562,528 was recorded in the three months ended March 31, 2007. There was no related expense recorded in the three months ended March 31, 2008.

On June 15, 2006, in conjunction with a one-year consulting agreement, we issued three-year warrants to purchase 100,000 shares of common stock at a price of $6.50 per share. The warrants vest monthly over a one-year period. These warrants were accounted for using the fair value method, with the expense being recognized ratably over the requisite service period of one year. Consulting expense related to the warrants amounted to $9,570 for the three months ended March 31, 2007. There was no further related expense recorded during the three months ended March 31, 2008.

On December 22, 2006, in conjunction with an amendment to a registration rights agreement, we issued to investors warrants to purchase 884,796 shares of common stock at a price of $5.50 per share. The warrants were accounted for using the fair value method. Penalty expense related to the warrants amounted to $4,461,775 for the year ended December 31, 2006. There was no penalty expense accrued for the fiscal year of 2007 and thereafter.

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. SHARE-BASED PAYMENT ARRANGEMENTS (continued)

On August 23, 2007, we issued stock purchase options to an executive officer to purchase 100,000 shares of common stock and to a director to purchase 30,000 shares of common stock, in each case at an initial exercise price of $9.20 per share. These options were accounted for using the fair value method, with the expense being recognized ratably over the requisite service period (three years for the executive officer and one year for the director). The compensation expense for these options amounted to $66,058 for the three months ended March 31, 2008.

On September 30, 2007, in conjunction with a one-year consulting agreement, we issued three-year warrants to purchase 50,000 shares of common stock at an initial exercise price per share of $10.00. The warrants vest monthly over a one-year period. These warrants were accounted for using the fair value method, with the expense being recognized ratably over the requisite service period of one year. The compensation expense for these the warrants amounted to $48,597 for the three months ended March 31, 2008.

On December 14, 2007, we issued stock purchase options to certain executive officers to purchase an aggregate of 580,000 shares of common stock at an initial exercise price of $11.76 per share. These options were accounted for using the fair value method, with the expense being recognized ratably over the requisite service period (three years). The compensation expense for these options amounted to $289,918 for the three months ended March 31, 2008.

The following table provides the information with respect to the above-referenced share-based non-cash compensation at March 31, 2008:

Nonvested Shares	Shares			Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2006		-			-
Granted at January 31, 2006		1,125,056		$	4.00
Vested -50%		(562,528	)	$	4.00
Nonvested at December 31, 2006		562,528		$	4.00
Vested – 50%		(562,528	)	$	4.00
Nonvested at December 31, 2007		-			-

The following table provides certain information with respect to the above-referenced warrants and options outstanding at March 31, 2008:

	Exercise Price		Number Outstanding		Weighted Average Life - Years

Warrants	$	4.00		690,000		2.83
Warrants	$	5.00		758,189		2.83
Warrants	$	5.50		86,811		3.72
Warrants	$	6.50		100,000		1.21
Warrants	$	10.00		50,000		2.50
Warrants	$	8.00		437,500		4.50
Options	$	9.20		130,000		4.40
Options	$	11.76		580,000		4.71

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. SHARE-BASED PAYMENT ARRANGEMENTS (continued)

The weighted average fair value at date of grant for warrants and options granted during 2007 and 2006 was $6.00 and $0.38, respectively, and was estimated using the Black-Scholes option valuation model with the following assumptions:

	2006		2007
Expected life in years		3 - 5		3 - 5
Interest rate		4.00% - 4.52%		3.63% - 4.19%
Volatility		6.1% - 68.5%		46% - 55%
Dividend yield		0%		0%

15. SEGMENT REPORTING

We operate in two business segments: pork and pork products, and vegetables and fruits.

Our pork and pork products segment is involved primarily in the processing of live market hogs into fresh, frozen and processed pork products. Our pork and pork products segment markets its products domestically to our branded stores and to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments, such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets.

Our vegetables and fruits segment is involved primarily in the processing of fresh vegetables and fruits. We contract with more than 100 farms in Henan Province and nearby areas to produce high-quality vegetable varieties and fruits suitable for export purposes. The proximity of the contracted farms to our operations ensures freshness from harvest to processing. We contract to grow more than 20 categories of vegetables and fruits, including asparagus, sweet corn, broccoli, mushrooms, lima beans and strawberries.

	Sales by Segment (U.S. dollars in millions)

	Three Months Ended March 31,				Net Change		Percentage Change
	2008		2007		2008/2007		2008/2007
Pork and Pork Products
Chilled Pork	$	55.09	$	28.48	$	26.61		93.43	%
Frozen Pork		40.16		20.29		19.87		97.93	%
Prepared Pork Products		11.96		5.85		6.11		104.44	%
Vegetables and Fruits		1.52		1.17		0.35		29.91	%
Total	$	108.73	$	55.79	$	52.94		94.89	%

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. SEGMENT REPORTING (continued)

	Operating Income by Segment (U.S. dollars in millions)

	Three Months Ended March 31,				Net Change		Operating Margin Three Months Ended March 31,
	2008		2007		2008/2007		2008			2007
			(Restated)							(Restated)
Pork and Pork Products
Chilled Pork	$	3.51	$	2.20	$	1.31		6.37	%		7.72	%
Frozen Pork		2.37		1.54		0.83		5.90	%		7.59	%
Prepared Pork Product		1.74		0.79		0.95		14.55	%		13.50	%
Vegetables and Fruits		0.18		0.12		0.06		12.00	%		10.26	%
Total	$	7.80	$	4.65	$	3.15		7.18	%		8.33	%

16. RESTATEMENT

Under U.S. generally accepted accounting principles, the release of any of such escrow shares to any of our employees based on our fulfillment of stated performance thresholds constituted a compensatory plan to such employees, which required us to record a corresponding compensation expense in our financial statements. We originally recorded a $4.1 million non-cash expense in connection with the initial release of escrowed shares in April 2007 based upon the fair value of the released shares on the date of release. However, the key provisions of SFAS-123R require that share-based compensation awards to employees be measured at the grant-date fair value and the cost recognized over the period during which the employee is required to provide service in exchange for the award. As a result, we have restated our financial statements for the three months ended March 31, 2007 to record a $562,529 non-cash expense for such shares during such period.

The following are the restated consolidated balance sheets as of March 31, 2007, consolidated statement of operations and comprehensive income for the three months ended March 31, 2007 and consolidated statement of cash flows for the three months ended March 31, 2007:

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.RESTATEMENT (continued)

Zhongpin Inc.

Consolidated Balance Sheets

(U.S. dollars) (Unaudited)

	March 31, 2007		March 31, 2007
		(Original)		(Restated)
ASSETS
Current assets
Cash and cash equivalents	$	25,917,698	$	25,917,698
Accounts receivable		17,047,013		17,047,013
Purchase deposits		336,695		336,695
Prepaid expenses and deferred charges		273,391		273,391
Inventories		11,464,847		11,464,847
Tax refund receivables		1,243,277		1,243,277
Total current assets		56,282,921		56,282,921

Property, plant and equipment (net)		32,679,396		32,679,396
Other receivables		2,445,994		2,445,994
Construction contracts		21,551,169		21,551,169
Intangible assets (net)		9,070,043		9,070,043

Total assets	$	122,029,523	$	122,029,523

LIABILITIES AND EQUITY
Current liabilities
Accounts and other payables	$	23,874,118	$	23,874,118
Accrued liabilities		1,942,162		1,942,162
Short term loans payable		32,996,302		32,996,302
Taxes payable		1,044,359		1,044,359
Deposits from clients		2,039,645		2,039,645
Research and development grants payable		249,034		249,034
Long-term loans payable-current portion		145,671		145,671
Total current liabilities		62,291,291		62,291,291
Long term loans payable		1,913,614		1,913,614
Total liabilities		64,204,905		64,204,905

Equity
Preferred stock: par value $0.001		5,479		5,479
Common stock: par value $0.001		13,554		13,554
Additional paid in capital		32,548,105		33,110,634
Retained earnings		23,029,172		22,466,643
Accumulated other comprehensive income		2,228,308		2,228,308
Total equity		57,824,618		57,824,618

Total liabilities and equity	$	122,029,523	$	122,029,523

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. RESTATEMENT (continued)

Zhongpin Inc.

Consolidated Statements Of Operations And Comprehensive Income

(U.S. dollars) (Unaudited)

	Three Months Ended March 31,
	2007			2007
	(Original)			(Restated)
Revenues
Sales revenues	$	55,791,778		$	55,791,778
Cost of sales		48,049,622			48,049,622
Gross profit		7,742,156			7,742,156

Operating expenses
General and administrative expenses		1,404,719			1,967,248
Operating expenses		1,125,945			1,125,945
Total operating expenses		2,530,664			3,093,193

Income from operations		5,211,492			4,648,963

Other income (expense)
Interest income		21,904			21,904
Other income (expenses)		(4,428	)		(4,428	)
Exchange gain (loss)		3,484			3,484
Interest expense		(442,811	)		(442,811	)
Total other income (expense)		(421,851	)		(421,851	)

Net income before taxes		4,789,641			4,227,112
Provision for income taxes		217,353			217,353

Net income	$	4,572,288		$	4,009,759

Foreign currency translation adjustment	$	545,541		$	545,541
Comprehensive income	$	5,117,829		$	4,555,300

Basic earnings per common share	$	0.24		$	0.21
Diluted earnings per common share	$	0.22		$	0.19
Basic weighted average shares outstanding		12,627,854			12,627,854
Diluted weighted average shares outstanding		20,982,304			20,982,304

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. RESTATEMENT (continued)

Zhongpin Inc.

Consolidated Statements of Cash Flow

(U.S. dollars) (Unaudited)

	Three Months Ended March 31,
	2007			2007
	(Original)			(Restated)
Cash flows from operating activities:
Net income	$	4,572,288		$	4,009,759
Adjustments to reconcile net income to net case provided by (used in) operations:
Depreciation		415,186			415,186
Amortization		47,177			47,177
Warrant expenses		9,570			9,570
Non-cash compensation adjustment		—			562,529

Changes in operating assets and liabilities:
Accounts receivable		(3,964,914	)		(3,575,562	)
Other receivable		—			(389,352	)
Purchase deposits		(336,695	)		(336,695	)
Prepaid expense and deferred charges		(72,955	)		(72,955	)
Inventories		(1,387,368	)		(1,387,368	)
Tax refunds receivable		(164,275	)		(164,275	)
Accounts payable		3,161,786			2,779,252
Other payable		—			382,072
Research and development grants payable		—			462
Accrued liabilities		344,605			344,605
Taxes payable		665,654			665,654
Deposits from clients		1,355,831			1,355,831
Net cash provided by (used in) operating activities:		4,645,890			4,645,890

Cash flows from investing activities:
Construction in progress		(9,534,346	)		(9,534,346	)
Additions to property and equipment		(497,433	)		(497,433	)
Additions to intangible assets		(87,143	)		(87,143	)
Net cash used in investing activities		(10,118,922	)		(10,118,922	)

Cash flows from financing activities:
Proceeds from short-term loans		11,724,610			11,724,610
Repayment of short-term loans		(2,573,506	)		(2,573,506	)
Proceeds from long-term loans		1,271			1,271

The accompanying notes are an integral part of these consolidated financial statements.

ZHONGPIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. RESTATEMENT (continued)

Zhongpin Inc.

Consolidated Statements of Cash Flow

(U.S. dollars) (Unaudited)

	Three Months Ended March 31,
	2007		2007
	(Original)		(Restated)
Net cash provided by financing activities		9,152,375		9,152,375

Effect of rate changes on cash		545,541		545,541

Increase (decrease) in cash and cash equivalents		4,224,884		4,224,884

Cash and cash equivalents, beginning of period		21,692,814		21,692,814
Cash and cash equivalents, end of period	$	25,917,698	$	25,917,698

Supplemental disclosures of cash flow information:
Cash paid for interest	$	428,320	$	428,320
Cash paid for income taxes	$	106,925	$	106,925

The accompanying notes are an integral part of these consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Forward-Looking Statements

The statements contained in this Report with respect to our financial condition, results of operations and business that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the reader of the forward-looking statements that such statements, which are contained in this Report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employee, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors discussed in our other filings with the Securities and Exchange Commission, and that these statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing our company, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. Some of these risks are described in “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007.

These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward looking statements made in connection with this Report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this Report is a statement of our intention as of the date of this Report and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

Overview

We are principally engaged in the meat and food processing and distribution business in the PRC. Currently, we have nine processing plants located in Henan, Heilongjiang and Sichuan Provinces and in Tianjin City in the PRC, with a total of 15 production lines. Our current total production capacity for chilled pork and frozen pork is 997 metric tons per day, including the average production capacity of approximately 104 metric tons per day from OEM partners, based on an eight-hour working day, or approximately 359,000 metric tons on an annual basis. We also have production capacity for prepared meats of 70 metric tons per eight-hour day (or approximately 25,200 metric tons on an annual basis) and for fruits and vegetables of 73 metric tons per eight-hour day, including the average production capacity of approximately eight metric tons per day supplied by OEM partners, or approximately 26,280 metric tons on an annual basis. We utilize state-of-the-art equipment in all of our abattoirs and processing facilities.

On April 26, 2007, Henan Zhongpin formed a new wholly-owned subsidiary, Luoyang Zhongpin Food Company Limited, for the purpose of constructing a production facility to be located in western Henan Province. We plan to invest approximately $14.5 million to construct this facility, which is planned to have a production capacity of 195 metric tons per eight-hour working day, or approximately 70,000 metric tons on an annual basis. Approximately 60% of the production capacity will be designed for the chilled pork and the remaining approximately 40% will be designed for the frozen pork. We plan to put the new facility into operation by the end of the second quarter of fiscal 2008.

On June 30, 2007, Henan Zhongpin formed a wholly-owned subsidiary, Yongcheng Zhongpin Food Company Limited, through which we plan to invest approximately $15 million to construct a new production facility in eastern Henan Province that will be designed with a production capacity for chilled or frozen pork of 222 metric tons per eight-hour working day, or approximately 80,000 metric tons on an annual basis. Approximately 75% of the production capacity will be designed for the production of chilled pork and approximately 25% will be designed for the production of frozen pork. We plan to put this new plant into production in the fourth quarter of fiscal 2008.

We also plan to invest approximately $13.2 million to expand the production line for prepared meat products at our production facilities in Changge City, Henan Province. The new production line will be designed with a production capacity of 80 metric tons per eight-hour working day, or approximately 28,800 metric tons on an annual basis. We plan to put this new production line into operation in the third quarter of fiscal 2008.

In addition, we are investing a total of $11 million to expand and upgrade our production line for fruits and vegetables in our production facilities located in Changge City, Henan Province. The additional lines are expected to cost $6 million and the remaining $5 million will be invested in a refrigerated storage warehouse for our fruit and vegetables as well as frozen pork and intermediate products for prepared meat. This new production line will be designed to expand our production capacity for fruits and vegetables by 83 metric tons per eight-hour day, or approximately 30,000 metric tons on an annual basis, and is expected to be put into operation in the fourth quarter of fiscal 2008.

Our products are sold under the “Zhongpin” brand name. At March 31, 2008, our customers included 17 international or domestic fast food companies in the PRC, 39 export-registered processing factories and 1,621 school cafeterias, factory canteens, army posts and national departments. At such date, we also sold directly to 2,946 retail outlets, including supermarkets, within the PRC.

Since 2001, we have been one of the “leading agricultural industrial enterprises” in the PRC. Over the past five fiscal years, we achieved a compound annual growth rate of 77% in terms of revenues and 86% in terms of net profits. We have established distribution networks in 24 provinces, including four cities with special legal status, in the North, East, South and South Midland of the PRC, and also have formed strategic partnerships with leading supermarket chains and the catering industry in the PRC. In addition, we export products to the European Union, Southeast Asia, Russia and South Africa.

With the recent increases in pork prices in the PRC and the appreciation of the RMB against the U.S. dollar and other foreign currencies, we believe the dynamics of the international pork trade have changed over the past year, with exports of pork and pork products declining and imports of such products starting to increase. We believe we are well positioned to benefit from this change, both in the domestic market in the PRC and in the international market. In response to these changes in the marketplace, we are seeking to establish relationships with several multinational companies, including some of the leading pork processing companies in North America, as we believe there are now opportunities to import certain kinds of frozen pork and deep-processing pig by-products. We also have recently commenced selling raw pork products to the PRC-based subsidiaries of two U.S. meat processing companies.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate, on an on-going basis, our estimates for reasonableness as changes occur in our business environment. We base our estimates on experience, the use of independent third-party specialists, and various other assumptions that we believe 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. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments, estimates and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe the following are our critical accounting policies:

Accounts Receivable. We state accounts receivable at cost, net of allowance for doubtful accounts. Based on our past experience and current practice in the PRC, management provides for an allowance for doubtful accounts in an amount equal to the aggregate amount of those accounts that have not been collected within one year plus an amount equal to the sum of 10% of the aggregate amount of the accounts receivable of our wholly-owned subsidiary, Henan Zhongpin Food Share Co., Ltd., plus 5% of the aggregate amount of the accounts receivable less than one year old for all of our other subsidiaries. As of March 31, 2008, we were successful in collecting $30,000, or approximately 38%, of our doubtful accounts that were outstanding at December 31, 2007 for longer than one year, and $13.76 million, or approximately 73%, of our doubtful accounts that were outstanding at December 31, 2007 for one year or less. It is management’s belief that the current bad debt allowance adequately reflects an appropriate estimate based on management’s judgment.

Inventory Valuation. We value our pork inventories at the lower of cost, determined on a weighted average basis, and net realizable value (the estimated market price). When the carcasses are disassembled and transferred from primary processing to various manufacturing departments, we adjust the net realizable value for product specifications and further processing, which becomes the basis for calculating inventory values. In addition, substantially all inventory expenses, packaging and supplies are valued by the weighted average method.

Income Taxes. We account for income taxes in accordance with Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes.” We compute our provision for income taxes based on the statutory tax rates and tax planning opportunities available to us in the PRC. Significant judgment is required in evaluating our tax positions and determining our annual tax position.

Results of Operations

In fiscal 2008, we intend to continue to focus on the implementation of our strategic plan to continue the growth we have experienced in the last five years. The construction of our new plant in western Henan Province will be completed as scheduled by the end of the second quarter of fiscal 2008 while the construction of our new plant in eastern Henan Province might be delayed because of issues related to the environmental control system in that facility. Management, however, still believes that the construction of this plant should be finished in the fourth quarter of 2008. The construction of our new prepared meat facility with 28,800 tons of capacity should be completed as schedule in the third quarter of 2008, and production at that facility should begin by the end of that quarter. The construction of our new fruit and vegetable facility with 30,000 tons of capacity is also expected to be completed as scheduled, and production at that facility should begin by the end of the fourth quarter of 2008. In fiscal 2008, we expect to continue to expand our distribution channel and develop new markets. Through our aggressive marketing campaign, we also expect to increase our brand awareness and customer loyalty. We also intend to further streamline our supply chain management to build a unified, safe and efficient cold-chain logistics system. In addition, we will continue the development of our information technology systems, increase our research and development capability and invest in training and human resources development so that we will be able to sustain a rapid and healthy growth while maintaining a satisfactory profit margin.

In the remaining three quarters of fiscal 2008, we expect the demand for our pork and pork products to remain strong. While the supply of live hogs in the PRC is currently relatively tight, we believe this condition is slowly recovering and expect to experience a noticeable improvement in the hog supply in the second half of fiscal 2008. Based on our results for the first quarter of fiscal 2008, we remain confident in our ability to reach our 2008 earnings guidance we disclosed earlier this year. We also expect to increase our market share in the meat and meat products segment in our target markets in fiscal 2008.

The following table sets forth, for the periods indicated, certain statement of operations data:

	Three Months Ended March 31,
	2008			2007
	(Unaudited)			(Unaudited)
				(Restated)
	(U.S. dollars in thousands)
Revenues:
Sales revenues	$	108,728		$	55,792
Cost of sales		94,536			48,050
Gross profit		14,192			7,742
Operating expenses:
General and administrative expenses		4,405			1,967
Operating expenses		1,984			1,126
Total operating expenses		6,389			3,093

Income from operations		7,803			4,649

Other income (expense):
Interest income		635			22
Other income (expense)		66			(4	)
Allowance income		140			—
Exchange gain (loss)		(24	)		3
Interest expense		(806	)		(443	)
Total other income (expense)		11			(422	)

Net income before taxes		7,814			4,227
Provision for income taxes		526			217

Net income		7,288			4,010
Foreign currency translation adjustment		5,939			546
Comprehensive income	$	13,227		$	4,556

Comparison of Three Months Ended March 31, 2008 and March 31, 2007

Revenue. Total revenue increased from $55.79 million for the three months ended March 31, 2007 to $108.73 million for the three months ended March 31, 2008, which represented an increase of $52.94 million, or approximately 95%. The increase in revenues was primarily due to increased prices for pork and pork products, combined with increased sales in our pork and pork products segment resulting from the effects of the continuing increased sales to food service distributors and to restaurants and non-commercial customers in the PRC during the quarter.

During the three months ended March 31, 2008, we added one additional showcase store, two additional “branded” retail stores and four additional supermarket counters (for a total of 114, 929 and 1,903 showcase stores, “branded” retail stores and supermarket counters, respectively, at March 31, 2008), compared to nine, 29 and 54 additional showcase stores, “branded” retail stores and supermarket counters, respectively (for a total of 105, 885 and 1,823 showcase stores, “branded” retail stores and supermarket counters, respectively, at March 31, 2007), during the three months ended March 31, 2007. In addition, during the three months ended March 31, 2008, we expanded our marketing and sales efforts to include two additional second-tier cities (for a total of 95 second-tier cities at March 31, 2008) and six additional third-tier cities (for a total of 293 third-tier cities at March 31, 2008), compared to the six additional second-tier cities (for a total of 81 second-tier cities at March 31, 2007) and 20 additional third-tier cities (for a total of 246 third-tier cities at March 31, 2007) during the three months ended March 31, 2007.

During the three months ended March 31, 2008, revenues from sales to branded stores increased to $44.80 million, which represented an increase of $18.70 million, or approximately 72%, as compared to the three months ended March 31, 2007. During the three months ended March 31, 2008, revenues from sales to food service distributors increased to $27.62 million, which represented an increase of $17.07 million, or approximately 162%, as compared to the three months ended March 31, 2007. During the three months ended March 31, 2008, revenues from sales to restaurants and non-commercial customers increased to $34.03 million, which represented an increase of $19.75 million, or approximately138%, as compared to the three months ended March 31, 2007. During the three months ended March 31, 2008, revenues from export sales decreased to $2.28 million, which represented a decline of $2.57 million, or approximately 53%, as compared to the three months ended March 31, 2007. The decrease in export sales was primarily due to the reduction of our export sales efforts during the 2008 period due to the higher gross profit margins we could achieve during that period by selling our pork products domestically in the PRC. Within these four distribution channels, the percentage of growth was highest for food service distributors.

Cost of sales. Cost of sales increased from $48.05 million for the three months ended March 31, 2007 to $94.54 million for the three months ended March 31, 2008, which represented an increase of $46.49 million, or approximately 97%. The gross profit margin (total sales revenue divided by cost of sales) decreased from 13.88% for the three months ended March 31, 2007 to 13.05% for the three months ended March 31, 2008. The decrease in gross profit margin was primarily due to an increase in the cost of raw materials, which was offset, in part, by an increase in the market prices for pork products, during the three months ended March 31, 2008.

General and administrative expenses. General and administrative expenses increased from $1.97 million for three months ended March 31, 2007 to $4.40 million for the three months ended March 31, 2008, which represented an increase of $2.43 million, or approximately 123%. As a percentage of revenues, general and administrative expenses increased from 3.53% for the three months ended March 31, 2007 to 4.05% for the three months ended March 31, 2008.

During the three months ended March 31, 2007, we incurred a non-cash compensation expense in the amount of $0.56 million in connection with the release from escrow to certain of our employees of shares of common stock that had been deposited into escrow by such employees in connection with our January 2006 private placement. Under U.S. generally accepted accounting principles, the release of any of such escrow shares to any of our employees based on our fulfillment of stated performance thresholds constituted a compensatory plan to such employees, which required us to record a corresponding compensation expense in our financing statements. As we satisfied the performance thresholds for fiscal 2007, a percentage of the escrowed shares were released to employee stockholders in April 2008. There was no such non-cash compensation expense incurred in fiscal 2008.

By deducting the $0.56 million non-cash compensation expense during the three months ended March 31, 2007 discussed above, the percentage of our general and administrative expenses to revenues would have been 2.52%, as compared to 4.05% during three months ended March 31, 2008. The increase of general and administrative expenses during the fiscal 2008 period was primarily the result of significant increases in compensation expenses, advertising expenses, training expenses and amortization and depreciation expenses. As compared to the three months ended March 31, 2007, during the three months ended March 31, 2008, salary and compensation expenses increased approximately $0.82 million from $0.33 million to $1.12 million, or approximately 239%, advertising expenses increased approximately $0.61 million from $0.21 million to $0.82 million, or approximately 290%, training expenses increased approximately $0.29 million from zero to $0.29 million, and the depreciation and amortization expenses increased approximately $0.22 million from $0.09 million to $0.31 million, or approximately 244%.

Operating expenses. Operating expenses increased from $1.13 million for the three months ended March 31, 2007 to $1.98 million for the three months ended March 31, 2008, which represented an increase of $0.85 million, or approximately 75%. As a percentage of revenue, operating expenses decreased from 2.03% for the three months ended March 31, 2007 to 1.82% for the three months ended March 31, 2008. The increase in operating expenses was primarily the result of the increased scale of our operations.

Interest expense. Interest expense increased from $0.44 million for the three months ended March 31, 2007 to $0.81 million for the three months ended March 31, 2008, which represented an increase of $0.37 million, or approximately 84%. The increase in interest expense was primarily a result of increased short-term bank loans. Our average outstanding bank debt increased by approximately $20.77 million from $30.13 million for the three months ended March 31, 2007 to $50.90 million for the three months ended March 31, 2008, primarily due to our increased working capital requirements resulting from our increased sales and our increased production capacities. Our weighted average borrowing rate increased from 5.88% for the three months ended March 31, 2007 to 6.34% for the three months ended March 31, 2008.

Interest income, allowance income, other income and exchange gain. Interest income, allowance income, other income and exchange gain increased from $0.02 million for the three months ended March 31, 2007 to $0.82 million for the three months ended March 31, 2008. This increase was primarily the result of an increase of $0.61 million in interest income and an increase of $0.14 million in allowance income.

Income Taxes. The effective tax rate in the PRC on income generated from the sale of prepared products is 25% and there is no income tax on income generated from the sale of raw products, including raw meat products and raw fruits and vegetable products. The increase of $0.31 million in the provision for income taxes for the three months ended March 31, 2008 over the three months ended March 31, 2007 resulted from an increase of $1.24 million in our net income from the sale of prepared products during the three months ended March 31, 2008.

Segment Information

We operate in two business segments: pork and pork products, and vegetables and fruits.

Our pork and pork products segment is involved primarily in the processing of live market hogs into fresh, frozen and processed pork products. Our pork and pork products segment markets its products domestically to our branded stores, food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments, such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets.

The following tables set forth our revenues, sales in metric tons, operating income and production processed in metric tons by segment for the three months ended March 31, 2008 and 2007 and the percentage increases for each segment between the two periods.

	Sales by Segment (U.S. dollars in millions)
	Three Months Ended March 31,				Net Change		Percentage Change
	2008		2007		2008/2007		2008/2007
Pork and Pork Products
Chilled Pork	$	55.09	$	28.48	$	26.61		93.43	%
Frozen Pork		40.16		20.29		19.87		97.93	%
Prepared Pork Products		11.96		5.85		6.11		104.44	%
Vegetables and Fruits		1.52		1.17		0.35		29.91	%
Total	$	108.73	$	55.79	$	52.94		94.89	%

	Sales by Segment (in metric tons)
	Three Months Ended March 31,				Net Change		Percentage Change
	2008		2007		2008/2007		2008/2007
Pork and Pork Products
Chilled Pork		24,119		23,348		771		3.30	%
Frozen Pork		18,487		16,803		1,684		10.02	%
Prepared Pork Products		5,668		3,338		2,330		69.80	%
Vegetables and Fruits		2,281		2,183		98		4.49	%
Total		50,555		45,672		4,883		10.69	%

	Operating Income by Segment (U.S. dollars in millions)
	Three Months Ended March 31,				Change		Operating Margin Three Months Ended March 31,
	2008		2007		2008/2007		2008			2007
Pork and Pork Products			(Restated)							(Restated)
Chilled Pork	$	3.51	$	2.20	$	1.31		6.37	%		7.72	%
Frozen Pork		2.37		1.54		0.83		5.90	%		7.59	%
Prepared Pork Product		1.74		0.79		0.95		14.56	%		13.50	%
Vegetables and Fruits		0.18		0.12		0.06		11.84	%		10.26	%
Total	$	7.80	$	4.65	$	3.15		7.17	%		8.33	%

	Production by Segment (in metric tons)
	Three Months Ended March 31,				Net Change			Percentage Change
	2008		2007		2008/2007			2008/2007
Pork and Pork Products
Chilled Pork		24,217		23,154		1,063			4.59	%
Frozen Pork		18,385		16,805		1,580			9.40	%
Prepared Pork Products		5,687		3,357		2,330			69.41	%
Vegetables and Fruits		2,546		3,117		(571	)		(18.32	)%
Total		50,835		46,433		4,402			9.48	%

Additional Operating Data

In assessing our existing operations and planning our future growth and the development of our business, management considers, among other factors, our revenue growth and growth in sales volume by market segment, as well as our sales by distribution channel and geographic market coverage.

The following table sets forth our revenues by sales channel for the three months ended March 31, 2008 and 2007.

Sales by Distribution Channel (U.S. dollars in millions)
	Three Months Ended March 31,
Distribution Channel	2008					2007
	Amount		Percent			Amount		Percent
Branded stores	$	44.80		41.2	%	$	26.11		46.8	%
Food services distributors		27.62		25.4			10.55		18.9
Restaurants and non-commercial		34.03		31.3			14.28		25.6
Export		2.28		2.1			4.85		8.7
Total	$	108.73		100.0	%	$	55.79		100.0	%

The following table sets forth information with respect to the number of products we offered, the number of stores in our retail network and the number of provinces and cities in the PRC in which we offered and sold our products at December 31, 2005, 2006, 2007 and March 31, 2008.

	Year Ended December 31,						Three Months Ended
	2005		2006		2007		March 31, 2008
No. of products		168		229		270		276
No. of retail stores		2,100		2,721		2,939		2,946
Expansion of Market Coverage
No. of Provinces		24		24		24		24
No. of first-tier cities		29		29		29		29
No. of second-tier cities		44		75		93		95
No. of third-tier cities		142		226		287		293

Liquidity and Capital Resources

We have financed our operations over the three years ended December 31, 2007 and three months ended March 31, 2008 primarily through cash from operating activities, borrowings under our lines of credit with various lending banks in the PRC, net proceeds from the sale of our equity securities and the proceeds from the exercise of certain of our outstanding stock purchase warrants. In January 2006, we completed a private placement of our Series A convertible preferred stock and common stock purchase warrants and received net proceeds of approximately $23.11 million. In October 2007, we completed a private placement of our common stock and received net proceeds of approximately $46.40 million. At December 31, 2005, 2006, 2007 and March 31, 2008, we had cash and cash equivalents of $10.14 million, $21.69 million, $48.70 million and $50.02, respectively.

Net cash provided by operating activities was $23.39 million for three months ended March 31, 2008. Cash provided by operating activities in three months ended March 31, 2008 consisted primarily of net profit of $7.29 million due to increased revenue, an increase of $4.58 million in deposits from clients primarily due to the increased deposit amounts we required for customized orders from our customers, an increase of $1.41 million other payables due to increased payables relating to the construction of our new production facilities and an increase of $1.07 million in accrued liabilities relating primarily to liabilities for employee salaries and benefits, a decrease of $4.51 million in accounts receivable due to our ability to better manage our accounts receivable collection practices, a decrease of $2.67 million in inventory as we intentionally reduced inventories to normal levels following the Chinese New Year holiday season, a decrease of $1.93 million in tax refund receivable and a decrease of $1.27 million in purchase deposits resulting from the recovery during the quarter of the live hog supply which reduced the need for us to furnish purchase deposits. Cash used in operating activities in three months ended March 31, 2008 was primarily attributable to an increase of $2.27 million in other receivables due to increased deposits for construction fees and prepayments of design fees relating to the construction of our new production facilities. Over the three months ended March 31, 2008, management focused on reducing the average age of our accounts receivable. Our average accounts receivable turnover days decreased from approximately 25 days during the three months ended March 31, 2007 to approximately 15 days during the three months ended March 31, 2008. At the same time, our average inventory turnover days increased from approximately 20 days during the three months ended March 31, 2007 to approximately 24 days during the three months ended March 31, 2008 due to the relatively higher inventory levels at December 31, 2007.

Net cash used in investing activities was $24.94 million in three months ended March 31, 2008. At March 31, 2008, our investment in facilities construction in progress increased by approximately $23.04 million as compared to the amount of such investment at December 31, 2007 due to our new production capacity expansion program. During the three months ended March 31, 2008, a total of $1.56 million was invested in the purchase of fixed assets. In addition, we expended an additional $0.36 million for an investment in land use rights during the three months ended March 31, 2008.

Net cash provided by financing activities was $1.09 million during three months ended March 31, 2008. During the three months ended March 31, 2008, cash provided by financing activities included net proceeds from short-term loans of $15.77 million and the net proceeds of $1.24 from the exercise of certain of our outstanding stock purchase warrants. The net cash used in financing activities included the repayment of short-term bank loans in the aggregate amount of $14.52 million and the repayment of bank notes in amount of $1.40 million.

At March 31, 2008, Henan Zhongpin had short-term bank and governmental loans in the aggregate amount of $50.89 million with a weighted average interest rate per annum of 6.34%, and lines of credit with aggregate credit availability of $141.47 million, as follows:

Bank	Maximum Credit Availability		Amount Borrowed		Interest Rate			Maturity Date

Agriculture Bank of China	$	21,370,566	$	2,706,938		7.29	%		12/14/2008
				2,849,409		7.47			12/28/2008
				997,293		7.47			01/21/2009
Industrial and Commercial Bank of China		21,370,566		2,137,057		6.84	%		07/22/2008

China Construction Bank		7,123,522		-		-

CITIC Industrial Bank		5,698,817		-		-

Agriculture Development Bank of China		99,729,306		5,698,817		7.29	%		06/26/2008
				14,247,044		7.29			06/28/2008

Shanghai Pudong Development Bank of China		9,972,931		2,991,879		7.47	%		03/28/2009

Bank of China		9,972,931		7,835,874		7.10	%		01/03/2009

China Merchants Bank		8,548,226		2,849,409		7.47	%		06/19/2008
Guangdong Development Bank		4,274,113		4,274,113		7.29	%		12/11/2008

China Communication Bank		4,274,113		4,274,113		7.84	%		01/03/2009

City Finance – short-term				28,494		0.00	%		Extendable
Total	$	192,335,090	$	50,890,440

Canadian Government Transfer Loan			$	1,634,769		*			05/15/2043
Canadian Government Transfer Loan – Current portion			$	145,671		6.02	%		05/15/2008

*	58% of the principal amount of this loan bears interest at the rate of 6.02% per annum and the remaining principal amount of this loan is interest free. All repayments are applied first to the interest-bearing portion of this loan.

Of our outstanding short-term indebtedness at March 31, 2008, $29.49 million aggregate principal amount of loans was secured by our land and plants located in the PRC and $21.37 million aggregate principle amount of loans was guaranteed by some of our wholly-owned subsidiaries.

We believe our existing cash and cash equivalents, together with our available lines of credit, will be sufficient to finance our investment in new facilities, operating requirements and anticipated capital expenditures of approximately $48.83 million over the next 12 months. We intend to use such funds over the next 12 months to fund our capacity expansion and the construction of supporting facilities and to supplement our working capital requirements to enable us to strengthen our market position and accelerate our growth.

Contractual Commitments

The following table summarizes our contractual obligations at March 31, 2008 and the effect those obligations are expected to have on our liquidity and cash flow in future periods.

			Payments Due by Period (in thousands)
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Long-term debt obligations	$	1,780	$	146	$	291	$	291	$	1,052
Capital lease obligations		-		-		-		-		-
Operating lease obligations		2,398		1,055		1,343		-		-
Purchase obligations		-		-		-		-		-
Other obligations		-		-		-		-		-
Total	$	4,178	$	1,201	$	1,634	$	291	$	1,052

Inflation and Seasonality

While demand for our products in general is relatively high before the Chinese New Year in January or February each year and lower thereafter, we do not believe our operations have been materially affected by inflation or seasonality.

New Accounting Standards

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – an amendment of FASB Statement No. 115.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. We expect the Statement will have no material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. We expect the Statement will have no material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. We expect the Statement will have no material impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Disclosures About Market Risk. We may be exposed to changes in financial market conditions in the normal course of business. Market risk generally represents the risk that losses may occur as a result of movements in interest rates and equity prices. We currently do not use financial instruments in the normal course of business that are subject to changes in financial market conditions.

Currency Fluctuations and Foreign Currency Risk. Substantially all of our operations are conducted in the PRC, with the exception of our export business and limited overseas purchases of raw materials. Most of our sales and purchases are conducted within the PRC in Renminbi, which is the official currency of the PRC. As a result, the effect of the fluctuations of exchange rates is considered minimal to our business operations.

Substantially all of our revenues and expenses are denominated in Renminbi. However, we use the United States dollar for financial reporting purposes. Conversion of Renminbi into foreign currencies is regulated by the People’s Bank of China through a unified floating exchange rate system. Although the PRC government has stated its intention to support the value of the Renminbi, there can be no assurance that such exchange rate will not again become volatile or that the Renminbi will not devalue significantly against the U.S. dollar. Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms, of our net assets and income derived from our operations in the PRC.

Interest Rate Risk. We do not have significant interest rate risk, as our debt obligations are primarily short-term in nature, with fixed interest rates.

Credit Risk. We have not experienced significant credit risk, as most of our customers are long-term customers with superior payment records. Our receivables are monitored regularly by our credit managers.

Item 4. Controls and Procedures

Our management, with the participation our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer were unable to conclude that, as of the end of such period, our disclosure controls and procedures were effective. As reported in our annual report on Form 10-K for the year ended December 31, 2007, we have not completed all of the evaluations necessary to issue guidance on the status of our internal controls, have identified certain control deficiencies and have not yet been able to complete our assessment of which, if any, control deficiencies constitute “material weakness” as defined under Public Accounting Oversight Board Auditory Standard No. 5. See Item 9A. Controls and Procedures of our annual report on Form 10-K for the year ended December 31, 2007, which was filed on March 28, 2008 and is incorporated by reference into this Item 4 for a more detailed explanation of these control deficiencies and remedial actions taken and planned that we expect will materially affect our disclosure controls and procedures.

In late April 2008, Child, VanWagoner & Bradshaw, PLLC, our independent registered accounting firm, advised our board of directors and the audit committee of our board that during its audit of our consolidated financial statements for the year ended December 31, 2007 the following matters were identified involving our internal control over financial reporting that it considered to be significant deficiencies under the standards established by the Public Company Accounting Oversight Board:

the lack of a system of timely recording certain cash receipts and disbursements;

the need to hire additional accounting personnel to prepare, supervise and review general ledger reconciliations at our subsidiaries; and

our failure to have an effective method of accounting for certain non-routine transactions and estimates.

In response to the deficiencies identified, we have taken steps to strengthen our internal control over financial reporting. In particular, we have evaluated and continue to evaluate the roles and functions of the accounting personnel within our corporate accounting department and intend to add permanent personnel resources to support internal control over financing reporting. In addition, as reported in our annual report on Form 10-K for the year ended December 31, 2007, we have retained Horwath International, an independent third party consulting firm, to assist our management team in evaluating our internal controls and procedures. Management will continue to monitor the effectiveness of our internal controls and procedures on an ongoing basis and will take further action, as appropriate, to address the control deficiencies described herein.

The certifications of our chief executive officer and chief financial officer attached as Exhibits 31.1 and 31.2 to this report include, in paragraph 4 of such certifications, information concerning our disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4, including the information incorporated by reference to our annual report on Form 10-K for the year ended December 31, 2007, for a more complete understanding of the matters covered by such certifications.

Except as otherwise described herein, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ZHONGPIN INC.

Part II – Other Information

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

During the three months ended March 31, 2008, there were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) Not Applicable.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

Item 5. Other Information

(a) None.

(b) None.

Item 6. Exhibits

The exhibits required by this item are set forth on the Exhibit Index attached hereto.

ZHONGPIN INC.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

Zhongpin Inc.
(Company)

Date: May 12, 2008

By:	/s/Xianfu Zhu
	Xianfu Zhu
	Chief Executive Officer

By:	/s/Yuanmei Ma
	Yuanmei Ma
	Chief Financial Officer

Exhibit Index

Exhibit Number		Exhibit Title

31.1^*		Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2^*		Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1^*		Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2^*		Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith