News Column

ANPULO FOOD, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 14, 2014

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. Forward-Looking Statements In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See "Forward-Looking Statements." Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Item 1A. Risk Factors" of the Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 14, 2014. Unless otherwise stated, with the exception of equity at June 30, 2014, we translated balance sheet amounts at June 30, 2014 at RMB 6.1552 to $1.00 as compared to RMB 6.1104 to $1.00 at December 31, 2013. The equity accounts at June 30, 2014 were stated at their historical rate. The average translation rates applied to income statement accounts for the six months ended June 30, 2014 and 2013 were RMB 6.1397 and RMB 6.2395, respectively. We make no representation that the RMB or U.S. dollar amounts referred to in this report could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding. Overview

We are principally engaged in the meat and food processing and distribution business in the People's Republic of China ("PRC"). Currently, we have one processing plant located in Laifeng County, Hubei Provinces in the PRC, with a processing plant for hog slaughtering, cutting, and preserving. Our current maximum production capacity for hog slaughtering is 82 metric tons per day, based on an eight-hour working day, or approximately 30,000 metric tons on an annual basis. Our current maximum cutting capacity is 27 metric tons per day, based on an eight-hour working day, or approximately 10,000 metric tons on an annual basis. Our plant has 16 smokehouses with a maximum annual production capacity of 150 metric tons in total. We also own 17 refrigerators for freezing and frozen pork storage. 16 of the refrigerators are located in our processing plant with 2,350 metric tons maximum storage capacity and 1 of the refrigerators located in Wuhan City with 260 metric tons storage capacity. In 2005, we invested approximately $5,300,000 or RMB 32 million in constructing a new abattoir, a fresh-chilled meat processing facility, and 11 industrial refrigerators in Laifeng County, Hubei Province. The facility has a production capacity of 82 metric tons per eight-hour working day, or approximately 30,000 metric tons on an annual basis. The production capacity is designed for the producing chilled pork, frozen pork, and smoked pork products. The facility had been put into operation on November 20, 2006.



In June 2011, we invested approximately $430,000 or RMB 2.6 million in installing five new refrigerators for an additional 700 metric tons storage capacity. In February 2012, we installed a new refrigerator with 260 metric tons storage capacity in Wuhan City.

Our products are sold under the "Anpulo" and "Linghaotuzhu" brand names. Our customers are mainly located in Hubei and Hunan Province, including the seven major supermarket operators. During the six months ended June 30, 2014, we are selling our chilled pork, frozen pork, and smoked pork through 39 specialty retail stores, 17 supermarket chain store systems, 38 food distributors and

35 schools and restaurants. In 2012, our management decided to explore a business opportunity in real estate development. On November 18, 2012, we entered into a cooperation agreement with the Laifeng County to build and operate a high-end hotel. According to such agreement, we shall invest no less than RMB 30 million or approximate $4,760,000 in building a hotel in Laifeng County and, after the hotel is built we are entitled to operate the hotel and profit from the hotel operation for 20 years from October 1, 2012 to September 30, 2032. After September 30, 2032, the title of the hotel shall be transferred to the Laifeng County and the Laifeng County shall not be liable for any debts associated with the hotel. As of December 31, 2013, we have invested $2,142,989 in the hotel construction and will need additional $3.5 million to complete this construction. On April 20, 2014, we assigned and transferred all of our rights and obligations under the cooperation agreement to Laifeng Fengming Manor Hotel Management Co., Ltd. ("Fengming") for approximately $2.7 million or RMB 17 million. Fengming is owned by Mr. Junyi Luo, Mr. Wenping Luo's son. Mr. Wenping Luo neither has any equity interest in Fengming, nor hold any management position in Fengming or control Fengming by any contractual arrangement. We had collected RMB 12 million or $1,954,493 from Fengming in May 2014. The remaining balance of RMB 5 million or $845,595 is scheduled to be collected before April 30, 2015. 25 Corporate History On September 22, 2013, Laifeng Anpulo (Group) Food Development Co., Ltd. ("Anpulo Laifeng") entered into an entrusted management agreement with Anpulo International Ltd.'s wholly owned subsidiary, Guangxiang Investment Consulting (Shanghai) Co., Ltd. ("Anpulo WFOE"), which provides that Anpulo WFOE will be entitled to the full guarantee for the performance of such entrusted management agreement entered into by the Company. Anpulo International Ltd. ("Anpulo HK") was incorporated in Hong Kong, People's Republic of China ("PRC") on May 30, 2012. Other than the equity interest in Anpulo WFOE, Anpulo HK does not own any assets or conduct any operations. Anpulo WFOE is also entitled to receive the residual return of the Company. As a result of the agreement, Anpulo WFOE will absorb 100% of the expected gains or losses of the Company, which results in Anpulo WFOE being the primary beneficiary of the Company. Anpulo WFOE also entered into a pledge of equity agreement with the principal shareholders of the Company (the "Principal Shareholders"), who pledged all their equity interest in the entity to Anpulo WFOE. The pledge of equity agreement, which were entered into by each Principal Shareholder, pledged each of the Principal Shareholders' equity interest in the Company as a guarantee for the entrustment payment under the Entrusted Management Agreements. In addition, Anpulo WFOE entered into an option agreement to acquire the Principal Shareholders' equity interest in these entities if or when permitted by the

PRC laws. Based on these exclusive agreements, the Company will be treated as a variable interest entity ("VIE") of Anpulo HK as required by generally accepted accounting principles in the United States ("US GAAP"), because Anpulo HK is the primary beneficiary of the VIE. The profits and losses of the Company are allocated based upon the Entrusted Management Agreement. On October 30, 2013, we entered into a Share Exchange Agreement (the "Exchange Agreement") with Anpulo International. Pursuant to the terms of the Exchange Agreement, the shareholders of Anpulo HK transferred to Anpulo all of the Anpulo HK Shares in exchange for the issuance of 122,900,000 shares of our common stock (the "Share Exchange"). As a result of the Share Exchange, Anpulo HK became a wholly-owned subsidiary of us and the shareholders of Anpulo HK acquired approximately 99.92% of our issued. By way of background, in February 2012, Wenping Luo, the Chairman and principal shareholder of Anpulo Laifeng, took control of the Company and changed the Company's name from Europa Acquisition VII, Inc. to Anpulo Food, Inc., in contemplation of bringing Anpulo Laifeng and its holding companies public in the United States through a reverse acquisition transaction. The contemplated reverse acquisition between the Company and Anpulo Laifeng and its holding companies was a mere intent of Mr. Luo at that time and, this intention was abandoned when in January 2013 Mr. Luo took control of another reporting company that was formed to acquire a target company or business, Specializer, Inc. and changed this company's name from Specializer, Inc. to Anpulo Food Development, Inc.. In August 2013, Mr. Luo's intention of a reverse acquisition between the Company and Anpulo Laifeng and its holding companies revived, and as the sole shareholder, officer and director of the Company at that time, he made the decision to proceed with the reverse acquisition transaction. To date, Mr. Luo, in his capacity as the principal shareholder and the sole officer and director of Anpulo Food Development, Inc. intends that Anpulo Food Development, Inc. remains as a company formed to acquire a target or business. The effect of the Share Exchange is such that effectively a reorganization of the entities has occurred for accounting purposes and is deemed to be a reverse acquisition. Subsequent to the Share Exchange the financial statements presented are those of a combined Anpulo HK and its subsidiaries, including its VIE, Anpulo Laifeng, as if the Share Exchange had been in effect retroactively for all periods presented. As previously noted the "Company" for financial statement purposes was the consolidation of Anpulo HK, Anpulo WFOE and Anpulo Laifeng. Subsequent to the Share Exchange the "Company" is referred to as the consolidation of Anpulo HK, Anpulo WFOE, Anpulo Laifeng and Anpulo, with Anpulo as the legal acquirer in Share Exchange, and subsequent to the Share Exchange the parent company of the consolidated entity. For financial reporting purposes, Anpulo HK was considered the acquirer in such transaction. Results of Operation

In fiscal 2014, we continued to focus on implementing our strategic plan to continue the growth we have experienced in the last five years. However, due to a lack of funding, we have put on hold several growth strategic plans, including constructing new warehouse facilities with walk-in coolers and freezers, adding supermarket counters in Wuhan city, completing in-house product development, seeking outside product research and development collaboration. We will not be able to continue to carry out these plans until additional funding is secured. Going Concern

We incurred accumulated deficit of $2.5 million, a working capital deficit of $7.4 million and a cash outflow from operating activities of $0.3 million as of June 30, 2014. In addition, we had outstanding loans as of June 30, 2014 of $15.6 million that are due in the next 12 months and our cash reserve was $4.2 million at the same date. We anticipate that our current cash reserves plus cash from our operating activities will not be sufficient to meet our ongoing obligations and fund our operations for the next twelve months. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Requirements for Additional Funding." These conditions raise a substantial doubt as to whether we may continue as a going concern. As a result, we will need to seek additional funding in the near future. We plan to negotiate with our lenders to extend or renew our loans and are planning to seek additional financing from local banks in the PRC. We may also seek to obtain short-term loans from our management or principal shareholders. We will also seek to improve our cash flows from operations by implementing cost control measures, collection of loan receivables, and reducing our inventory purchases. 26 Additional funding may not be available, or at acceptable terms, to us at this time. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results. Comparison of the Results of Operations for the Three Months Ended June 30, 2014 and 2013 All amounts, other than percentages, are in U.S. dollars For Three Months Ended June 30, Percentage of 2014 2013 Net Change Change Sales $ 3,519,231$ 4,238,137$ (718,906 ) (17 %) Cost of goods sold 2,743,732 3,361,782 (618,050 ) (18 %) Gross profit 775,499 876,355 (100,856 ) (12 %)

Selling, general and administrative expenses 990,243 1,134,294

(144,051 ) (13 %) Loss from operations (214,744 ) (257,939 ) 43,195 (17 %) Interest expense (220,497 ) (220,862 ) 365 (0 %)

Subsidy income - Interest expense 57,557 -

57,666 n/a Subsidy income - 13,445 (13,445 ) (100 %) Other income 13,671 (3,454 ) 17,125 (496 %) Net other income (expense) (149,269 ) (210,871 ) 61,602 (29 %) Loss before income taxes (364,013 ) (468,810 ) 104,797 (22 %) Income taxes - - - - Net loss $ (364,013 )$ (468,810 )$ 104,797 (22 %) Revenue. Total revenue decreased from $4.2 million for the second quarter of 2013 to $3.5 million for the same period in 2014, which represented a decrease of $0.7 million, or approximately 17%. The decrease in revenues was primarily due to an apparent decline in the demand in China pork market caused by H7N9 avian flu which temporarily diverted consumption demand for pork to chicken

or beef. The following table sets forth our revenues by sales channel for the second quarter of 2014 and 2013. Sales by Distribution



Channel (US dollars in thousands)

Three Months Ended June 30, 2014 2013 Amount Percent Amount Percent "Branded" retail stores and supermarket stores $ 2,590 73 % $ 3,301 78 % Food services distributors 759 22 % 767 18 % Restaurants and non-commercial 170

5 % 170 4 % $ 3,519 100 % $ 4,238 100 % During the three months ended June 30, 2014, revenue from sales to "branded" retail stores and supermarket stores was $2.6 million, which represented a decrease of $0.7 million, or approximately 22%, as compared to the three months ended June 30, 2013. During the three months ended June 30, 2014, revenue from sales to restaurants and non-commercial customers was $170,000, which was the same with our performance during the three months ended June 30, 2013. As stated above, the decreases in revenues from sales to "branded" retail stores and supermarket stores were primarily due to an apparent decline in the demand in China pork market caused by H7N9 avian flu which temporarily diverted consumption demand for pork to chicken or beef. During the three months ended June 30, 2014, revenue from sales to food service distributors decreased to $8,000, which represented a flat, as compared to the three months ended June 30, 2013. Cost of sales. Cost of sales decreased from $3.4 million for the three months ended June 30, 2013 to $2.7 million for the three months ended June 30, 2014, which represented a decrease of $0.6 million, or approximately 18%. The decrease in cost of sales was in line with the decrease in our revenue for the same period. Gross Profit. The gross profit margin slightly increased from 21% for the three months ended June 30, 2013 to 22% for the same period in 2014. The increase in gross profit margin was primarily attributable to a decrease in the cost of raw materials during the three months ended June 30, 2014. Expenses. Selling, general and administrative expenses decreased by $144,051 in the second quarter of 2014 as compared to the same period in 2013. The decrease was primarily a result of a decrease in bad debt expense of $80,000 accrued over accounts receivable and a decrease of $36,000 in legal service fees. 27 Interest income (expense). We had interest expense of $220,497 during the second quarter of 2014, which demonstrated minimal change, comparing with the interest expense of $220,862 in the same period of 2013. However, we received $57,557 subsidy income from the local government for our interest expenditures during the second quarter of 2014, comparing $0 for the second quarter of 2013. The details of the gross interest expense and subsidies received from the local government are as follow: For the Three Months Ended June 30, 2014 2013 Interest expense $ (157,291 )$ (225,521 ) Deduct: Interest income 5,540 4,659

Subsidy received from the local government 57,557

- Net balance $ (220,497 )$ (220,862 )

We have benefitted from government grants and subsidies. In particular, we received (a) one-time subsidy for interest expense of $57,557 and $0 during the three months ended June 30, 2014 and 2013, and (b) subsidies of $0 and $13,445 for supporting agricultural development in minority areas in the second quarter of 2014 and 2013, respectively. The one-time subsidies for interest expenses were granted based on the amount of the Company's outstanding bank loans and the number of days that the bank loans were outstanding. The one-time subsidies for interest expense were recognized as income upon received. No subsidies for bank interest expenses were deferred. The subsidies were recorded as "subsidy income" in our financial statements. The subsidies are generally determined based on the local government's financial status, policy, and various political factors. There is no guarantee that we will continue to receive such subsidies in comparable amounts or at all in the future.



The subsidies for the bank interest expenses which the Company received in the three months ended June 30, 2014 and related bank loans for its relevant outstanding period over the year ended December 31, 2013 listed as follow:

During the Year Ended December 31, 2013 Granted Outstanding Interest Loans Subsidy



Loan payable to Bank of China, annual interest rate of 6%, due by November 20, 2014 with buildings and land use rights provided by the shareholders as collateral.

$ 4,582,351$ 57,557$ 4,582,351$ 57,557 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. At June 30, 2014, we had a net operating loss carry-forward for Chinese income tax purposes aggregating approximately $2 million which will expire through the year 2018.



Comparison of the Results of Operations for the Six Months Ended June 30, 2014 and 2013

All amounts, other than percentages, are in U.S. dollars For Six Months Ended June 30, Net Percentage of 2014 2013 Change Change Sales $ 7,896,072$ 8,772,014$ (875,942 ) (10 %) Cost of goods sold 6,232,633 7,062,253 (829,620 ) (12 %) Gross profit 1,663,439 1,709,761 (46,322 ) (3 %) Selling, general and administrative expenses 2,242,504 2,052,569

189,935 9 % Loss from operations (579,065 ) (342,808 ) (236,257 ) 69 % Interest expense (448,947 ) (417,965 ) (30,982 ) 7 %

Subsidy income - Interest expense 524,080 -

524,080 n/a Subsidy income 27,623 117,509 (89,886 ) (76 %) Other income 11,469 21,713 (10,244 ) (47 %) Net other income (expense) 114,225 (278,743 ) 392,968 (141 %) Loss before income taxes (464,840 ) (621,551 ) 156,711 (25 %) Income taxes - - - - Net loss $ (464,840 )$ (621,551 )$ 156,711 (25 %) 28

Revenue. Total revenue decreased from $8.8 million for the six months ended June 30, 2013 to $7.9 million for the same period in 2014, which represented a decrease of $0.1 million, or approximately 10%. The decrease in revenues was primarily due to an apparent decline in the demand in China pork market caused by H7N9 avian flu which temporarily diverted consumption demand for pork to chicken or beef.



The following table sets forth our revenues by sales channel for the six months ended June 30, 2014 and 2013.

Sales by Distribution



Channel (US dollars in thousands)

Six Months Ended June 30, 2014 2013 Amount Percent Amount Percent "Branded" retail stores and supermarket stores $ 5,395 68 % $ 6,484 74 % Food services distributors 2,001 25 % 1,253 14 % Restaurants and non-commercial 500

7 % 1,035 12 % $ 7,896 100 % $ 8,772 100 %

During the six months ended June 30, 2014, revenue from sales to "branded" retail stores and supermarket stores was $5.4 million, which represented a decrease of $1.1 million, or approximately 17%, as compared to the six months ended June 30, 2013. During the six months ended June 30, 2014, revenue from sales to restaurants and non-commercial customers decreased to $500,000, which represented a decrease of $535,000, or approximately 52%, as compared to the six months ended June 30, 2013. As stated above, the decreases in both revenues from sales to "branded" retail stores and supermarket stores and revenues from sales to restaurants and non-commercial customers were primarily due to an apparent decline in the demand in China pork market caused by H7N9 avian flu which temporarily diverted consumption demand for pork to chicken or beef. During the six months ended June 30, 2014, revenues from sales to food service distributors increased to $2 million, which represented an increase of $0.7 million, or approximately 60%, as compared to the six months ended June 30, 2013. Food service distributors purchase our pork products and resell them to wholesalers and pork processing factories. The increased orders by food service distributors were driven by their intent to take advantage of the potentially enlarged profit led by the price decline.



Cost of sales. Cost of sales decreased from $7.1 million for the six months ended June 30, 2013 to $6.2 million for the six months ended June 30, 2014, which represented a decrease of $0.9 million, or approximately 12%. The decrease in cost of sales was in line with the decrease in our revenue for the same period.

Gross Profit. The gross profit margin increased from 19% for the six months ended June 30, 2013 to 21% for the same period in 2014. The increase in gross profit margin was primarily attributable to a decrease in the cost of raw materials during the six months ended June 30, 2014.

Expenses. Selling, general and administrative expenses increased by $189,935 in the first half year of 2014 as compared to the same period in 2013. The increase was primarily a result of an increase in bad debt expense of $72,000 accrued over accounts receivable, an increase of $99,000 in payroll related to our expanded sales team and additional entertainment expenditures of $24,000 including various miscellaneous expenses related to business activities, such as payments for courtesy meals and gifts. Interest income (expense). We had interest expense of $448,947 during the six months ended June 30, 2014, which represents an increase of $30,982 or 7%, comparing with the interest expense of $417,965 in the same period of 2013. The increase in interest expense was primarily due to higher balance of bank loans in 2014. However, we also received subsidies of $524,080 from local government for our interest expense during the six months ended June 30, 2014, comparing no such subsidy in the same period of 2013. We do not recognize or accrue the subsidy income until we receive the subsidy. The details of the gross interest expense and subsidies received from the local government are as follow: For the Six Months Ended June 30, 2014 2013 Interest expense $ (456,495 )$ (423,577 ) Deduct: Interest income 7,548 5,612

Subsidy received from the local government 524,080 -

Net balance $ 75,133$ (417,965 ) 29

We have benefitted from government grants and subsidies. In particular, we received (a) one-time subsidy for interest expense of $524,080 and $0 during the six months ended June 30, 2014 and 2013, and (b) subsidies of $27,623 and $117,509 for supporting agricultural development in minority areas in the six months ended June 30, 2014 and 2013, respectively. The one-time subsidies for interest expenses were granted based on the amount of the Company's outstanding bank loans and the number of days that the bank loans were outstanding. The one-time subsidies for interest expense were recognized as income upon received. No subsidies for bank interest expenses were deferred. The subsidies were recorded as "subsidy income" in our financial statements. The subsidies are generally determined based on the local government's financial status, policy, and various political factors. There is no guarantee that we will continue to receive such subsidies in comparable amounts or at all in the future.



The subsidies for the bank interest expenses which the Company received in the six months ended June 30, 2014 and related bank loans for its relevant outstanding period over the year ended December 31, 2013 listed as follow:

During the Year Ended December 31, 2013 Granted Outstanding Interest Loans Subsidy



Loan payable to Bank of China, annual interest rate of 6%, due by November 5, 2014 which had been repaid in 2013. $ 4,582,351$ 171,285 Loan payable to Bank of China, annual interest rate of 6%, due by November 20, 2014 with buildings and land use rights provided by the shareholders as collateral.

4,582,351 167,936 Loan payable to Industrial and Commercial Bank of China, annual interest rate of 6%, due by August 24, 2014 which had been repaid in 2013.

1,374,705 29,562 Loan payable to Industrial and Commercial Bank of China, annual interest rate of 6%, due by October 1, 2014 which had been repaid in 2013.

1,080,126 3,420



Loan payable to Industrial and Commercial Bank of China, annual interest rate of 6%, due by September 15, 2014 with buildings and land use rights provided by 2 individuals, Benshuang Yao and Youxiang Zhou as collateral.

2,454,831 6,856



Loan payable to Agricultural Development Bank of China, annual interest rate of 6%, due by December 20, 2013.

818,277 88,685 Loan payable to Agricultural Development Bank of China, annual interest rate of 6.56%, due by January 10, 2013.

818,277 16,287 Loan payable to Agricultural Development Bank of China, annual interest rate of 6%, due by September 19, 2013.

1,309,243 12,216 Loan payable to Hubei Bank, annual interest rate of 6%, due by March 30, 2014, guaranteed by Hubei Xiangyue Professional Guarantee Service Co., Ltd., a major shareholder, and 2 individuals, Fuming Fan and Yulan Tian

1,309,243 27,833 $ 18,329,404$ 524,080 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. At June 30, 2014, we had a net operating loss carry-forward for Chinese income tax purposes aggregating approximately $2 million which will expire through the year 2018.



Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2014 our working capital was ($7,386,361) as compared to ($9,415,246) at December 31, 2013. The increase in working capital reflected a result of an increase of $1.1 million in amount due from related party and an increase of $1.9 million in other current assets at June 30, 2014. These funds are located in financial institutions in the following locations: June 30, December 31, 2014 2013 Country Dollar % Dollar % United States $ - - $ - - China 1,589,144 100 % 667,024 100 % $ 1,589,144 100 % $ 667,024 100 % 30



The components of cash flows are discussed below:

Six Months Ended June 30, 2014 2013 Net cash used in operating activities $ (285,049 )$ (3,353,589 ) Net cash provided by (used in) investing activities 1,082,445 (708,573 ) Net cash provided by financing activities 98,547 5,149,763 Exchange rate effect on cash 26,177 20,119 Net cash inflow $ 922,120$ 1,107,720



Cash Used in Operating Activities

We have financed our operations over the six months ended June 30, 2014 and 2013 primarily through cash from borrowings under our lines of credit with various lending banks in the PRC and sales of the hotel construction project in Laifeng County.



Net cash used in operating activities in the six months ended June 30, 2014 totaled $285,049. Cash flow pertaining to operating activities included depreciation and amortization of $476,946, bad debt expense of $169,511, a decrease from accounts receivable of $667,515, a decrease from inventory of $219,606 and collections from other receivables of $457,158. These favorable factors were offset by an increase over our other current assets of $1,888,956.

Net cash used in operating activities in the six months ended June 30, 2013 totaled $3,353,589. Cash flow pertaining to operating activities included depreciation and amortization of $412,711, bad debt expense of $97,201. These favorable factors were offset by the Company's net loss for the six months ended June 30, 2013 of ($621,551), an increase of $2,385,275 from other receivables, an increase of $322,678 from advances to suppliers, and an increase of $353,087 from our other current assets.



Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $1.1 million in the six months ended June 30, 2014. The investments primarily consisted of our investment in the hotel construction project in Laifeng County of $0.8 million which had been sold to Fengming for $2.7 million or RMB 17 million on April 20, 2014. We had collected part of the proceeds of $2 million from the resale.



Net cash used in investing activities was $0.7 million in the six months ended June 30, 2013. During the six months ended June 30, 2013, a total of $0.4 million was invested in the purchase of fixed assets and $0.3 million was invested in the hotel construction.

Cash Provided by Financing Activities

Net cash provided by financing activities was $98,547 in the six months ended June 30, 2014. During the period, cash provided by financing activities consisted of the proceeds from our renewal short-term loans of $5.7 million, offset by repayments of our short-term loans of $5.4 million. Net cash provided by financing activities was $5.1 million in the six months ended June 30, 2013. During the six months ended June 30, 2013, cash provided by financing activities consisted of the net proceeds from short-term loans of $3.6 million and a loan from related party of $3.8 million, offset by a repayment of short-term loan of $2.3 million.



Requirement for Additional Funding

We anticipate that our current cash reserves plus cash from our operating activities will not be sufficient to meet our ongoing obligations and fund our operations for the next twelve months.

Specifically, as of June 30, 2014, we had approximately cash reserve of $4.2 million, including $1.6 million cash held by us and $2.6 million cash held by our cashier, accountants and Mr. Wenping Luo, our President, Chief Executive Officer, and a director on behalf of us which was presented as other current assets in our financial statements. We have $15.6 million of bank loans due in the next 12 months and our cash flow from operating activities was $0.3 million outflow for the first half year of 2014. Additionally, we have a negative working capital of $7.4 million as of June 30, 2014. We anticipated that, our cash reserve of $4.2 million at June 30, 2014 will be insufficient to satisfy our short-term loans of $15.6 million due in the next 12 months and, we will need to obtain $11.4 million of additional funding to meet our ongoing obligations and fund our operations during that twelve months period, if we cannot renew the bank loans as they become due. As a result, we will need to seek additional funding in the near future. We plan to negotiate with our lenders to extend or renew our loans and are planning to seek additional financing from local banks in the PRC. We may also seek to obtain short-term loans from our management or principal shareholders. We will also seek to improve our cash flows from operations by implementing cost control measures, collection of loan receivables, and reducing our inventory purchases. Additional funding may not be available, or at acceptable terms, to us at this time. If we are unable to obtain additional financing, we may be required to reduce the scope of our business development activities, which could harm our business plans, financial condition and operating results. 31 Contractual Obligation

The following table summarizes our contractual obligations at June 30, 2014 and the effect those obligations are expected to have on our liquidity and cash

flow in future periods. Payments Due by Period Total Less than 1 Year 1 - 3 Years 3 - 5 Years Over 5 Years Contractual obligations * Bank loans $ 15,629,062$ 15,629,062 $ - $ - $ - Others - - - - - $ 15,629,062$ 15,629,062 $ - $ - $ -



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

The material terms of the short-term loan agreements were summarized as follow:



June 30, 2014 Loan payable to Bank of China, annual interest rate of 6%, due by November 20, 2014 with buildings and land use rights provided by the shareholders as collateral.

$



4,548,999

Loan payable to Agricultural Development Bank of China, annual interest rate of 6%, due by January 15, 2015 guaranteed by a third party, Enshi Nongfa Credit Guarantee Co., Ltd.

1,624,643

Loan payable to Agricultural Development Bank of China, annual interest rate of 6%, due by September 24, 2014 with buildings provided by major shareholder as collateral and guaranteed by the same shareholder.

1,624,643

Loan payable to Agricultural Development Bank of China, annual interest rate of 6%, due by November 21, 2014, with buildings and land use rights provided by Laifeng Anpulo Yunxing Transportation Co., Ltd. as collateral and guaranteed by the major shareholders.

1,624,643

Loan payable to Industrial and Commercial Bank of China, annual interest rate of 6%, due by September 15, 2014 with buildings and land use rights provided by 2 individuals, Benshuang Yao and Youxiang Zhou as collateral.

2,436,964

Loan payable to Laifeng County Small Business Loan Guarantee Company, annual interest rate of 9.72%, due by March 18, 2014 but had been extended to March 18, 2015.

194,956

Loan payable to Laifeng County Small Business Loan Guarantee Company, annual interest rate of 9.72%, due by April 21, 2014 but had been extended to April 20, 2015.

568,625

Loan payable to Laifeng County Small Business Loan Guarantee Company, annual interest rate of 9.72%, due by May 14, 2014 but had been extended to May 14, 2015.

568,625

Loan payable to Laifeng County Finance Bureau without interest burden, due by November 1, 2014. 2,436,964 $ 15,629,062 Off Balance Sheet Items Under SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have: ? any obligation under certain guarantee contracts,



? any retained or contingent interest in assets transferred to an unconsolidated

entity or similar arrangement that serves as credit, liquidity or market risk

support to that entity for such assets,



? any obligation under a contract that would be accounted for as a derivative

instrument, except that it is both indexed to our stock and classified in

shareholder equity in our statement of financial position, and

? any obligation arising out of a material variable interest held by us in an

unconsolidated entity that provides financing, liquidity, market risk or

credit risk support to us, or engages in leasing, hedging or research and

development services with us. 32

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



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 are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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:

Basis of Presentation



Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

Interim Financial Statements These unaudited financial statements as of and for the six months ended June 30, 2014 and 2013 reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature. These interim financial statements should be read in conjunction with our financial statements and notes thereto for the years ended December 31, 2013 and 2012 included in our Form 10-K filed with the United States Securities and Exchange Commission on March 14, 2014. We assumes that the users of the interim financial information herein have read, or have access to, the audited financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the six month period ended June 30, 2014 are not necessarily indicative of results for the entire year ending December 31, 2014. Going Concern We incurred accumulated deficit of $2.5 million as of June 30, 2014. In addition, we had outstanding loans of $15.6 million that are due in the next 12 months and our cash reserves were accounting for $4.2 million at the same date. We also had a negative working capital of $7.4 million as of June 30, 2014. We may not be able to raise funds from the U.S. markets to pay off these obligations. These conditions raise a substantial doubt as to whether we may continue as a going concern. We are planning to negotiate with our lenders to extend or renew our loans and are planning to seek additional financing from local banks in the PRC. We will also seek to improve our cash flows from operations by implementing cost control measures, collection of loan receivables, and reducing our inventory purchases. Principles of Consolidation



The consolidated financial statements include the accounts of Anpulo, Anpulo HK, Anpulo WFOE and Anpulo Laifeng. All intercompany transactions and account balances are eliminated in consolidation.

Use of Estimates

In preparing financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates. 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 equivalent to those accounts that are not collected within one year plus 20% of receivables less than six months old, 50% of receivables less than a year old. It is management's belief that the current bad debt allowance adequately reflects an appropriate estimate based on management's judgment. 33 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. Revenue Recognition

Our revenue recognition policies are in compliance with Securities Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") 104 (codified in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 605). Sales revenue is recognized after delivery is complete, customer acceptance of the product occurs and collectability is reasonably assured. Payments received before satisfaction of all relevant criteria for revenue recognition are recorded as unearned revenue. Unearned revenue consists of payments received from customers prior to customer acceptance of our products. Sales revenue represents the invoiced value of goods, net of value-added tax, or VAT. Our products sold and services provided in China are subject to VAT of 17% of gross sales price. This VAT may be offset by VAT paid by us on raw materials and other materials included in the cost of producing the finished product. We recorded VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the

receivables. 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.


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Source: Edgar Glimpses


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