424B5 1 sp424b3supp_sep82009.htm PROSPECTUS SUPPLEMENT sp424b3supp_sep82009.htm
 
Filed pursuant to Rule 424(b)(5)
 
Registration Statement No. 333-159959
 
 
PROSPECTUS SUPPLEMENT
 
(to prospectus dated August 4, 2009)

2,700,000 SHARES
 
SKYPEOPLE FRUIT JUICE, INC.
 
COMMON STOCK

This prospectus supplement relates to the sale of 2,700,000 shares of our common stock, par value $0.001 per share (the “Common Stock”), by Barron Partners LP and Eos Holdings, LLC (the “Selling Stockholders”).  Although we will not receive any proceeds from the sale of the shares, the Selling Stockholders must exercise warrants to acquire the shares to be sold, and we will receive $6,885,000 in gross proceeds from these warrant exercises.

Except as otherwise indicated, share and share price information (except information taken from our historical financial statements) in this prospectus supplement assumes that, and has been adjusted for, a two shares for three shares reverse split of our Common Stock that we effectuated simultaneously with the listing of our Common Stock on the NYSE Amex Equities and the closing of the sale of the shares offered hereby.

Effective October 29, 2009, our Common Stock will begin trading under the symbol SPU on NYSE Amex Equities.  The last actual trade of our Common Stock occurred on September 29, 2009 at $5.25 per share.  There is only a limited market for our Common Stock, and the shares are being offered in anticipation of development of a secondary trading market.  Although the listing of our Common Stock on NYSE Amex Equities has been approved, we can provide no assurance that an active market in our Common Stock will develop.

Investing in our securities involves risks. See “Risk Factors” on page S-12.

   
Per Share
   
Total
 
Public offering price
  $ 3.00      $ 8,100,000   
Underwriting discount
  $ 0.18      $ 486,000   
Proceeds to Selling Stockholders (before expenses)
  $ 2.82      $ 7,614,000   
Proceeds to the Company from exercise of warrants
  $ 2.55      $ 6,885,000   
 
 
 

 
 
The Selling Stockholders have granted the underwriters a 30-day option to purchase up to an additional 405,000 shares of our Common Stock to cover over-allotments, if any.  If the underwriters exercise this option in full, the total underwriting discounts and commissions payable by the Selling Stockholder will be $558,900, and the total proceeds to the Selling Stockholders, before expenses and payment of the exercise price for the warrants, will be $8,756,100.  Total proceeds to us from the exercise of warrants will be $7,917,750.
 
We expect to deliver the shares offered hereby to purchasers on or about November 3, 2009.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
 
Roth Capital Partners
 
Maxim Group LLC
 

 
The date of this prospectus supplement is October 29, 2009

 
 

 
TABLE OF CONTENTS


PROSPECTUS
 

ABOUT THIS PROSPECTUS SUPPLEMENT
 
This prospectus supplement and the accompanying prospectus are part of a registration statement on Form S-1 (File No. 333-159959) that we filed with the Securities and Exchange Commission, or the SEC, and which was declared effective by the SEC on July 23, 2009.  This prospectus supplement describes details of the offering of shares of our Common Stock by certain selling stockholders listed in this prospectus supplement along with the risks of investing in our Common Stock and other items. The accompanying prospectus provides more general information.  To the extent the information in this prospectus supplement or any of the documents incorporated by reference into this prospectus supplement are inconsistent with the accompanying prospectus or any of the documents incorporated by reference into the accompanying prospectus, you should rely on this prospectus supplement or the documents incorporated by reference into this prospectus supplement, as the case may be. You should read both this prospectus supplement and the accompanying prospectus together with the information about us described in the Section entitled “Where You Can Find More Information.”
 
You should rely only on the information contained in this prospectus supplement and the accompanying prospectus and the documents incorporated by reference. We have not, and neither Roth Capital Partners nor Maxim Group LLC has, authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information contained in this prospectus supplement and the accompanying prospectus is accurate only as of the date of delivery of such documents, regardless of the time of its delivery or of any sale of shares offered hereby. This prospectus will be updated and, as updated, will be made available for delivery to the extent required by federal securities laws.

 
 
This summary highlights information contained elsewhere or incorporated by reference in this prospectus supplement and the accompanying prospectus.  This summary does not contain all of the information you should consider before investing in our Common Stock. You should read this entire prospectus supplement and the accompanying prospectus carefully, especially the “Risk Factors” section beginning on page S-12 and our consolidated financial statements and the related notes appearing at the end of the accompanying prospectus, before making an investment decision.  Unless the context otherwise requires, we use the terms “SkyPeople,” “Company,” “we,” “us” and “our” in this prospectus supplement and the accompanying prospectus  to refer to SkyPeople Fruit Juice, Inc. and its consolidated subsidiaries.
 
Our Business
 
We are engaged in the production and sale of fruit concentrate, fruit juice beverages, and other fruit related products in and from the People’s Republic of China ("PRC" or "China").  Our fruit concentrates, which include apple, pear, and kiwifruit, are primarily exported via distributors to North America, Europe and the Middle East.  We sell our Hedetang brand bottled fruit juice beverages domestically, primarily to supermarkets in certain regions of the PRC. In the six months ended June 30, 2009, our fruit concentrate, fruit juice beverages, and other fruit related products represented 51%, 45%, and 4% of our sales, respectively as compared to 78%, 13% and 9%, respectively, at December 31, 2008.
 
We believe that we are currently one of the only companies able to produce specialty fruit juices on a large scale in China.  In addition, we believe that we are recognized as a leading specialty fruit juice producer.  Specialty fruit juices are juices squeezed from fruits that are grown in a relatively low quantity. Specialty fruit juices include kiwifruit juice, mulberry juice, strawberry juice, and pomegranate juice.
 
We employ modern equipment and technology at our production facilities. Our equipment and technology help ensure product quality, control costs, and satisfy international juice standards such as ISO9001, Hazard Analysis and Critical Control Points (“HACCP”) and Kosher. Our production facilities are located near regional fruit production centers, which enables us to purchase directly from farmers and avoid the need to transport raw fruits over long distances. In turn, this helps reduce our transportation expenses and maintains high product quality by preserving freshness and reducing damage to the raw fruit in transit.
 
During the year ended December 31, 2008, we produced 21,591 tons of fruit juice concentrate, 5,339 tons of fruit juice beverage and 5,833 tons of fresh and other fruit related products such as kiwifruit seeds and apple aroma. As we expand our current production facilities and, to the extent we are able to acquire other companies in the fruit product industry, we will expand our fruit processing capacity and our annual yield to meet what we believe will be increasing customer demand. 

 
Our Industry
 
The global market for processed fruit products has expanded rapidly in the last few years, in part reflecting a shift from carbonated beverages to pure fruit juice products.  According to The Beverage Digest’s annual “Fact Book,” global demand for non-alcoholic single serve beverages was $106 billion in 2006 and increased 4.1% by volume from 2005 to 2006. Further, while carbonated soft drinks declined in volume from 2005 to 2006 for the first time in 20 years, global sales of noncarbonated drinks (tea, coffee, fortified water, juice, sports drinks, milk drinks, and energy drinks) increased by 15% from 2005 to 2006. According to the Beijing Business & Intelligence Consulting Co. Ltd., an independent research firm, projected total sales value of and net income with respect to processed fruit products in China will reach $37.2 billion and $2.5 billion, respectively, in 2010, which would yield a compounded annual growth rate of 42.5% and 66.7%, respectively, for the four-year period from 2007 to 2010. China currently accounts for only 10% of total global fruit juice consumption and the annual per capita fruit juice consumption in China is approximately 1 kilogram. Chinese consumption shows strong growth potential when it is compared to the developed international markets, for which the average annual per capita fruit juice consumption is approximately 40 kilograms.
 
This rapid growth in the fruit processing industry in China and worldwide has placed significant pressure on producers to increase production capacities while managing increased costs associated with transport logistics and raw materials.  To respond effectively, producers must: 
 
  
utilize modern processing technology to maximize processing capacity and annual yield without significantly increasing production costs; 
 
  
utilize flexible production facilities to respond quickly to market supply and demand, including being able to periodically introduce new products to the market; and 
 
● 
build or acquire new production facilities near stable sources of raw material that can adequately meet planned processing capacities and annual yield. 
 
Our Strengths
 
We believe that the following strengths enable us to compete effectively and capitalize on the rapid growth of the fruit product industry:
 
Raw Materials Control and Resources Advantages 
 
We have located our production facilities in close proximity to large sources of apples and kiwifruit in Shaanxi and Liaoning Provinces. Our close proximity to regional production centers ensures raw material availability and freshness and reduces our fruit purchasing and transportation costs. 
 
Equipment, Technology, and Quality Advantages 
 
We employ modern fruit processing equipment and have developed several unique production processes and technologies that have allowed us to gain market share in the fruit concentrate and fruit juice beverage industries, most notably in the kiwifruit market. We believe that our equipment helps us to maintain uniform and high product quality and keeps processing costs under control. 

 
Product Diversity 
 
Our products include fruit concentrate and fruit juice beverages from apples, pears, kiwifruit, and mulberries. We also sell organic fresh fruit, kiwifruit seed and apple aroma. Our diversified product lines help us compete in international markets, lessen commodity price risk, and lessen the risks associated with seasonality and changing consumer preferences. 
 
Operations Team 
 
We have a professional, highly educated, and motivated business administration and technology development team. Our operating managers have an average of more than 10 years of experience in the fruit processing industry. We have established good relationships with several scientific research institutes and experienced consultants that we believe have been instrumental to our growth.
 
Chinese Government Support 
 
The PRC government’s agricultural industrialization policy supports our business. Our main operating subsidiary, Shaanxi Tianren Organic Food Co., Ltd. ("Shaanxi Tianren"), was awarded the nationally recognized status of High and New Technology Enterprise in December 2006.  As a result, in 2007 and 2008 we received subsidies from the local government of Shaanxi Province of approximately $500,000 and $316,000, respectively. The Shaanxi government has also approved the expansion of kiwifruit production in the province. We have submitted our kiwifruit industrialization development plan to the Shaanxi Province government, which has been approved by the related government department and therefore may result in our receiving further subsidies. 
 
Our Strategy
 
We intend to employ the following business strategies to capitalize on the rapidly growing fruit product market:
 
Increase Our Capacity 
 
We will continue to expand the production capacity of our three existing production facilities. We will also consider acquisition opportunities in order to further expand our production capacity. 
 
Diversify Our Products 
 
We hope to increase our fruit product offerings in order to further diversify our product mix. Our strategic focus will be on expanding into fruits with harvesting seasons complementary to our current fruits. This will enable us to expand our squeezing season, thus increasing our annual production of fruit concentrate.  In addition, we will enhance our research and development activities in order to develop and produce innovative high margin products like polyphenol (an antioxidant compound with beneficial effects on health) from concentrated fruit juice to further diversify our product mix, reduce risk and increase our revenue. 
 
Enlarge Our Worldwide Customer Base 
 
We will strive to expand our worldwide customer base by strengthening current relationships with distributors and end users in our existing markets and by developing new relationships with strategic distributors and end users in markets we have not yet penetrated. 

 
Focus on Improving Gross Margins 
 
We plan to continue to focus on creating new high margin products to supplement our current product offering.  In addition, we are making efforts to improve margins for our fruit juice beverage business segment by creating new products and focusing on selling efforts on higher margin products..
 
Increase Sales of Fruit Concentrate and Fruit Juice Beverages in China 
 
We plan to execute our plan to sell our Hedetang brand fruit juice beverages over a broader geographic area in China by expanding our glass bottle production line to produce higher margin portable beverages targeting consumers in large Chinese cities. We will also seek to further develop our fruit vinegar beverage and fruit juice beverage sales networks. 
 
Increase Focus on the Organic and Green Fruit Concepts 
 
According to the Agricultural Marketing Resource Center (www.agmrc.org/markets), organic food production has grown at a rate of almost 20% per annum for the last 7 years and industry experts are continuing to forecast additional growth. We are working toward transitioning the Qinmei kiwifruit plantation, which currently provides us select organic product, to fully organic production within five years. We also plan to convert our apple production base to partially organic, and to establish a fruit and vegetable organic research and development center and a training center by 2010 to further explore organic and other fruit concepts.
 
Recent Developments
 
Subsidies 
 
Based on Shaanxi Tianren’s recognition as a High and New Technology Enterprise in 2006, the local government of Shaanxi Province has granted us various subsidies. In the six months ended June 30, 2009, we received subsidies aggregating RMB 10,604,800 or  $1,552,679 (based on the average exchange rate during the six months ended June 30, 2009). Of this amount, RMB 9 million, or $1,317,716 (based on the average exchange rate during the six months ended June 30, 2009) was granted to support our kiwifruit industrialization development plan; RMB 1.6 million, or $234,260 (based on the average exchange rate during the six months ended June 30, 2009), was granted to support our pear processing and production; and RMB 4,800, or $703 (based on the average exchange rate during the six months ended June 30, 2009), was granted for patent right protection of our brand name “Hedetang.”
 
Office Purchase Agreement 
 
On July 1, 2009, Shaanxi Tianren entered into an office purchase agreement with Zhonghai Trust Co., Ltd. (“Zhonghai”) to purchase 1,426 square meters of office space located on the 16th floor  of the National Development Bank Building, No. 2, Gaoxin 1st RD, Hi-Tech Zone, Xi’an, China. Shaanxi Tianren previously leased this office space from Zhonghai under a lease agreement. The total purchase price under the office purchase agreement was RMB 12,070,000 or approximately $1,767,152 (based on the exchange rate as of July 30, 2009).

 
Construction
 
In the second quarter of 2009, Shaanxi Tianren completed construction on the expansion of its research and development center. This research and development center covers an area of 2,000 square meters and encompasses additional space required for research and development laboratories. The expansion is on the existing site of the factory in Jingyang County, Shaanxi Province. The research and development center provides additional space for our engineers to conduct research and development toward the goal of improving our product line.
 
 Shaanxi Qiyiwangguo Modern Agriculture Co., Ltd. ("Shaanxi Qiyiwangguo"), which is 91.15% owned by Shaanxi Tianren, completed the construction of an industrial waste water processing facility and renovation of an employee building near the factory of Shaanxi Qiyiwangguo located in Shaanxi Province in the second quarter of 2009. We expect that the 1,118 square meter industrial waste water processing facility will process 1,200 cubic meters of waste water per day, helping us meet the increasing production demands of Shaanxi Qiyiwangguo and increasing the use of recycled waste water. The waste water processing facility is expected to be operational in the fourth quarter of 2009.   
 
In the second quarter of 2009, Shaanxi Qiyiwangguo also began renovation of its factory, road and office building located in the factory of Shaanxi Qiyiwangguo. This project is expected to be completed by the end of the third quarter of 2009.
 
Capital Expenditures 
 
We believe that we currently have sufficient cash on hand, combined with anticipated cash receipts, to fund our business for at least the next 12 months. The capital needed for our business in the next 12 months does not include our planned expenditures for land and equipment, which amount includes the anticipated acquisition of Yingkou Trusty Fruits Co., Ltd. in the third quarter of 2009 for approximately $3.3 million.
 
For our long term planned expenditures for equipment and land we will likely need to seek additional debt or equity financing. We believe that any such financing could come in the form of debt or the issuance of our Common Stock in a private placement or public offering.  However, there are no assurances that such financing will be available or available on terms acceptable to us. To the extent that we require additional financing in the future and are unable to obtain such additional financing, we may not be able to fully implement our growth strategy.
 
The majority of our capital expenditures are for the expansion of our production capacity.  In the past three years our annual capital expenditures ranged from $53,000 to $2.9 million.  We financed our capital expenditures and other operating expenses through operating cash flows and bank loans. As of June 30, 2009, the balance of short-term loans totaled RMB 65,000,000 (U.S. $9,516,559 based on the exchange rate on June 30, 2009), with interest rates ranging from 4.86% to 7.52% per annum. These loans are collateralized by land and buildings. These loans are due from September 2009 to June 2010.

 
Board Matters 
 
On August 12, 2009, Yongke Xue, our Chairman of the Board, and Xiaoqin Yan, another director, resigned as members of the Compensation Committee of our Board of Directors so that the composition of such committee would be in compliance with listing criteria of the NYSE Amex Equities.
 
AMEX Listing 
 
On August 31, 2009, the staff of NYSE Regulation’s Corporate Compliance Department, on behalf of NYSE Amex Equities, notified us that it had cleared us to file an original listing application for the listing of our Common Stock on the NYSE Amex Equities. We have filed such original listing application and certain other required documents and are waiting for authorization to list. We anticipate that our Common Stock will be listed upon the consummation of this offering.
 
Stock Split 
 
On July 31, 2009, our Board of Directors approved a two shares for three reverse split of our Common Stock. Shareholder approval of such reverse stock split was neither required nor sought. We intend to effectuate such reverse stock split simultaneously with the listing of our Common Stock on the NYSE Amex Equities and the closing of the sale of the shares offered hereby.
 
Except as otherwise indicated in this prospectus supplement, share and share price information (except information taken from our historical financial statements) in this prospectus supplement has been adjusted for the two shares for three shares reverse split of our Common Stock that we intend to effectuate simultaneously with the listing of our Common Stock on the Amex and the closing of the sale of the share offered hereby.
 
Warrant Exercise
 
    On October 28, 2009, Barron Partners LP exercised warrants to purchase an aggregate of 2,620,000 shares of Common Stock and Eos Holdings, LLC exercised warrants to purchase an aggregate of 80,000 shares of Common Stock.  In order to induce such warrant exercises the Company agreed that the exercise price of all of the remaining warrants to purchase an aggregate of 1,585,882 shares of Common Stock held by Barron Partners LP and all of the remaining warrants to purchase an aggregate of 47,450 shares of Common Stock held by Eos Holdings, LLC will be $2.55 per share.
 
Company Information 
 
Our principal executive offices are located at 16F, National Development Bank Tower, No. 2 Gaoxin 1st Road, Xi’an, Shaanxi Province, PRC 710075, and our telephone number is 011-86-29-88377216.  Our website address is www.skypeoplefruitjuice.com. The information contained on our website or that can be accessed through our website is not part of this prospectus, and investors should not rely on any such information in deciding whether to purchase our Common Stock. 

 
 
This prospectus supplement and the accompanying prospectus relate to the resale of the 2,700,000 shares of our Common Stock that were issued to the Selling Stockholders on October 28, 2009 upon exercise of warrants (“New Warrants”) which were issued in exchange for other warrants in June 2009.
 
Total shares of Common Stock outstanding prior to the Offering
 
14,847,857
     
Total shares of Common Stock offered by the  Selling Stockholders
  2,700,000 (excluding 405,000 shares issuable upon the exercise of the overallotment option, if excercised) 
     
Total shares of Common Stock to be outstanding after the Offering
  17,547,857 (excluding 405,000 shares issuable upon the exercise of the overallotment option, if excercised) 
     
Use of Proceeds
 
We will not receive any proceeds from the sale of the shares of Common Stock underlying the New Warrants, but we will receive $6,885,000 in gross proceeds from the exercise of the New Warrants that are being exercised in connection with the sale of shares that are the subject of this prospectus supplement.  These proceeds will be used for general corporate purposes, including acquisitions and other expansions of our current production capacity.
     
NYSE Amex Equities Symbol
 
SPU.
     
Risk Factors
 
You should read the “Risk Factors” section beginning on page S-12 of this prospectus supplement for a discussion of factors to consider carefully before deciding to invest in shares of our Common Stock.
 
 
The number of shares of our Common Stock to be outstanding after this offering is based on 14,847,857 shares of our Common Stock outstanding as of August 12, 2009 and 2,700,000 shares of Common Stock issuable upon exercise of the New Warrants exercised in connection with this offering. It excludes (i) 405,000 shares of Common Stock that may be issued if the overallotment option is exercised; (ii) 1,228,334 shares of Common Stock underlying warrants not exercised in connection with this offering; (iii) an aggregate of 2,298,297 shares of Common Stock issuable upon the conversion of an aggregate of 3,448,480 outstanding shares of the Company’s Series B Stock, and (iv) 1,333,333 shares of Common Stock issuable upon the conversion of 2,000,000 shares of Series B Stock (the “Make Good Escrow Stock”) that have been deposited with an escrow agent pursuant to the terms of the Stock Purchase Agreement entered into by and between the Company and the Selling Stockholders on February 25, 2008 (the “Stock Purchase Agreement”) and which may be transferred to the Selling Stockholders if the Company fails to achieve certain financial targets in 2009.
 
SUMMARY CONSOLIDATED FINANCIAL DATA
 
The following tables summarize our consolidated financial data for the periods presented. You should read these tables together with the consolidated financial statements and related notes appearing at the end of the accompanying prospectus, as well as “Capitalization,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information included elsewhere in this prospectus supplement and the accompanying prospectus.  Our historical results are not necessarily indicative of the results to be expected in any future period.

 
   
Fiscal Year Ended
December 31,
   
Six Months Ended
June 30,
 
   
2008
   
2007
   
2006
   
2005
   
2009
   
2008
 
                                     
Revenue
  $ 41,648,605     $ 29,361,941     $ 17,427,204     $ 7,027,889     $ 12,868,062     $ 16,096,551  
Cost of Sale
    23,607,409       18,467,045       10,105,327       4,471,432       8,019,754       11,320,336  
Gross Margin
    18,041,196       10,894,896       7,321,877       2,556,457       4,848,308       4,776,215  
                                                 
Operating Expenses
                                               
General and Administrative Expenses
    2,830,739       1,158,759       405,253       488,948       967,297       1,005,844  
Selling Expenses
    1,453,461       686,819       664,717       448,346       375,122       496,645  
Research and Development Expenses
    449,695       30,878       -       -       551,792       23,625  
Liquidated Damages
    254,301       -       -       -       -       -  
Total Operating Expenses
    4,988,196       1,876,456       1,069,970       937,294       1,894,211       1,526,114  
                                                 
Income from Operations
    13,053,000       9,018,440       6,251,907       1,619,163       2,954,097       3,250,101  
                                                 
Other Income (Expenses)
                                               
Interest Income
    63.775       18,295       14,365       22,299       39,033       22,965  
Subsidy Income
    316,152       500,468       -       -       1,552,679       48,778-  
Interest Expense
    (932,048 )     (400,517 )     (62,147 )     (2,504 )     (485,658 )     (445,103 )
Other Income (Expense)
    353,698       (70,622 )     (79,616 )     50,119       357,877       332,280  
Total Other Income (Expenses)
    (198,423 )     47,624       (127,398 )     69,914       1,463,931       (41,080 )
Income Before Income Tax
    12,854,577       9,066,064       6,124,509       1,689,077       4,418,028       3,209,021  
Income Tax Provision
    2,231,140       1,109,160       2,035,675       650,265       1,215,567       311,198  
Income Before Minority Interest
    10,623,437       7,956,904       4,088,834       1,038,812       3,202,461       2,897,823  
                                                 
Minority interest
    613,135       360,501       243,564       3,428       289,912       182,783  
                                                 
Net Income
  $ 10,010,302     $ 7,596,403     $ 3,845,270     $ 1,035,384     $ 2,912,549     $ 2,715,040  
                                                 
Earnings per Share:
                                               
Basic Earnings per Share
  $ 0.37     $ 0.35     $ 0.17     $ 0.05     $ 0.11     $ 010  
Diluted Earnings per Share
  $ 0.37     $ 0.35     $ 0.17     $ 0.05     $ 0.10     $ 0.10  
                                                 
Weighted Average Shares Outstanding
                                               
Basic
    22,230,334       22,006,173       22,006,173       22,006,173       22,271,684       22,188,529  
Diluted
    26,831,961       22,006,173       22,006,173       22,006,173       29,310,927       28,310,157  


   
As of June 30, 2009 (unaudited)
 
Consolidated Balance Sheet Data:
     
Cash and cash equivalents
  $ 16,501.866  
Working capital
    14,955,386  
Total assets
    59,792,946  
Indebtedness, long-term
    -  
Convertible preferred stock at $0.001 par value
    3,448  
Total Stockholders’ Equity
    44,087,740  
 
 
RISK FACTORS
 
The following is a summary of certain material risks facing our business and Common Stock that should be carefully considered along with the other information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. If any other material risks of which we are unaware later occur or become material, our business, financial condition, and operating results, and the price of and trading market for out stock, could be materially harmed.
 
Risks Related to our Business
 
We may not be able to effectively control and manage our growth, and a failure to do so could adversely affect our operations and financial condition.
 
We plan to expand our current production capacity and intend to evaluate potential acquisitions in the near future. Planned expenditures for land, equipment and acquisitions are approximately $45.7 million over the next two years. Even if we are able to secure the funds necessary to implement these expenditures (of which there is no assurance), we will face management, resource and other challenges in expanding our current facilities, integrating acquired businesses with our own, and managing expanding product offerings. Failure to effectively deal with increased demands on our resources could interrupt or adversely affect our operations and cause production backlogs, longer product development time frames and administrative inefficiencies. Other challenges involved with expansion, acquisitions and operation include:
 
  
unanticipated costs;
 
  
the diversion of management’s attention from other business concerns;
 
  
potential adverse effects on existing business relationships with suppliers and customers;
 
  
obtaining sufficient working capital to support expansion;
 
  
expanding our product offerings and maintaining the high quality of our products;
 
  
continuing to fill customers’ orders on time;
 
  
maintaining adequate control of our expenses and accounting systems;
 
  
successfully integrating any future acquisitions; and
 
  
anticipating and adapting to changing conditions in the fruit product industry, whether from changes in government regulations, mergers and acquisitions involving our competitors, technological developments or other economic, competitive or market dynamics.
 
Even if we do obtain benefits of expansion in the form of increased sales, there may be a lag between the time when the expenses associated with an expansion or acquisition are incurred and the time when we recognize such benefits, which would affect our earnings.

 
We may need additional capital to fund our future operations and, if it is not available when needed, we may need to reduce our planned development and marketing efforts, which may reduce our sales revenues.
 
Along with proceeds we may receive from the exercise of the New Warrants (to the extent the New Warrants are exercised for cash), we believe that our existing working capital, along with cash from operations, will allow us to meet our working capital requirements for 2009.  However, if not all of the New Warrants are exercised for cash or if cash from future operations is insufficient, we may need additional capital from outside sources. Our ability to raise capital in the future will depend on a number of factors, including our financial condition and results of operations and the conditions in the relevant financial markets. In addition, pursuant to the terms of the Stock Purchase Agreement, we may not issue any preferred stock or convertible debt until February 26, 2011 so long as the Selling Stockholders collectively own 20% of the Series B Stock issued under the Stock Purchase Agreement.  We cannot assure you that additional capital, if required, will be available on acceptable terms, or at all. If we are unable to obtain financing on a timely basis and on acceptable terms, we may be required to reduce the scope of our planned expansions, product development and marketing efforts, and in turn our financial position, competitive position, growth and profitability may be adversely affected. 
 
To the extent that we do raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities would result in dilution of the shares held by existing stockholders and could provide new investors with certain rights, preferences and privileges senior to our Common Stock.
 
Our revenues and profitability are heavily dependent on prevailing prices for our products and raw materials; if we are unable to pass cost increases along to our customers, our margins and operating income may decrease.
 
As a producer of commodities, much of which are sold into global markets, our revenue, gross margins and cash flow from operations are substantially dependent on the prevailing prices we receive for our products and the cost of our raw materials, neither of which we control. The factors influencing the sales price of concentrated fruit juice include the supply price of fresh fruit, supply and demand of our products in international and domestic markets and competition in the fruit juice industry. In 2008, over 69% of the Company’s fruit juice concentrate was exported out of the PRC directly or indirectly. Changes in politics, laws and the economies of supply and demand in international markets will have a significant impact on prices we may receive for our products.
 
The price of fresh fruits, our principal raw materials, are subject to market volatility as a result of numerous factors including, but not limited to, general economic conditions, governmental regulations, weather, transportation delays and other uncertainties that are beyond our control. Due to such market volatility, we generally do not, nor do we expect to, have long-term contracts with our fresh fruit suppliers. Other significant raw materials used in our business include packing barrels, pectic enzyme, amylase and auxiliary power fuels such as coal, electricity and water. Prices for these items may be volatile as well and we may experience shortages in these items from time to time. As a result, we cannot assure you that the necessary raw materials will continue to be available to us at prices currently in effect or acceptable to us. In the event raw material prices increase materially, we may not be able to adjust our product prices, especially in the short-term, to recover such cost increases.  If we are not able to effectively pass these cost increases along to our customers, our margins will decrease and earnings will suffer accordingly.
 
 
Because we experience seasonal fluctuations in our sales, our quarterly results will fluctuate and our annual performance will depend largely on results from two quarters.
 
Our business is highly seasonal, reflecting the harvest season of our primary source fruits during the months from August through April of the following year.  Typically, a substantial portion of our revenue is earned during our first and fourth quarters. We generally experience lower revenues during our second and third quarters. Sales in the first and fourth quarters accounted for approximately 67.4% of our revenues for fiscal year 2008. If sales in these quarters are lower than expected, our operating results would be adversely affected, and it would have a disproportionately large impact on our annual operating results.
 
Weather and other environmental factors affect our raw material supply and a reduction in the quality or quantity of our fresh fruit supplies may have material adverse consequences on our financial results.
 
Our business may be adversely affected by weather and environmental factors beyond our control, such as adverse weather conditions during the squeezing season. A significant reduction in the quantity or quality of fresh fruits harvested resulting from adverse weather conditions, disease or other factors could result in increased per unit processing costs and decreased production, with adverse financial consequences to the Company.
 
We depend on a limited number of customers, the loss of one or more of which could materially adversely affect our operations and revenues.
 
Our revenue is dependent in large part on significant orders from a limited number of customers. Sales to our five largest customers accounted for approximately 34%, 29%, and 57% of our net sales during the years ended December 31, 2008, 2007 and 2006, respectively.  Customer demand depends on a variety of factors including, but not limited to, our customers’ financial condition and general economic conditions. If our sales to any of our largest customers are reduced for any reason, such reduction may have a material adverse effect on our business, financial condition and results of operations.
 
We may not be able to successfully introduce new products, which could decrease our profitability.
 
Our future business and financial performance depends, in part, on our ability to successfully respond to consumer preference by introducing new products and improving existing products. We incur significant development and marketing costs in connection with the introduction of new products. Successfully launching and selling new products puts pressure on our sales and marketing resources, and we may fail to invest sufficient funds in order to market and sell a new product effectively.  If we are not successful in marketing and selling new products, our results of operations could be materially adversely affected.
 
Economic conditions have had and may continue to have an adverse effect on consumer spending on our products.
 
The worldwide economy is currently undergoing significant turmoil.  The adverse effect of a sustained international economic downturn, including sustained periods of decreased consumer spending, high unemployment levels, or declining consumer or business confidence, along with continued volatility and disruption in the credit and capital markets, will likely result in reduced demand for our products as consumers turn to cheaper substitute goods or forego certain purchases altogether.  To the extent the international economic downturn continues or worsens, we could experience a further reduction in sales volume, and if we are unable to reduce our operating costs and expenses proportionately, many of which are fixed, it would adversely affect our results of operations.

 
Concerns over food safety and public health may affect our operations by increasing our costs and negatively impacting demand for our products.
 
We could be adversely affected by diminishing confidence in the safety and quality of certain food products or ingredients. As a result, we may elect or be required to incur additional costs aimed at increasing consumer confidence in the safety of our products.  For example, a crisis in China over melamine-contaminated milk in 2008 has adversely impacted overall Chinese food exports since October 2008 as reported by the Chinese General Administration of Customs, even though most foods exported from China were not implicated in these issues.  In addition, our concentrated fruit juices exported to foreign countries have to be in compliance with foreign quality standards.  Our success depends on our ability to maintain the product quality of our existing products and new products.  Product quality issues, real or imagined, or allegations of product contamination, even if false or unfounded, could tarnish the image of the affected brands and may cause consumers to choose other products.
 
We will encounter substantial competition in our business and any failure to compete effectively could adversely affect our results of operations.
 
There are currently a number of well-established companies producing products that compete directly with our product offerings and some of those competitors have significantly more financial and other resources than we possess. We anticipate that our competitors will continue to improve their products and introduce new products with competitive price and performance characteristics. Aggressive marketing or pricing by our competitors or the entrance of new competitors into our markets could have a material adverse effect on our business, results of operations and financial condition.
 
We may engage in future acquisitions involving significant expenditures of cash, the incurrence of debt or the issuance of stock, all of which could have a materially adverse effect on our operating results.
 
As part of our business strategy, we review acquisition and strategic investment prospects that we believe would complement our current product offerings, augment our market coverage, enhance our technological capabilities, or otherwise offer growth opportunities. From time to time we review investments in new businesses and we expect to make investments in, and to acquire, businesses, products, or technologies in the future. In the event of any future acquisitions, we may expend significant cash, incur substantial debt and/or issue equity securities, diluting the percentage ownership of current stockholders, all of which could have a material adverse effect on our operating results and the price of our Common Stock. We cannot assure you  that we will be able to successfully integrate any businesses, products, technologies, or personnel that we might acquire in the future, and our failure to do so could have a material adverse effect on our business, operating results and financial condition.

 
Governmental regulations affecting the import or export of products could negatively affect our revenues.
 
The United States and various foreign governments have imposed controls, export license requirements, and restrictions on the export of some of our products.  In 2008, over 69% of the Company’s concentrated fruit juice was exported, directly or indirectly, out of the PRC. Governmental regulation of exports, or our failure to obtain required export approval for our products, could harm our international and domestic sales and adversely affect our revenues and profits.  In addition, failure to comply with such regulations could result in penalties, costs, and restrictions on export privileges.
 
We do not presently maintain product liability insurance, and our property and equipment insurance does not cover the full value of our property and equipment, which leaves us with exposure in the event of loss or damage to our properties or claims filed against us.
 
We currently do not carry any product liability or other similar insurance. Unlike the United States and many other countries, product liability claims and lawsuits in the PRC are rare. Product liability exposures and litigation, however, could become more commonplace in the PRC. Moreover, we could be more prone to face product liability exposure and liability as we expand our sales into international markets, like the United States, where product liability claims are more prevalent.
 
We may be required from time to time to recall products entirely or from specific co-packers, markets or batches.  We do not maintain recall insurance. In the event we do experience product liability claims or a product recall, our financial condition and business operations could be materially adversely affected.
 
Our business and results may be subject to disruption from work stoppages, terrorism or natural disasters.
 
Our operations may be subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, pandemics, fire, earthquake, flooding or other natural disasters. If a major incident were to occur in either of the regions where our facilities or main offices are located, our facilities or offices or those of critical suppliers could be damaged or destroyed. Such a disruption could result in the temporary or permanent loss of critical data, suspension of operations, delays in shipments of product, and disruption of business generally, which would adversely affect our revenue and results of operations.
 
Our success depends substantially on the continued retention of certain key personnel and our ability to hire and retain qualified personnel in the future to support our growth.
 
If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. While we depend on the abilities and participation of our current management team generally, we have a particular reliance upon Mr. Hongke Xue, Chairman of the Board and Chief Executive Officer of Shaanxi Tianren and Mr. Yongke Xue, the Company’s Chairman of the Board and Chief Executive Officer. The loss of the services of Mr. Hongke Xue or Mr. Yongke Xue for any reason could significantly impact our business and results of operations. Competition for senior management and senior technology personnel in China is intense and the pool of qualified candidates is very limited.  Accordingly, we cannot guaranty that the services of our senior executives and other key personnel will continue to be available to us, or that we will be able to find a suitable replacement for them if they were to leave.

 
The relative lack of public company experience of our management team may put us at a competitive disadvantage.
 
Our management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Aside from our Chief Financial Officer, Spring Liu, the individuals who now constitute our senior management have never had responsibility for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately respond to the increased legal, regulatory and reporting requirements associated with being a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties and distract our management from attending to the growth of our business.
 
We may not have adequate or effective internal accounting controls.
 
The PRC has not adopted a Western style of management and financial reporting concepts and practices. We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing accounting and financial controls, collecting financial data, budgeting, managing our funds and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards.
 
Rules adopted by the Securities and Exchange Commission (the “SEC”) pursuant to Section 404 of Sarbanes-Oxley require annual assessment of our internal controls over financial reporting, and attestation of this assessment by the Company’s independent registered public accountants. The requirement that management perform an assessment of internal controls over financial reporting first applied to our Annual Report on Form 10-K for the fiscal year ending December 31, 2008 and the attestation requirement of management’s assessment by our independent registered public accountants will first apply to our Annual Report on Form 10-K for the fiscal year ending December 31, 2009. The standards that must be met for management to assess the internal controls over financial reporting as effective are relatively new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards.
 
Our lack of familiarity with Western practices generally and Section 404 specifically may unduly divert management’s time and resources, which could have a material adverse effect on our operating results. Further, if material weaknesses in our internal controls over financial reporting are identified or our external auditors are unable to attest that our management’s report is fairly stated or to express an opinion on the effectiveness of our internal controls, this could result in a loss of investor confidence in our financial reports, have an adverse effect on our stock price and/or subject us to sanctions or investigation by regulatory authorities.
 
We may have inadvertently violated Section 402 of the Sarbanes-Oxley Act of 2002 and Section 13(k) of the Exchange Act of 1934 and may be subject to sanctions for such violations.
 
Section 13(k) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provides that it is unlawful for a company such as ours, which has a class of securities registered under Section 12(g) of the Exchange Act, to directly or indirectly, including through any subsidiary, extend or maintain credit in the form of a personal loan to or for any director or executive officer of the company. Issuers violating Section 13(k) of the Exchange Act may be subject to civil sanctions, including injunctive remedies and monetary penalties, as well as criminal sanctions. The imposition of any of such sanctions on the Company may have a material adverse effect on our financial position, results of operations or cash flows.

 
In February 2008, we purchased Pacific Industry Holding Group Co., Ltd. (“Pacific”), a Vanuatu corporation, which is the holding company for our operating subsidiary, Shaanxi Tianren.  At the time, Shaanxi Hede Investment Management Co., Ltd. (“Hede”), a PRC company owned by Yongke Xue, the Chairman of the Board and Chief Executive Officer of the Company, and Xiaoqin Yan, a director of the Company, was indebted to Shaanxi Tianren on account of previous loans and advances made by Shaanxi Tianren to Hede, including RMB 31,544,043 in the aggregate (approximately $4,318,281 based on the exchange rate as of December 31, 2007) made during the period from June 6, 2007 to December 29, 2007 that were used by Hede to pay a portion of the purchase price for Hede’s acquisition of Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”). In May 2008, Shaanxi Tianren also assumed Hede’s obligation of RMB 18,000,000 (approximately $2,638,329 based on the exchange rate of December 31, 2008) for the balance of the purchase price for Huludao Wonder.
 
On June 10, 2008, Hede sold Huludao Wonder to Shaanxi Tianren for a total price of RMB 48,250,000 (the same price which Hede paid for Huludao Wonder). As of May 31, 2008, Shaanxi Tianren had a related party receivable of RMB 48,929,272 from Hede, which was credited against the purchase price (so that Shaanxi Tianren did not pay any cash to Hede for the purchase) and the remaining balance of the loans and advances of RMB 679,272 (approximately $99,564 based on the exchange rate as of December 31, 2008) to Hede was repaid to the Company on June 11, 2008. No interest or other consideration was paid by Hede to the Company on account of the time value of money with respect to the loans and advances made by Shaanxi Tianren to Hede.
 
Notwithstanding Hede’s repayment in full of loans made by Shaanxi Tianren to Hede, the existence of indebtedness of Hede to Shaanxi Tianren at the time the Company acquired Pacific and the continuation of such indebtedness thereafter until it was fully repaid in June 2008 may constitute a violation of Section 13(k) of the Exchange Act (Section 402(a) of Sarbanes-Oxley).
 
In addition, in May 2008 Pacific erroneously paid $4,916,617 to its former stockholders, including Xiaoqing Yan and Yongke Xue, as the result of a dividend declaration by Pacific in February 2008. Because the recipients of the money were no longer stockholders of Pacific, the transaction has been treated for accounting purposes as an interest free loan. In June 2008, the directors and other related parties returned the monies they received, without interest.  Although the erroneously paid funds associated with Pacific’s dividend declaration have been repaid to the Company in full, Xiaoqing Yan and Yongke Xue’s receipt of the erroneous dividend may also be deemed to be a violation of Section 13(k) (Section 402(a) of Sarbanes-Oxley).
 
Partially in response to the matters set forth herein, in September 2008, our Board of Directors adopted a policy regarding approval of related party transactions. Under the policy, any related party transaction involving an aggregate amount that is expected to exceed $50,000 must be approved by the Audit Committee, and no director shall participate in any discussion or approval of a transaction that would be considered to be a related party transaction in which such person is interested.  See “Certain Relationships and Related Party Transactions - Review, Approval or Ratification of Transactions with Related Persons” located in the accompanying prospectus.
 
We may not be able to prevent others from unauthorized use of our patents, which could harm our business and competitive position.
 
Our success depends, in part, on our ability to protect our proprietary technologies. We own two patents in the PRC covering our fruit processing technology. The process of seeking patent protection can be lengthy and expensive and we cannot assure you that our existing or future issued patents will be sufficient to provide us with meaningful protection or commercial advantages.
 
 
We also cannot assure you that our current or potential competitors do not have, and will not obtain, patents that will prevent, limit or interfere with our ability to make or sell our products in either the PRC or other countries.
 
The implementation and enforcement of PRC intellectual property laws historically have not been vigorous or consistent, primarily because of ambiguities in PRC laws and a relative lack of developed enforcement mechanisms. Accordingly, intellectual property rights and confidentiality protections in the PRC are not as effective as in the United States and other countries. We might need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation will require significant expenditures of cash and management efforts and could harm our business, financial condition and results of operations. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, competitive position, business prospects and reputation.
 
Intellectual property infringement claims may adversely impact our results of operations.
 
As we develop and introduce new products, we may be increasingly subject to claims of infringement.  If a claim for infringement is brought against us, such claim may require us to modify our products, cease selling certain products or engage in litigation to determine the validity and scope of such claims.  Any of these events may harm our business and results of operations.
 
Risks Related to Doing Business in the PRC
 
We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of such business.
 
We conduct substantially all of our operations and generate most of our revenue in China.  Accordingly, economic, political and legal developments in China will significantly affect our business, financial condition, results of operations and prospects. The PRC economy is in transition from a planned economy to a market oriented economy subject to plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on economic conditions in China. While we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and that business development in the PRC will continue to follow market forces, we cannot assure you that this will be the case. Our interests may be adversely affected by changes in policies by the PRC government, including:
 
  
changes in laws, regulations or their interpretation;
 
  
confiscatory taxation;
 
  
restrictions on currency conversion, imports or sources of supplies;
 
  
expropriation or nationalization of private enterprises; and
 
  
the allocation of resources.
 
Although the PRC government has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in China through the allocation of resources, controlling payments of foreign currency, setting monetary policy and imposing policies that impact particular industries in different ways. We cannot assure you that the PRC government will continue to pursue policies favoring a market oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.
 
PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may harm our business.
 
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. We are considered foreign persons or foreign funded enterprises under PRC laws and, as a result, we are required to comply with PRC laws and regulations. These laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
 
Inflation in the PRC could negatively affect our profitability and growth.
 
Rapid economic growth in the PRC could lead to growth in the money supply and rising inflation. If prices for our products rise at a rate that is insufficient to compensate for the rise in the cost of supplies, it may harm our profitability.
 
In order to control inflation in the past, the PRC government has imposed controls on bank credit, limits on loans for fixed assets and restrictions on state bank lending. Such policies can lead to a slowing of economic growth. In October 2004, the People’s Bank of China, the PRC’s central bank, raised interest rates for the first time in nearly a decade and indicated in a statement that the measure was prompted by inflationary concerns in the PRC economy. Repeated rises in interest rates by the central bank would likely slow economic activity in China, which could, in turn, materially increase our costs and also reduce demand for our products.
 
We could be restricted from paying dividends to stockholders due to PRC laws.
 
We are a holding company incorporated in the State of Florida and do not have any assets or conduct any business operations other than our investments in our subsidiaries and affiliates. As a result of our holding company structure, we rely entirely on dividend payments from Shaanxi Tianren. PRC accounting standards and regulations currently permit payment of dividends only out of accumulated profits, a portion of which is required to be set aside for certain reserve funds. Furthermore, if Shaanxi Tianren incurs debt on its own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. Although we do not intend to pay dividends in the future, our inability to receive all of the revenues from Shaanxi Tianren’s operations may provide an additional obstacle to our ability to pay dividends if we so decide in the future.

 
Governmental control of currency conversion may affect the value of your investments.
 
The PRC government imposes controls on the convertibility of the PRC currency, the renminbi (“RMB”) into foreign currencies and, in certain cases, the remittance of currency out of the PRC. RMB is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to satisfy foreign currency obligations. Under existing PRC foreign exchange regulations, payments of current accounting items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval by complying with certain procedural requirements. Approval from appropriate governmental authorities, however, is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.  In addition, the PRC government could restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain of our expenses as they come due.
 
The fluctuation of the RMB may harm your investments.
 
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into RMB for our operations, appreciation of the RMB against the U.S. dollar would diminish the value of the proceeds of the offering and could harm our business, financial condition and results of operations. Conversely, if we decide to convert our RMB into U.S. dollars for business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of the RMB we convert would be reduced. In addition, the depreciation of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction in the value of these assets.
 
PRC regulations relating to mergers and the establishment of offshore special purpose companies by PRC residents, if applied to us, may limit our ability to operate our business as we see fit.
 
On August 8, 2006, six Chinese regulatory agencies, including the China Securities Regulatory Commission, promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006. This new regulation, among other things, governs the approval process by which a Chinese company may participate in an acquisition of assets or equity interests. Depending on the structure of the transaction, the new regulation will require Chinese parties to make a series of applications and supplemental applications to the government agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with the new regulations is likely to be more time consuming and expensive than in the past and the government can now exert more control over the combination of two businesses. Accordingly, due to the new regulation, our ability to engage in business combination transactions in China has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to us or sufficiently protective of our interests in a transaction.

 
In October 2005, China’s State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75. Circular 75 requires Chinese residents to register with an applicable branch of SAFE before establishing or acquiring control over an offshore special purpose company for the purpose of engaging in an equity financing outside of China that is supported by domestic Chinese assets originally held by those residents. Following the issuance of Circular 75, SAFE issued internal implementing guidelines for Circular 75 in June 2007. These implementing guidelines, known as Notice 106, effectively expanded the reach of Circular 75 by:
 
purporting to regulate the establishment or acquisition of control by Chinese residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership;
 
adding requirements relating to the source of the Chinese resident’s funds used to establish or acquire the offshore entity;
 
regulating the use of existing offshore entities for offshore financings;
 
purporting to regulate situations in which an offshore entity establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China;
 
making the domestic affiliate of the offshore entity responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds; and
 
requiring that the registrant establish that all foreign exchange transactions undertaken by the offshore entity and its affiliates were in compliance with applicable laws and regulations.
 
No assurance can be given that our stockholders who are the residents as defined in Circular 75, and who own or owned shares in the Company, have fully complied with, and will continue to comply with, all applicable registration and approval requirements of Circular 75 in connection with their equity interests in the Company and the Company’s acquisition of equity interests in its China based subsidiaries by virtue of our acquisition of Pacific. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to the Company following the Pacific acquisition, we cannot predict how it will affect our business operations or future strategies. For example, the ability of our present and prospective China subsidiaries to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our Chinese resident beneficial holders. In addition, such Chinese residents may not always be able to complete the necessary registration procedures required by Circular 75. We have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. If our Chinese stockholders or the Chinese stockholders of the target companies we acquired in the past or acquire in the future fail to comply with Circular 75, and if SAFE requires it, they may be subject to fines or legal sanctions, and Chinese authorities could restrict our investment activities in China, limit our subsidiaries’ ability to make distributions or pay dividends, or even unwind the transaction and revoke the right of our subsidiaries to do business in China.

 
Our acquisition of Shaanxi Tianren could constitute a Round-trip Investment under the 2006 M&A Rules.
 
Prior to obtaining the approval from the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) on September 3, 2007 and Xi’an Administration for Industry and Commerce (“AIC”) on October 18, 2007 and prior to the full payment of the purchase price by Pacific for 99% of Shaanxi Tianren’s capital stock (the “Shaanxi Tianren Acquisition”), Shaanxi Tianren was a PRC business some of whose shareholders were PRC individuals including Mr. Hongke Xue, our Chairman of Shaanxi Tianren. After the consummation of the transactions pursuant to which the shareholders of Pacific agreed to exchange 100% of the shares of Pacific for 1,000,000 shares of a newly designated Series A Convertible Preferred Stock of the Company (the “Share Exchange Agreement”) and a simultaneous private placement of $3,400,000 on February 26, 2008 (the “Private Placement”), Shaanxi Tianren received the purchase price for Pacific on August 27, 2008 paid by Pacific by using part of the Private Placement proceeds. When Pacific was incorporated on November 30, 2006 and when the Shaanxi Tianren Acquisition was approved, none of the shareholders of Pacific were PRC citizens. Immediately after the consummation of the Share Exchange Agreement, shareholders of Pacific became shareholders of the Company, including Fancylight Limited (“Fancylight”), our controlling shareholder. To incentivize Mr. Hongke Xue in connection with the continuous development of Shaanxi Tianren’s business, a Call Option Agreement was entered into between Fancylight and Mr. Tao Li on February 25, 2008 (the “Call Option Agreement”), pursuant to which Mr. Hongke Xue has the opportunity to acquire certain “Earn In Shares” from Fancylight, which Earn In Shares comprise a majority of our Common Stock held by Fancylight. Mr. Hongke Xue and Fancylight have also entered into a Voting Trust Agreement, pursuant to which Mr. Hongke Xue has the right to vote the Earn in Shares on Fancylight’s behalf. As a result of exercising the Call Option Agreement and the Voting Trust Agreement, Mr. Hongke Xue has become our controlling shareholder.
 
The PRC regulatory authorities may take the view that the Shaanxi Tianren Acquisition, the Share Exchange Agreement and the Call Option and Voting Trust arrangement are part of an overall series of arrangements which constitute a Round-trip Investment, because at the end of these transactions the same PRC Individual who controlled Shaanxi Tianren became the effective controlling party of a foreign entity that acquired ownership of Shaanxi Tianren. The PRC regulatory authorities may also take the view that the registration of the Shaanxi Tianren Acquisition with Shaanxi Department of Commerce and AIC in Xi’an may not be evidence that the Shaanxi Tianren Acquisition has been properly approved because the relevant parties did not fully disclose to the MOFCOM or AIC the overall restructuring arrangements, the existence of the Share Exchange Agreement and its link with the Shaanxi Tianren Acquisition. If the PRC regulatory authorities take the view that the Shaanxi Tianren Acquisition constitutes a Round-trip Investment under the 2006 M&A Rules, we cannot assure you we may be able to obtain the approval required from MOFCOM.
 
If the PRC regulatory authorities take the view that the Shaanxi Tianren Acquisition constitutes a Round-trip Investment without MOFCOM approval, they could invalidate our acquisition and ownership of Shaanxi Tianren. Additionally, the PRC regulatory authorities may take the view that the Shaanxi Tianren Acquisition constitutes a transaction which requires the prior approval of the China Securities Regulatory Commission, or CSRC, before MOFCOM approval is obtained. We believe that if this takes place, we may be able to find a way to re-establish control of Shaanxi Tianren’s business operations through a series of contractual arrangements rather than an outright purchase of Shaanxi Tianren. But we cannot assure you that such contractual arrangements will be protected by PRC law or that the registrant can receive as complete or effective economic benefit and overall control of Shaanxi Tianren’s business than if the Company had direct ownership of Shaanxi Tianren. In addition, we cannot assure you that such contractual arrangements can be successfully effected under PRC law. If we cannot obtain MOFCOM or CSRC approval if required by the PRC regulatory authorities to do so, and if we cannot put in place or enforce relevant contractual arrangements as an alternative and equivalent means of control of Shaanxi Tianren, our business and financial performance will be materially adversely affected.

 
Because our principal assets are located outside of the United States, it may be difficult for you to use the United States Federal securities laws to enforce your rights against us and our officers and some directors in the United States or to enforce judgments of United States courts against us or them in the PRC.
 
All of our present officers and directors (except directors Norman Ko, Robert B. Fields and CFO and Corporate Secretary Spring Liu, who are residents of the United States) reside outside of the United States. In addition, Shaanxi Tianren is located in the PRC and substantially all of its assets are located outside of the United States. Therefore, it may be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the United States Federal securities laws against us in the courts of either the United States or the PRC and, even if civil judgments are obtained in courts of the United States, to enforce such judgments in the PRC courts. Further, it is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties under the United States Federal securities laws or otherwise.
 
An outbreak of avian influenza, a reoccurrence of Severe Acute Respiratory Syndrome (“SARS”), or another widespread public health problem, could adversely affect our operations.
 
A more widespread outbreak of avian influenza or a renewed outbreak of SARS or any other widespread public health problem in the PRC, where all of our operations are conducted, could have an adverse effect on our operations. If such an outbreak were to occur, our operations may be adversely impacted by a number of health-related factors, including quarantines or closures of some of our offices.
 
Risks Related to Our Common Stock
 
Our officers, directors and their relatives control us through their positions and stock ownership, and their interests may differ from other stockholders.
 
Hongke Xue, the President of Shaanxi Tianren and the brother of Yongke Xue, our director and Chief Executive Officer, is the voting trustee for the benefit of Fancylight Limited (“Fancylight”). As of June 3, 2009, Fancylight beneficially owned approximately 79% of our Common Stock.  Assuming the exercise for cash of all of the New Warrants, Fancylight will beneficially own approximately 61.2%, of our Common Stock.  As a result, our officers and directors and their relatives are generally able to control the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions, such as business combinations. The interests of our directors and officers may differ from other stockholders. Furthermore, the current ratios of ownership of our Common Stock reduce the public float and liquidity of our Common Stock which can, in turn, affect the market price of our Common Stock.
 
We are not likely to pay cash dividends in the foreseeable future.
 
We may not pay cash dividends on our capital stock until February 26, 2011 so long as the Selling Stockholders collectively own 20% of the Series B Stock issued under the Stock Purchase Agreement. Accordingly, we do not expect to pay any cash dividends in the foreseeable future, but will review this policy as circumstances dictate. Should we determine to pay dividends in the future, our ability to do so will depend upon the receipt of dividends or other payments from Shaanxi Tianren. Shaanxi Tianren may, from time to time, be subject to restrictions on its ability to make distributions to us, including restrictions on the conversion of RMB into U.S. dollars or other hard currency and other regulatory restrictions.

 
The release from escrow of the Make Good Escrow Stock due to our failure to achieve certain financial targets in 2009 would dilute the equity interests of existing stockholders.
 
Under the Stock Purchase Agreement, if our consolidated pre-tax income for the fiscal year ending December 31, 2009 is less than RMB 107,004,240 (approximately $15,666,341 based on the exchange rate as of June 30, 2009), then, depending on the amount of the shortfall from such targets, some or all of the Make Good Escrow Stock may be transferred to the Selling Stockholders. If we achieve our income targets in 2009, none of such shares shall be transferred to the Selling Stockholders and such shares will be cancelled. The transfer to the Selling Stockholders of some or all of the Make Good Escrow Stock and the subsequent conversion of such shares into Common Stock would increase the number of outstanding shares of our Common Stock and dilute the equity interests of existing stockholders. The transfer of some or all of the Make Good Escrow Stock to the Selling Stockholders could depress the market price of our Common Stock regardless of whether it is converted into Common Stock.  Our pre-tax income was $4,418,028 for the six months ended June 30, 2009. As July to December is the squeezing season for most of our products, our revenue is usually higher in the last half of the year compared with the first half of the year.  We anticipate that we will reach the target of pre-tax income for fiscal year 2009.
 
Our Common Stock is thinly traded, so you may be unable to sell at or near asking prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
 
Our Common Stock commenced trading on the NYSE Amex Equities effective October 29, 2009.  As a result, there is currently no broadly followed or established trading market for our Common Stock and an established trading market may never develop or be maintained.  Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded.
 
Our Common Stock is currently subject to the “penny stock” rules which require delivery of a schedule explaining the penny stock market and the associated risks before any sale.
 
Our Common Stock is currently subject to regulations prescribed by the SEC relating to “penny stocks.” The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price (as defined in such regulations) of less than $5.00 per share, subject to certain exceptions. These regulations impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 and individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 (individually) or $300,000 (jointly with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of these securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction other than exempt transactions involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market.

 
Our Common Stock is subject to price volatility related and unrelated to our operations.
 
The market price of our Common Stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our Common Stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our Common Stock.
 
A large number of shares will be eligible for future sale and may depress our stock price.
 
This is an offering of 2,700,000 shares of our Common Stock, all of which (assuming the continued effectiveness of the registration statement of which this prospectus supplement is a part) will be freely tradable. Future sales of substantial amounts of Common Stock, or a perception that such sales could occur, and the existence of warrants to purchase shares of Common Stock at prices that may be below the then current market price of the Common Stock, could adversely affect the market price of our Common Stock and could impair our ability to raise capital through the sale of our equity securities in the future.
 
We are authorized to issue “blank check” preferred stock, which may be issued without stockholder approval and which may adversely affect the rights of holders of our Common Stock.
 
We are authorized to issue 10,000,000 shares of preferred stock. Our Board of Directors is authorized under our Amended and Restated Articles of Incorporation to provide for the issuance of shares of preferred stock by resolution, and by filing a certificate of designations under Florida law, to fix the designation, powers, preferences and rights of the shares of each such series of preferred stock and the qualifications, limitations or restrictions thereof without any further vote or action by the stockholders. As of the date of this prospectus supplement, our Board of Directors has designated and issued 1,000,000 shares of Series A Convertible Preferred Stock (the “Series A Stock”), of which no shares are currently issued or outstanding, and has designated 7,000,000 shares of Series B Stock, of which 3,448,480 shares of Series B Stock are currently issued or outstanding, which amount does not include 2,000,000 shares of Series B Stock subject to the Make Good Escrow Stock. Any shares of preferred stock that are issued are likely to have priority over our Common Stock with respect to dividend or liquidation rights. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control, which could have the effect of discouraging bids for the Company and thereby prevent stockholders from receiving the maximum value for their shares. We have no present intention to issue any additional shares of preferred stock in order to discourage or delay a change of control or for any other reason. However, there can be no assurance that preferred stock will not be issued at some time in the future.

 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus supplement and the accompanying prospectus contain forward-looking statements.  All statements other than statements of historical facts contained in this prospectus supplement and the accompanying prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements.  In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words.
 
These forward-looking statements are only predictions.  These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to materially differ from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  We have described in the “Risk Factors” section and elsewhere in this prospectus supplement and the accompanying prospectus the principal risks and uncertainties that we believe could cause actual results to differ from these forward-looking statements.  Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events.
 
The forward-looking statements in this prospectus supplement represent our views as of the date of this prospectus supplement.  We anticipate that subsequent events and developments will cause our views to change.  However, while we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to update any forward-looking statement to reflect events or developments after the date on which the statement is made or to reflect the occurrence of unanticipated events except to the extent required by applicable law.  You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this prospectus supplement.
 
This prospectus supplement and the accompanying prospectus also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this prospectus supplement and the accompanying prospectus, and, accordingly, we cannot guarantee their accuracy or completeness. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.

 
USE OF PROCEEDS
 
We will not receive any proceeds from the sale of the shares of Common Stock underlying the New Warrants, but we will receive $6,885,000 in gross proceeds from the exercise of the New Warrants that are being exercised in connection with the sale of shares that are the subject of this prospectus supplement (not including gross proceeds that would be received upon exercise of New Warrants to cover the overallotment option, if exercised).  These proceeds will be used for general corporate purposes, including acquisitions and other expansions of our current production capacity. See “Certain Relationships and Related Party Transactions – Exchange of February 2008 Warrants for New Warrants” in the accompanying prospectus for a description of the New Warrants.
 
PRICE RANGE OF COMMON STOCK
 
Our Common Stock is currently quoted on the OTC Bulletin Board under the symbol “SPFJ.” The following table sets forth the high and low inter-dealer prices, without mark-up, mark-down or commission, involving our Common Stock during each calendar quarter, and may not represent actual transactions. There is a limited market for our Common Stock.  The last actual trade of our Common Stock occurred on September 29, 2009 at $5.25 per share.
 
2009
 
High
   
Low
 
First quarter
 
$
4.50
   
$
3.75
 
Second quarter
 
$
9.75
   
$
4.125
 
Third quarter (through October 28, 2009)   $ 5.25     $ 5.25  
 
2008
 
High
   
Low
 
First quarter
 
$
14.79
   
$
3.705
 
Second quarter
 
$
9.87
   
$
4.935
 
Third quarter
 
$
8.85
   
$
3.975
 
Fourth quarter
 
$
4.875
   
$
3.375
 

2007
 
High
   
Low
 
First quarter
 
$
19.725
   
$
4.935
 
Second quarter
 
$
29.58
   
$
4.935
 
Third quarter
 
$
34.515
   
$
14.79
 
Fourth quarter
 
$
14.79
   
$
12.33
 

At October 28, 2009, there were 14,847,857 shares of our Common Stock outstanding. Our shares of Common Stock are held by approximately 85 stockholders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of Common Stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
 
On August 31, 2009, the staff of NYSE Regulation’s Corporate Compliance Department, on behalf of NYSE Amex Equities, notified us that it had cleared us to file an original listing application for the listing of our Common Stock on the NYSE Amex Equities. We have filed such original listing application and certain other required documents and are waiting for authorization to list. We anticipate that our Common Stock will be listed upon the consummation of this offering.
 
 
DIVIDEND POLICY
 
We have never declared or paid any cash dividends on shares of our capital stock and are not authorized to do so until February 26, 2011 so as long as the Selling Stockholders collectively own 20% of the Series B Stock issued pursuant to the Stock Purchase Agreement. Furthermore, because we are a holding company, we rely entirely on dividend payments from our primary operating subsidiary, Shaanxi Tianren, which may, from time to time, be subject to certain additional restrictions on its ability to make distributions to us. PRC accounting standards and regulations currently permit payment of dividends only out of accumulated profits, a portion of which must be set aside to fund certain reserve funds. Our inability to receive all of the revenues from Shaanxi Tianren’s operations may in turn provide an additional obstacle to our ability to pay dividends on our Common Stock in the future. Additionally, because the PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC, shortages in the availability of foreign currency may occur, which could restrict our ability to remit sufficient foreign currency to pay dividends.
 
We currently intend to retain any future earnings to finance the development and growth of our business and do not anticipate paying cash dividends on our Common Stock in the foreseeable future, but will review this policy as circumstances dictate. If in the future we are able to pay dividends and determine it is in our best interest to do so, such dividends will be paid at the discretion of the Board of Directors after taking into account various factors, including our financial condition, operating results, capital requirements, restrictions contained in any future financing instruments and other factors the Board deems relevant.

 
 
The following table describes our capitalization as of June 30, 2009. You should read this table together with the consolidated financial statements and related notes appearing at the end of the accompanying prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information included elsewhere in the accompanying prospectus.
 
SHAREHOLDERS’ EQUITY
     
        Preferred B stock, $0.001 par value; 10,000,000 shares authorized, 3,448,480 shares issued and outstanding
 
$
3,448
 
       Common Stock, $0.001 par value; 100,000,000 shares authorized, 22,271,786 shares issued and outstanding
   
222,272
 
        Paid-in capital
   
14,276,470
 
Accumulated retained earnings
   
25,381,483
 
Accumulated other comprehensive income
   
4,434,067
 
        Total stockholders’ equity
   
44,087,740
 
NONCONTROLLING INTEREST
   
1,865,363
 
       Equity
 
$
45,953,103
 

The table above does not include an aggregate of (i) 6,500,000 shares of Common Stock issuable upon exercise of the New Warrants outstanding as of June 30, 2009, at a weighted average exercise or conversion price of $1.70  per share (pre reverse stock split), (ii) an aggregate of 3,448,400 shares of Common Stock issuable upon conversion of an aggregate of 3,448,480 outstanding shares of the Company’s Series B Stock, or (iii) 2,000,000 shares of Common Stock issuable upon conversion of 2,000,000 Shares of Make Good Escrow Stock. The number of shares of Common Stock reported as issued in the above table and the number of shares of Common Stock and the exercise or conversion prices set forth in this paragraph have not been adjusted to reflect the 2 for 3 reverse stock split that the Company intends to effectuate simultaneously with the listing of our Common Stock on the NYSE Amex Equities and the closing of the sale of the Common Stock.

 
SELLING STOCKHOLDERS
 
This prospectus supplement relates to the sale by the Selling Stockholders of shares of our Common Stock underlying New Warrants held by the Selling Stockholders identified in the table below. Each of the Selling Stockholders acquired Series B Stock and the February 2008 Warrants to purchase our Common Stock as an investor in a private placement transaction completed on February 26, 2008.  On June 2, 2009, the Selling Stockholders and the Company entered into and consummated an Exchange Agreement pursuant to which, among other things, the Selling Stockholders were issued the New Warrants.  All of the Common Stock offered hereby is issuable to the Selling Stockholders upon exercise of such New Warrants.
 
The table set forth below lists the names of the Selling Stockholders as well as the number of shares of Common Stock underlying the New Warrants acquired by the Selling Stockholders pursuant to the Exchange Agreement, 2,700,000 of which are being offered hereby. Neither of the Selling Stockholders is a broker-dealer or an affiliate of a broker-dealer. Barron Partners LP, one of the Selling Stockholders, beneficially owned approximately 30.3% of our Common Stock prior to this offering and has engaged in certain transactions with the Company since 2004 which are described in the section of the accompanying prospectus entitled “Certain Relationships and Related Transactions” on page 72 of the accompanying prospectus. Neither of the Selling Stockholders has or has had within the past three years any position, office, or other material relationship with the Company or any of its predecessors or affiliates.
 
Name of Selling Stockholder
 
Total Number and Percentage of Shares of Common Stock Beneficially Owned Prior to the Offering  (1) (2)
 
Number of Shares Offered
Total Number and
Percentage of Shares
Beneficially Owned After the
Offering (2)
Barron Partners LP
   
6,449,314
 (3)
   
30.3
%
  2,620,000 3,829,314  20.5% 
EOS Holdings, LLC
   
183,006
 (4)
   
1.2
%
  80,000   103,006  
_______________________________
* Less than 1%
 
 
 
(1)
As of October 28, 2009, we had outstanding 14,847,857 shares of Common Stock. Under applicable SEC rules, a person is deemed to beneficially own securities which he has the right to acquire within 60 days through the exercise of any option or warrant or through the conversion of another security, and also is deemed to be the “beneficial owner” of a security with regard to which he directly or indirectly has or shares (a) voting power (which includes the power to vote or direct the voting of the security), or (b) investment power (which includes the power to dispose, or direct the disposition, of the security), in each case irrespective of the person’s economic interest in the security. All of the New Warrants and the Stock Purchase Agreement under which the Series B Stock was issued to the Selling Stockholders contain a limitation that the New Warrants or the Series B Stock may not be exercised or converted by the selling stockholder to the extent that upon exercise or conversion the number of shares of the Company’s Common Stock beneficially owned by such selling stockholder and its affiliates would exceed 4.9% of the outstanding shares of Common Stock on such date. Therefore, for purposes of the Selling Stockholder’s obligation to file a Statement on Schedule 13D pursuant to Section 13(d) of the Exchange Act or reports of beneficial ownership or changes in beneficial ownership under Section 16(a) of the Exchange Act, neither Selling Stockholder is deemed to beneficially own more than 4.9% of the Company’s Common Stock. However, for purposes of this prospectus supplement, we have assumed that each Selling Stockholder beneficially owns all shares of Common Stock issuable upon exercise of the New Warrants and conversion of Series B Stock held by such Selling Stockholder. Each Selling Stockholder has the sole investment and voting power with respect to all shares of Common Stock shown as beneficially owned by such Selling Stockholder.
   
(2)
In determining the percent of Common Stock beneficially owned by a Selling Stockholder on October 28, 2009, (a) the numerator is the number of shares of Common Stock beneficially owned by such selling stockholder, including shares the beneficial ownership of which may be acquired within 60 days through the exercise of the warrants, if any, held by that Selling Stockholder, and (b) the denominator is the sum of (i) the 14,847,857 shares of Common Stock deemed outstanding on October 28, 2009, and (ii) the aggregate number of shares of Common Stock that may be acquired by such Selling Stockholder within 60 days upon the conversion of convertible securities and the exercise of the warrants held by the Selling Stockholder.
   
(3)
Consists of 4,205,882 shares of Common Stock issuable upon exercise of currently exercisable New Warrants and 2,243,432 shares of Common Stock issuable upon conversion of Series B stock.  Andrew Worden, Chairman and CEO of Barron Partners, has the power to vote or dispose of the securities offered for resale by Barron Partners.
   
(4)
Consists of 127,450 shares of Common Stock issuable upon exercise of currently exercisable New Warrants and 55,556 shares of Common Stock issuable upon conversion of Series B stock.  Jon Carnes, the President of EOS Holdings, LLC, has the power to vote or dispose of the securities offered for resale by Jon Carnes.
 
 
Under the terms and subject to the conditions contained in an underwriting agreement, we have agreed to sell to the underwriters named below, and each underwriter severally has agreed to purchase the respective number of shares of common stock set forth opposite its name below:

Underwriter
 
Number of Shares
 
Roth Capital Partners
    2,025,000  
Maxim Group LLC
    675,000  
Total
    2,700,000  

The underwriting agreement provides that the obligation of the underwriters to purchase the shares offered hereby is subject to certain conditions and that the underwriters are obligated to purchase all of the shares of Common Stock offered hereby if any of the shares are purchased.
 
If the underwriters sell more shares than the above number, the underwriters have a pro rata option for 30 days to buy up to an additional 405,000 shares from the Selling Stockholders at the public offering price less the underwriting commissions and discounts to cover these sales.

The underwriters propose to offer to the public the shares of Common Stock purchased pursuant to the underwriting agreement at the public offering price on the cover page of this prospectus. After the shares are released for sale to the public, the underwriters may change the offering price and other selling terms at various times.  In connection with the sale of the shares of Common Stock to be purchased by the underwriters, the underwriters will be deemed to have received compensation in the form of underwriting commissions and discounts.
 
The following table summarizes the compensation and estimated expenses we and the Selling Stockholders will pay:
 
   
Per Share
   
Total
 
   
Without
Over-allotment
   
With
Over-allotment
   
Without
Over-allotment
   
With
Over-allotment
 
Underwriting discounts and commissions paid by the Selling Stockholders
  $ 0.18      $ 0.18      $ 486,000      $ 558,900   
Expenses payable by us
  $ 0.13      $ 0.11      $ 350,000      $ 350,000   

We have agreed to pay for all expenses of the offering, except the commissions payable to the underwriters, and have agreed to reimburse Roth Capital Partners for its reasonable and documented out-of-pocket expenses, including, but not limited to, reasonable attorneys' fees and disbursements, up to an aggregate of $70,000.  We estimate that the total expenses of the offering for which we are responsible, which include these reimbursement obligations, as well as our own legal, accounting and printing costs, will approximate $350,000.

Although we will not receive any proceeds from the sale of the shares, the Selling Stockholders must exercise the New Warrants to acquire the shares to be sold, and we will receive $6,885,000 in gross proceeds from the exercise of the New Warrants that are being exercised in connection with the sale of shares that are the subject of this prospectus supplement.

 
We have agreed not to offer, sell, contract to sell or otherwise issue any shares of Common Stock or securities exchangeable or convertible into Common Stock, without the prior written consent of Roth, for a period of 90 days, subject to an 18 day extension under certain circumstances, following the date of this prospectus, subject to certain exceptions. In addition, the Selling Stockholders and our CEO, Yongke Xu, have entered into lock-up agreements with the underwriters. Under those lock-up agreements, subject to exceptions, those holders of such stock may not, directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of or hedge any Common Stock or securities convertible into or exchangeable for shares of Common Stock, or publicly announce to do any of the foregoing, without the prior written consent of Roth, for a period of 90 days, subject to an 18 day extension under certain circumstances, from the date of this prospectus.

Pursuant to the underwriting agreement, we and the Selling Stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments which the underwriters or such other indemnified parties may be required to make in respect of any such liabilities.
 
The underwriters and its affiliates have provided, and may in the future provide, various investment banking, commercial banking and other financial services for us for which services they have received, and may receive in the future, customary fees.
 
Prior to this offering, there has only been a limited market for the Common Stock, which is currently traded on the OTC Bulletin Board under the symbol SPFJ. On August 31, 2009 we received approval to list our Common Stock on NYSE Amex Equities and the shares offered pursuant hereto will be listed thereon.  Because there has not been an effective trading market of substance for our Common Stock, however, the offering price for shares offered hereby, which was negotiated by the Company, the Selling Stockholders and the underwriters, may not necessarily reflect the last reported sale price for our Common Stock or the market price of the Common Stock following the offering.  In addition to recent sale prices for our Common Stock, the following factors were considered in determining the offering price:
 
our current financial condition and results of operations;
 
the prospects for our future earnings;
 
the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and
 
the general condition of the securities markets at the time of the offering.
 
We offer no assurances that the offering price corresponds to the price at which the Common Stock will trade in the public market subsequent to the offering or that an active trading market for the Common Stock will develop and continue after the offering.


In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.  
 
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
 
Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.
 
Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. A naked short position occurs if the underwriters sell more shares than could be covered by the over-allotment option.  This position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
 
Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
 
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be discontinued at any time.
 
This prospectus supplement and the accompanying prospectus may be made available in electronic format on the Internet sites or through other online services maintained by the underwriters participating in the offering or by its affiliates. In those cases, prospective investors may view offering terms online and prospective investors may be allowed to place orders online. Other than the prospectus supplement and the accompanying prospectus in electronic format, the information on the underwriters’ or our website and any information contained in any other website maintained by the underwriters or by us is not part of the prospectus supplement, the accompanying prospectus or the registration statement of which this prospectus supplement and the accompanying prospectus form a part, has not been approved and/or endorsed by us or the underwriters in its capacity as underwriters and should not be relied upon by investors.

 
LEGAL MATTERS
 
The validity of the shares of Common Stock offered by this prospectus supplement and the accompanying prospectus have been passed upon for us by Guzov Ofsink, LLC, New York, New York. Certain matters with respect to the laws of the PRC have been passed upon by Global Law Office.  DLA Piper (US) of Phoenix, Arizona will act as counsel for the underwriters.
 
 
The financial statements appearing in the prospectus and registration statement have been audited by Child, Van Wagoner & Bradshaw, PLLC (“Child, Van Wagoner”), an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
WHERE YOU CAN FIND MORE INFORMATION
 
We have filed with the SEC a registration statement on Form S-1 (File No. 333-149896) under the Securities Act, as amended, with respect to the shares of Common Stock we are offering by this prospectus supplement. This prospectus supplement and the accompanying prospectus do not contain all of the information included in the registration statement. For further information pertaining to us and our Common Stock, you should refer to the registration statement and the exhibits and schedules filed with the registration statement. Whenever we make reference in this prospectus supplement or the accompanying prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.
 
The registration statement and other information may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site (http://www.sec.gov) that contains the registration statements, reports, proxy and information statements and other information regarding registrants that file electronically with the SEC such as us.
 
You may also read and copy any reports, statements or other information that we have filed with the SEC at the addresses indicated above and you may also access them electronically at the web site set forth above. These SEC filings are also available to the public from commercial document retrieval services.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2009

Following is a copy of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009:
 
 
 
S-36

 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
   
For the quarterly period ended June 30, 2009
     
   
OR
     
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
   
For the transition period from ________________ to ________________


Commission file number:  000-32249


SKYPEOPLE FRUIT JUICE, INC.
 (Exact name of registrant as specified in its charter)

Florida
 
98-0222013
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
16F, National Development Bank Tower,
   
No. 2, Gaoxin 1st. Road, Xi’an, PRC
 
710075
(Address of principal executive offices)
 
(Zip Code)

011-86-29-88386415
           (Registrant’s telephone number, including area code)

     N/A    
(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 90 days.
Yes o  No  o

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

 
 

 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer
 
 o
 
 Accelerated filer  
 
 o
 Non-accelerated filer   
(Do not check if a smaller reporting company) 
 o
 
 Smaller reporting company 
 
 x
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No  x
 
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding at August 12, 2009
Common Stock, $0.001 par value per share
Preferred Stock, $0.001 par value per share
 
22,271,786 shares
3,448,480 shares
 

 
 



 

SKYPEOPLE FRUIT JUICE, INC.

INDEX
 
 
Page
     
  1
     
2
     
    Item 1.
2
     
 
2
     
 
3
     
 
4
 
     
 
5
     
    Item 2.
22
     
    Item 3.
35
     
    Item 4.
35
     
   
     
    Item 1.
36
     
    Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 36
     
    Item 3.  Defaults Upon Senior Securities 36
     
    Item 4.  Submission of Matters to a Vote of Security Holders 36
     
    Item 5.  Other Information 36
     
    Item 6. Exhibits 36
     
Signatures    37
Exhibits    
Certifications    
     
 
 
 
SKYPEOPLE FRUIT JUICE, INC.
FORWARD-LOOKING STATEMENTS

The discussions of the business and activities of SkyPeople Fruit Juice, Inc. (“we,” “us,” “our” or “the Company”) set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements and assumptions regarding future activities and results of operations of the Company.  You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plans," “potential," "projects," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend" or the negative of these words or other variations on these words or comparable terminology. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.
 
Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in the most recent Form 10-K filed by the Company. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

      We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.
 

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SKYPEOPLE FRUIT JUICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, UNAUDITED
 
   
June 30,
   
December 31,
 
ASSETS  
2009
   
2008
 
 
 
(Unaudited)
       
CURRENT ASSETS
           
Cash and equivalents
  $ 16,501,866     $ 15,274,171  
Accounts receivable
    7,164,503       11,610,506  
Other receivables
    1,478,751       297,394  
Inventories
    2,250,240       1,844,397  
Prepaid expenses and other current assets
    1,399,869       1,087,076  
                       Total current assets
    28,795,229       30,113,544  
                 
PROPERTY, PLANT AND EQUIPMENT, Net
    19,670,503       20,406,967  
LAND USAGE RIGHTS (Note 9)
    6,314,005       6,404,771  
OTHER ASSETS
    5,013,209       2,362,049  
TOTAL ASSETS
  $ 59,792,946     $ 59,287,331  
                 
LIABILITIES AND EQUITY
               
                 
 CURRENT LIABILITIES
               
        Accounts payable
  $ 1,319,660     $ 663,092  
        Accrued expenses
    856,479       1,657,437  
        Accrued liquidated damages
    -       254,301  
        Related party payables
    -       23,452  
        Income taxes payable
    721,408       1,450,433  
        Advances from customers
    1,425,737       1,375,460  
        Short-term notes payable
    9,516,559       11,256,871  
                   Total current liabilities
    13,839,843       16,681,046  
                 
TOTAL LIABILITIES
    13,839,843       16,681,046  
                 
EQUITY
               
SkyPeople Fruit Juice, Inc. stockholders’ equity:
               
        Preferred Stock, $0.001 par value; 10,000,000 shares authorized 3,448,480 Series B Preferred Stock issued and outstanding as of June 30, 2009 and December 31, 2008, respectively
    3,448       3,448  
        Common Stock, $0.001 par value; 100,000,000 shares authorized 22,271,786 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively
     22,272       22,272  
        Additional paid-in capital
    14,246,470       13,992,169  
        Accumulated retained earnings
    25,381,483       22,468,934  
        Accumulated other comprehensive income
    4,434,067       4,573,143  
                   Total SkyPeople Fruit Juice, Inc. stockholders' equity
    44,087,740       41,059,966  
 Noncontrolling interests
    1,865,363       1,546,319  
       TOTAL EQUITY
    45,953,103       42,606,285  
                 
TOTAL LIABILITIES AND EQUITY
  $ 59,792,946     $ 59,287,331  
 
See accompanying notes to condensed consolidated financial statements.
 

SKYPEOPLE FRUIT JUICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME,
UNAUDITED
 
    Three Months Ended     Six Months Ended
 
 
June 30,
   
June 30,
   
June 30,
   
June 30,
 
 
2009
   
2008
   
2009
   
2008
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
                       
Revenue
  $ 6,197,001     $ 7,245,967     $ 12,868,062     $ 16,096,551  
Cost of Sales
    4,273,595       4,329,370       8,019,754       11,320,336  
Gross Profit
    1,923,406       2,916,597       4,848,308       4,776,215  
                                 
Operating Expenses
                               
            General and administrative
    555,393       438,860       967,297       1,005,844  
            Selling expenses
    101,534       255,300       375,122       496,645  
            Research and development
    276,282       16,418       551,792       23,625  
                    Total operating expenses
    933,209       710,578       1,894,211       1,526,114  
                                 
Income from Operations
    990,197       2,206,019       2,954,097       3,250,101  
                                 
Other Income (Expense)
                               
             Interest expense
    (259,262 )     (386,075 )     (485,658 )     (445,103 )
             Interest income
    31,717       16,801       39,033       22,965  
             Subsidy income
    1,464,879       -       1,552,679       48,778  
             Other income
    357,917       142,102       357,877       332,280  
                     Total other income (expense)
    1,595,251       (227,172 )     1,463,931       (41,080 )
                                 
Income Before Income Taxes
    2,585,448       1,978,847       4,418,028       3,209,021  
                                 
Income Tax Provision
    721,697       180,678       1,215,567       311,198  
                                 
Net Income
    1,863,751       1,798,169       3,202,461       2,897,823  
                                 
Less: Net income attributable to noncontrolling interests
    190,638       134,948       289,912       182,783  
                                 
NET INCOME ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC.
  $ 1,673,113     $ 1,663,221     $ 2,912,549     $ 2,715,040  
                                 
Earnings Per Share:
                               
Basic earnings per share
  $ 0.06     $ 0.06     $ 0.11     $ 0.10  
Diluted earnings per share
  $ 0.06     $ 0.06     $ 0.10     $ 0.10  
                                 
Weighted Average Shares Outstanding:
                               
Basic
    22,271,684       22,271,684       22,271,684       22,188,529  
Diluted
    29,542,529       30,096,324       29,310,927       28,310,157  
                                 
Comprehensive Income:
                               
Net income
  $ 1,863,751     $ 1,798,169     $ 3,202,461     $ 2,897,823  
Foreign currency translation adjustment
    (16,519 )     (123,487 )     (109,944 )     1,296,813  
                                 
Comprehensive Income
  $ 1,847,232     $ 1,674,682     $ 3,092,517     $ 4,194,636  
Comprehensive income attributable to the noncontrolling interest
    (191,490 )     171,352       (319,044 )     123,517  
Comprehensive Income Attributable to SkyPeople Fruit Juice, Inc.
  $ 1,655,742     $ 1,846,034     $ 2,773,473     $ 4,318,153  
 
See accompanying notes to condensed consolidated financial statements.


SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, UNAUDITED
 
   
June 30,
   
June 30,
 
   
2009
   
2008
 
   
(Unaudited)
   
(Unaudited)
 
Cash Flow from Operating Activities
           
Net income
  $ 2,912,549     $ 2,715,040  
Adjustments to reconcile net income to net cash flow provided by operating activities
               
Bad debt expenses
    1,130       -  
Depreciation and amortization
    974,197       931,617  
Earnings attributable to noncontrolling interests
    289,912       182,783  
Changes in operating assets and liabilities, net of acquisition effects
               
  Accounts receivable
    4,432,256       4,767,805  
  Other receivables
    (1,181,728 )     11,829  
  Prepaid expenses and other current assets
    (2,967,925 )     (1,345,081 )
  Inventories
    (407,935 )     2,853,165  
  Accounts payable
    657,335       (2,097,350 )
  Accrued expenses and other current liabilities
    225,064       221,478  
  Advances from customers
    51,829       125,235  
  Taxes  payable
    (1,488,223 )     60,885  
Net cash provided by operating activities
    3,498,461       8,427,406  
                 
Cash Flow from Investing Activities
               
Prepayment for lease improvement
    -       (364,479 )
Deposits to purchase target company
    -       (2,116,313 )
Loan repayment from related parties
    -       5,411,560  
Loan advanced to related parties
    -       (7,096,571 )
Additions to property, plant and equipment
    (177,168 )     (2,702,172 )
Net cash used in investing activities
    (177,168 )     (6,867,975 )
                 
Cash Flow from Financing Activities
               
Proceeds from stock issuance
    -       3,115,072  
Proceeds from bank loans
    6,002,928       11,004,825  
Repayment of bank loans
    (7,730,600 )     (10,553,345 )
Dividend paid to non-controlling interest
    -       (306,300 )
Repayments of related party loan
    -       (147,751 )
Net cash provided by (used in) financing activities
    (1,727,672 )     3,112,501  
                 
Effect of Changes in Exchange Rate
    (365,926 )     375,152  
                 
NET INCREASE IN CASH
    1,227,695       5,047,084  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    15,274,171       4,094,238  
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 16,501,866     $ 9,141,322  
Supplementary Information of Cash Flows
               
Cash paid for interest
  $ 485,658     $ 377,717  
Cash paid for taxes
  $ 1,942,978     $ 858,047  
Purchase of Huludao, offset by related party receivables
  $ -     $ 6,807,472  
                 
See accompanying notes to condensed consolidated financial statements.


SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  
CORPORATE INFORMATION

SkyPeople Fruit Juice, Inc. (“SkyPeople” or the “Company”), formerly Entech Environment Technology, Inc., was formed in June 1998 under the laws of the State of Florida. From July 2007 until February 26, 2008, our operations consisted solely of identifying and completing a business combination with an operating company and compliance with our reporting obligations under federal securities laws.
 
Between February 22, 2008 and February 25, 2008, we entered into a series of transactions whereby we acquired 100% of the ownership interest in Pacific Industry Holding Group Co., Ltd. (“Pacific”) from a share exchange transaction (the “Share Exchange Transaction”) and raised $3,400,000 gross proceeds from certain accredited investors in a private placement transaction. As a result of the consummation of these transactions, Pacific is now a wholly-owned subsidiary of the Company.
 
This Share Exchange Transaction resulted in Pacific obtaining a majority voting and control interest in the Company. Generally accepted accounting principles require that the company whose stockholders retain the majority controlling interest in a combined business be treated as the acquirer for accounting purposes, resulting in a reverse acquisition with Pacific as the accounting acquirer and SkyPeople as the acquired party. Accordingly, the Share Exchange Transaction has been accounted for as a recapitalization of the Company. The equity sections of the accompanying financial statements have been restated to reflect the recapitalization of the Company due to the reverse acquisition as of the first day of the first period presented. All references to Common Stock of Pacific Common Stock have been restated to reflect the equivalent numbers of SkyPeople equivalent shares.
 
Pacific’s only business is acting as a holding company for Shaanxi Tianren Organic Food Co., Ltd.(“Shaanxi Tianren”), a company organized under the laws of the People’s Republic of China (“PRC”), in which Pacific holds a 99% ownership interest.  Shaanxi Tianren is engaged in the business of producing and selling a wide variety of fruit products, including fruit juice concentrates, fruit juice drinks, and fresh fruit and fruit seeds.

Shaanxi Tianren holds a 91.15% interest in Shaanxi Qiyiwangguo Modern Organic Agriculture Co. Ltd. (“Shaanxi Qiyiwangguo”). The acquisition was accounted for using the purchase method, and the financial statements of Shaanxi Tianren and Shaanxi Qiyiwangguo have been consolidated on the purchase date of May 27, 2006 and forward.
 
Shaanxi Tianren also holds a 100% interest in Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”). The payment was made through the offset of related party receivables from Shaanxi Hede Investment Management Co., Ltd. (“Hede”). Before the acquisition, Huludao Wonder had been a variable interest entity of Shaanxi Tianren for accounting purposes according to FASB Interpretation No. 46: Consolidation of Variable Interest Entities, an interpretation of ARB 51 (“FIN 46”), since June 1, 2007, and the financial statements of Shaanxi Tianren and Huludao Wonder have been consolidated as of June 1, 2007 and forward. See Note 13-Related Party Transactions.

On May 23, 2008, we amended the Company’s Articles of Incorporation and changed our name to SkyPeople Fruit Juice, Inc. to better reflect our business. A 1-for-328.72898 reverse stock split of the outstanding shares of Common Stock and a mandatory 1-for-22.006 conversion of Series A Preferred Stock, which had been approved by written consent of the holders of a majority of the outstanding voting stock, also became effective on May 23, 2008.


On June 17, 2009, the Company incorporated a new Delaware corporation called Harmony MN Inc. (“HMN”)  to be a wholly-owned subsidiary of the Company with offices initially in California to act as a sales company for the Company. The total number of shares of capital stock which HMN has authority to issue is 3,000 shares, all of which are Common Stock with a par value of $1.00 per share. On June 20, 2009, HMN was registered in the State of California to transact business in such state.

The Company’s current structure is set forth in the diagram below:
 

*Xi’an Qinmei Food Co., Ltd., an entity which is not affiliated with the Company, owns the other 8.85% of the equity interests in Shaanxi Qiyiwangguo (formerly called Xi’an Tianren Modern Organic Co., Ltd.).

2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statements
 
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). This basis differs from that used in the statutory accounts of our subsidiaries in China, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC. All necessary adjustments have been made to present the financial statements in accordance with U.S. GAAP.

In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Due to the seasonal nature of our business and other factors, interim results are not necessarily indicative of the results that may be expected for the entire fiscal year.

Certain amounts in the 2008 financial statements have been reclassified to conform to the 2009 financial statement presentation. Such reclassification had no effect on net income.

 
Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of SkyPeople, Pacific, HMN, Shaanxi Tianren, Shaanxi Qiyiwangguo and Huludao Wonder. All material inter-company accounts and transactions have been eliminated in consolidation.
 
The pooling method (entity under common control) is applied to the consolidation of Pacific with Shaanxi Tianren and Shaanxi Tianren with Huludao Wonder. The reverse merger accounting is applied to the consolidation of SkyPeople with Pacific.

Economic and Political Risks
 
The Company faces a number of risks and challenges as a result of having primary operations and marketing in the PRC. Changing political climates in the PRC could have a significant effect on the Company’s business.
 
Control by Principal Stockholders
 
The directors, executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the Common Stock of the Company. Accordingly, the directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of the Company and the dissolution, merger or sale of the Company’s assets.
 
Cash and Cash Equivalents
 
For purposes of the statements of cash flows, cash and cash equivalents include cash on hand and demand deposits held by banks. Deposits held in financial institutions in the PRC are not insured by any government entity or agency.

As of June 30, 2009, the cash balance in financial institutions in the United States was $12,835. Accounts at these financial institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At June 30, 2009, the Company had no deposits that were in excess of the FDIC insurance limit.
 
Accounting for the Impairment of Long-Lived Assets
 
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. During the reporting periods there was no impairment loss.

 
Earnings Per Share
 
Basic earnings per Common Stock (“EPS”) are calculated by dividing net income available to common stockholders by the weighted average number of Common Stock outstanding during the period. Our Series B 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
   
Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
NUMERATOR FOR BASIC AND DILUTED EPS
                       
Net income attributable to SkyPeople Fruit Juice, Inc. (numerator for Diluted EPS)
  $ 1,673,113     $ 1,663,221     $ 2,912,549     $ 2,715,040  
Net income allocated to Preferred Stock
    (313,207     (326,989 )     (554,258     (533,777
Net income available to SkyPeople Fruit Juice, Inc. common stockholders (Basic)
  $ 1,359,906     $ 1,336,232     $ 2,358,291     $ 2,181,263  
                                 
DENOMINATORS FOR BASIC AND DILUTED EPS
                               
Common Stock outstanding
    22,271,684       22,271,684       22,271,684       22,188,529  
                                 
    Add:  Weighted average preferred as if converted
    5,128,038       5,448,480       5,236,026       3,745,468  
    Add: Weighted average stock warrants outstanding
    2,142,807       2,376,160       1,803,217       2,376,160  
                                 
DENOMINATOR FOR DILUTED EPS
    29,542,529       30,096,324       29,310,927       28,310,157  
                                 
 EPS – Basic
  $ 0.06     $ 0.06     $ 0.11     $ 0.10  
EPS – Diluted
  $ 0.06     $ 0.06     $ 0.10     $ 0.10  
 

Shipping and Handling Costs
 
Shipping and handling amounts billed to customers in related sales transactions are included in sales revenues. The shipping and handling expenses of $355,496 and $408,095 for the six months ended June 30, 2009 and 2008, respectively, are reported in the Consolidated Statement of Income as a component of selling expenses.
 
Accumulated Other Comprehensive Income
 
Accumulated other comprehensive income represents foreign currency translation adjustments.
 
Trade Accounts Receivable
 
During the normal course of business, we extend unsecured credit to our customers. Accounts receivable and other receivables are recognized and carried at the original invoice amount less an allowance for any uncollectible amount. Allowance is made when collection of the full amount is no longer probable. Management reviews and adjusts this allowance periodically based on historical experience, the current economic climate, as well as its evaluation of the collectability of outstanding accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to management, the Company believed that its allowance for doubtful accounts was adequate as of June 30, 2009. The Company evaluates the credit risks of its customers utilizing historical data and estimates of future performance.
 
Inventories
 
Inventories consist primarily of raw materials and packaging (which include ingredients and supplies) and finished goods (which include finished juice in our bottling and canning operations). Inventories are valued at the lower of cost or market. We determine cost on the basis of the average cost or first-in, first-out methods.

Inventories consisted of:
   
June 30,
2009
   
December 31,
2008
 
Raw materials and packaging
 
$
1,467,364
   
$
611,755
 
Finished goods
   
782,876
     
1,232,642
 
Inventories
 
$
2,250,240
   
$
1,844,397
 
 
Intangible Assets
 
The Company adopted the provisions of 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. The Company has no indefinite lived intangible assets.


Revenue Recognition
 
We recognize revenue upon meeting the recognition requirements of Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition. Revenue from sales of the Company’s products is recognized upon shipment or delivery to its distributors or end users, depending upon the terms of the sales order, provided that persuasive evidence of a sales arrangement exists, title and risk of loss have transferred to the customer, the sales amount is fixed and determinable and collection of the revenue is reasonably assured. More than 69% of our products are exported either through distributors with good credit or to end-users directly. Of this amount, 80% of the revenue is exported through distributors. Our general sales agreement requires distributors to pay us after we deliver the products to them, which is not contingent on resale to end customers. Our credit term for distributors with good credit history is from 30 days to 90 days. For new customers, we usually require 100% advance payment for direct export sales. Advances from customers are recorded as unearned revenue, which is a current liability. Our payment terms with distributors are not determined by the distributor’s resale to the end customer. According to our past collection history, the bad debt rate of our accounts receivables is less than 0.5%. The problem of quality hardly occurs during production, storage and transportation due to our maintenance of strict standards during the entire process. Our customers have no contractual right of the return of products. Historically, we have not had any returned products. Accordingly, no provision has been made for returnable goods. We are not required to rebate or credit a portion of the original fee if we subsequently reduce the price of our product and the distributor still has rights with respect to that product.

Advertising and Promotional Expense
 
Advertising and promotional costs are expensed as incurred. The Company incurred $2,416 and $162 in advertising and promotional costs for the six months ended June 30, 2009 and 2008, respectively.

Estimates
 
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 and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The significant areas requiring the use of management estimates include the provisions for doubtful accounts receivable, useful life of fixed assets and valuation of deferred taxes. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates.
 
Property, Plant and Equipment
 
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment used in production is reported in cost of sales. Property, plant and equipment are depreciated over their estimated useful lives as follows:
 
Buildings
20-30 years
Machinery and equipment
10 years
Furniture and office equipment
5 years
Motor vehicles
5 years 
 
 
   
June 30,
2009
   
December 31,
2008
 
Machinery and equipment
 
$
14,627,338
   
$
14,531,577
 
Furniture and office equipment
   
227,981
     
226,929
 
Motor vehicles
   
194,043
     
194,262
 
Buildings
   
10,301,061
     
8,521,537
 
Construction in progress
   
175,539
     
1,903,418
 
Subtotal
   
25,525,962
     
25,377,723
 
Less: accumulated depreciation
   
(5,855,459
)
   
(4,970,756
)
Net property and equipment
 
$
19,670,503
   
$
20,406,967
 

Depreciation expense included in general and administration expenses for the six months ended June 30, 2009 and 2008 was $227,770 and $364,267, respectively. Depreciation expense included in cost of sales for the six months ended June 30, 2009 and 2008 was $662,880 and $498,624, respectively.

Long-term assets of the Company are reviewed annually to assess whether the carrying value has become impaired according to the guidelines established in Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. No impairment of assets was recorded in the periods reported.

Foreign Currency and Comprehensive Income
 
The accompanying financial statements are presented in U.S. dollars. The functional currency of SkyPeople and Pacific is the U.S. dollar and that of Shaanxi Tianren and its subsidiary is the renminbi (“RMB”) of the PRC. The financial statements are translated into U.S. dollars from RMB at year-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
 
On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/USD exchange rate into a flexible rate under the control of the PRC’s government. We use the closing rate method in currency translation of the financial statements of the Company.

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into U.S. dollars at rates used in translation.
 
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 Statement of Financial Accounting Standards (“SFAS”) No.109, Accounting for Income Taxes, these deferred taxes are measured by applying currently enacted tax laws.
 
The Company has implemented SFAS No.109, Accounting for Income Taxes, which provides for a liability approach to accounting for income taxes. Deferred income taxes result from the effect of transactions that are recognized in different periods for financial and tax reporting purposes. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Accounting for Uncertainty in Income Taxes (“FIN 48”).
 

Restrictions on Transfer of Assets Out of the PRC

Dividend payments by Shaanxi Tianren and its subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by Shaanxi Tianren without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 85% of profits, after tax.
 
Noncontrolling Interests
 
Noncontrolling interests represent the minority stockholders’ proportionate share of 1% of the equity of Shaanxi Tianren and 8.85% of the equity of Shaanxi Qiyiwangguo.

Accounting Treatment of the February 26, 2008 Private Placement
 
The shares held in escrow as Make Good Escrow Shares will not be accounted for on our books until such shares are released from escrow pursuant to the terms of the Make Good Escrow Agreement. During the time such Make Good Escrow Shares are held in escrow, they will be accounted for as contingently issuable shares in determining the diluted EPS denominator in accordance with SFAS 128.
 
Liquidated damages potentially payable by the Company under the Stock Purchase Agreement and the Registration Rights Agreement were accounted for in accordance with Financial Accounting Standard Board Staff Position EITF 00-19-2. Estimated damages at the time of closing were recorded as a liability and deducted from additional paid-in capital as costs of issuance. Liquidated damages determined later pursuant to the criteria for SFAS 5 were recorded as a liability and deducted from operating income.

Our failure to meet the timetables provided for in the Registration Rights Agreement have resulted in the imposition of liquidated damages, which are payable in cash to the Investors (pro rata based on the percentage of Series B Preferred Stock owned by the Investors at the time such liquidated damages shall have been incurred) equal to fourteen percent (14%) of the Purchase Price per annum payable monthly based on the number of days such failure exists, which amount of liquidated damages, together with all liquidated damages that the Company may incur pursuant to the Registration Rights Agreement, the Warrant and the Stock Purchase Agreement, shall not exceed an aggregate of eighteen percent (18%) of the amount of the Purchase Price.

We initially filed with the SEC the registration statement on March 26, 2008, which date was before the filing date deadline of March 30, 2008 in the Registration Rights Agreement, because in the opinion of the counsel to the Company, the Company’s audited financials for the fiscal year 2007 were required to be included in the initial registration statement based on the applicable SEC rules. Therefore, we were required to have the registration statement declared effective by the SEC by July 24, 2008 (within 120 days after the initial filing date). On February 5, 2009, the registration statement was declared effective by the SEC.  We recorded liquidated damages of $254,301 in fiscal year 2008 for failure to meet the timetables provided for in the Registration Rights Agreement.

 
On June 2, 2009, we entered into an Exchange Agreement dated as of May 28, 2009 with Barron Partners L.P. ("Barron") and Eos Holdings LLC ("Eos," and together with Barron, the "Investors"), pursuant to which we issued to the Investors warrants to purchase an aggregate of 6,500,000 shares of Common Stock at a reduced exercise price (the “New Warrants”) in exchange for warrants to purchase an aggregate of 7,000,000 shares of Common Stock which had been issued to the Investors in February 2008 (the “February 2008 Warrants”). In the Exchange Agreement the Investors agreed to release the Company from all liability for damages, including any and all liquidated damages, penalties and interest thereon, relating to any breach or breaches of any obligation of the Company under the Registration Rights Agreement, dated as of February 25, 2008 between the Investors and the Company from the date of execution of such agreement through the date of such release and  the waiver by the Investors of their right to receive up to 2,000,000 additional shares of the Company’s Series B Preferred Stock solely as a result of, and to the extent that, such stock would be deliverable to the Investors because Pre-Tax Income Per Share for the Company’s fiscal year ending December 31, 2009 is reduced as a result of any reduction in net income available to common stockholders for such fiscal year and/or an increase in the weighted average number of shares of common stock outstanding during the period due to the issuance and delivery to the Investors of the New Warrants. We reversed the liquidated damages of $254,301 in the second quarter of fiscal year 2009 to additional paid-in capital that were accrued in fiscal year 2008.
 
Research and Development

 
Shaanxi Tianren established a research and development institution which has 41 research and development personnel as of June 30, 2009. Shaanxi Tianren also from time to time retains external experts and research institutions. The research and development expenses were $551,792 and $23,625 for the six months ended June 30, 2009 and 2008, respectively.

               New Accounting Pronouncements

The FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting  Standards Codification And the Hierarchy of Generally Accepted Accounting Principles, on June 29, 2009 and, in doing so, authorized the Codification as the sole source for authoritative U.S. GAAP. SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September, 15, 2009. Once it’s effective, SFAS 168 will supersede all accounting standards for U.S. GAAP, aside from those issued by the SEC. SFAS No. 168 replaces No. 162 to establish a new hierarchy of GAAP sources for non-governmental entities under the FASB Accounting Standard Codification.

On June 12, 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets and SFAS No. 167, Amendments to FASB Interpretation No. 46(R).  Both standards will be effective at the start of a company’s first fiscal year beginning after November 15, 2009.

SFAS No. 166 is a revision to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  It requires more information about transfers of financial assets, including securitization transactions and the continued risk exposures related to such transfers.  It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.

 
SFAS No. 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights should be consolidated.  The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.  Additional disclosures are also required. The Company does not expect the adoption of SFAS No. 166 and No. 167 to have a significant impact on its financial statements.
 
3.           CONVERTIBLE PREFERRED STOCK

The Series A Convertible Preferred Stock
 
In connection with the Share Exchange Transaction, we designated 1,000,000 shares of Series A Convertible Preferred Stock out of our total authorized number of 10,000,000 shares of Preferred Stock, par value $0.001 per share. Upon effectiveness of the 1-for-328.72898 reverse stock split of the outstanding shares of Common Stock on May 23, 2008, all the outstanding shares of Series A Preferred Stock were immediately and automatically converted into shares of Common Stock without any notice or action required by us or by the holders of Series A Preferred Stock or Common Stock (the “Mandatory Conversion”). In the Mandatory Conversion, each holder of Series A Preferred Stock received twenty two and 62/10,000 (22.0062) shares of fully paid and non-assessable Common Stock for every one (1) share of Series A held (the “Conversion Rate”).
 
Series B Convertible Preferred Stock
 
In connection with the Share Exchange Transaction, we designated 7,000,000 shares of Series B Convertible Preferred Stock out of our total authorized number of 10,000,000 shares of Preferred Stock, par value $0.001 per share. The Series B Convertible Preferred Stock is a participating security. No dividends are payable with respect to the Series B Preferred Stock and no dividends can be paid on our Common Stock while the Series B Preferred Stock is outstanding. Upon liquidation the holders are entitled to receive $1.20 per share (out of available assets) before any distribution or payment can be made to the holders of any junior securities.

The Company also deposited 2,000,000 shares of the Series B Stock into an escrow account to be held by an escrow agent as Make Good Shares in the event the Company’s consolidated pre-tax income and pre-tax income per share, on a fully-diluted basis, for the years ended December 31, 2007, 2008 or 2009 are less than certain pre-determined target numbers.

Upon effectiveness of the Reverse Split, each share of Series B Preferred Stock is convertible at any time into one share of Common Stock at the option of the holder. If the conversion price (initially $1.20) is adjusted, the conversion ratio will likewise be adjusted and the new conversion ratio will be determined by multiplying the conversion ratio in effect by a fraction, the numerator of which is the conversion price in effect before the adjustment and the denominator of which is the new conversion price.

On June 2, 2009, pursuant to the Exchange Agreement that we entered into with the investors, the investors waived their right to receive up to 2,000,000 additional shares of the Company’s Series B Preferred Stock solely as a result of, and to the extent that, such stock would be deliverable to the Investors because Pre-Tax Income Per Share for the Company’s fiscal year ending December 31, 2009 is reduced as a result of any reduction in net income available to common stockholders for such fiscal year and/or an increase in the weighted average number of shares of common stock outstanding during the period due to the issuance and delivery to the Investors of the New Warrants.



4.  
     WARRANTS

The warrants that were issued pursuant to the Stock Exchange Agreement became exercisable after the consummation of a 1-for-328.72898 reverse split of our outstanding Common Stock, which was effective on May 23, 2008, and the 7,000,000 shares issuable upon exercise of such Warrants were not adjusted as a result of such reverse split.
 
On June 2, 2009 the Company and the Investors entered into and consummated an Exchange Agreement, dated as of May 28, 2009, pursuant to which the Investors exchanged all of the February 2008 Warrants for New Warrants with an exercise price of $1.70 per share (which exercise price, in the case of New Warrants to purchase an aggregate of 1,000,000 shares of the Company’s Common Stock, shall be increased to $3.00 per share if the New Warrants are not exercised by September 30, 2009).

5.  
     NOTE PURCHASE AGREEMENT

On February 26, 2008, the Company issued to Barron Partners, L.P. (“Barron Partners”) an aggregate of 615,147 shares of Series B Stock in exchange for the cancellation of all principal and accrued interest aggregating approximately $5,055,418 on certain promissory notes of the Company held by Barron Partners.

On February 22, 2008, the Company issued to Grover Moss an aggregate of 59,060 shares of Common Stock (post split) in exchange for the conversion of principal aggregating $398,000 evidenced by a promissory note dated February 22, 2008.

6.  
ACCQUISITION OF HULUDAO WONDER
 
On June 10, 2008, the Company completed the acquisition of Huludao for a total purchase price of RMB 48,250,000, or approximately U.S. $6,308,591 based on the exchange rate of June 1, 2007.  The acquisition is accounted for according to FASB 141, appendix D, paragraphs 11 to 18, Transactions between Entities under Common Control. When accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer and report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period. 
 
Prior to the June 2008 acquisition, Huludao Wonder was classified as a variable entity of Shaanxi Tianren according to FASB Interpretation No. 46: Consolidation of Variable Interest Entities (“V.I.E.”), an interpretation of ARB 51 (“FIN 46”). FIN 46R requires the primary beneficiary of the variable interest entity to consolidate its financial results with the variable interest entity. The Company had evaluated its relationship with Huludao and had concluded that Huludao Wonder was a variable interest entity for accounting purposes after June 2007 and prior to June 2008.


The following table summarizes the carrying value of Huludao Wonder’s assets and liabilities transfer: 

ASSETS
     
   Cash
  $ 7,567  
   Accounts receivable, net
    2,387,711  
   Other receivables
    29,244  
   Inventory
    57,948  
   Fixed assets
    6,934,219  
   Intangible asset
    3,262,566  
   Other assets
    27,486  
TOTAL ASSETS
  $ 12,706,741  
         
LIABILITIES
       
 Accounts payable
  $ 20,642  
 Other payables
    101,603  
 Loans payable
    6,275,905  
TOTAL LIABILITIES
  $ 6,398,150  
         
 NET ASSETS
  $ 6,308,591  

 7.           INVENTORIES

As of June 30, 2009 and December 31, 2008, inventories consisted of:
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Raw materials and packaging
  $ 1,467,364     $ 611,755  
Finished goods
    782,876       1,232,642  
Inventories
  $ 2,250,240     $ 1,844,397  

8.           INCOME TAX
 
Prior to 2007, the Company was subject to a 33% income tax rate by the PRC. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of FIN 48. Shaanxi Tianren was awarded the status of a nationally recognized High and New Technology Enterprise in December 2006, which entitled Shaanxi Tianren to tax-free treatment for two years starting from 2007. Starting from 2009, Shaanxi Tianren is subject to the regular tax rate of 25% according to the new tax law in China, which was effective on January 1, 2008. In December 2007, the tax rate of Shaanxi Qiywangguo was reduced from 33% to 25%, effective beginning January 2008. The tax rate of Huludao Wonder was also reduced to 25%, effective beginning January 2008. As of result, the Company’s income tax rate in the PRC is effectively 25%.

As the Company had no income generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of June 30, 2009.


The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of FIN 48. The income tax expense was $721,697 and $1,215,567 for the three and six months ended June 30, 2009, respectively, and was $180,678 and $311,198 for the three and six months ended June 30, 2008, respectively. The Company had recorded no deferred tax assets or liabilities as of June 30, 2009  and 2008, since nearly all differences in tax basis and financial statement carrying values are permanent differences.

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2009
   
2008
   
2009
   
2008
 
Income Tax Expenses                        
Current
  $ 721,697     $ 180,678     $ 1,215,567     $ 311,198  
Deferred
    -       -       -       -  
Total
  $ 721,697     $ 180,678     $ 1,215,567     $ 311,198  

9.         LAND USAGE 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, the Company paid in advance for land use rights. Prepaid land use rights are being amortized and recorded as lease expenses using the straight-line method over the use terms of the lease, which were 20 to 50 years. The amortization expense was $83,547 and $68,726 for the six months ended June 30, 2009 and 2008, respectively.

10.         COMMON STOCK

As of June 30, 2009, the Company had 22,271,786 shares of Common Stock issued and outstanding and 3,448,480 shares of Series B Preferred Stock issued and outstanding (2,000,000 shares of the Series B Preferred Stock deposited in the escrow account are not included). Assuming all warrants to purchase 6,500,000 shares of Common Stock with an exercise price of $1.70 per share are exercised and all shares of Series B Preferred Stock are converted, the total number of shares of Common Stock to be issued and outstanding will be 32,220,266.
 
In the first quarter of 2008, the Company issued 31,941 shares of Common Stock as part of the settlement with its prior Chief Executive Officer, Burr D. Northrop, 37,098 shares of Common Stock to Walker Street Associates and its prior director, Joseph I. Emas, respectively, for the professional services that they provided, and 59,060 shares of Common Stock to Grover Moss for the conversion of principal owed by the Company pursuant to a promissory note in the amount of $398,000.
 
On February 26, 2008, the Company issued to Barron Partners an aggregate of 615,147 shares of Series B Stock in exchange for the cancellation of all principal and accrued interest aggregating approximately $5,055,418 on certain promissory notes of the Company held by Barron Partners. The shares issued to Barron Partners were not affected by the 1-for-328.72898 reverse split of our outstanding Common Stock, which was effective on May 23, 2008.

 
In connection with the Share Exchange Transaction in February 2008, the Company designated 1,000,000 shares of Series A Convertible Preferred Stock out of its total authorized number of 10,000,000 shares of Preferred Stock, par value $0.001 per share. In the Mandatory Conversion, each holder of Series A Preferred Stock was entitled to receive twenty two and 62/10,000 (22.0062) shares of fully paid and non-assessable Common Stock for every one (1) share of Series A held. The Company also agreed to issue 2,833,333 shares of a newly designated Series B Convertible Preferred Stock of the Company, par value $0.001 per share and warrants to purchase 7,000,000 shares of the Company’s Common Stock. Upon effectiveness of the Reverse Split on May 23, 2008, all the outstanding shares of Series A Preferred Stock were immediately and automatically converted into 22,006,173 shares of Common Stock. Each share of Series B Preferred Stock will be convertible at any time into one share of Common Stock at the option of the holder, and the Warrants became exercisable immediately after the Reverse Split. The 2,833,333 shares of Series B Convertible Preferred Stock and 7,000,000 shares issuable upon exercise of such Warrants were not adjusted as a result of the Reverse Split.

On June 2, 2009 the Company and the Investors entered into and consummated an Exchange Agreement, dated as of May 28, 2009, pursuant to which the Investors exchanged all of the February 2008 Warrants for New Warrants to purchase an aggregate of 6,500,000 shares of the Company’s Common Stock for $1.70 per share (which exercise price, in the case of New Warrants to purchase an aggregate of 1,000,000 shares of the Company’s  Common Stock, shall be increased to $3.00 per share if the New Warrants are not exercised by September 30, 2009). The Investors also agreed to waive their right to receive up to 2,000,000 additional shares of the Company’s Series B Preferred Stock solely as a result of, and to the extent that, such stock would be deliverable to the Investors because Pre-Tax Income Per Share for the Company’s fiscal year ending December 31, 2009 is reduced as a result of any reduction in net income available to common stockholders for such fiscal year and/or an increase in the weighted average number of shares of common stock outstanding during the period due to the issuance and delivery to the Investors of the New Warrants.

 11.        NOTES PAYABLE

As of June 30, 2009, the balance of the short-term loans totaled RMB 65,000,000 (U.S. $9,516,559 based on the exchange rate on June 30, 2009), with interest rates ranging from 4.86% to 7.52% per annum. These loans were collateralized by land and buildings. These loans are due from September 2009 to June 2010.

Effective January 1, 2008, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”) as it relates to financial assets and financial liabilities. The adoption of SFAS 157 did not have a material effect on our results of operations, financial position or liquidity.

The Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 as of January 1, 2008.  SFAS 159 permits entities to elect to measure many financial instruments and certain other items at fair value. We did not elect the fair value option for the Company’s loans payable. Therefore, valuation of the Company’s loans payable is not affected by the adoption of SFAS 157 and SFAS 159.

 
12.     DIVIDEND PAYMENT
 
On February 4, 2008, before the Share Exchange Transaction, the Board of Directors of Shaanxi Qiyiwangguo declared a cash dividend of RMB 20,553,592, or $2,953,665 based on the average exchange rate for the year ended December 31, 2008, to its former shareholders. Since Shaanxi Tianren holds a 91.15% interest in Shaanxi Qiyiwangguo, RMB 18,734,599 (or $2,692,266) was paid to Shaanxi Tianren and RMB 1,818,993 (or $261,399) was paid to its noncontrolling interest holders. On the same date, the Board of Directors of Shaanxi Tianren declared a cash dividend of RMB 35,200,000 (or $5,058,434 based on the average exchange rate for the year ended December 31, 2008) to its shareholders. Since Pacific holds a 99% interest in Shaanxi Tianren, RMB 34,848,000 (or $5,007,850 based on the average exchange rate for the year ended December 31, 2008) was paid to Pacific and RMB 352,000 (or $50,584 based on the average exchange rate for the year ended December 31, 2008) was paid to its noncontrolling interest holders. The inter-company dividend was eliminated in the consolidated statement. The dividend paid to noncontrolling interest holders was RMB 2,170,993 (or $311,984 based on the average exchange rate for the year ended December 31, 2008).
 
In May 2008, Pacific erroneously paid RMB 34,848,000 (or $5,007,850 based on the average exchange rate for the year ended December 31, 2008) to its former shareholders as the result of a dividend declaration in February 2008. The monies were then returned to the Company in June 2008.
 
13.      RELATED PARTY TRANSACTIONS
 
Yongke Xue, the Chairman of the Board and Chief Executive Officer of the Company, owns 80% of the equity interest of Hede. Xiaoqin Yan, a director of Shaanxi Tianren, owns the remaining 20% of Hede.
 
In January 2008, Shaanxi Tianren paid rental expense of RMB 11,038 (approximately $1,615 based on the exchange rate as of March 31, 2009) to the landlord of Hede’s office space on behalf of Hede.
 
On February 26, 2008, simultaneously with the consummation of the Share Exchange Agreement and Stock Purchase Agreement described herein, pursuant to an oral agreement with the Company and Barron Partners, the Company issued an aggregate of 615,147 shares of Series B Preferred Stock to Barron Partners in exchange for the cancellation of (a) all indebtedness of the Company to Barron Partners under certain outstanding convertible promissory notes issued to Barron Partners during the period from September 30, 2004 to February 2008 to evidence loans made by Barron Partners to the Company for working capital needs in the ordinary course of business, and (b) all liquidated damages payable to Barron Partners (including all amounts as well as any amounts which would become payable in the future as a result of continuing failures) as a result of the failure of the Company to have registered under the Securities Act of 1933, as amended (the “Securities Act”) for resale by Barron Partners the Common Stock of the Company issuable upon conversion of such convertible promissory notes under various registration rights agreements between the Company and Barron Partners entered into in connection with the foregoing loans.

As of August 12, 2009, Barron Partners beneficially owned 10,159,265 shares of the Company’s Common Stock (approximately 31.3% of the Common Stock). The oral agreement with Barron Partners described in the preceding paragraph was approved by the Chief Executive Officer of the Company.

The total amount of principal and accrued interest under all convertible promissory notes that were cancelled aggregated approximately $1,735,286 and the total amount of accrued liquidated damages that were cancelled aggregated approximately $3,320,132. All of the convertible promissory notes bore interest at the rate of 8% per annum and were convertible into shares of Common Stock at a conversion rate of one share of Common Stock for every $8.21822 of principal converted. The registration rights agreements provided for liquidated damages to accrue at the rate of 36% per annum of the note principal in the event that the registration statements to register the underlying shares were not declared effective by the required deadline.

 
The number of shares of Series B Stock that were issued to Barron Partners pursuant to the agreement was determined by dividing the aggregate indebtedness cancelled ($5,055,418) by $8.1822 per share (which was the rate at which one share of Common Stock was issuable for principal under the convertible promissory notes). In lieu of issuing Common Stock, the Company and Barron Partners agreed that Barron Partners would be issued Series B Stock (which upon consummation of the Reverse Split became convertible into Common Stock on a share for share basis).
 
The issuance of the Series B Preferred Stock was accomplished in reliance upon Section 4 (2) of the Securities Act.

14.  
OTHER ASSETS

Other assets as of June 30, 2009 included RMB 20,000,000 (or $2,928,172 based on the average exchange rate of June 30, 2009) of deposits to purchase Yingkou Trusty Fruits Co., Ltd. (“Yingkou”). On June 1, 2008, Shaanxi Tianren entered into a memorandum agreement with Xi’an Dehao Investment Consultation Co. Ltd. (“Dehao”). Under the term of the agreement, Dehao agreed to transfer 100% of the ownership interest of Yingkou to Shaanxi Tianren. Shaanxi Tianren is required to make a refundable down payment of RMB 15,000,000, or approximately $2,196,129 based on the exchange rate of June 30, 2009, to Dehao as a deposit for the purchase. The acquisition is still in the process of being negotiated with Dehao and also a third party market value evaluation is in process. The acquisition is targeted to be completed in the third quarter of fiscal 2009. On May 20, 2009, Shaanxi Tianren entered into another memorandum agreement with Dehao, pursuant to which Shaanxi Tianren is required to make another refundable down payment of RMB 5,000,000, or approximately $732,043 based on the exchange rate of June 30, 2009, to Dehao as a deposit for the purchase and Shaanxi Tianren agreed to complete the acquisition before November 15, 2009.

15.          LIQUIDATED DAMAGES
 
Our registration statement to register for resale an aggregate of 9,833,333 shares of the Common Stock issuable upon conversion of our Series B Convertible Preferred Stock and warrants to purchase Common Stock that we sold to the Investors pursuant to the Stock Purchase Agreement was declared effective by the Securities and Exchange Commission on February 5, 2009.  We accrued liquidated damages payable of $254,301 in fiscal year 2008 due to the failure to meet the timetables provided for in the Registration Rights Agreement with such Investors, which was entered into in connection with the Stock Purchase Agreement.
 
In the second quarter of 2009, we reversed the liquidated damages of $254,301 to additional paid-in capital that were accrued in fiscal year 2008 as a result of  the Exchange Agreement that we entered  into with the Investors on June 2, 2009.
 
 
16.            SUBSEQUENT EVENT
 
 On July 1, 2009, Shaanxi Tianren entered into an Office Purchase Agreement with Zhonghai Trust Co., Ltd. (“Zhonghai”) to purchase 1,426 square meters of office space located on the 16th floor  of the National Development Bank Building, No. 2, Gaoxin 1st RD, Hi-Tech Zone, Xi’an, China. Shaanxi Tianren previously leased this office space from Zhonghai from July 1, 2008 under a one year lease agreement. The total purchase price under the Office Purchase Agreement was RMB 12,070,000 or approximately $1,767,152 based on the exchange rate as of July 30, 2009. Under the terms of the Office Purchase Agreement, Shaanxi Tianren will offset the payment of RMB 1,700,000, or approximately $248,895, of the prepaid rental expenses and rental deposits that Shaanxi Tianren paid to Zhonghai previously, and the balance of RMB 10,370,000 or approximately $1,518,257 will be paid before August 30, 2009, using internally generated funds of Shaanxi Tianren.

In preparing these condensed financial statements the Company has evaluated events and transactions for potential recognition or disclosure through August 14, 2009, the date the condensed financial statements were issued. or are available to be issued.


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and with the information under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on  Form 10-K.

Overview

We are engaged in the production and sale of fruit concentrate, fruit juice beverages, and other fruit related products in and from the PRC.  We export most of the fruit concentrate products we produce, which include apple, pear, and kiwifruit, via distributors to North America, Europe and the Middle East. We also sell our Hedetang branded bottled beverages domestically primarily to supermarkets in certain regions of the PRC. Because the operations of Shaanxi Tianren, which we acquired on February 26, 2008 through our acquisition of Pacific, are the only significant operations of the Company and its affiliates, the business and financial results of Pacific and the Company reflect those of Shaanxi Tianren. As a result, this discussion and analysis focuses on the business results of Shaanxi Tianren, comparing its results in the three months and six months period ended June 30, 2009 with its results in the corresponding period of 2008.
 
Shaanxi Tianren holds a 91.15% interest in of Shaanxi Qiyiwangguo and a 100% interest in Huludao Wonder.

In the second quarter of 2009, our revenue decreased by 14.5% to $6,197,001 compared to $7,245,967 for the same period of last year.  We believe that this decrease was mainly due to a drop in consumer spending in the international market, which was mainly affected by the international financial crisis.

We believe that the following factors should help us overcome the contraction in our revenues experienced in the second quarter of 2009.

First, we believe that the Chinese fruit juice beverages market will experience consistent growth. In 2008, sales in the Chinese fruit juice beverage market were about RMB50 billion (approximately $7.3 billion based on the exchange rate as of March 31, 2009), which represented an increase of approximately 10% over sales in 2007 according to China International Intelligence. Our revenue from the sales of our fruit juice beverages in the Chinese market increased 43.4% to $1,442,747 in 2008 compared to $1,006,158 in 2007. We believe that the fruit juice beverage market is a high-growth market in China because of growing personal income and an increase in health awareness.

Secondly, we have plans for new acquisitions and further expansion of our current production capacity over the next two years. Planned expenditures for land and equipment are approximately $45.7 million for the next two years. Of this amount, $19.2 is for the expansion of Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd. ("Shaanxi Qiyiwangguo"), $10.8 is for the expansion of the factory owned by Huludao Wonder, $7.8 million is for the expansion of the Jingyang factory owned by Shaanxi Tianren, $3.3 million is for the acquisition of Yingkou Trusty Fruits Co., Ltd. (“Yingkou”), and $4.6 million is for the expansion of Yingkou’s facilities. Yingkou will specialize in the production of concentrated apple juice. It is located in Liaoning Province in China. Its factory is still in the process of construction and expansion and Yingkou has had no revenue to date. Our plans to acquire and expand Yinkou and expand the facilities owned by Huludao Wonder and Shaanxi Tianren are designed to increase our production of apple and pear related products. Our expansion of Shaanxi Qiyiwangguo’s facility is to increase our production of kiwifruit and mulberry related products.

 
Finally, we plan to continue to focus on creating new high margin products in the future to supplement our current product line.   Our research and development expenses increased by $259,864 to $276,282 for the second quarter ended June 30, 2009 from $16,418 for the same period of fiscal 2008, as we entered into two contracts with an outside research institute to research and develop new products in fiscal year 2008.  We believe that the new products will provide us a higher margin because of less competition in these new product areas.

On June 17, 2009, we incorporated a new Delaware corporation called Harmony MN Inc. (“HMN”)  to be a wholly owned subsidiary of the Company with offices initially in California to act as a sales company for the Company. The total number of shares of capital stock which HMN has authority to issue is 3,000 shares, all of which are Common Stock with a par value of $1.00 per share. On June 20, 2009, HMN was registered in the State of California to transact business in such state.

Below is the Company’s corporate structure:


*Xi’an Qinmei Food Co., Ltd., an entity which is not affiliated with the Company, owns the other 8.85% of the equity interests in Shaanxi Qiyiwangguo.


We produce and sell fruit concentrate and fruit juice beverages. We usually produce our core products such as apple, pear, and kiwifruit concentrate from August to March of each year. The squeezing season for (i) apples is from August to March or April of the following year; (ii) pears is from July or August until March of the following year; and (iii) kiwifruit is from September through December of each year. In the first quarter of 2009, we developed a fruit vinegar beverage that tested very well in the market. We currently offer our fruit vinegar beverage for two fruits; kiwifruit and mulberry fruit. We introduced these products in the first quarter of 2009. Our non-concentrate products, such as fruit juice beverages, are sold and produced in all seasons. The ability to produce fruit juice beverages is important when fresh fruit is out of season and fruit concentrate cannot be produced.  Our range of products and production flexibility allows us to diversify our operational risks and supplement our revenue.  Fruit concentrate comprised 51% of revenue in the six months ended June 30, 2009, fruit juice beverages made up 35%, fruit vinegar made up 11% and the remaining 3% of revenue consisted of sales of fresh fruit and other products.

We own and operate three manufacturing facilities in China; two facilities are located in Shaanxi Province and one facility is located in Liaoning Province. Our raw materials mainly consist of apples, pears and kiwifruit. Fresh fruit is the primary raw material needed for the production of our products. The purchase of fresh fruit represented over 51% of our production cost in fiscal year 2008. China has the largest planting area of apples and kiwifruit in the world. Our kiwifruit processing facilities are located in Zhouzhi County, Shaanxi Province, which has the largest planting area of apples and kiwifruit in China. Shaanxi is also the main pear producing province in China. The pear supply can meet our production requirements. We source our apple supply mainly from Liaoning Province, China’s epicenter for high acidity apples, which can supply enough apples to meet our Liaoning factory’s production needs. Because of the seasonal nature in the growing and harvesting of fruits and vegetables, our business is seasonal and can be greatly affected by weather.

We believe that continuous investment in research and development is a key component to becoming a leader in fruit concentrate and fruit juice beverage quality. We have an internal research and development team of approximately 41 people, and we retain external experts and research institutions for additional consultation. Our research and development effort emphasizes the design and development of our processing technology with the goal of decreasing processing costs and optimizing our production capabilities.  We intend to continue to invest in research and development to respond to and anticipate customer needs.  For the six months ended June 30, 2009 and 2008, our research and development expenses were $551,792 and $23,625, respectively.

To take advantage of economies of scale and to enhance our production efficiency, each of our manufacturing facilities has a focus on juice products centering around one particular fruit according to the proximity of such manufacturing to the supply center of that fruit. Producing multi-fruit concentrate and beverage blends is more costly and time consuming. This strategy allows us to maximize our output and minimize our cost. Our production lines use essentially the same processing method with a few slight variations. Since June 2007, after we leased the production facilities of Huludao Wonder, we have been operating our pear juice products business out of our Jingyang Branch Office. Our business involving apple juice products is operated out of the facilities of Huludao Wonder, and our business involving kiwifruit products is run out of Shaanxi Qiyiwangguo Modern Organic Co., Ltd. (“Shaanxi Qiyiwangguo”), in which we have held a 91.15% ownership interest since May 2006.

On June 10, 2008, we completed the acquisition of Huludao Wonder for a total purchase price of RMB 48,250,000, or approximately U.S. $6,308,591 based on the exchange rate of June 1, 2007. The payment was made through the offset of related party receivables.

Besides concentrated juice products, we generate other revenue from sales of pear juice, apple juice, kiwifruit seeds, organic kiwifruit, fresh kiwifruit, kiwifruit juice, mulberry juice, and apple spice.

The supply of our raw material fruits has traditionally been fragmented, as we generally purchase directly from farmers. In addition, because the prices of raw material fruits change from season to season based on the output of the farms, we do not have long-term supply agreements with our suppliers. To secure our fruit supply and lower transportation costs, our processing facilities are strategically located near the various centers of fruit supply.

  
Shaanxi Tianren is permitted by the relevant governmental authorities to directly export our products. More than 69% of our products are exported either through distributors with good credit or to end-users directly. Our distributors are generally domestic export companies. Although we generally renew our distribution agreements with our distributors on a yearly basis, we maintain a long-term relationship with our distributors. Our main export markets are the Unite