424B1 1 sp424b-aug2010.htm 424(B)(1) sp424b-aug2010.htm
 
PROSPECTUS
Filed pursuant to Rule 424(b)(1)
Registration Statement No. 333-166194
 
SkyPeople Fruit Juice, Inc
 
5,181,285 Shares of Common Stock
___________________________________________________________________
 
We are offering 5,181,285 shares of our Common Stock. As of April 30, 2010, our Common Stock is listed on the NASDAQ Global Market and trades under the symbol "SPU."   Previously, our Common Stock was listed on the NYSE Amex Equities and traded under the symbol "SPU." 
 
The last reported market price of our Common Stock on August 24, 2010 was $5.86. 
             
   
Per Share
   
Total
 
         
Public offering price
  $ 5.00     $ 25,906,425  
Underwriting discounts and commissions
  $ 0.25     $ 1,295,321  
Proceeds to us, before expenses (1)
  $ 4.75     $ 24,611,104  
 
(1) See “Underwriting” for a description of compensation payable to the underwriter.
 
___________________________________________________________________
 
      Investing in our Common Stock involves a high degree of risk.  See “Risk Factors” beginning on page 14 for a discussion of information that should be considered in connection with an investment in our securities.  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.
 
We have granted a 45 day option to Rodman & Renshaw, LLC, the underwriter, to purchase up to an additional 777,193 shares of our Common Stock from us on the same terms set forth above.  If the underwriter exercises its right to purchase all of such additional shares of Common Stock, we will receive gross proceeds of approximately $29.8 million from the sale of the shares of Common Stock being offered and net proceeds of $27.8 million after deducting approximately $2.1 million for underwriting discounts and commissions and estimated offering expenses, based on the public offering price of $5.00 per share of our Common Stock.  The shares issuable upon exercise of the underwriter option are identical to those offered by this prospectus and have been registered under the registration statement of which this prospectus forms a part.
 
The underwriter expects to deliver the shares of Common Stock to purchasers on August 30, 2010.
 
Rodman & Renshaw, LLC
 
 
The date of this prospectus is August 26, 2010
 
 

 
 
     
 
 
 
 

 

TABLE OF CONTENTS
 
ii
1
11
12
15
34
36
37
38
39
68
91
93
95
99
103
108
118
118
118
118
120
121
F-1
 
You should rely only on the information contained in this prospectus.  We have not authorized anyone to provide you with information other than that contained in this prospectus.  The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of its delivery or of any sale of our Common Stock.  This prospectus will be updated and, as updated, will be made available for delivery to the extent required by federal securities laws.
 
No person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities offered hereby or any matter discussed in this prospectus, other than the information and representations contained in this prospectus.  If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.  This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy the securities in any circumstance under which the offer or solicitation is unlawful.  Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus.  This prospectus will be updated and updated prospectuses will be made available for delivery to the extent required by the federal securities laws.
 
 
 
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
 
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward looking statements give our current expectations or forecasts of future events.  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 and include statements regarding, among other things, our projected sales, profitability and cash flows, our growth strategies, anticipated trends in our industries, our future financing plans and 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 the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus 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 prospectus 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 the section entitled “Risk Factors” and matters described in this prospectus generally.  In light of these risks and uncertainties, there can be no assurance that the forward looking statements contained in this prospectus will in fact occur.  You should not place undue reliance on these forward looking statements.
 
Currency
 
Unless otherwise noted, all currency figures in this filing are in U.S. dollars.  References to “yuan” or “RMB” are to the Chinese yuan (also known as the renminbi).  According to xe.com, as of August 13, 2010, $1 = 6.79712 yuan.
 
Third Party Data
 
This prospectus also contains estimates and other information concerning our industry, including market size and growth rates, that are based on industry publications, surveys and forecasts, including those generated by The Beverage Digest, Beijing Business & Intelligence Consulting Co. Ltd., Agricultural Marketing Resource Center, Global Industry Analysts, Inc. and Chinese General Administration of Customs.  This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates.  Although we believe the information in these industry publications, surveys and forecasts is reliable, we have not independently verified the accuracy or completeness of the information.  The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.”
 
Over-Allotment Option
 
Unless otherwise indicated, information in this prospectus assumes that the underwriter does not exercise its option to purchase additional shares.

 
 
 
 
This summary highlights information contained elsewhere in this 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 carefully, especially the section entitled “Risk Factors” and our consolidated financial statements and the related notes appearing at the end of this prospectus before making an investment decision.  Unless the context otherwise requires, we use the terms “the Company,” “we,” “us” and “our” in this prospectus to refer to SkyPeople Fruit Juice, Inc., or SkyPeople, and its direct and indirect subsidiaries, which include (i) Pacific Industry Holding Group Co., Ltd., or Pacific,  a company organized under the laws of the Republic of Vanuatu and a wholly owned subsidiary of SkyPeople, (ii) Harmony MN Inc., or HMN, a company organized under the laws of Delaware and a wholly owned subsidiary of SkyPeople, (iii) SkyPeople Juice Group Co., Ltd., or SkyPeople (China), a company organized under the laws of the People’s Republic of China, or the PRC, and a 99% owned subsidiary of Pacific, (iv) Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd., or Qiyiwangguo,  a company organized under the laws of the PRC and a 91.15% owned subsidiary of SkyPeople (China), (v) Huludao Wonder Fruit Co., Ltd., or Huludao Wonder, a company organized under the laws of the PRC and wholly owned subsidiary of SkyPeople (China) and (vi) Yingkou Trusty Fruits Co., Ltd., or Yingkou, a company organized under the laws of the PRC and a wholly owned subsidiary of SkyPeople (China).  All share and per share information concerning our Common Stock reflects a 1-for-328.72898 reverse stock split which became effective on May 23, 2008 and, unless the context indicates otherwise, a two-for-three reverse stock split which became effective on October 29, 2009, or the two-for-three reverse split.
 
Company Overview
 
Through our indirect subsidiaries in the People’s Republic of China (“PRC,” or China), we are engaged in the production and sales of fruit juice concentrates (including fruit purees, concentrated fruit purees, and concentrated fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages), and other fruit related products (including primarily organic and non-organic fresh fruits, kiwifruit seeds and apple aroma) in and from the PRC.  Our fruit juice concentrates, which include apple, pear, kiwifruit and, starting from the second quarter of 2010, turnjujube concentrates, are sold to domestic customers, including end users and, currently, one distributor in Beijing, and exported directly or via distributors.  Since we sell to distributors in the PRC and therefore are not certain exactly where our exported fruit juice concentrated products are ultimately sold, we estimate that our products are exported to North America, Europe, Russia, South Korea and the Middle East.  We sell our Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the PRC.
 
In fiscal year 2009, sales of our fruit concentrates, fruit beverages and other fruit related products represented 61%, 17%, and 22% of our revenue, respectively, compared to 78%, 13% and 9% in fiscal year 2008 and 84%, 12% and 4% in 2007, respectively. Sales of our fruit concentrates, fruit beverages and other fruit related products represented approximately 58%, 25%, and 17% of our revenue, respectively, for the six months ended June 30, 2010, compared to approximately 51%, 45% and 4%, respectively, for the same period of 2009.  For the six months ended June 30, 2010, our total sales reached $31,118,079, an increase of $18,250,017, or 141.8%, compared to $12,868,062 for the same period of 2009.
 
Specialty fruit juices, or small breed fruit juice, are juices squeezed from fruits that are grown in relatively small quantities such as kiwifruit juice, mulberry juice, and pomegranate juice, and juices with small output due to various factors including technical challenges in the production process even though the fruits from which the juices are made are grown in large quantities and commonly available, such as pear. Currently, our specialty juice beverage offering includes kiwifruit, pear and mulberry related juice products.  In May 2010, we added concentrated turnjujube juice to our specialty juice product offering. We are in the process of applying for patents in the PRC for a technology to produce concentrated persimmon juice and a technology to produce concentrated turnjujube juice. We believe that we are currently one of the few companies able to produce specialty fruit juices on a large scale in the PRC and we believe we are a leading specialty fruit juice producer in the PRC.
 
 
 
 
   
     In 2009, we produced 37,687 tons of fruit juice concentrate, 24,640,690 bottles of fruit juice beverage and 8,922 tons of fresh and other fruit related products compared with 21,591 tons of fruit juice concentrate, 13,939,084 bottles of fruit juice beverages and 5,984 tons of fresh and other fruit related products in 2008.  In the six months ended June 30, 2010, we produced 14,522 tons of fruit juice concentrate, 19,195,658 bottles of fruit juice beverage and 2,128 tons of fresh and other fruit related products compared with 6,892 tons of fruit juice concentrate, 14,598,906 bottles of fruit juice beverages and 1,192  tons of fresh and other fruit related products in the same period of 2009.
 
    Our revenue has increased significantly from 2006 to 2009 with revenue of approximately $17.4 million in 2006, approximately $29.4 million in 2007, approximately $41.7 million in 2008 and approximately $59.2 million in 2009.  Our revenue increased to $31.1 million for the six months ended June 30, 2010, an increase of $18.2 million or 141.1% as compared to $12.9 million for the same period of 2009.  We intend to expand our current production facilities and consider acquisition opportunities in the fruit product industry to increase our fruit processing capacity and our annual yield to meet what we believe will be increasing customer demand.
 
Industry and Market Overview
 
The fruit juice processing industry is an emerging industry.  Consumption of fruit juice beverages has grown and sales have increased rapidly in recent years due to the increasing health consciousness of consumers and the natural and healthy quality of fruit juice beverages.  Global Industry Analysts, Inc. reported in the “Fruit & Vegetable Juices Market: A Global Strategic Business Report” that the global market for fruit and vegetable juice beverages is forecast to reach 53 billion liters by 2010 with markets in North America and Europe representing approximately 60% of the market and the Asian-Pacific markets experiencing the fastest growth. According to the Fruit Juice Segment of the PRC Food and Agriculture Export Association (www.Chinajuice.org), from 2003 to 2007, the output of fruit juice concentrates and fruit beverages in the PRC increased from 3,100,000 tons to 10,800,000 tons.  In 2008, the PRC exported approximately 692,900 tons of concentrated fruit juice, a decrease of 34% compared to 2007, which was due primarily to the worldwide economic recession. However, as the world economy began to recover, the PRC exported approximately 795,700 tons of concentrated apple juice in 2009, an increase of 15% compared to 2008.
 
The PRC has the world’s largest population, but the domestic consumption of fruit beverages is relatively low. According to the report “Investment in China Fruit Juice Beverages Business and Forecast for 2010 to 2015” published by the China Investment Consultants, the annual per capita consumption of fruit beverages in the PRC only accounted for 10% of the average world per capita consumption and 2.5% of the average per capita consumption in the industrialized countries. We believe that the increasing health consciousness of consumers and quality of living powered by the PRC’s economic growth will continue to fuel the demand for our fruit juice products.
 
Industry Challenges
 
    Rapid growth in the fruit processing industry in the PRC 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:
 
●     ensure access to raw materials to adequately meet planned processing capacities and annual yield;
●     respond quickly to market supply and demand and effectively introduce new products to the market; and
●    maximize processing capacity and annual yield without significantly increasing cost of sales or compromising product quality.
 
 
Our Strengths
 
Strategic Location, Raw Materials Control and Resource Advantages
 
We operate  three factories and are constructing a fourth factory in the PRC. To take advantage of economies of scale and to enhance our production efficiency, each of our manufacturing facilities has a focus on producing single fruit based concentrates and beverages according to the proximity of such manufacturing facility to the supply center of that fruit. All concentrated juice products are manufactured using the same type of production line with slight variations in processing methods. We operate our pear juice products business out of our Jingyang Branch Office of SkyPeople (China). Our business involving apple juice products is operated out of Huludao Wonder, a wholly owned subsidiary of SkyPeople (China), and our business involving kiwifruit products is operated out of Qiyiwangguo, in which we have held a 91.15% ownership interest since June 2006.  On November 25, 2009, we acquired Yingkou pursuant to the Stock Purchase Agreement that SkyPeople (China) entered into with Xi’an Dehao Investment & Consulting Co., Ltd. on November 18, 2009. Yingkou is expected to commence operation in late August of 2010. Upon operation, Yingkou will produce apple concentrate.
 
The PRC has the largest planting area of kiwifruit and apples in the world.  Shaanxi Province, the location of two of our factories, has the largest planting area of kiwifruit and apples in the PRC.  In 2009, the kiwifruit planting area in Shaanxi Province was approximately 99,000 acres, which constituted approximately 30% and 60% of the worldwide and the PRC kiwifruit planting areas, respectively. The apple planting area in Shaanxi Province was 15 million acres, and the output was 8.15 million tons in 2008, which was approximately 33% and 11% of the national and worldwide output, respectively.  Pear, pomegranate, strawberry, peach and cherry yields are also generally high in Shaanxi Province.  Liaoning Province, the location of our Huludao Wonder factory, abounds with high acidity apples in the PRC. Other raw materials used in our business include pectic enzyme, amylase, auxiliary power fuels and other power sources such as coal, electricity and water.
 
Equipment, Technology and Quality Advantages
 
We believe one of our competitive advantages is the modern equipment and technology employed at our production factories in Shaanxi and Liaoning Provinces. We purchase our key production equipment from top ranking foreign equipment manufacturers which helps us ensure product quality, control processing costs and meet tougher international juice standards such as ISO9001, Hazard Analysis and Critical Control Points, or HACCP and Kosher.
 
We currently possess seven proprietary technologies in fruit juice production. Among these seven proprietary technologies, we have obtained two patents in the PRC and are in the process of applying for patents in the PRC for the other five technologies. Our patents relate to crushing fruits and fruit skin and seed removal and removal of dirt and fruit hair from fruit skin. These two patented technologies are used in kiwifruit processing, which differentiates us from other competitors. We have also adopted some advanced technology in the industry, such as flow-through capacitor membrane, low temperature reverse osmosis concentration, cold breakdown process and the technology of resin discoloring.
 

    Our proprietary processes give us the ability to produce specialty fruit juices, or small breed fruit juice, which is another of our competitive advantages. Specialty fruit juices, or small breed fruit juice, are juices squeezed from fruits that are grown in relatively small quantities such as kiwifruit juice, mulberry juice, and pomegranate juice, and juices with small output due to various factors including technical challenges in the production process even though the fruits from which the juices are made are grown in large quantities and commonly available, such as pear. Currently, our specialty juice beverage offering includes kiwifruit, pear and mulberry related juice products.  In May 2010, we added concentrated turnjujube juice to our specialty juice offering. In addition, we have technologies to produce concentrated persimmon juice and concentrated orange juice, even though we do not currently offer these products primarily because of the constraint of our production capacity.  Our technology allows us to develop and produce beverages, such as our new mulberry and kiwifruit cider beverages, which we introduced in the Chinese market in the first quarter of 2009.   We believe these new beverages have higher gross margins than that of the industry average.
 
Product Diversity
 
Our products include fruit juice concentrates and fruit juice beverages from apples, pears, kiwifruit, tumjujube and mulberries.  We also sell organic fresh fruit, kiwifruit seed and apple aroma.  Our range of products and production flexibility help us compete in international markets, lessen risks associated with commodity prices, seasonality and consumer preferences and supplement our revenue.  In fiscal year 2009, sales of our fruit concentrates, fruit beverages and other fruit related products represented 61%, 17%, and 22% of our revenue, respectively, compared to 78%, 13% and 9% in fiscal year 2008.  For the six months ended June 30, 2010, sales of our fruit concentrates, fruit beverages and other fruit related products represented approximately 58%, 25%, and 17% of our revenue, respectively, as compared to approximately 51%, 45% and 4%, respectively, for the same period of 2009.
 
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 juice beverage industry.  We have established good relationships with a scientific research institute and experienced consultants that we believe have been instrumental to our growth.
 
Our Strategy
 
We have a multi-pronged growth plan to respond to market opportunities.
 
Increase Our Capacity
 
We intend to continue to expand the production capacity of our three existing manufacturing facilities.  We are in the process of constructing our fourth manufacturing facility. We also intend to consider acquisition opportunities in order to further expand capacity.  We believe there are attractive acquisition opportunities which could allow us to further increase our fruit concentrate and fruit juice beverage market share.
Chinese Government Support
 
The PRC government’s agricultural industrialization policy supports our business.  SkyPeople Juice Group Co., Ltd. (formerly known as Shaanxi Tianren Organic Food Co., Ltd.), or SkyPeople (China), a 99% owned subsidiary of our wholly owned subsidiary, Pacific Industry Holding Group Co., Ltd., or Pacific, was awarded the status as a nationally recognized High and New Technology Enterprise in December 2006.  We recorded subsidy income from different levels of the Chinese government of approximately $2,169,380 and $316,152 in 2009 and 2008, respectively, and approximately $2,248,405 and $1,552,679 in the six months ended June 30, 2010 and 2009, respectively.  We used such government subsidies to pay for research and development expenses and other operational activities.  Even though we have enjoyed government support and subsidies in the past, we can not assure you that we will continue to be eligible for government grants or other forms of government support, or, that if we are eligible, we will continue to obtain the same level of subsidies.
 
Diversify Our Products
 
We plan to broaden our fruit product offerings in order to further diversify our product mix.  We expect our strategic focus to be on expanding into fruits with harvesting seasons complementary to our current fruits.  This will enable us to lengthen our squeezing season, thus increasing our annual production of fruit concentrates and fruit juice beverages.  In the first quarter of 2009, we introduced mulberry and kiwifruit cider beverages in the Chinese market.  In addition, we intend to enhance our research and development activities in order to develop and produce innovative high margin products like polyphenol, an antioxidant compound with health benefits, from concentrated fruit juice to further diversify our product mix and increase our revenue.  In May 2010, we added concentrated turnjujube juice to our product offering by entering into a supply agreement with a pharmaceutical company to supply concentrated turnjujube juice for use in the manufacturing of select Chinese medicines.
 
Enlarge Our Worldwide Customer Base
 
We intend to strive to expand our worldwide customer base by strengthening current relationships with distributors and end users in our existing markets.  We also plan to expand upon our customer base by developing new relationships with strategic distributors and end users in markets we have not yet penetrated and adding direct customers in North America.
 
Focus on Improving Gross Margins
 
We plan to continue to focus on creating new high margin products in the future to supplement our current product offering.  We introduced a new kiwifruit concentrated juice product to the market in the fourth quarter of 2008.  The gross margin on our kiwifruit concentrate juice product was 47.3% in 2009, which we believe was higher than the average gross margin for the industry, primarily due to the efficiencies of certain of our proprietary kiwifruit juice making processes.  In addition, we are making efforts to improve margins for our fruit beverages.  In the first quarter of 2009, we developed and introduced a fruit cider beverage that tested well in the market.  The gross margin of our fruit cider beverages was 48.6% for 2009, versus an average gross margin of 28% for our pure fruit beverages during the same period.  In July 2009, we set up a Vegetable and Fresh Fruits Division to promote the sales of fresh kiwifruit in the PRC domestic market.  Revenue from sales of fresh kiwifruit in 2009 was $11.8 million, an increase of $9.5 million, or 406.2%, as compared to revenue of $2.3 million in 2008. The gross margin of our fresh fruits was 49.2% for 2009,  as compared to 64.4% for 2008, primarily due to an increase in the price we paid for higher quality fruit that we sold in the domestic PRC market. However, this gross margin is still higher than our average gross margin for fruit juice concentrates and fruit beverages.

 
Broaden Geographic Presence of Brand Name
 
We estimate 22% and 34% of our sales in 2009 and 2008, respectively, were generated from markets other than the PRC.  Since we sell to distributors in the PRC and therefore are not certain exactly where our exported fruit juice concentrated products are ultimately sold, we estimate that our main export markets are the United States, the European Union, South Korea, Russia and the Middle East.
 
We currently market our Hedetang brand fruit juice beverages in only certain regions of the PRC.  In the first quarter of 2010, we began to execute our plan to expand the market presence of Hedetang over a broader geographic area in the PRC.  We believe that there is a large domestic market potential for fruit juice beverages because of the expanding size of the Chinese middle class and the increasing awareness of healthy lifestyle. Further, we believe prices of our fruit juice concentrate, as a commodity and raw material in fruit juice production, are generally more susceptible to general market conditions than those of our branded fruit juice beverages. In the past year, sales of our own branded fruit juice beverages had been less affected negatively by the international economic conditions than sales of fruit juice concentrate. We plan to further develop our fruit cider beverage distribution, continue to emphasize product innovation and expand our fruit juice sales network over the next three to five years by adding marketing and sales personnel.
 
Corporate History
 
We were initially incorporated in 1998 in Florida as Cyber Public Relations, Inc. for the purpose of providing internet electronic commerce consulting services to small and medium sized businesses and did not have any material operations or revenue.  On January 21, 2004, we purchased all of the outstanding share capital of Environmental Technologies, Inc., or Environmental Technologies, a Nevada corporation, in exchange for approximately 29,051 shares of our Common Stock.  As a result, Environmental Technologies became our wholly owned subsidiary and the Environmental Technologies shareholders acquired approximately 97% of our issued and outstanding Common Stock.  We changed our name to Entech Environmental Technologies, Inc.
 
After our acquisition of Environmental Technologies, we operated through our wholly owned subsidiary, H.B. Covey, Inc., or H.B. Covey, a business providing construction and maintenance services to petroleum service stations in the southwestern part of the United States and installation services for consumer home products in Southern California.  In July 2007, we entered into and consummated a stock sale and purchase agreement pursuant to which we sold H.B. Covey.
 
We were a shell company with no significant business operations after we sold H.B. Covey, Inc. As a result of the consummation of a reverse merger transaction as described below, on February 26, 2008 we ceased to be a shell company and became an indirect holding company for SkyPeople (China) through Pacific.
 
On June 17, 2009, we incorporated HMN, our wholly owned Delaware subsidiary with offices initially in California to focus on sales of our products.  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 to transact business in the State of California.  To date, HMN has not yet commenced operating activities.
 

 
Acquisition of Pacific and SkyPeople (China) and Name Change
 
In February 2008, we acquired 100% of the ownership interest in Pacific from the shareholders of Pacific in a share exchange transaction pursuant to which the shareholders of Pacific exchanged 100 ordinary shares of Pacific, representing a 100% ownership interest in Pacific, for 1,000,000 shares of our Series A preferred stock, par value $0.001 per share.  As a result, Pacific became our wholly owned subsidiary.  Pacific owns 99% of the equity interest of SkyPeople (China).  We currently operate through Pacific and SkyPeople (China).
 
On May 23, 2008, we changed our name to SkyPeople Fruit Juice, Inc. to better reflect our business.
 
Organizational History of Pacific
 
Pacific was incorporated under the laws of the Republic of Vanuatu on November 30, 2006.  Prior to our acquisition of Pacific, Winsun Limited, or Winsun, owned 20% of the outstanding share capital of Pacific, and Fancylight Limited, or Fancylight, owned 80% of the outstanding share capital of Pacific.  Pacific’s only business was and is acting as a holding company for SkyPeople (China), in which Pacific holds a 99% ownership interest.
 
Organizational History of SkyPeople (China) and its Subsidiaries
 
SkyPeople (China) was formed on August 8, 2001 under PRC law under the original name of Xi’an Zhonglv Ecology Science and Technology Industry Co., Ltd.  On June 16, 2005, its name was changed to Shaanxi Tianren Organic Food Co., Ltd, or Shaanxi Tianren.  Beginning in December 2003, Shaanxi Tianren started to become involved in the fruit products industry through certain arrangements with the Shaanxi Fruit Products Processing Factory. In July 2005, Shaanxi Tianren switched from its original business scope to developing green products, pollution-free products and organic agricultural products. In September 2006, Shaanxi Tianren further updated its business scope to include developing, producing and distributing concentrated fruit juices.  On December 18, 2009, Shaanxi Tianren changed its name to SkyPeople Juice Group Co., Ltd.  Currently, SkyPeople (China) is engaged in the production and sale of fruit juice concentrates, fruit beverages and other fruit related products in and from the PRC.
 
In September 2007, Pacific acquired 99% of SkyPeople (China)’s outstanding share capital.  SkyPeople (China) converted from a PRC domestic company to a foreign joint venture company by obtaining the approval of the PRC Ministry of Commerce.
 
As of the date of this prospectus, SkyPeople (China)’s ownership structure is as follows: 
 
                    Shareholder Name      Percentage
 
                    Pacific                              99.0%
                    Yongke Xue                        0.3%
                    Hongke Xue                        0.3%
                    Xiaoqin Yan                        0.2%
                    Yuan Chi                             0.2%
 
    SkyPeople (China) has three direct subsidiaries, all limited liability companies organized under the laws of the PRC: (i) Qiyiwangguo, (ii) Huludao Wonder, and (iii) Yingkou.
 
 
 
 
     Yingkou Trusty Fruits Co., Ltd.   On November 18, 2009, SkyPeople (China) purchased all of the outstanding share capital of Yingkou from Xi’an Dehao Investment & Consulting Co., Ltd., a limited liability company organized under the laws of the PRC, for an aggregate cash purchase price of RMB 22,700,000 (or $3,323,913 based on the exchange rate of November 13, 2009).  To date, Yingkou has not commenced operating activities and construction of its production facility is ongoing.  The construction in progress is expected to be completed in August of 2010, before the squeezing season of apples, and Yingkou is currently expected to commence operation in late August of 2010.  Once Yingkou becomes fully operational, we plan to produce apple concentrates out of Yingkou.
 
    Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd.   On May 26, 2006, SkyPeople (China) acquired Qiyiwangguo for a total purchase price of  RMB 36,460,000 (or $4,573,221based on the exchange rate of December 31, 2006) based upon the market value of the assets and business potential of Qiyiwangguo.
 
Huludao Wonder Fruit Co., Ltd.    On June 10, 2008, SkyPeople (China) acquired Huludao Wonder from Shaanxi Hede Investment Management Co., Ltd., or Hede, a PRC company for a total price of RMB 48,250,000 (or $6,308,591 based on the exchange rate of June 1, 2007). Hede was owned by Yongke Xue, the chairman of our board of directors and our chief executive officer, and Xiaoqin Yan, a director on our board of directors.
 
Share Exchange and 2008 Private Placement Financing
 
In February 2008, we acquired Pacific in the share exchange described above.  In connection with the share exchange transaction, we completed a private placement financing pursuant to which we issued 2,833,333 shares of our Series B preferred stock and warrants to purchase 4,666,667 shares (or 7,000,000 pre- two-for-three reverse split) of our Common Stock to Barron Partners L.P., or Barron Partners, and Eos Holdings LLC, or Eos, in exchange for $3,400,000.  The 2008 share exchange and private placement are collectively referred in this prospectus to as reverse merger or reverse merger transaction. On June 2, 2009, the warrants issued in the 2008 private placement were cancelled in exchange for the issuance of certain new warrants to the investors to purchase an aggregate of 4,333,334 shares (or 6,500,000 shares pre- two-for-three reverse split) of our Common Stock, out of which 3,666,667 shares (or 5,500,000 shares pre- two-for-three reverse split) were exercisable at $2.55 per share (or $1.70 per share pre- two-for-three reverse split) and 666,667 shares (or 1,000,000 share pre- two-for-three reverse split) were exercisable initially at $2.55 per share (or $1.70 per share pre- two-for-three reverse split) which, under certain circumstances, will be adjusted to $4.50 per share (or $3.00 per share pre- two-for-three reverse split).  On October 29, 2009, we agreed to reduce the exercise price of the warrants from $4.50 to $2.55 per share.
 
     Under the terms of the 2008 private placement, we agreed to deposit 2,000,000 shares of our Series B preferred stock into an escrow account to be issued to the investors in the event our 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, were less than certain pre-determined target numbers.  As we met the pre-determined target numbers for the years ended December 31, 2007 and 2008, and pursuant to the terms of an exchange agreement and certain waiver agreements each dated May 28, 2009 that we entered into with the investors of the 2008 private placement, we were not required to provide the shares to the holders of the Series B Preferred Stock. As a result, the 2,000,000 shares of Series B preferred stock will be released from escrow and cancelled. Among other covenants and restrictions, we also agreed not to issue any preferred stock or convertible debt until February 26, 2011 so long as the investors continue to beneficially own 20% of the Series B preferred stock issued in the private placement, that no person who is our officer, director or affiliate on February 26, 2008 or who becomes our officer or director subsequent to February 26, 2008, may sell any shares of our Common Stock in the public market prior to February 5, 2012 and that our debt-to-EBITDA ratio, at any given date, cannot exceed 3.5:1 for the most recent 12-month period through February 26, 2010.
 
As a result of the above transactions, we ceased being a “shell company” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or the Exchange Act.
 
Our Corporate Structure
 
Our current structure is set forth in the diagram below:
 
 
*      Xi’an Qinmei Food Co., Ltd., an entity which is not affiliated with us, owns the other 8.85% of the equity interests in Qiyiwangguo.
**   Formerly known as Shaanxi Tianren Organic Food Co., Ltd.
 
 
-9-

 
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.
 
The name “Hedetang™” is our registered trademark in the PRC.  We also use “SkyPeople Fruit Juice”, “Tianren Fruit Juice” and/or their Chinese translation in our business, none of which has not been registered.  In May 2010, we adopted the following design as our logo, which has not been registered.
 
Previously, we used the following unregistered design as our logo.
 
 
 
We are in the process of evaluating the strength and appropriateness of the existing marks we use in our business and designing new marks that we may use in the future. Once we have completed the process, we intend to register all the unregistered marks that we use or may use in our business.  All other registered trademarks and trade names appearing in this prospectus are the property of their respective owners.
 
Risk Factors
 
We are subject to a number of risks which you should be aware of before you buy our Common Stock.  The risks are discussed more fully in the section entitled “Risk Factors” following this prospectus summary.
 
 
   
 
The following assumes that the underwriter does not exercise its option to purchase additional shares in the offering, unless otherwise indicated.
 
       
       
 
Shares of Common Stock offered by us
5,181,285 shares
 
 
Common Stock outstanding before this offering
20,410,117 shares
 
 
Common Stock to be outstanding after this offering
25,591,402 shares
 
 
Option to purchase additional shares
We have granted to the underwriter an option, exercisable within 45 days from the date of this prospectus, to purchase up to an additional 777,193 shares
 
 
Use of proceeds
We intend to use the net proceeds to us from this offering for capital expenditure. We expect our capital expenditures to primarily include improvements to the Huludao Wonder and Qiyiwangguo facilities.  We may also use a portion of the net proceeds to us from this offering to acquire or license products, technologies or businesses we believe to be complementary, but we currently have no agreements, commitments or understandings relating to any material acquisitions or licenses.
 
 
 
Symbol on NASDAQ Global Market
SPU
 
       
            The shares of Common Stock to be outstanding after this offering are based on 20,410,117 shares of our Common Stock outstanding as of August 13, 2010 and excludes 100,000 shares of our Common Stock reserved for issuance pursuant to outstanding warrants to purchase our stock as of August 13, 2010, with a weighted average exercise price of $4.50 per share. 

All share and per share information concerning our Common Stock reflects a 1-for-328.72898 reverse stock split which became effective on May 23, 2008 and, unless the context indicates otherwise, a two for three reverse stock split which became effective on October 29, 2009, or the two-for-three reverse split.
 
 
 
 
   
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
 
The following summary consolidated financial data should be read together with our consolidated financial statements and notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.  We have derived the consolidated statement of operations data for the years ended December 31, 2009 and 2008 from our audited consolidated financial statements included in this prospectus.  We have derived the consolidated statement of operations data for the six months ended June 30, 2010 and 2009 from our unaudited condensed consolidated financial statements included in this prospectus.  The historical results presented below are not necessarily indicative of financial results to be achieved in future periods and are not necessarily indicative of results to be expected for any other period.
   
           
     
Six Months ended
June 30,
   
     
2010
   
2009
   
  (in thousands, except per share data)  
(Unaudited) 
   
 
Consolidated statements of operations data:
       
           
 
Revenue
  $ 31,118     $ 12,868    
 
Cost of sales
    17,597       8,020    
 
Gross profit
    13,521       4,838    
 
Operating expenses:
                 
 
General and administrative
    1,615       967    
 
Selling
    579       375    
 
Research and development
    545       552    
 
 
                 
 
Total operating expenses
    2,739       1,894    
 
Income from operations
    10,782       2,954    
 
Other income (expense), net
    (247 )     1,464    
 
Income before provision for income taxes
    10,535       4,418    
 
Provision for income taxes
    3,429       1,216    
 
Net income
    7,106       3,202    
 
Net income attributable to noncontrolling interests
    678       290    
 
Net income applicable to SkyPeople Fruit Juice, Inc.
  $ 6,428     $ 2,912    
 
Net income per share:
                 
 
    Basic
  $ 0.31     $ 0.16    
      Diluted   $ 0.31   $ 0.15    
  Weighted average shares used in computing net income per share:                   
      Basic      19,268       14,848    
      Diluted      21,064       19,523    
                     
* The effect of change in fair value of warrant liability was not included for the computation of diluted earnings per share for the period ended, as the inclusion would be anti-dilutive.    
                     
 


         
     
Year ended
December 31,
 
     
2009
   
2008
 
 
(in thousands, except per share data)
     
 
Consolidated statements of operations data:
     
         
 
Revenue
 
$
59,250
   
$
41,649
 
 
Cost of sales
   
33,869
     
23,608
 
 
Gross profit
   
25,381
     
18,041
 
 
Operating expenses:
               
 
General and administrative
   
2,433
     
2,831
 
 
Selling
   
918
     
1,453
 
 
Research and development
   
1,103
     
450
 
 
Liquidated damages
   
-
     
254
 
 
Total operating expenses
   
4,454
     
4,988
 
 
Income from operations
   
20,927
     
13,053
 
 
Other income (expense), net
   
1,504
     
(199
)
 
Income before provision for income taxes
   
22,431
     
12,854
 
 
Provision for income taxes
   
6,026
     
2,231
 
 
Net income
   
16,405
     
10,623
 
 
Net income attributable to noncontrolling interests
   
1,216
     
613
 
 
Net income applicable to SkyPeople Fruit Juice, Inc.
 
$
15,189
   
$
10,010
 
 
Net income per share:
               
 
    Basic
 
$
0.84
   
$
0.56
 
 
    Diluted
 
$
0.84
 
$
0.56
 
 
Weighted average shares used in computing net income per share: 
               
 
    Basic 
 
 
15,333
   
 
14,820
 
 
    Diluted 
 
 
18,683
   
 
17,888
 
                   
  *  The effect of change in fair value of warrant liability was not included for the computation of diluted earnings per share for the year ended, as the inclusion would be anti-dilutive.                
                   

 
 
 
     
     The following table presents consolidated balance sheet data as of June 30, 2010 (i) on an actual basis and (ii) on a pro forma basis to reflect the sale of 5,181,285 shares of Common Stock in this offering by us at the public offering price of $5.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses.
 
         
     
As of June 30, 2010 
 
     
Actual
 
Pro forma
 
 
(in thousands)
 
(unaudited)
 
             
 
Consolidated balance sheet data:
         
 
Cash and cash equivalents
$
26,612
$
50,606
 
 
Working capital
 
38,554
 
62,549
 
 
Total assets
 
99,856
  123,851  
 
Stock warrant liability
 
-
 
-
 
 
Convertible preferred stock
 
2
 
2
 
 
Common Stock and additional paid in capital
 
35,333
  59,328  
 
Total stockholders’ equity
$
77,018
$ 101,013  
             
 
 
RISK FACTORS
 
Investing in our Common Stock involves a high degree of risk.  You should carefully consider the risks described below as well as the other information contained in this prospectus before deciding to purchase any shares of our Common Stock.  These risks could harm our business, operating results, financial condition and prospects.  In addition, the trading price of our Common Stock could decline due to any of these risks and you might lose all or part of your investment.
 
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.
 
Our revenue increased significantly from 2006 to 2009.  Our revenue totaled approximately $17.4 million in 2006, approximately $29.4 million in 2007, approximately $41.7 million in 2008 and approximately $59.2 million in 2009.  Our revenue increased to $31.1 million for the six months ended June 30, 2010, an increase of $18.2 million, or 141.1%, as compared to $12.9 million for the same period of 2009.  If our business and markets continue to experience significant growth, we will need to expand our business to maintain our competitive position.  We may face challenges in managing and financing expansion of our business, facilities and product offerings, including challenges relating to integration of acquired businesses and increased demands on our management team, employees and facilities.  Failure to effectively deal with increased demands on us 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 juice and beverage 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 obtain benefits of expansion in the form of increased sales, there may be delay between the time when the expenses associated with an expansion or acquisition are incurred and the time when we recognize such benefits, which could affect our earnings.


Our revenue and profitability are heavily dependent on prevailing prices for our products and raw materials and if we are unable to effectively offset cost increases by adjusting the pricing of our products, our margins and operating income may decrease.
 
As a producer of commodities, 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.
 
The price of our principal raw materials, fresh fruit, is 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 materials 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 to produce our products 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 offset these cost increases by adjusting the price of our products, our margins will decrease and earnings will suffer accordingly.
 
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 growing or squeezing seasons.  A significant reduction in the quantity or quality of fresh fruit 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 us.
 
We depend on a limited number of customers, the loss of one or more of which could materially adversely affect our operations and revenue.
 
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 39% and 37% of our revenue in 2009 and 2008, respectively. Customer demand depends on a variety of factors including, but not limited to, our customers’ financial condition and general economic conditions.  If we are unable to attract new significant customers or retain existing key customers or if sales to any of our current key customers are reduced for any reason, such reduction may have a material adverse effect on our business, results of operations and financial condition.

 
We sell some of our products through distributors and delays in delivery or poor handling by, or financial problems of, distributors may affect our sales and damage our reputation.
 
We sell some of our products through our distributors and rely on these distributors for the distribution of our products.  In 2009 and 2008, sales to distributors represented 40% and 31% of our revenue, respectively. These distributors are not obligated to continue to sell our products and any disruptions in our relationships with our distributors could cause interruption to the supply of our products to retailers, which would harm our revenue and results of operations.  In addition, delivery disruptions may occur for various reasons beyond our control, including poor handling by distributors or third party transport operators, transportation bottlenecks, natural disasters and labor strikes, and could lead to delayed or lost deliveries.  Some of our products are perishable and poor handling by distributors and third party transport operators could also result in damage to our products that would make them unfit for sale.  If our products are not delivered to retailers on time, or are delivered damaged, we may have to pay compensation, we could lose business and our reputation could be harmed. In addition, while we sell our products to distributors substantially all of which we believe have good credit history, many of our distributors are thinly capitalized and if they experience financial difficulties such that they are unable to pay for our products, our results of operations and financial condition could be harmed.
 
Because we experience seasonal fluctuations in our sales, our quarterly results will fluctuate and our annual performance will depend largely on results from our first and fourth quarters.
 
Our business is highly seasonal, reflecting the harvest season of our primary source fruits from July or August to April.  Typically, a substantial portion of our revenue is earned during our first and fourth quarters.  We generally experience lower revenue during our second and third quarters.  Sales in the first and fourth quarters accounted for approximately 72% and 67% of our revenue in 2009 and 2008, respectively.  If sales in our first and fourth 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.
 
If we are unable to gain market acceptance or significant market share for the new products we introduce, our results of operations and profitability could be adversely impacted.
 
Our future business and financial performance depends, in part, on our ability to successfully respond to consumer preferences by introducing new products and improving existing products.  For example, in the first quarter of 2009, we developed and introduced a fruit cider beverage that tested well in the Chinese market.  We cannot assure you that we will be able to gain market acceptance or significant market share for our new products.  Consumer preferences change, and any new products that we introduce may fail to meet the particular tastes or requirements of consumers, or may be unable to replace their existing preferences.  Our failure to anticipate, identify or react to these particular tastes or changes could result in reduced demand for our products, which could in turn cause us to be unable to recover our development, production and marketing costs, thereby leading to a decline in our profitability.
 
The development and introduction of new products is key to our expansion strategy.  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 has not recovered from a recession, which has reduced discretionary income of consumers.  The adverse effect of a sustained international economic downturn, including sustained periods of decreased consumer spending, high unemployment levels, declining consumer or business confidence and continued volatility and disruption in the credit and capital markets, will likely result in reduced demand for our products as consumers turn to less expensive substitute goods or forego certain purchases altogether. To the extent the international economic downturn continues or worsens, we could experience a reduction in sales volume, and if we are unable to reduce our operating costs and expenses proportionately, many of which are fixed, our results of operations would be adversely affected.
 
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 the PRC over melamine contaminated milk in 2008 has adversely impacted Chinese food exports since October 2008, as reported by the Chinese General Administration of Customs, although most foods exported from the PRC were not significantly affected by the melamine contamination.  In addition, our concentrated fruit juices exported to foreign countries must comply with quality standards in those countries.  Our success depends on our ability to maintain the quality of our existing and new products.  Product quality issues, real or imagined, or allegations of product contamination, even if false or unfounded, could tarnish the image of our brands and may cause consumers to choose other products.
 
We face increasing competition from both domestic and foreign companies and any failure by us to compete effectively could adversely affect our results of operations.
 
The juice beverage industry is highly competitive, and we expect it to continue to become even more competitive.  Our ability to compete in the industry is, to a significant extent, dependent on our ability to distinguish our products from those of our competitors by providing high quality products at reasonable prices that appeal to consumers’ tastes and preferences.  There are currently a number of well established companies producing products that compete directly with ours.  Some of our competitors may have been in business longer than we have, may have substantially greater financial and other resources than we have and may be better established in their markets.  We anticipate that our competitors will continue to improve their products and introduce new products with competitive price and performance characteristics.
 
We cannot assure you that our current or potential competitors will not provide products comparable or superior to those we provide or adapt more quickly than we do to evolving industry trends or changing market requirements.  It is also possible that there will be significant consolidation in the juice beverage industry among our competitors, alliances may develop among competitors and these alliances may rapidly acquire significant market share, and some of our distributors may commence production of products similar to those we sell to them.  Increased competition may result in price reductions, reduced margins and loss of market share, any of which could materially adversely affect our profit margins.  We cannot assure you that we will be able to compete effectively against current and future competitors.  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 shareholders, 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 may acquire in the future, and our failure to do so could have a material adverse effect on our business, operating results and financial condition.
 
We require various licenses and permits to operate our business and the loss of or failure to renew any or all of these licenses and permits could materially adversely affect our business.
 
In accordance with PRC laws and regulations, we have been required to maintain various licenses and permits in order to operate our business at the relevant manufacturing facilities including, without limitation, industrial product production permits.  We are required to comply with applicable hygiene and food safety standards in relation to our production processes.  Our premises and transportation vehicles are subject to regular inspections by the regulatory authorities for compliance with the Detailed Rules for Administration and Supervision of Quality and Safety in Food Producing and Processing Enterprises.  Failure to pass these inspections, or the loss of or failure to renew our licenses and permits, could require us to temporarily or permanently suspend some or all of our production activities, which could disrupt our operations and adversely affect our business.
 
Governmental regulations affecting the import or export of products could negatively affect our revenue.
 
The PRC government, the United States and various other governments have imposed controls, export license requirements and restrictions on the export of some of our products.  We estimate that we exported products, directly or indirectly, from the PRC that represented approximately 22% and 34% of revenue in 2009 and 2008, respectively. Governmental regulation of exports, or our failure to obtain required export approval for our products, could harm our international sales and adversely affect our revenue 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 any business disruption insurance, 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 do not have any business disruption insurance coverage for our operations in China.  Therefore, any business disruption, litigation or catastrophic events might result in our incurring substantial costs and the diversion of our resources, which could have a material adverse effect on our business, financial condition and results of operations.
 
We currently do not carry any product liability or other similar insurance.  Product liability claims and lawsuits in the PRC are generally still rare, unlike in some other countries.  Product liability exposures and litigation, however, could become more commonplace in the PRC.  Moreover, we have product liability exposure in countries in which we sell our products, such as the United States, where product liability claims are more prevalent.  As we may expand our international sales in the future, our liability exposure outside of the PRC may increase.
 
We may be required from time to time to recall products entirely or from specific co-packers, markets or batches.  Although historically we have not had any recall of our products, we cannot guarantee that in the future circumstances or incidents will not occur that will require us to recall our products. We do not maintain recall insurance.  In the event we experience product liability claims or a product recall, our business operations and financial condition could be materially adversely affected.
 
Our business and operations 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 a reduction in available raw materials, the temporary or permanent loss of critical data, suspension of operations, delays in shipment of products 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, 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 rely particularly upon Mr. Yongke Xue, chairman of our board of directors and our chief executive officer, Ms. Spring Liu, our chief financial officer, and Mr. Hongke Xue, chairman of the board of directors and chief executive officer of SkyPeople (China).  The loss of the services of Mr. Yongke Xue, Ms. Spring Liu or Mr. Hongke Xue for any reason could significantly adversely impact our business and results of operations.  Competition for senior management and senior technology personnel in the PRC is intense and the pool of qualified candidates is very limited.  Accordingly, we cannot assure you 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, or Sarbanes-Oxley.  Aside from our chief financial officer, Spring Liu, our senior management does not have experience 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 be unable 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, distract our management from attending to the management and growth of our business, result in a loss of investor confidence in our financial reports and have an adverse effect on our business and stock price.
 
As a public company, we are obligated to maintain effective internal controls over financial reporting. Our internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, decrease the value of our Common Stock.
 
The PRC has not adopted management and financial reporting concepts and practices similar to those in the United States.  We may have difficulty in hiring and retaining a sufficient number of qualified finance and management employees to work in the PRC.  As a result of these factors, we may experience difficulty in establishing and maintaining 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 investors’ expectations in the United States.

 
Rules adopted by the Securities and Exchange Commission, or the Commission, pursuant to Section 404 of Sarbanes-Oxley require annual assessment of our internal controls over financial reporting.  This requirement first applied to our annual report on Form 10-K for the fiscal year ended December 31, 2008.  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. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.  The process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 is costly and challenging. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to conclude that our internal control over financial reporting is effective. We could lose investor confidence in the accuracy and completeness of our financial reports, which could harm our business and cause the price of our Common Stock to decline.
 
We may have inadvertently violated Section 402 of the Sarbanes-Oxley and Section 13(k) of the Exchange Act and may be subject to sanctions for such violations.
 
Section 13(k) of 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 business, financial position, results of operations or cash flows.
 
In February 2008, we purchased Pacific, which is the holding company for our operating subsidiary, SkyPeople (China).  At the time, Shaanxi Hede Investment Management Co., Ltd., or Hede, a PRC company owned by Yongke Xue, the chairman of our board of directors and our chief executive officer, and Xiaoqin Yan, a director on our board of directors, was indebted to SkyPeople (China) on account of previous loans and advances made by SkyPeople (China) to Hede. Such loans and advances totaled RMB 31,544,043 in the aggregate (or $4,318,281 based on the exchange rate as of December 31, 2007) and were 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., or Huludao Wonder.  In May 2008, SkyPeople (China) also assumed Hede’s obligation of RMB 18,000,000 (or $2,638,329 based on the exchange rate December 31, 2008) for the balance of the purchase price for Huludao Wonder.
 
On June 10, 2008, Hede sold Huludao Wonder to SkyPeople (China) for a total price of RMB 48,250,000 (or $6,308,591 based on the exchange rate on June 1, 2007) the same price which Hede paid for Huludao Wonder.  As of May 31, 2008, SkyPeople (China) had a related party receivable of RMB 48,929,272 (or $7,171,751 based on the exchange rate December 31, 2008) from Hede, which was credited against the purchase price, so that SkyPeople (China) did not pay any cash to Hede for the purchase, and the remaining balance of the loans and advances of RMB 679,272 (or $99,564 based on the exchange rate as of December 31, 2008) to Hede was repaid to us on June 11, 2008.  No interest or other consideration was paid by Hede to us on account of the time value of money with respect to the loans and advances made by SkyPeople (China) to Hede.
 
Notwithstanding Hede’s repayment in full of loans made by SkyPeople (China) to Hede, the existence of indebtedness of Hede to SkyPeople (China) at the time we 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 and Section 402(a) of Sarbanes-Oxley.

 
In addition, 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, including Xiaoqin Yan and Yongke Xue, as the result of a dividend declared by Pacific in February 2008 prior to our acquisition of Pacific.  Because the recipients of the money were no longer shareholders of Pacific, the transaction was 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 us in full, Xiaoqin Yan and Yongke Xue’s receipt of the erroneous dividend may also be deemed to be a violation of Section 13(k) and Section 402(a) of Sarbanes-Oxley.  
 
Partially in response to the matters set forth above, 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 of our board of directors, and no director may 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 the section entitled “Certain Relationships and Related Party Transactions—Review, Approval or Ratification of Transactions with Related Persons.”
 
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 revenue.
 
We believe that our existing working capital and cash available from operations will enable us to meet our working capital requirements for at least the next 12 months, with the exception of working capital requirements relating to the expansion of current production capacity. However, if cash from future operations is insufficient, or if cash is used for acquisitions or other currently unanticipated uses, we may need additional capital. The development and marketing of new products and the expansion of distribution channels and associated support personnel requires a significant commitment of resources. In addition, if the markets for our products develop more slowly than anticipated, or if we fail to establish significant market share and achieve sufficient net revenues, we may continue to consume significant amounts of capital. As a result, we could be required to raise additional capital. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution of the shares held by existing stockholders. If additional funds are raised through the issuance of debt securities, such securities may provide the holders certain rights, preferences, and privileges senior to those of Common Stockholders, and the terms of such debt could impose restrictions on our operations. We cannot assure you that additional capital, if required, will be available on acceptable terms, or at all. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial condition and operating results.
 
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 hold two patents in the PRC covering our fruit processing technology, and are in the process of applying for patents for four other technologies.  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 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 those in the United States and other countries.  We may 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 of another party’s intellectual property.  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.
 
If our costs and demands upon management increase disproportionately to the growth of our business and revenue as a result of complying with the laws and regulations affecting public companies, our operating results could be harmed.
 
As a public company, we do and will continue to incur significant legal, accounting, investor relations and other expenses, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with current corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley, as well as rules implemented by the Commission and the stock exchange on which our Common Stock is traded. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically over the past several years.  These rules and regulations have increased our legal and financial compliance costs substantially and make some activities more time consuming and costly.  If our costs and demands upon management increase disproportionately to the growth of our business and revenue, our operating results could be harmed.
 
There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial condition and operating results.
 
The preparation of financial statements in accordance with U.S. GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenue, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenue, expenses and income. Any such changes could have a material adverse effect on our business, financial condition and operating results.
 
We are subject to the risk of increased income taxes, which could harm our business, financial condition and operating results.
 
We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. However, our tax position is subject to review and possible challenge by tax authorities and to possible changes in law, which may have retroactive effect. We currently operate through Pacific, a wholly owned subsidiary organized under the laws of Vanuatu and SkyPeople (China), a 99% owned subsidiary of Pacific organized under the laws of the PRC, and we maintain manufacturing operations in the PRC. Any of these jurisdictions could assert tax claims against us. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes. If we become subject to additional taxes in any jurisdiction, such tax treatment could materially and adversely affect our business, financial condition and operating results.

 
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 the PRC.  Accordingly, economic, political and legal developments in the PRC 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 the PRC.  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 the PRC 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.
 
The original incorporation of SkyPeople (China) as a joint stock company in 2001 did not obtain all required approvals from the PRC government authorities pursuant to the relevant PRC law effective at the time, and we may be subject to various penalties under the law retroactively.
 
The original incorporation of SkyPeople (China) (under the original name of Xi’an Zhonglv Ecology Science and Technology Industry Co., Ltd.) as a joint stock company in 2001 was approved by the Xi’an Municipal People’s Government. However, according to the applicable PRC Company Law which was in force in 2001, the incorporation of SkyPeople (China) as a joint stock company shall be subject to the approval by the government authority of Shaanxi Province. Pursuant to the PRC Company Law which was in force in 2001, if company stock is arbitrarily issued without obtaining the approval of the relevant competent authorities stipulated under the law, the parties concerned may be ordered to cease the issuance of the stocks, refund the raised capital and the interests accrued therefrom, and may be subject to a fine of no less than one percent but no more than five percent of the amount of the raised capital.  As such, SkyPeople (China) may be subject to any or all of the foregoing penalties as provided under the PRC Company Law effective in 2001 should the relevant government authorities choose to enforce the law retroactively.
 
 
However, we believe that the following factors may be considered by the regulatory authorities as mitigating factors if such authorities choose to enforce the applicable laws:
 
(i) the incorporation of SkyPeople (China) obtained the approval by the Xi’an local government.  As a general practice of the approval procedures, the applicants may only be able to approach the Xi’an local government authority first in order to subsequently acquire the approval by a higher level government authority, and would generally rely on the Xi’an local government to further submit the application to a higher level authority for its final approval; and
 
(ii) the trend of the PRC Company Law is to deregulate the approvals on the incorporation of joint stock companies in China. In particular, the current PRC Company Law, effective since January 1, 2006, has eliminated the relevant approval requirement relating to the incorporation of joint stock companies. Instead, the current PRC Company law merely requires a registration with the competent Administration for Industry and Commerce in connection with the incorporation of joint stock companies in the PRC as long as the stock is not issued to the public.
 
Our current manufacturing operations are subject to various environmental protection laws and regulations issued by the central and local government authorities, and we cannot assure you that we have fully complied with all such laws and regulations.  In addition, changes in the existing laws and regulations or additional or stricter laws and regulations on environmental protection in the PRC may cause us to incur significant capital expenditures, and we cannot assure you that we will be able to comply with any such laws and regulations.
 
We carry on our business in an industry that is subject to PRC environmental protection laws and regulations.  Construction of our product lines are required to complete the environmental impact evaluation at its commencement and the examination upon completion of the construction to the competent environment protection administrative authority for approval. Failure to submit the environment impact evaluation document or obtain the approval by competent environment protection administrative authority may subject us to fines and cease of the production, which may adversely affect our business and financial condition.
 
The PRC laws and regulations also require enterprises engaged in manufacturing and construction that may cause environmental waste to adopt effective measures to control and properly dispose of waste gases, waste water, industrial waste, dust and other environmental waste materials, as well as fee payments from producers discharging waste substances.  Fines may be levied against producers causing pollution.  Although we have endeavored to comply with such laws and regulations, we cannot assure you that we have fully complied with all such laws and regulations. Currently the Pollution Emission Permit of SkyPeople (China) has expired and we are still in the process of applying for a new permit.  Qiyiwangguo and Yingkou are undergoing similar processes to obtain their respective Pollution Emission Permit. The failure of complying with such laws or regulations may subject us to various administrative penalties such as fines, and if the circumstances of the breach are serious, it is at the discretion of the central government of the PRC including all governmental subdivisions to cease or close any operations failing to comply with such laws or regulations.  
 
In addition, there can also be no assurance that the PRC government will not change the existing laws or regulations or impose additional or stricter laws or regulations, compliance with which may cause us to incur significant capital expenditure, which we may be unable to pass on to our customers through higher prices for our products.  In addition, we cannot assure you that we will be able to comply with any such laws and regulations.
 
Yingkou has not commenced operating activities as of the filing date of this prospectus.
 
Yingkou has not commenced operating activities as of the date of this prospectus. Under the applicable PRC laws relating to company registrations, if a company fails to start its business for more than six months after its formation without due reasons, or suspends its business for more than six months consecutively, the Company registration authority, i.e., the competent administration for industry and commerce, may revoke the business license of the Company.
 
 
We already have a detailed plan for starting the operations of Yingkou in the future. The construction of the manufacturing facility in progress is expected to be completed in late August of 2010, before the squeezing season of apples.  We have communicated with the competent administration for industry and commerce in charge of Yingkou regarding such plan so that they are fully aware of the current status of Yingkou.  As of the date of this prospectus. we have not had any indication from such government authority that they intend to revoke the business license of Yingkou. However, we cannot assure you that if our plan to commence operating Yingkou is further delayed, and/or if our explanation of the reasons for any delay is not accepted by the relevant government authorities, the business license of Yingkou will not be suspended. If that occurs, there will be a material adverse impact on our business and financial condition.
 
Changes in existing PRC food hygiene and safety laws may cause us to incur additional costs to comply with the more stringent laws and regulations, which could have an adverse impact on our financial position.
 
Manufacturers within the PRC beverage industry are subject to compliance with PRC food hygiene laws and regulations.  These food hygiene and safety laws require all enterprises engaged in the production of juice and other beverages to obtain a food production license for each of their production facilities.  They also set out hygiene and safety standards with respect to food and food additives, packaging and containers, information to be disclosed on packaging as well as hygiene requirements for food production and sites, facilities and equipment used for the transportation and sale of food.  Failure to comply with PRC food hygiene and safety laws may result in fines, suspension of operations, loss of business licenses and, in more extreme cases, criminal proceedings against an enterprise and its management.  Although we believe we are in compliance with current food hygiene laws, in the event that the PRC government increases the stringency of such laws, our production and distribution costs may increase, which could adversely impact our financial position.
 
We benefit from various forms of government subsidies and grants, the withdrawal of which could affect our operations.
 
Certain of our subsidiaries have received government subsidies by local governments.  In 2009 and 2008, we recorded subsidy income from different levels of the Chinese government of approximately $2,169,380 and $316,152, respectively, and approximately $2,248,405 and $1,552,679 in the six months ended June 30, 2010 and 2009, respectively.  We used such government subsidies to pay for research and development expenses.  Past government grants or subsidies are not indicative of what we will obtain in the future. We cannot assure you that we will continue to be eligible for government grants or other forms of government support, or, that if we are eligible, we will continue to obtain the same level of subsidies.  In the event that we are no longer eligible for grants, subsidies or other government support, our business and financial condition could be adversely affected.
 
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 related to foreign persons and foreign funded enterprises.  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. In April 2006, the People’s Bank of China raised the interest rate again. More recently, after a period of more modest economic growth, the increase in China’s GDP is again accelerating, leading to the possibility of more rate increases.  Repeated rises in interest rates by the central bank would likely slow economic activity in the PRC, which could, in turn, materially increase our costs and also reduce demand for our products.
 
We could be restricted from paying dividends to shareholders due to PRC laws and other contractual requirements.
 
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 SkyPeople (China).  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 SkyPeople (China) 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 revenue from SkyPeople (China)’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 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 account 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 the PRC 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, revenue 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, namely, the Ministry of Commerce of the PRC (the “MOFCOM”), the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the PRC Securities Regulatory Commission (the “CSRC”) and the PRC State Administration of Foreign Exchange (the “SAFE”), jointly promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, generally referred to as the 2006 M&A Rules, which became effective on September 8, 2006.  The 2006 M&A Rules, among other things, govern the approval process by which an offshore investor may participate in an acquisition of assets or equity interests of a Chinese domestic company.  Depending on the structure of the transaction, the 2006 M&A Rules require the transaction parties to make a series of 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.  Under certain circumstances, government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies.  Compliance with the 2006 M&A Rules will be more time consuming and expensive than in the past, and the government can exert more control over the combination of two businesses under the 2006 M&A Rules.  As a result of any potential application of the 2006 M&A Rules, our ability to engage in business combination transactions in the PRC 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, SAFE issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside the PRC, 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 the PRC 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 the PRC or acquires an unrelated company or unrelated assets in the PRC;
 
·  
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 shareholders who are the residents as defined in Circular 75 and who own or owned our shares 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 us and our acquisition of equity interests in our PRC 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 us 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 PRC 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 shareholders /beneficial owners or the outcome of such registration procedures.  If our Chinese shareholders/beneficial owners or the Chinese shareholders/beneficial owners of the target companies we acquired in the past or will acquire in the future fail to comply with Circular 75 and related regulations, and if SAFE requires it, they may be subject to fines or legal sanctions, and Chinese authorities could restrict our investment activities in the PRC, limit our subsidiaries’ ability to make distributions or pay dividends, or affect the ownership structure, which could adversely affect business and prospects.
 
Our acquisition of SkyPeople (China) could constitute a Round-trip Investment under the 2006 M&A Rules.
 
Prior to obtaining the approval from the MOFCOM on September 3, 2007 and Xi’an Administration for Industry and Commerce, or AIC, on October 18, 2007 and prior to the full payment of the purchase price by Pacific for 99% of SkyPeople (China)’s capital stock, SkyPeople (China) was a PRC business some of whose shareholders were PRC individuals including Hongke Xue, chairman of SkyPeople (China).  When Pacific was incorporated on November 30, 2006 and when the SkyPeople (China) acquisition was approved, none of the shareholders of Pacific were PRC citizens.  Immediately after the consummation of the share exchange, shareholders of Pacific became our shareholders, including Fancylight, our controlling shareholder.  To incentivize Mr. Hongke Xue in connection with the continuous development of SkyPeople (China)’s business, a call option agreement was entered into between Fancylight and Mr. Hongke Xue on February 25, 2008 pursuant to which Mr. Xue had the opportunity to acquire a majority of our Common Stock held by Fancylight.  Mr. Xue and Fancylight also entered into a voting trust agreement pursuant to which Mr. Xue has the right to vote such shares on Fancylight’s behalf
 
The PRC regulatory authorities may take the view that the SkyPeople (China) acquisition, the share exchange transaction and the call option and voting trust arrangements are part of an overall series of arrangements which constitute a round-trip investment regulated by the 2006 M&A Rules, because at the end of these transactions the same PRC individual who controlled SkyPeople (China) became the effective controlling party of a foreign entity that acquired ownership of SkyPeople (China).  The PRC regulatory authorities may also take the view that the approval of the SkyPeople (China) acquisition by the MOFCOM and the registration of such acquisition with the AIC in Xi’an may not be evidence that the SkyPeople (China) acquisition has been properly approved because the relevant parties did not fully disclose to the MOFCOM or AIC the overall restructuring arrangements.  If the PRC regulatory authorities take the view that the SkyPeople (China) acquisition constitutes a round-trip investment under the 2006 M&A Rules, we cannot assure you that we will be able to obtain the approval required from MOFCOM.
 
If the PRC regulatory authorities take the view that the SkyPeople (China) acquisition constitutes a round-trip investment without MOFCOM approval on such round-trip investment, they could invalidate our acquisition and ownership of SkyPeople (China).

 
Additionally, the 2006 M&A Rules also purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange.  On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings.  However, the application of this PRC regulation remains unclear, with no consensus currently existing regarding the scope and applicability of the CSRC approval requirement.  Given that we established our PRC subsidiaries by means of direct investments, we believe that these regulations do not require an application to be submitted to the CSRC for the approval of the listing and trading of our stocks on the NYSE Amex Equities, unless we are clearly required to do so by subsequently promulgated rules of the CSRC.  If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required for the offerings, we may need to apply for a remedial approval from the CSRC and may be subject to certain administrative punishments or other sanctions from these regulatory agencies. The regulatory agencies may take actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our stocks.
 
We believe that if this takes place, we may be able to find a way to reestablish control of SkyPeople (China)’s business operations through a series of contractual arrangements rather than an outright purchase of SkyPeople (China).  But we cannot assure you that such contractual arrangements will be protected by PRC law or that we can receive as complete or effective economic benefit and overall control of SkyPeople (China)’s business than if we had direct ownership of SkyPeople (China).  In addition, we cannot assure you that such contractual arrangements can be successfully effected under PRC law.  If we cannot obtain approval from MOFCOM and/or CSRC 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 SkyPeople (China), our business, results of operations and financial condition will be materially adversely affected.
 
Because our principal assets are located outside of the United States, it may be difficult for investors to use the U.S. Federal securities laws to enforce their rights against us, our officers and some of our 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 other than directors Norman Ko and John Smagula and our chief financial officer and corporate secretary, Spring Liu, reside outside of the United States.  In addition, SkyPeople (China) 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 U.S. 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.

 
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 shareholders.
 
Hongke Xue, the chairman of the board of directors of SkyPeople (China) and the brother of Yongke Xue, the chairman of our board of directors and our chief executive officer, has the ability to vote the 11,736,626 shares of our Common Stock held by Fancylight, which as of August 13, 2010, represented 58% of our Common Stock and 54% of our voting stock on a fully diluted basis.  In connection with this offering, we expect to issue 5,181,285 additional shares of our Common Stock, which would reduce Fancylight’s beneficial ownership to 44% of our voting stock on a fully diluted pro forma basis as of August 13, 2010 and the beneficial ownership of all of our directors and officers represented 0.4% of our voting stock on a fully diluted pro forma basis as of August 13, 2010.  As a result, our officers and directors and their relatives are generally able to control the outcome of shareholder 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 shareholders.  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.
 
The sale or availability for sale of substantial amounts of our shares of Common Stock could adversely affect the market price of our shares.
 
In connection with this offering, each of our directors and executive officers who hold shares of Common Stock and our shareholders holding more than 5% of the shares of the Common Stock or securities convertible into Common Stock immediately prior to the completion of this offering is required to enter into lock up agreements pursuant to which we and they have agreed not to sell any shares of our Common Stock for 90 days after the date of this prospectus without the written consent of the underwriters.  None of our directors and executive officers currently owns any shares of our Common Stock or securities convertible into our Common Stock, except that our Chief Financial Officer, Spring Liu was granted a warrant to purchase an aggregate of 100,000 shares of Common Stock exercisable on or after December 9, 2011. We have two shareholders holding more than 5% of our Common Stock or securities convertible into Common Stock. As a result, as of the date of this prospectus, an aggregate of 13,203,704 shares of our outstanding Common Stock are subject to lock up agreements. However, the underwriters may release these securities from these restrictions at any time without notice. We cannot predict what effect, if any, market sales of securities held by our shareholders or the availability of these securities for future sale will have on the market price of our shares of our Common Stock.
 
We are not likely to pay cash dividends in the foreseeable future.
 
The holders of our Series B preferred stock are not entitled to receive dividends with respect to their shares and dividends cannot be paid on our Common Stock so long as our Series B preferred stock remains outstanding.  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.  SkyPeople (China) 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.  We expect to retain available cash flow for working capital, capital expenditures and potential acquisitions for the foreseeable future.  However, we have no current agreements to enter into any potential acquisitions.

 
Our Common Stock is thinly traded so investors may be unable to sell at or near asking prices or at all if they desire to liquidate your shares.
 
Our Common Stock commenced trading on the NYSE Amex Equities effective October 29, 2009.  Since April 20, 2010, Our Common Stock has been traded on NASDAQ Global Market under the symbol "SPU."  Our trading history is limited, volumes are low and there are a small number of market makers for our Common Stock.  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.  You may be unable to sell our Common Stock quickly, or at all, at a desired price because of these factors.
 
Our stock price may be volatile, and you may be unable to sell your shares at a desired price.
 
The market price of our Common Stock could be subject to wide fluctuations in response to, among other things, the factors described in this “Risk Factors” section or otherwise, and other factors beyond our control, such as fluctuations in the valuations of companies perceived by investors to be comparable to us.  Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our Common Stock.  In the past, many companies that have experienced volatility in the market price of their stock have become subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.
 
We are authorized to issue blank check preferred stock, which may be issued without shareholder 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 articles of incorporation, as amended, 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 shareholders.  Our board of directors previously designated and issued 1,000,000 shares of Series A preferred stock which were automatically converted into our Common Stock upon the effective date of our 1-for-328.72898 reverse stock split on May 23, 2008 and returned to the status of authorized and unissued shares of preferred stock following the reverse split.    Our board of directors designated 7,000,000 shares of Series B preferred stock, of which 3,605,147 shares were issued and outstanding as of August 13, 2010, including (i) 2,000,000 shares held in escrow as make good escrow shares in connection with our 2008 private placement which shares are in the process of being released to the Company and will be canceled upon release, and (ii) 1,605,147 shares held by two shareholders of record, which shares can be converted into 1,070,099 shares of Common 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 to acquire us and thereby prevent shareholders 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.

 
Anti-takeover provisions in our charter documents and under Florida law could discourage, delay or prevent a change in control of our Company and may affect the trading price of our Common Stock.
 
We are a Florida corporation and the anti-takeover provisions of the Florida Business Corporation Act may discourage, delay or prevent certain changes in control unless such change in control is approved by a majority of our disinterested shareholders.  In addition, the terms of our articles of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that shareholders may consider favorable. Our articles of incorporation and bylaws:
 
·  
authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt, in addition to the shares of Series B preferred stock that have been issued to date;
 
·  
require that directors only be removed from office upon a majority shareholder vote;
 
·  
provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;
 
·  
limit who may call special meetings of shareholders; and
 
·  
prohibit shareholder action by written consent, requiring all actions to be taken at a meeting of the shareholders.
 
For more information regarding these and other provisions, see the section titled “Description of Our Securities — Anti-Takeover Effects of Florida Law and Provisions of Our Articles of Incorporation and Bylaws.”

USE OF PROCEEDS
 
The net proceeds from our sale of 5,181,285 shares of Common Stock in this offering at the public offering price of $5.00 per share after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $24.0 million, or $27.7 million if the underwriter’s option to purchase additional shares is exercised in full.  
 
Our capital expenditures for 2010 and 2011 are expected to be an estimated $62 million (including capital expenditure already incurred since the beginning of 2010).  The following table presents the capital projects that we identify as priority capital projects, for which we intend to use the proceeds from this offering first and primarily:
 
Facility
Priority Projects
 
Capital Expenditure
(in million)
 
Huludao Wonder
A refrigeration storage and a concentrated fruit juice mixing center
  $ 4.4  
Huludao Wonder
A 50 ton/hour concentrated apple juice production line
    10.7  
Huludao Wonder
A fruit juice beverage production line
    3.0  
Huludao Wonder
Construction and environmental project expenses
    6.7  
Qiyiwangguo
A PET bottle blowing machine system
    3.2  
Qiyiwangguo
A 24,000 PET bottle/hour fruit juice beverage aseptic cold-filling line
    10.0  
Qiyiwangguo
A refrigeration storage
    7.5  
Qiyiwangguo
Construction and environmental project expenses
    0.8  
Total Capital Expenditure on Priority Projects
  $ 46.3  
 
The total estimated capital expenditure of $46.3 million on our priority projects exceed the total estimated proceeds of $24.0 million from our sale of 5,181,285 shares of Common Stock, or $27.7 from our sale of 5,958,478 shares of Common Stock if the underwriter's option to purchase additional shares is exercised in full, at the offering price of $5.00 per share after deducting underwriting discounts and commissions and estimated offering expenses. The following table presents our current estimated allocations of such proceeds, which includes approximately $18.1 million for projects at Huludao Wonder facility and approximately $5.9 million or $9.6 million if the underwriter's option to purchase additional shares is exercised in full for projects at Qiyiwangguo facility. 

       
Use of Proceeds ($)
 
Facility
 
Capital Expenditure Projects
 
Underwriter
option unexercised
   
Underwriter option exercised
 
Huludao Wonder
 
A refrigeration storage and a concentrated fruit juice mixing center
  $ 4.4     $ 4.4  
Huludao Wonder
 
A 50 ton/hour concentrated apple juice production line
    10.7       10.7  
Huludao Wonder
 
A fruit juice beverage production line
    3.0       3.0  
Qiyiwangguo
 
A PET bottle blowing machine system 
    3.2       3.2  
Qiyiwangguo
 
A 24,000 PET bottle/hour fruit juice beverage aseptic cold-filling line
  $ 2.7     $ 6.4  
Total
      $ 24.0     $ 27.7  
 
 
 
    To the extent our proceeds from the offering cannot adequately cover the total capital expenditures of these priority projects listed above, we plan to finance the rest of the capital expenditures primarily through operating cash flows. We currently consider the foregoing projects our priority projects and intend to use the proceeds from this offering first and primarily for such projects. However, depending on the changing needs of our business and market opportunities, we may instead use a portion of the net proceeds from this offering to acquire or license products, technologies or businesses we believe to be complementary to our business, should we determine that our business will benefit more from such expenditures. We currently have no agreements, commitments or understandings relating to any material acquisitions or licenses.
    
In addition to the $46.3 million capital expenditure on priority projects set forth above, our expected total capital expenditure of $62 million (including capital expenditure already incurred since the beginning of 2010) also includes capital expenditure of $15.7 million on a 10 ton/hour concentrated pomegranate production line, a Kiwifruit Quality and Safety Testing Center, upgrading existing testing facilities and technologies at Qiyiwangguo and one fructose production line in Qiyiwangguo; a 20 tons/hour concentrated pear juice production line in the Jingyang facility; and a 20 tons/hour concentrated apple juice production line in the Yingkou facility.  We plan to finance the rest of the capital expenditures and other operating expenses through operating cash flows, income from government subsidies (as noted under the heading “Recent Development-Government Grant” on page 42 f this Prospectus), and bank loans.   Accordingly, our management will have broad discretion in the application of our net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of these proceeds.
 
 
The following table sets forth our consolidated cash and cash equivalents and capitalization as of June 30, 2010 on:
 
·  
an actual basis; and
 
·  
on a pro forma basis to reflect the sale by us of 5,181,285 shares of Common Stock in this offering at the public offering price of $5.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses.
 
The information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.  You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.
 
   
As of June 30, 2010
 
   
Actual
   
Pro forma
 
(in thousands, except share and per share data)
 
 
(unaudited)
 
       
Cash and cash equivalents
 
$
26,612
   
$
50,616
 
Common Stock warrant liability
 
$
-
   
$
-
 
                 
Stockholders’ equity:
               
Preferred stock, $0.001 par value; 10,000,000 shares authorized, 1,605,147 shares issued and outstanding, actual; 10,000,000 shares authorized, 2,465,147 shares issued and outstanding, pro forma
   
2
     
2
 
Common Stock, $0.001 par value; 66,666,666 shares authorized, 20,410,117 shares issued and outstanding, actual; 66,666,666 shares authorized, 25,068,901shares issued and outstanding, pro forma
   
20
     
26
 
Additional paid-in capital
   
35,313
     
59,302
 
Accumulated other comprehensive income
   
5,017
     
5,017
 
Retained Earnings
   
36,666
     
36,666
 
Total stockholders’ equity
 
$
77,018
   
$
101,013
 
Total capitalization
 
$
77,018
   
$
101,013
 
 
The number of pro forma shares of Common Stock shown as issued and outstanding in the table is based on 25,710,117 of our Common Stock outstanding as of June 30, 2010 and excludes 100,000 shares of our Common Stock reserved for issuance pursuant to outstanding warrants to purchase our stock as of June 30, 2010, with a weighted average exercise price of $4.50 per share.
 

MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
Market Information
 
Since April 20, 2010, our Common Stock has been listed on NASDAQ Global Market.  Prior to that time, our Common Stock had been traded on the NYSE Amex Equities market since October 29, 2009.  Prior to that time, our Common Stock was traded over the counter on the bulletin board maintained by Pink Sheets LLC.  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.  Unless indicated otherwise in the footnote to the table below, the prices set forth below have not been adjusted to reflect the two for three reverse stock split of our Common Stock effected on October 29, 2009.
 
   
High
   
Low
 
2008
           
First quarter
  $ 9.86     $ 2.47  
Second quarter
  $ 6.58     $ 3.29  
Third quarter
  $ 5.90     $ 2.65  
Fourth quarter
  $ 3.25     $ 2.25  
                 
2009
               
First quarter
  $ 5.00     $ 2.50  
Second quarter
  $ 6.50     $ 2.80  
Third quarter
  $ 3.50     $ 3.50  
Fourth quarter
  $ 4.12     $ 2.80  
                 
2010
               
    First quarter   $ 7.25     $ 4.15  
    Second quarter   $ 7.24     $ 5.03  
    Third quarter through August 25, 2010   $ 6.29     $ 4.79  
 
On August 24, 2010, the closing sale price of our shares of Common Stock was $5.86 per share and there were 20,410,117 shares of our Common Stock outstanding.  On that date, our shares of Common Stock were held by approximately 79 shareholders of record.  The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of our Common Stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
 
Dividend Policy
 
The holders of our Series B preferred stock are not entitled to receive dividends with respect to their shares, and dividends cannot be paid on our Common Stock so long as our Series B preferred stock remains outstanding.    In addition, the payment of dividends is at the discretion of our board of directors and is contingent on our revenue and earnings, capital requirements, financial condition and the ability of our operating subsidiary, SkyPeople (China), to obtain approval to send monies out of the PRC.  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 our 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.


SELECTED CONSOLIDATED FINANCIAL DATA
 
The following summary consolidated financial data should be read together with our consolidated financial statements and notes and “Management’s discussion and analysis of financial condition and results of operations” appearing elsewhere in this prospectus.  We have derived the following consolidated statement of operations data for the years ended December 31, 2008 and 2009 and consolidated balance sheet data as of December 31, 2008 and 2009 from our audited consolidated financial statements and related notes included elsewhere in this prospectus.  We have derived the statement of operations data for the years ended December 31, 2005, 2006 and 2007 and the balance sheet data as of December 31, 2005, 2006 and 2007 from our audited consolidated financial statements not included in this prospectus.  The historical results presented below are not necessarily indicative of financial results to be achieved in future periods.
 
   
Year ended December 31,
 
(in thousands, except per share data)  
2009
   
2008
   
2007
   
2006
   
2005
 
Consolidated statements of operations data:
                             
Revenue
  $ 59,250     $ 41,649     $ 29,362     $ 17,427     $ 7,028  
Cost of sales
    33,869       23,608       18,467       10,105       4,472  
Gross profit
    25,381       18,041       10,895       7,322       2,556  
Operating expenses:
                                       
General and administrative
    2,433       2,831       1,159       405       489  
Selling
    918       1,453       687       665       448  
Research and development
    1,103       450       31       -       -  
Liquidated damages
    -       254       -       -       -  
Total operating expenses
    4,454       4,988       1,877       1,070       937  
Income from operations
    20,927       13,053       9,018       6,252       1,619  
Other income (expense), net
    1,504       (199 )     48       (127 )     70  
Income before provision for income taxes
    22,431       12,854       9,066       6,125       1,689  
Provision for income taxes
    6,026       2,231       1,109       2,036       650  
Net income
    16,405       10,623       7,957       4,089       1,039  
Net income attributable to noncontrolling interests
    1,216       613       361       244       4  
Net income  applicable to SkyPeople Fruit Juice, Inc.
  $ 15,189     $ 10,010     $ 7,596     $ 3,845     $ 1,035  
Net income per share:
                                       
Basic
  $ 0.84     $ 0.56     $ 0.53     $ 0.26     $ 0.08  
Diluted
  $ 0.84     $ 0.56     $ 0.53     $ 0.26     $ 0.08  
Weighted average shares used in computing net income (loss) per share:
                                       
Basic
    15,333       14,820       14,671       14,671       14,671  
Diluted
    18,683       17,888       14,671       14,671       14,671  
 
   
As of December 31,
 
(in thousands)  
2009
   
2008
   
2007
   
2006
   
2005
 
Consolidated balance sheet data:
                             
Cash and cash equivalents
  $ 14,405     $ 15,274     $ 4,094     $ 2,135     $ 593  
Working capital
    29,034       13,432       5,118       3,840       -2,497  
Total assets
    83,662       59,287       42,120       21,422       10,423  
Common Stock warrant liability
                                       
Convertible preferred stock
    3,448       3,448       -       -       -  
Common Stock and additional paid in capital
    26,717       14,014       10,903       10,903       10,903  
Total stockholders’ equity
    61,446       41,059       26,246       16,300       5,778  
 
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 our consolidated financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the heading “Risk Factors.”
 
Overview
 
We are engaged in the production and sales of fruit juice concentrates (including fruit purees, concentrated fruit purees and concentrated fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages), and other fruit related products (including organic and non-organic fresh fruits, fruit seeds and fruit aroma) in and from the PRC.  Our fruit juice concentrates, which include apple, pear and kiwifruit concentrates, are sold to domestic customers, including end users and, currently, one distributor in Beijing, and exported directly or via distributors.  We sell our Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the PRC.  In 2009, sales of our fruit concentrates, fruit beverages and other fruit related products represented approximately 61%, 17%, and 22% of our revenue, respectively, compared to approximately 78%, 13% and 9%, respectively, in 2008. Sales of our fruit concentrates, fruit beverages and other fruit related products represented approximately 58%, 25%, and 17% of our revenue, respectively, for the six months ended June 30, 2010, compared to approximately 51%, 45% and 4%, respectively, for the same period of 2009.  For the six months ended June 30, 2010, our total sales reached $31,118,079, an increase of $18,250,117, or 141.8%, compared to $12,868,062 for the same period of 2009.
 
We export our products as well as sell them domestically. We sell our products either through distributors substantially all of which we believe have good credit history or to end users directly.  In 2009 and 2008, we estimate export of our products represented approximately 22% and 34% of our revenues, respectively, and sales to distributors represented approximately 40% and 31% of our revenues, respectively.  Since we sell to distributors in the PRC and therefore are not certain exactly where our exported fruit juice concentrated products are ultimately sold, we estimate that our main export markets are the United States, the European Union, South Korea, Russia and the Middle East.  We sell our Hedetang brand bottled fruit beverages domestically, primarily to supermarkets in the PRC.  We sell our other fruit related products to domestic customers.  In the second half of 2008, the demand for and the price of fruit juice concentrates decreased in the international market as a result of the worldwide economic crisis. In the meantime, the PRC saw a growing demand for juice products as a result of a slow increase in the existing low per capita consumption rate of fruit juice beverages and the expansion of the middle class.  In 2009, we estimate sales from the export of our fruit juice concentrates decreased to 35% from 44% for 2008.
 
We currently market our Hedetang brand fruit beverages in only certain regions of the PRC.  We plan to expand the market presence of Hedetang over a broader geographic area in the PRC. In particular, we plan to expand our glass bottle production line to produce higher margin portable fruit juice beverages targeting consumers in more populated Chinese cities.  In January 2010, we engaged a beverage distributor in Beijing to focus on the sales and marketing of our fruit juice and fruit cider beverages to food and beverage wholesalers and retailers in the Beijing area. Our revenue in the Beijing area was approximately $1.5 million, or 4.8% of our total revenue, for the six months ended June 30, 2010 as compared to zero for the same period of 2009.
 
 
We plan to continue to focus on creating new high margin products in the future to supplement our current product offering.  We introduced a new kiwifruit concentrated juice product to the market in the fourth quarter of 2008.  The gross margin on our kiwifruit concentrate juice product was 47.3% in 2009, which we believe was higher than the average gross margin for the industry, primarily due to the efficiencies of certain of our proprietary kiwifruit juice making processes.  In addition, we are making efforts to improve margins for our fruit beverage segment.  In the first quarter of 2009, we developed and introduced a fruit cider beverage that tested well in the market.  The gross margin of our fruit cider beverages was 48.6% for 2009, versus an average gross margin of 28.0% for our pure fruit beverages during the same period.  In July 2009, we set up a Vegetable and Fresh Fruits Division to promote the sales of fresh kiwifruit in the PRC domestic market.  Revenue from sales of fresh kiwifruit in 2009 was $11.8 million, an increase of $9.5 million, or 406.2%, as compared to revenue of $2.3 million in 2008.
 
We believe that continuous investment in research and development is a key component to being a leader in fruit juice concentrate and fruit beverage quality.  As of June 30, 2010, we had an internal research and development team of approximately 41 people, and we retain one research institution for additional consultation.  Our research and development effort emphasizes the design and development of our processing technology with the goal of decreasing processing costs, optimizing our production capabilities and maintaining product quality.  We intend to continue to invest in research and development to respond to and anticipate customer needs.  In 2009 and 2008, our research and development expenses were $1,102,658 and $449,695, respectively.  For the six months ended June 30, 2010 and 2009, our research and development expenses were $545,333 and $551,792, respectively.
 
Our business is highly seasonal and can be greatly affected by weather because of the seasonal nature in the growing and harvesting of fruits and vegetables.  Our core products are apple, pear and kiwifruit juice concentrates, which are produced from July or August to April of the following year.  The squeezing season for (i) apples is from August to January or February; (ii) pears is from July or August until April of next year; and (iii) kiwifruit is from September through December.  Typically, a substantial portion of our revenues is earned during our first and fourth quarters.  To minimize the seasonality of our business, we make continued effort in identifying new products with harvesting seasons complementary to our current product mix, such as pomegranate and persimmon.  Our goal is to lengthen our squeezing season, thus increasing our annual production of fruit juice concentrates and fruit beverages.  In the first quarter of 2009, we introduced mulberry and kiwifruit cider beverages in the Chinese market.  Unlike fruit juice concentrates, which can only be produced during the squeezing season, such fruit beverages are made out of fruit juice concentrates and can be produced and sold in all seasons.
 
Fresh fruits are the primary raw materials needed for the production of our products. Our raw materials mainly consist of apples, pears and kiwifruits.  The purchase of fresh fruits represented 48% and 47% of our cost of sales in 2009 and 2008, respectively. Other raw materials used in our business include pectic enzyme, amylase, auxiliary power fuels and other power sources such as coal, electricity and water.

 
We purchase raw materials from local markets and fruit growers that deliver directly to our plants.  We have implemented a fruit purchasing program in areas surrounding our factories.  In addition, we organize purchasing centers in rich fruit production areas, helping farmers deliver fruit to our purchasing agents easily and in a timely manner.  We are then able to deliver the fruit directly to our factory for production.  We have also assisted local farmers in their development of kiwifruit fields to help ensure a high quality product throughout the production channel.  Our raw material supply chain is highly fragmented and raw fruit prices are highly volatile in China.    In addition to raw materials, we purchase various ingredients and packaging materials such as sweeteners, glass and plastic bottles, cans and packing barrels. We generally purchase our materials or supplies from multiple suppliers.  We are not materially dependent on any one supplier or group of suppliers. Our largest packing glass bottle supplier for our fruit beverages is Xuzhou Ruitai Glass Bottle Co., Ltd., which accounted for 13% of our total purchases in 2009 and 8% in 2008. Another large supplier is Xian Yang Dichen Printing Co., Ltd., which accounted for 11% of our total purchases in 2009 and 7% in 2008.  We did not have concentrations of business with vendors constituting more than 10% of our purchases in 2008.
 
Shaanxi and Liaoling Provinces, where our manufacturing facilities are located, are large fruit producing provinces. We operate three factories and are constructing a fourth factory in the PRC, all of which are strategically located near fruit growing centers so that we can better preserve the freshness of the fruits and lower our transportation costs.  To take advantage of economies of scale and to enhance our production efficiency, each of our manufacturing facilities has a focus on producing single fruit based concentrates and beverages according to the proximity of such manufacturing facility to the sources of supply for that fruit.  Our kiwifruit processing facilities are located in Zhouzhi County of Shaanxi Province, which has the largest planting area of apples and kiwifruit in the PRC.  Our pear processing facilities are located in Shaanxi Province, which is the main pear producing province in the PRC.  We have two apple processing facilities in Liaoning Province, a region that abounds with high acidity apples.  We believe that these regions will provide adequate supply of raw materials for our production needs in the foreseeable future.
 
In the second quarter of 2009, we completed the expansion of our 2,000 square meter research and development center.  The expansion was done on the existing site of one of our Shaanxi Province factories. We capitalized costs of RMB 8 million and interests on borrowings of RMB 268,416, or approximately $1.2 million in total, as fixed assets for this project.
 
In the third quarter of 2009, we completed the construction of an industrial waste water processing facility and renovation of an employee building in our other Shaanxi Province factory. Our production process generates a large amount of waste water, which must be treated and discharged for our production process to go smoothly.  The 1,118 square meter industrial waste water processing facility processes 1,200 cubic meters of waste water per day.  We capitalized RMB 4,641,590, or approximately $679,997, as fixed assets for this project. We began to operate the waste water processing facility in the fourth quarter of 2009. We capitalized RMB 76,060, or approximately $11,144, as fixed assets for renovation of an employee building in the third quarter of 2009.
 
In the third quarter of 2009, we began to renovate our factory, our road and an office building at Qiyiwangguo. We capitalized RMB 198,969, or approximately $29,149 as construction in progress as of December 31, 2009. This project was completed in the first quarter of 2010.
 
 
Recent Development
 
Production of Pear Fructose
 
In June 2010, we signed sales contracts for approximately 1,500 tons of pear fructose with several distributors in an amount of RMB 15,311,118 (or approximately $2.25 million). We began to build our fructose production line in our Jingyang facility in September 2009. We expect the capacity of the production line to be 3,000 tons per year.  Due to incorrect delivery of certain equipment by the equipment manufacturer, the completion date for the project was delayed from May 2010 and we currently expect the production line to commence production by the end of August 2010. These sales agreements will go into effect upon the commencement of production and will be valid for 10 months. Although we currently plan to use the new fructose production line to produce pear fructose, this production may also be used to produce apple fructose from apple juice concentrates.
 
Fructose is a simple monosaccharide found in many foods and is one of the three important dietary monosaccharides along with glucose and galactose. It is significantly sweeter than sucrose at room temperature and thus smaller quantities are required to achieve equivalent sweetness in some foods. For this and other reasons, fructose is often recommended for diabetics. Natural sources of fructose include fruits, vegetables (including sugar cane), and honey. Fructose is often further concentrated from these sources.
 
We believe adding fructose to our product offering can help to diversify our product structure and enhance the added value of our products. Further, our fructose product, which is further concentrated from fruit juice concentrates, can be produced throughout the year. We believe these advantages will reduce the seasonality of our operations and strengthen our profitability.
 
Government Grant
 
    In the second quarter of 2010, we were notified by the Shaanxi government that RMB 15 million (or approximately $2.2 million) had been appropriated to support our indirect subsidiary Qiyiwangguo’s “Kiwifruit Further Processing and Comprehensive Utilization Project” under the Key Industry Revitalization and Technology Reform Program, or the Key Industry Program, sponsored by the National Development and Reform Commission, the Ministry of Industry and Information and the Ministry of Finance.    The RMB 15 million subsidy is the second of such subsidies granted to us under the Key Industry Program. The first was in the amount of RMB 9 million (or approximately $1.3 million) granted to us in 2009 for our kiwifruit industrialization development plan. We expect to receive the RMB 15 million grant in the next few months. We plan to use the RMB 15 million grant to complete the Kiwifruit Quality and Safety Testing Center project, which is part of the “Qiyiwangguo Kiwifruit Further Processing and Comprehensive Utilization Project”, and to upgrade our existing testing facilities and technologies. Upon completion of the Kiwifruit Quality and Safety Testing Center, it will provide online quality monitoring and quick testing services throughout our raw material sourcing, manufacturing and storage processes. We also anticipate that it will provide kiwifruit safety and quality testing services to the public in Shaanxi Province. Compared to our existing testing system, the new generation testing system has a wider and deeper testing range with more accurate and faster results.

 
Key Components of Operating Results
 
Sources of Revenue
 
We derive our revenue primarily from the sales of fruit juice concentrates, fruit beverages and other fruit related products in and from the PRC.
 
Our fruit juice concentrates, which include apple, pear and kiwifruit, are sold directly or indirectly to domestic juice manufacturers and exported primarily via distributors.  Since we sell to distributors in the PRC and therefore are not certain exactly where our exported fruit juice concentrated products are ultimately sold, we estimate that our products are exported to North America, Europe, Russia, South Korea and the Middle East.  Based on our estimates, we exported 35% and 44% of our concentrated fruit juice in 2009 and 2008, respectively. Of this amount, we estimate 86% and 60% of the revenue was exported through distributors substantially all of which we believe have good credit history, in 2009 and 2008, respectively. Our general sales agreement with distributors requires that the distributors pay us after we deliver our products to them, which is not contingent on resale to end users.  Our credit terms for distributors substantially all of which we believe have good credit history are from 30 days to 90 days. To date, we have had no material issues with collections from our distributors.  Distributors have no contractual right to return our products and we are not required to rebate or credit any amounts paid if we subsequently reduce the price of our products.
 
We sell our Hedetang branded bottled fruit juice beverages and fruit cider beverages domestically primarily to supermarkets in the PRC.
 
Besides concentrated juice products and juice beverages, we generate other revenue from sales of apple spice, kiwifruit seeds, and fresh kiwifruit. These products are mainly sold to Chinese customers.
 
Cost of Sales
 
Our cost of sales consists primarily of the cost for raw materials, including various fresh fruit, packing barrels, pectic enzyme, amylase, auxiliary power fuels and other power sources such as coal, electricity and water, bottles and packaging materials, expenses associated with the operations of our manufacturing facilities.
 
The shipping and handling expenses of $832,961 and $1,344,484 for fiscal years 2009 and 2008, respectively, and $527,489 and $355,476 for the six months ended June 30, 2010 and 2009, respectively, are reported in the Consolidated Statement of Operations as a component of selling expenses.
 
The largest component of our cost of sales is the cost for fresh fruit.  We purchase fresh fruit and other raw materials from local markets and fruit growers that deliver directly to our plants.  Our raw material supply chain is highly fragmented and raw fruit prices are highly volatile.  We generally do not enter into long term purchase agreements for fresh fruit.

 
Operating Expenses
 
We classify our operating expenses into three categories: general and administrative, sales and research and development.  Our operating expenses consist primarily of personnel costs, which include salaries, bonuses, payroll taxes and employee benefit costs.  Other expenses include advertising and promotional costs, shipping and handling costs not billed to customers, facilities costs and legal, audit and tax, consulting and other professional service fees.
 
The government owns all of the land in the PRC.  Companies or individuals are authorized to possess and use the land only through land use rights granted by the PRC government.  Accordingly, we paid for land use rights in advance and such prepayments are being amortized and recorded as lease expenses using the straight-line method over the use terms of the lease, which are 30 to 50 years.  The amortization expenses were $174,118 and $164,005 for 2009 and 2008, respectively, and $125,640 and $83,547 for the six months ended June 30, 2010 and June 30, 2009, respectively.
 
General and Administrative
 
General and administrative expenses consist primarily of personnel costs for our executive, finance, human resources and administrative personnel, legal, audit and tax and other professional fees, depreciation expenses, insurance and other corporate expenses.
 
Sales
 
Selling expenses consist primarily of freight and transportation expenses, advertising and promotional costs and personnel costs for our sales team.
 
Research and Development
 
Research and development expenses consist primarily of personnel costs for our development employees and use of outside consultants.  We have focused our research and development on developing and producing innovative high margin products to further diversify our product mix.  We entered into two contracts with an outside research institute to research and develop new products in fiscal year 2008.  The terms of these contracts were from August 2008 to December 2010 with a monthly payment of RMB 600,000, or $87,900 according to the exchange rate of December 31, 2009.
 
Accrued Liquidated Damages
 
Our failure to meet the timetables provided by the terms of the registration rights agreement from our 2008 private placement resulted in the imposition of liquidated damages, which were payable in cash to the investors in the financing equal to 14% of the purchase price of the Series B preferred stock issued in the financing, per annum payable monthly based on the number of days such failure existed, not to exceed 18% of the purchase price.  We recorded liquidated damages of $254,301 in 2008 for failure to meet the agreed timetables.
 
Pursuant to the exchange agreement and certain waiver and release agreements entered into subsequent to our 2008 private placement, the investors in the 2008 private placement agreed to release us from our obligations to pay any liquidated damages incurred under the registration rights agreement. As a result, the liquidated damages we previously recorded were reversed and additional paid-in capital was increased.

 
Other Income (Expense), Net
 
Other income (expense), net consists of interest we earn on our cash and cash equivalents, interest expenses on our short-term loans from Chinese local banks, government subsidies and rental income or expenses.
 
The PRC government’s agricultural industrialization policy supports our business.  SkyPeople (China) was awarded the status of a nationally recognized High and New Technology Enterprise in December 2006.  As a result, we received subsidies from the local government of Shaanxi Province, which have been used to pay research and development expenses.
 
Provision for Income Taxes
 
Our provision for income taxes primarily consists of corporate income taxes related to profits earned in the PRC from sales of our products.  Prior to 2007, we were subject to an income tax rate of 33% in the PRC.  In December 2006, SkyPeople (China) was awarded the status of a nationally recognized High and New Technology Enterprise, which entitled SkyPeople (China) to tax-free treatment from January 2007 to December 2008. Starting in January 2009, SkyPeople (China) was subject to the regular tax rate of 25%. The tax rate of our indirect PRC subsidiary, Qiyiwangguo, was reduced from 33% to 25%, effective January 2008. The tax rate of Huludao Wonder was also reduced to 25%, effective January 2008.  Yingkou has not commenced operating activities as of the date of this prospectus. In addition, certain deferred tax in 2008 was recorded as tax expenses for 2009. As a result, our consolidated income tax rates were effectively 26% and 17% in 2009 and 2008, respectively, and consolidated income tax rates were effectively 27% and 28% for the six months ended June 30, 2010 and 2009, respectively.
 
We adopted ASC Topic 740, Income Taxes, on July 1, 2007 and have had no material adjustment to liabilities to unrecognized income tax benefits since its adoption.
 
Critical Accounting Policies
 
Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.  Our financial statements reflect the selection and application of accounting policies, which require management to make significant estimates and judgments.  Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.  We believe that the following reflects the more critical accounting policies that currently affect our financial condition and results of operations.
 
Use of Estimates
 
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue 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 allowance for 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.

 
Principles of Consolidation
 
Our consolidated financial statements include the accounts of SkyPeople, Pacific, HMN, SkyPeople (China), Qiyiwangguo, Huludao Wonder, and Yingkou.  All material intercompany accounts and transactions have been eliminated in consolidation.
 
The pooling method (entity under common control) is applied to the consolidation of Pacific with SkyPeople (China) and SkyPeople (China) with Qiyiwangguo, Huludao Wonder and Yingkou. The reverse merger accounting is applied to the consolidation of SkyPeople and Pacific.
 
The consolidated financial statements are prepared in accordance with U.S. GAAP.  This basis differs from that used in the statutory accounts of SkyPeople (China), Qiyiwangguo, Huludao Wonder and Yingkou, 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.
 
Acquisition of Pacific and Recapitalization
 
Our share exchange transaction with Pacific resulted in Pacific’s shareholders obtaining a majority voting and controlling interest in us.  U.S. GAAP requires that a company whose shareholders retain the majority controlling interest in a combined business be treated as the acquiror for accounting purposes, resulting in a reverse acquisition with Pacific as the accounting acquiror and us as the acquired party.  Accordingly, the share exchange transaction has been accounted for as a recapitalization of us.  The equity sections of the accompanying financial statements have been restated to reflect our recapitalization due to the reverse acquisition as of the first day of the first period presented.  All references to Pacific Common Stock have been restated to reflect the equivalent numbers of our equivalent shares.
 
Accounting Treatment of the 2008 Private Placement
 
The shares held in escrow pursuant to the terms of the 2008 private placement were not accounted for as outstanding until such time as the shares were released to the holders of the Series B Preferred Stock.  During the time such shares were held in escrow, they were accounted for as contingently issuable shares in determining the diluted earnings per share denominator in accordance with Accounting Standards Codification ASC 260—Earnings Per Share.  Pursuant to the terms of an exchange agreement dated June 2, 2009 that we entered into with the investors of the private placement, we were not required to provide the shares to the holders of the Series B Preferred Stock and as a result, on June 2009, the shares were released from escrow and cancelled.
 
Liquidated damages potentially payable by us under the stock purchase agreement and the registration rights agreement pursuant to the terms of our 2008 private placement were accounted for in accordance with Accounting Standards Codification ASC 815-40—Contracts in Entity’s Own Equity.  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 Accounting Standards Codification ASC 450—Contingencies were recorded as a liability and deducted from operating income.

 
Our failure to meet the timetables provided for in the registration rights agreement resulted in the imposition of liquidated damages, which were payable in cash to the investors in our 2008 private placement equal to 14% of the total purchase price under the stock purchase agreement per annum payable monthly based on the number of days such failure existed, which amount of liquidated damages, together with all liquidated damages that we may incur pursuant to the registration rights agreement, the warrants and the stock purchase agreement, could not exceed an aggregate of 18% of the total purchase price under the stock purchase agreement.  We recorded liquidated damages of $254,301 in 2008 for failure to meet the timetables provided for in the registration rights agreement.
 
Pursuant to the exchange agreement and certain waiver and release agreements we entered into in June 2009, the investors in the 2008 private placement agreed to release us from our obligations to pay any liquidated damages incurred under the registration rights agreement. As a result, the liquidated damages we previously recorded were reversed and additional paid in capital was increased.
 
Variable Interests
 
On June 2, 2007, SkyPeople (China) entered into a lease agreement with Hede pursuant to which SkyPeople (China), for a one year term and for a monthly lease payment of RMB 300,000 (or $41,070 based on the exchange rate of December 31, 2007) leased all the assets and operating facilities of Huludao Wonder, which was wholly owned by Hede.  On June 10, 2008, we completed the acquisition of Huludao Wonder for a total purchase price of RMB 48,250,000 (or $6,308,591 based on the exchange rate on June 1, 2007).  The payment was made through the offset of related party receivables from Hede.
 
Prior to the June 2008 acquisition, Huludao Wonder was classified as a variable interest entity of SkyPeople (China) according to Accounting Standards Codification ASC 810—Consolidation of Variable Interest Entities, or ASC 810.  ASC 810 requires the primary beneficiary of the variable interest entity to consolidate its financial results with the variable interest entity.  We evaluated our relationship with Huludao Wonder and concluded that Huludao Wonder was a variable interest entity for accounting purposes from June 2007 to our acquisition of the remaining interests in June 2008.  The purchase method (entity under common control) was applied to the consolidation of SkyPeople (China) with Huludao Wonder after the acquisition of Huludao Wonder.
 
Revenue Recognition
 
We recognize revenue upon meeting the recognition requirements of Staff Accounting Bulletin No. 104, Revenue Recognition.  Revenue from sales of our products are recognized upon the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers (which generally include end users and distributors) and title has passed.  We estimate that more than 22% of our products were exported either through distributors or to end users in 2009.  Of this amount, we estimate 86% of the revenue was exported through distributors.  Our general sales agreement requires the distributors to pay us after we deliver the products to them, which is not contingent on resale to end users.  Our credit terms for distributors substantially all of which we believe have good credit history are from 30 days to 120 days.  For new customers, we usually require 100% advance payment for direct export sales.  Customer advances are recorded as advances from customers, which are a current liability.  Our payment terms with distributors are not determined by the distributor’s resale to end users.  Our historical bad debt rate of our accounts receivable is less than 0.5% and, because of our strict quality standards during the production, storage and transportation, we have experienced no returns based on the quality of our products.  Our customers have no contractual right to return our products and historically we have not had any products returned.  Accordingly, we have not recorded any provisions 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 distribution rights with respect to that product.

 
Cost of Sales
 
We determine cost of sales on the basis of the average cost of inventory methods. For purposes of determining our cost of sales of kiwifruit seeds, we apply the relative sales value costing method.  In calculating the gross margin of kiwifruit seeds, we applied the average method to simplify the calculation.  In applying this method, we first calculated the average revenue of kiwifruit seeds and kiwifruit juice that can be produced from one ton of kiwifruit, based on our estimate in a normal production situation in the applicable period.  This percentage is then applied to actual cost for the production of kiwifruit juice to calculate the actual cost of sales for kiwifruit seeds and concentrated kiwifruit juice in the period covered by the financial statements.  In using the first in, first out inventory method, the kiwifruit seeds of zero cost allocation were sold first, then the kiwifruit seeds of higher cost allocation. Hence, the gross margin for kiwifruit seeds in 2009 was much higher than that of concentrated kiwifruit juice.
 
Accumulated Other Comprehensive Income
 
Accumulated other comprehensive income represents foreign currency translation adjustments.
 
Noncontrolling Interests
 
Noncontrolling interests represents the minority shareholders’ proportionate share of 1% of the equity of SkyPeople (China) and 8.85% of the equity of Qiyiwangguo.
 
Foreign Currency and Comprehensive Income
 
The accompanying financial statements are presented in USD.  The financial statements of the company’s foreign subsidiaries are measured using the local currency as the functional currency, however, the functional currency and the reporting currency of the company is the USD. Assets and liabilities of the company’s foreign subsidiaries are translated into USD from RMB at period end exchange rates for assets and liabilities and weighted average exchange rates for revenue 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 to USD exchange rate into a flexible rate under the control of the PRC government.  We use the closing rate method in currency translation of our financial statements.
 
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 Accounting Standards Codification ASC 740—Income Taxes, or ASC 740, these deferred taxes are measured by applying currently enacted tax laws.

 
We have implemented ASC 740, 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.  We recorded no deferred tax assets or liabilities as of December 31, 2009, and as of June 30, 2010, since nearly all differences in tax basis and financial statement carrying values are permanent differences.
 
Impairment of Long-Lived Assets
 
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  It is reasonably possible that these assets could become impaired as a result of technological or other industrial changes.  Determination of recoverability of assets to be held and used is 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 costs to sell.  During the reporting period there was no impairment loss.
 
Accounts Receivable
 
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 periodically evaluates its receivables for collectability based on historical experience, current economic climate, as well as recent account activities and the length of time receivables are past due and writes off receivables when they become uncollectible. Management believed that its allowance for doubtful accounts was adequate as of December 31, 2009 and as of June 30, 2010.
 
Acquisition Transactions
 
Acquisition of Pacific
 
In February 2008, we acquired 100% of the ownership interest in Pacific from the shareholders of Pacific in a share exchange transaction pursuant to which the shareholders of Pacific exchanged 100 ordinary shares of Pacific, representing a 100% ownership interest in Pacific, for 1,000,000 shares of our Series A preferred stock, par value $0.001 per share.  We currently operate through Pacific, a wholly owned subsidiary organized under the laws of Vanuatu, and SkyPeople (China), a 99% owned subsidiary of Pacific organized under the laws of the PRC, which was acquired by Pacific in September 2007 and converted from a PRC domestic company to a foreign joint venture company.
 
Acquisition of Huludao Wonder
 
On June 2, 2007, SkyPeople (China) entered into a lease agreement with Shaanxi Hede Investment Management Co., Ltd. (“Hede”), pursuant to which SkyPeople (China), for a term of one year and for a monthly lease payment of RMB 300,000, leased all the assets and operating facilities of Huludao Wonder, which was wholly-owned by Shaanxi Hede. 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 on June 1, 2007. The payment was made through the offset of related party receivables.

 
Acquisition of Yingkou
 
On November 25, 2009, the company completed the acquisition of Yingkou Trusty Fruits Co., Ltd. (“Yingkou”) pursuant to the Stock Purchase Agreement that SkyPeople (China) entered with Xi’an Dehao Investment & Consulting Co., Ltd. on November 18, 2009. The purchase price was RMB 22,700,000 (or approximately $3,323,913 based on the exchange rate of November 13, 2009).  Yingkou has not commenced operating business as of the date of this prospectus, but is expected to commence production in late August 2010.
 
In accordance with ASC Top 805, Business Combinations, we allocated the purchase price to tangible assets and intangible assets of Yingkou based on their estimated fair value.  We estimated that the book value of the fixed assets acquired approximated the fair value of similar assets available on the market based on the information management received.  Accordingly, we allocated $1,880,046 to various items of current assets and $4,840,218 to fixed assets acquired.  The excess purchase price over the fair value of tangible assets acquired, which was $266,499, was attributable to an identifiable intangible asset, the land usage right, based on estimates and assumptions determined by management. The economic life of this land usage right was approximately 50 years and the land use right will be amortized over 50 years on the straight-line basis.
 
The following table summarizes the fair value of Yingkou’s assets and liabilities acquired:
 
ASSETS
     
Cash
  $ 3,420  
Prepaid expenses and other current assets
    1,505,498  
Other receivables
    362,441  
Inventory
    12,107  
Fixed assets
    4,840,218  
Intangible asset
    350,283  
Other assets
    54,406  
TOTAL ASSETS
  $ 7,128,373  
         
LIABILITIES
       
 Accounts payable
  $ 97,066  
 Accrued expenses
    9,399  
 Other payables
    3,697,995  
TOTAL LIABILITIES
  $ 3,804,460  
 NET ASSETS
  $ 3,323,913  
 
February 26, 2008 Private Placement
 
Our failure to meet the requirements of our registration rights agreement dated as of February 25, 2008 with the holders of our Series B preferred stock to have a registration statement declared effective for the resale of the shares by July 24, 2008 resulted in the imposition of liquidated damages on us.  We were required to pay the liquidated damages in cash to the holders of the Series B preferred stock on a pro rata basis equal to 14% of the purchase price per annum.  The liquidated damages were payable monthly and could not exceed an aggregate of 18% of the purchase price of our Series B preferred stock and warrants to purchase Common Stock.

 
We initially filed a registration statement on Form S-1 with the Securities Exchange Commission on March 26, 2008, but the registration statement was not declared effective by the Commission until February 5, 2009.  Therefore, we recorded liquidated damages of $254,301 in 2008, as we did not meet the effectiveness covenant.
 
On June 2, 2009, we entered into an exchange agreement dated as of May 28, 2009 with the investors in the private placement, pursuant to which we issued to the investors warrants to purchase an aggregate of 4,333,333 shares (or 6,500,000 shares pre- two-for-three reverse split) of Common Stock at a reduced exercise price in exchange for warrants to purchase an aggregate of 4,666,667 shares (or 7,000,000 shares pre- two-for-three reverse split) of Common Stock which had been issued to the investors in February 2008.  In the exchange agreement, the investors agreed to release us from all liability for damages, including any and all liquidated damages, penalties and interest thereon, relating to any breach or breaches of any of our obligations under the registration rights agreement from February 25, 2008 to May 28, 2009.  The investors also waived their right to receive up to 2,000,000 additional shares of our Series B preferred stock solely as a result of, and to the extent that, such stock would be deliverable to the investors because we did not comply with a covenant regarding pretax income per share for 2009 due to the issuance and delivery to the investors of the new warrants and the shares of Common Stock issuable under the new warrants. Accordingly, in the second quarter of 2009, we reversed the liquidated damages of $254,301 that were accrued in 2008 to additional paid-in capital.
 
Recent Accounting Pronouncements
 
In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The FASB believes these amendments remove potential conflicts with the Commission’s literature. In addition, the amendments in the ASU requires an entity that is a conduit bond obligor for conduit debt securities that are traded in a public market to evaluate subsequent events through the date of issuance of its financial statements and must disclose such date. All of the amendments in the ASU were effective upon issuance (February 24, 2010) except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The provisions of ASU 2010-09 did not have a material impact on the Company’s financial statements.
 
In February 2010, the FASB issued ASU No. 2010-08, Technical Corrections to Various Topics, thereby amending the FASB Accounting Standards CodificationTM (Codification). This ASU resulted from a review by the FASB of its standards to determine if any provisions are outdated, contain inconsistencies, or need clarifications to reflect the FASB’s original intent. The FASB believes the amendments do not fundamentally change U.S. GAAP. However, certain clarifications on embedded derivatives and hedging reflected in Topic 815, Derivatives and Hedging, may cause a change in the application of the guidance in Subtopic 815-15. Accordingly, the FASB provided special transition provisions for those amendments. The ASU contains various effective dates. The clarifications of the guidance on embedded derivatives and hedging (Subtopic 815-15) are effective for fiscal years beginning after December 15, 2009. The amendments to the guidance on accounting for income taxes in a reorganization (Subtopic 852-740) applies to reorganizations for which the date of the reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. All other amendments are effective as of the first reporting period (including interim periods) beginning after the date this ASU was issued (February 2, 2010). The provisions of ASU 2010-08 are not expected to have an impact on the Company’s financial statements.

 
In January 2010, the FASB issued Codification Accounting Standards Update No. 2010-06 (ASU No. 2010-06), improving Disclosure about Fair Value Measurements, under Topic 820, Fair value Measurements and Disclosures, to improve and provide new disclosures for recurring and nonrecurring fair value measurements under the three-level hierarchy of input for transfers in and out of Levels 1 and 2, and activity in Level 3.  This update also clarifies existing disclosures of the level of disaggregation for the classes of assets and liabilities and the disclosure about input and valuation techniques. ASU No. 2010-06 new disclosures and clarification of existing disclosure is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for financial statements issued for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of ASU No. 2010-06 new disclosures and clarification of existing disclosure did not have a material impact on our consolidated financial statements. The Company is currently accessing the impact, if any, of ASU No. 2010-06 disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements on our consolidated financial statements.
 
In September 2009, the FASB published FASB ASU No. 2009-12, Fair Value Measurements and Disclosures (Topic 820)—Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) . It amends Subtopic 820-10,  Fair Value Measurements and Disclosures—Overall , to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). It also requires new disclosures, by major category of investments, about the attributes included of investments within the scope of this amendment to the Codification. The provisions of ASU 2009-12 are effective for interim and annual periods ended after December 15, 2009. The adoption did not have a material impact on the consolidated financial statements
 
In September 2009 the New FASB Accounting Standards Update 2009-08 issued Earnings Per Share (amendments to Section 260-10-S99). This update includes technical corrections to Topic 260-10-S99 Earnings Per Share, based on EITF Topic D-53, Computation of Earnings Per Share for a Period that includes redemption or an induced conversion of a portion of a class of preferred stock  and EITF Topic D-42, The effect of the calculation of Earnings Per Share for the redemption or induced conversion of preferred stock.  Implementation of ASU 2009-08 did not have an impact on our results or financial position.
 
In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Measuring Liabilities at Fair Value, which is codified as ASC 820, Fair Value Measurements and Disclosures. This Update provides amendments to ASC 820-10, Fair Value Measurements and Disclosures –Overall, for the fair value measurement of liabilities. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities when traded as assets, or that is consistent with the principles of ASC 820. The amendments in this Update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents transfer of the liability. The amendments in this Update also clarify that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the assets are required are Level 1 fair value measurements. The guidance provided in this Update is effective for the first reporting period (including interim periods) beginning after issuance. The adoption of this Update did not have a significant impact to the Company’s consolidated financial statements.

 
In June 2009, the FASB issued SFAS No. 168, The ‘FASB Accounting Standards Codification’ and the Hierarchy of Generally Accepted Accounting Principles, which is codified as ASC 105. ASC 105 establishes the FASB Accounting Standards Codification (“Codification”), which officially launched July 1, 2009, to become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Commission under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The subsequent issuances of new standards will be in the form of Accounting Standards Updates that will be included in the Codification. Generally, the Codification is not expected to change U.S. GAAP. All other accounting literature excluded from the Codification will be considered non-authoritative. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted ASC 105 for the quarter ended September 30, 2009. The adoption of this Statement did not impact the results of operations or financial position, as it only required disclosures. In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 (“SFAS No. 166”). This standard has not yet been codified in the FASB Accounting Standards Codification. SFAS No. 166 seeks to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. SFAS No. 166 is applicable for annual periods after November 15, 2009 and interim periods therein and thereafter. The Company is currently evaluating the effect of ASC 805 on its consolidated financial statements and results of operation and is currently not yet in a position to determine such effects.
 
In May 2009, the FASB issued ASC 855-10, Subsequent Events (“ASC 855-10”). ASC 855-10 provides general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855-10 is applicable for interim or annual periods after June 15, 2009.  The Company adopted this amended topic effective July 1, 2009.
 
In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies, which is codified as ASC 805. ASC 805 amends and clarifies FASB Statement No. 141 (revised 2007), Business Combinations, to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805 shall be effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted this amended topic effective January 1, 2009. The adoption of this Update did not have a significant impact to the Company’s consolidated financial statements.
 
On January 1, 2009, the Company adopted new guidance ASC 805-10-65-1 (formerly Statement of Financial Accounting Standards ("SFAS") No. 141(R), Business Combinations (“SFAS 141R”)) issued by the FASB related to the accounting for business combinations and related disclosures. This new guidance addresses the recognition and accounting for identifiable assets acquired, liabilities assumed, and noncontrolling interests in business combinations. The guidance also establishes expanded disclosure requirements for business combinations. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

 
On January 1, 2009, the Company adopted new guidance ASC 810, Consolidation, regarding noncontrolling interests (formerly Statement of Financial Accounting Standards ("SFAS") No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”)) issued by the FASB related to the accounting for noncontrolling interests in consolidated financial statements. This guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance requires that noncontrolling interests in subsidiaries be reported in the equity section of the controlling company’s balance sheet. It also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company’s income statement. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
 
In November 2008, the FASB issued EITF Issue 08-6, Equity Method Investment Accounting Considerations ("EITF 08-6"). EITF 08-6 addresses questions about the potential effect of FASB Statement 141R Business Combinations and FASB Statement 160 Noncontrolling Interests in Consolidated Financial Statements on equity-method accounting under Opinion 18. EITF 08-6 would be effective prospectively for fiscal years beginning on or after December 15, 2008. The Company does not expect the adoption of EITF 08-6 to have an impact.
 
Effective January 1, 2009, the Company adopted ASC Topic 815-40, Derivatives and Hedging (“ASC 815-40”). ASC 815-40 specifies that a contract would not be treated as a derivative if it met the following conditions: (a) indexed to the Company’s own stock; and (b) classified in shareholders’ equity in the Company’s statement of financial position. The Company’s outstanding warrants with certain reset exercise price provisions as detailed in note 13 are not considered to be indexed to its own stock. Therefore, these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability.
 
In April 2008, the Financial Accounting Standards Board (“FASB”) issued new provisions on the determination of the useful life of intangible assets, as described in FASB Accounting Standards Codification (“FASB ASC”) 350, Goodwill and Other Intangible Assets (formerly FASB Staff Position FAS 142-3, Determination of the Useful Life of Intangible Assets). The provisions amend the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The objective of the provisions is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under U.S. GAAP. The new provisions are effective for fiscal years beginning after December 15, 2008. The Company adopted the provisions effective January 1, 2009 and the adoption of the provisions did not have a material impact on the Company’s consolidated financial statements.
 
In February 2008, the FASB staff issued Staff Position No. 157-2 Effective Date of FASB Statement No. 157 (“FSP FAS 157-2”). FSP FAS 157-2 delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of FSP FAS 157-2 were effective for the Company’s fiscal year beginning November 15, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption did not have a material impact on the consolidated financial statements.
 
In December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations (“FAS 141(R)”), which establishes principals and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Corporation’s results of operations or financial position.

 
Comparison of Operation Results
 
Six Months ended June 30, 2010 as Compared to Six Months ended June 30, 2009
 
Revenues
 
    The following table presents our consolidated revenues for our main products for the six months ended June 30, 2010 and 2009, respectively (in thousands):
   
Six Months Ended
June 30,
 
   
2010
   
2009
   
% Change
 
Concentrated apple juice and apple aroma
  $ 5,619     $ 1,629       244.9 %
Concentrated pear juice
    5,825       3,501       66.4 %
 
Concentrated kiwifruit juice and kiwifruit puree
    6,590       1,429       361.2 %
Fresh kiwifruit
    3,568       476       649.6 %
Fruit juice beverages
    6,363       4,440       43.3 %
Fruit cider beverages
    1,330       1,393       (4.5 %)
Other
    1,823       -       N/A  
Consolidated
  $ 31,118     $ 12,868       141.8 %
 
Revenue for the six months ended June 30, 2010 was $31.1 million, an increase of $18.2 million, or 141.8%, when compared to $12.9 million for the same sales period of the prior year. This increase was primarily due to an increase in sales of concentrated fruit juice, fresh kiwifruit and fruit juice beverages.
 
 
      
Sales from apple related products increased $4.0 million, or 244.9%, to $5.6 million for the six months ended June 30, 2010, compared to $1.6 million for the same period of 2009, primarily due to an increase in demand for concentrated apple juice in the international market in the current squeezing season of apples. In terms of sales volume, we sold approximately 6,420 tons of concentrated apple juice in the six months ended June 30, 2010, compared with approximately 1,787 tons in the same period of 2009, representing an increase of 259.3%.
 
Sales of concentrated pear juice increased to $5.8 million in the six months ended June 30, 2010, an increase of $2.3 million or 66.4%, from $3.5 million in the same period of 2009. Sales of concentrated kiwi juice and kiwi puree increased to $6.6 million in the six months ended June 30, 2010, an increase of $5.2 million or 361.2%, from $1.4 million in the same period of 2009. The increase in sales of concentrated pear juice and concentrated kiwi juice and kiwi puree was mainly due to the increase in our production volume and sales volume coupled with an increase in price of our products in the market. Due to the instability of the world financial markets and their influence on the global economy, the demand for concentrated juices in the international market decreased in the six months ended June 30, 2009. We did not reach our full production capacity in the six months ended June 30, 2009, and the lower inventory reduced our sales during that time. However, we saw a recovery of market demand and price in our concentrated fruit juice in the six months ended June 30, 2010, and comparably more products were produced to meet the market demand in the six months ended June 30, 2010.
 
In July 2009, we set up a Vegetable and Fresh Fruits Division to promote the sales of fresh kiwifruit in the Chinese domestic market. As a result, sales of fresh kiwifruit increased by $3.1 million, or 649.6%, to $3.6 million for the six months ended June 30, 2010, as compared to $0.5 million for the same period of 2009.
 
      The revenue from our fruit juice and fruit cider beverages in the PRC for the six months ended June 30, 2010 increased to $7.7 million, an increase of $1.9 million or 32.8%, compared to $5.8 million for the same period of fiscal 2009. Revenue from fruit cider beverages decreased slightly by $0.1 million, or 4.5%, to $1.3  million for the six months ended June 31, 2010,  compared to $1.4 million for the same period of fiscal 2009, as we reduced inventories in preparation for repackaging and re-labeling our cider beverage line first, which we will eventually extend to our fruit beverage products as well. We are in the process of developing five different series of fruit-based beverages and plan to launch these new series of products in the fourth quarter of 2010.  We have informed our retailers and distributors in advance.
 
Historically, we had only sold our fruit beverages regionally in Shaanxi Province and other nearby cities in the PRC.
 
On January 7, 2010, we engaged a beverage distributor in Beijing to focus on the sales and marketing of our fruit beverages to food and beverage wholesalers and retailers in the Beijing area. Our revenue in the Beijing area was approximately $1.5 million for the six months ended June 30, 2010. One of our strategies is to broaden the geographic presence of our brand-named fruit beverages and expand production and sales of higher margin fruit beverages in the PRC. As Chinese per capita fruit juice consumption is lower compared with the world’s average, and as the middle class expands and increases its wealth, we believe that there is great domestic market potential for our fruit juice beverages.


Gross Margin
 
The following table presents the consolidated gross profit of our main products and the consolidated gross profit margin, which is gross profit as a percentage of related revenues, for the six months ended June 30, 2010 and 2009, respectively (in thousands):
 
Gross profit   2010     2009     % Change  
Concentrated apple juice and apple aroma
  $ 1,101     $ 586       87.9 %
Concentrated pear juice
    2,241       1,392       61.0 %
Concentrated kiwifruit juice and kiwifruit puree
    4,401       613       617.9 %
Fresh kiwifruit
    1,883       298       531.9 %
Fruit juice beverages
    2,360       1,263       86.9 %
Fruit cider beverages
    698       696       0.3 %
Other
    837       -       N/A  
Consolidated
  $ 13,521     $ 4,848       178.9
                         
                   
% Change
Gross profit margin
                       
Concentrated apple juice and apple aroma
    19.6 %     36.0 %     (45.6 %)
Concentrated pear juice
    38.5 %     39.8 %     (3.3 %)
Concentrated kiwifruit juice and kiwifruit puree
    66.8 %     42.9 %     55.7 %
Fresh kiwifruit
    52.8 %     62.6 %     (15.7 %)
Fruit juice beverages
    37.1 %     28.4 %     30.6 %
Fruit cider beverages
    52.5 %     50.0 %     5.0 %
Other
    45.9 %     -       N/A  
Consolidated
    43.5 %     37.7 %     15.4 %
 
 
Consolidated gross margin increased by 15.4% for the six months ended June 30, 2010, from 37.7% to 43.5%, compared to the same period of fiscal 2009. Consolidated gross profit in the six months ended June 30, 2010 was $13.5 million, an increase of $8.7 million, or 181.3%, compared to $4.8 million for the same period of fiscal 2009. The increase in gross profit margin for the six months ended June 30, 2010 was primarily due to an increase in the gross margins of concentrated kiwifruit juice and kiwifruit puree and fruit beverages, which was partially offset by a decrease in the gross margin of concentrated apple juice and apple aroma, concentrated pear juice and fresh kiwifruit.
 
The gross profit margin of concentrated kiwifruit juice and kiwifruit puree increased by 55.7% to 66.8% for the six months ended June 30, 2010, as compared to 42.9% for the same period of 2009, which was mainly due to the large decrease in the general price of fresh kiwifruit. In addition, as we produced more concentrated kiwifruit juice and kiwifruit puree and increased the utilization of one of our factories in the six months ended June 30, 2010 compared with the same period of 2009, the fixed costs were spread over the increased output, which improved profit margin.
 
The gross profit margin of concentrated apple juice and apple aroma decreased by 45.6% to 19.6% for the six months ended June 30, 2010, as compared to 36.0% for the same period of 2009. The gross profit margin of concentrated pear juice decreased by 3.3% to 38.5% for the six months ended June 30, 2010, as compared to 39.8% for the same period of 2009.  The decrease in the gross margin of concentrated apple juice and apple aroma and concentrated pear juice was mainly due to an increase in the price of fresh apples and pears. The increase in the price of fresh pears was partially offset by an increase in the selling price of concentrated pear juice in the six months ended June 30, 2010.
 
The gross profit margin of our beverages increased by 18.4% for the six months ended June 30, 2010 as compared to the same period of last fiscal year. The increase in the gross margin of fruit beverages was attributable to the increase in the gross margin of our concentrated kiwifruit juice and kiwifruit puree, which are the raw materials of our fruit beverages.    
 
The gross profit margin of fresh kiwifruit decreased by 15.7% for the six months ended June 30, 2010 as compared to the same period of 2009, primarily due to an increase in the price we paid for higher quality fruit that we sold in the domestic PRC.
 
 
Operating Expenses
 
 
The following table presents consolidated operating expenses (in thousands) and operating expenses as a percentage of revenue for the six months ended June 30, 2010 and 2009, respectively (in thousands):
 
   
Six Months Ended
June 30,
     
 (Unaudited)
 
2010
   
2009
   
% Change
General and administrative
  $ 1,614     $ 967       66.9 %
Selling expenses
    579       375       54.4 %
Research and development
    545       552       (1.3 %)
Consolidated
  $ 2,738     $ 1,894       44.6 %
                         
As a percentage of revenue
                       
General and administrative
    5.2 %     7.5 %     (30.7 %)
Selling expenses
    1.9 %     2.9 %     (34.5 %)
Research and development
    1.8 %     4.3 %     (58.1 %)
Consolidated
    8.8 %     14.7 %     (40.1 %)
 
Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses increased by 44.6% to $2.7 million for the six months ended June 30, 2010, from $1.9 million for the corresponding periods in fiscal 2009, respectively. The increase in operating expenses was mainly due to an increase in general and administrative expenses and selling expenses, which was partially offset by a decrease in research and development expenses.
 
General and administrative expenses increased by $0.6 million, or 66.9%, to $1.6 million for the six months ended June 30, 2010, respectively, from $1.0 million for the same periods of fiscal 2009. The increase in general and administrative expenses was mainly due to the consolidation of Yingkuo’s operating results with those of SkyPeople (China) after the acquisition in November 2009 and the increase in payroll and related expenses as the result of a larger headcount to handle the rise in sales volume.
 
    Selling expenses increased by $0.2 million, or 54.4%, to $0.6 million for the six months ended June 30, 2010, from $0.4 million for the same periods of fiscal year 2009, respectively. This was mainly due to an increase in freight and transportation expenses as a result of the increase in sales.
 
 
Research and development expenses decreased slightly by $7 thousand, or 1.3%, to $545 thousand for the six months ended June 30, 2010, from $552 thousand for the same periods of fiscal 2009. This decrease is mainly due to the appreciation of Chinese currency when it is converted into U.S. dollar. We entered into two contracts with an outside research institute to research and develop new products in fiscal year 2008.  These two contracts were from August 2008 to December 2010, with a monthly payment of RMB 600,000, or $88,476 according to the exchange rate of June 30, 2010.
 
Income from Operations
 
In the six months ended June 30, 2010, income from operations increased by $7.8 million, or 260.0%, to $10.8 million from $3.0 million for the corresponding period in 2009. As a percentage of net sales, income from operations was approximately 34.6% for the six months ended June 30, 2010, an increase of 50.4% as  compared to 23.0% for the corresponding period in fiscal 2009. The increase in the percentage of net sales was due to an increase in gross profit, which was offset by an increase in operating expenses, as previously discussed.
 
Other Income (Expense), Net
 
Other expense, net was $0.2 million for the six months ended June 30, 2010, an increase of $1.7 million as compared to other income, net of $1.5 million for the same period of 2009, primarily due to an increase in other expense from the change in fair value of warranty liability.
 
Income Tax
 
Our provision for income taxes was $3.4 million for the six months ended June 30, 2010, an increase of $2.2 million, or 183%, from $1.2 million for the six months ended June 30, 2009.  The increase in tax provision was due to an increase in income before taxes. Our effective tax rate was 27% (excluding the change in fair value of warrant liabilities) and 28% for the six months ended June 30, 2010, and 2009, respectively.
 
We adopted ASC Topic 740, Income Taxes, on July 1, 2007 and have had no material adjustment to liabilities to unrecognized income tax benefits since its adoption.
 
Noncontrolling Interest
 
As of June 30, 2010, SkyPeople (China) held a 91.15% interest in Qiyiwangguo and Pacific held a 99% interest in SkyPeople (China).  Net income attributable to noncontrolling interests, which is deducted from our net income, was $0.7 million for the six months ended June 30, 2010, compared to $0.3 million for the same period of 2009.  The increase in the net income attributable to noncontrolling interests was mainly due to the increase in the net income generated by SkyPeople (China).
 
Net Income
 
Net income attributable to the Company was $6.4 million for the  six months ended June 30, 2010, an increase of  $3.5 million, from $2.9 million for the same period of 2009, due to the factors described above.
 
Fiscal Year ended December 31, 2009 as Compared to Fiscal Year ended December 31, 2008

       Revenue
 
The following table presents our consolidated revenues for our main products for the fiscal years 2009 and 2008, respectively, (in thousands):
   
Year Ended December 31,
 
   
2009
   
2008
   
% Change
 
Concentrated kiwifruit juice and kiwifruit puree
  $ 21,120     $ 13,603       55.3
Concentrated pear juice                                                                                        
    9,072       11,993       (24.4 )%
Concentrated apple juice and apple aroma                                                                                        
    6,046       6,854       (11.8 )%
Fruit juice beverages                                                                                        
    7,536       5,326       41.5 %
Fruit cider beverages                                                                                        
    2,438       -       N/A  
Fresh kiwifruit                                                                                        
    11,718       2,315       406.2
Kiwifruit seeds                                                                                        
    1,320       1,558       (15.3 )%
Consolidated                                                                                        
    59,250       41,649       42.3
 
Revenue increased to $59.2 million for 2009, an increase of $17.6 million or 42.3%, compared to $41.6 million for 2008.  This increase was primarily due to an increase in sales of concentrated kiwifruit juice and kiwifruit puree, kiwifruit seeds, fresh kiwifruit and fruit beverages, which was partially offset by a decrease in sales of concentrated pear juice, concentrated apple juice and apple aroma.
 
We believe that the increase in sales of concentrated kiwifruit juice and kiwifruit puree was due to the increase in market recognition of our products in both the international and PRC markets and an increase in the market demand for small breed fruit products.  Sales from kiwifruit related products, except fruit beverages, increased by $16.7 million or 95.4% to $34.2 million for 2009, compared to $17.5 million for 2008.  Due to their nutritional advantages and unique image and taste, the consumption of small breed fruits, such as kiwifruit and mulberry, and their processed products are on the rise worldwide.
 
Sales of concentrated pear juice decreased to $9.1 million in 2009, a decrease of $2.9 million or 24.4%, from $12.0 million in 2008, primarily due to a decrease in price of our concentrated juice products in the international market which we believe was the negative effect from the worldwide economic crisis.
 
The revenue of our fruit beverages in the PRC increased to $7.5 million, an increase of $2.2 million or 41.5%, compared to $5.3 million for 2008, due to marketing efforts and an increase in market demand for fruit juice in the Chinese market.
 
We also began sales of our fruit cider beverages in 2009, which generated $2.4 million in revenue.  We had no corresponding sale of fruit cider beverages in 2008.
 
Sales from apple related products decreased to $6.0 million in 2009, a decrease of $0.8 million or 11.8%, compared to $6.8 million for 2008, primarily due to a decrease in the price of apple-related products in the international market.  Although we saw a price recovery for concentrated apple juice in the international market in the current squeezing season of 2009, the average sales price of apple related products was still lower in 2009 when compared with 2008.

 
Based on our estimates, we exported products, directly or indirectly, from the PRC that represented approximately 22% and 34%, respectively, of our revenue in 2009 and 2008.  Sales to our five largest customers accounted for approximately 39% and 37% of our revenue in 2009 and 2008, respectively.
 
Gross Margin
 
The table below presents the consolidated gross profit of our main products and the consolidated gross margin for 2009 and 2008, respectively (in thousands):
 
   
Year Ended December 31,
 
   
2009
   
2008
   
% Change
 
Gross profit                        
Concentrated kiwifruit juice and kiwifruit puree
  $ 9,980     $ 7,339       36.0 %
Concentrated pear juice                                                                                      
    3,691       4,553       (18.9 )%
Concentrated apple juice and apple aroma                                                                                      
    1,349       1,443       (6.5 )%
Fruit juice beverages                                                                                      
    2,109       1,831       15.2 %
Fruit cider beverages                                                                                      
    1,185       -       N/A  
Fresh kiwifruit                                                                                      
    5,761       1,492       286.1 %
Kiwifruit seeds                                                                                      
    1,306       1,384       (5.6 )%
Consolidated                                                                                      
  $ 25,381     $ 18,042       40.7 %
                         
Gross profit margin
                       
Concentrated kiwifruit juice and kiwifruit puree
    47.3 %     54.0 %     (12.4 )%
Concentrated pear juice                                                                                      
    40.7 %     38.0 %     7.1 %
Concentrated apple juice and apple aroma                                                                                      
    22.3 %     21.1 %     5.7 %
Fruit juice beverages                                                                                      
    28.0 %     34.4 %     (18.6 )%
Fruit cider beverages                                                                                      
    48.6 %     -       N/A  
Fresh kiwifruit                                                                                      
    49.2 %     64.4 %     (23.6 )%
Kiwifruit seeds                                                                                      
    98.8 %     88.8 %     11.4 %
Consolidated                                                                                      
    42.8 %     43.3 %     (1.2 )%
 
Gross margin decreased to 42.8%, a decrease of 1.2%, from 43.3% for 2008.  In terms of absolute dollars, gross profit for 2009 was $25.3 million, an increase of $7.3 million or 40.7%, compared to $18.0 million for 2008, primarily due to a significant increase in revenue.
 
The decrease in gross margin in 2009 was primarily due to a decrease in the gross margin of concentrated kiwifruit juice and kiwifruit puree, fruit beverages and fresh kiwifruit, which was partially offset by an increase in the gross margin of concentrated pear juice, concentrated apple juice and apple spice and kiwifruit seeds.
 
The gross margin of concentrated kiwifruit juice and kiwifruit puree decreased to 47.3%, a decrease of 12.4%, for 2009 compared to 54.0% for 2008.  This decrease was mainly due to the large decrease in the price of fresh kiwifruit in the 2008 kiwifruit squeezing season as a result of abundant harvests that were not repeated during the 2009 squeezing season.

 
The gross margin of fresh kiwifruit decreased to 49.2%, a decrease of 23.6% for 2009 compared to 64.4% for 2008, primarily due to an increase in the price we paid for higher quality fruit that we sold in the domestic PRC market.
 
The gross margin of our fruit beverages decreased to 28.0%, a decrease of 18.6%, for 2009 from 34.4% for 2008.  We reduced selling prices during the lunar New Year holiday season in the PRC during 2009 as a sales promotion, which we had not done in 2008.
 
We began selling fruit cider beverages in the first quarter of 2009 in the Chinese market and had a gross margin of 48.6% for fruit cider beverages in 2009.  As we are one of the pioneers in the fruit cider industry in the Chinese market, our new products enjoy a higher gross margin as a result of the current lack of significant competition.
 
The gross margin of concentrated pear juice increased to 40.7%, an increase of 7.1%, for 2009 from 38.0% for 2008.  The increase in the gross margin of concentrated pear juice was primarily due to a large decrease in the general price of fresh pears during the July 2008 to April 2009 squeezing season due to an abundant pear harvest in 2009.  As a result, the general price of pears decreased in 2009, which in turn improved our gross margin in pear related products.
 
The gross margin of concentrated apple juice and apple spice remained fairly stable at 22.3% for 2009 compared to 21.1% for 2008.  Our gross margins on apple juice and apple aroma were negatively affected in 2009 due to increased demand and lower market prices worldwide.  However, in the fourth quarter of 2009, prices for apple juice and apple spice increased in international markets.
 
In 2009, our gross margins on kiwifruit seeds increased to 98.9%, an increase of 11.4%, compared to 88.8% in 2008.  Kiwifruit seeds are the byproduct of kiwifruit juice.  They are removed from the fresh kiwifruit when we process kiwifruit juice for purity. Hence, incremental costs are very limited and our gross margin on kiwi seeds is higher than the gross margin for any of our other products.
 
Operating Expenses
 
The following table presents consolidated operating expenses (in thousands) and operating expenses as a percentage of revenue for 2009 and 2008, respectively:
   
Year Ended December 31,
 
   
2009
   
2008
   
% Change
 
General and administrative                                                                                   
  $ 2,433     $ 2,831       (14.1 )%
Selling expenses                                                                                   
    918       1,453       (36.8 )%
Research and development                                                                                   
    1,103       450       145.1 %
Accrued liquidated damages                                                                                   
    -       254       (100.0 )%
Total operating expenses                                                                                   
  $ 4,454     $ 4,988       (10.7 )%
                         
As a percentage of revenue                                                                                   
                       
General and administrative                                                                                   
    4.1 %     6.8 %     (39.7 )%
Selling expenses                                                                                   
    1.5 %     3.5 %     (57.1 )%
Research and development                                                                                   
    1.9 %     1.1 %     72.7 %
Accrued liquidated damages                                                                                   
    -       0.6 %     (100.0 )%
Total operating expenses                                                                                   
    7.5 %     12.0 %     (37.5 )%
 
 
Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses.  Operating expenses decreased to $4.5 million for 2009, a decrease of 10.7%, from $5.0 million for 2008.
 
General and administrative expenses decreased to $2.4 million for 2009, a decrease of 14.1%, from $2.8 million for 2008.  The decrease in general and administrative expenses in 2009 compared to 2008 was mainly due to the decrease in depreciation expenses for our Huludao Wonder facility, where we only produced concentrated apple juice for one month in 2008 due to the lower demand for concentrated apple juices in the international market as a result of the instability of the world financial markets and their influence on the global economy. As a result, we recorded all the depreciation expenses related to our production machinery in general and administrative expenses in the squeezing season of 2008. However, in the squeezing season of 2009, there was an increase in demand for our apple products. Our Huludao Wonder facility reached its full capacity during the squeezing season of 2009 and as a result the depreciation expenses related to our production machinery were recorded in the cost of goods sold in 2009. We believe that our operating expenses will increase in absolute dollar terms in the future compared to previous years due to the expansion of our business.
 
Selling expenses decreased to $918,406 for 2009, a decrease of 36.8%, from $1.5 million for 2008.  This was mainly due to a decrease in freight and transportation expenses not reimbursed by customers as a result of the increase in domestic sales. We usually incur more freight and transportation expenses for international sales, as we have to ship our products to the shipping port, and these expenses generally are not reimbursed by customers.  An increase in sales of fresh fruit, which have lower transportation costs, also contributed to lower selling expenses in 2009.
 
Research and development expenses increased to $1.1 million, an increase of 145.1%, for 2009, from $449,695 for 2008 due to our entry into two contracts with an outside research institute to develop new products in 2008.  The term of the two contracts was from August 2008 to December 2010, with a monthly payment of RMB 600,000, or $87,900 based on the exchange rate as of December 31, 2009.
 
We accrued $254,301 as liquidated damages in 2008 due to a failure to meet the timetables provided for in the registration rights agreement which we executed in connection with our 2008 private placement.  We reversed this liability to additional paid in capital in 2009 when we entered into an agreement with the holders of our Series B Preferred Stock that released us from any claim by them to obtain these damages.
 
Income from Operations
 
Income from operations increased to $21.0 million, an increase of 60.3%, for 2009 from $13.1 million for 2008.  As a percentage of revenue, income from operations was approximately 35.3% for 2009 compared to 31.3% for 2008.  The increase in the income from operations was mainly due to an increase in revenue and a decrease in operating expenses.
 
Other Income (Expense), Net
 
Other income (expense), net was $1.5 million for 2009, compared to $(198,423) for 2008, primarily due to an increase in subsidy income and a decrease in interest paid on new term loan facilities in 2009 to support our expansion, which was offset by a decrease in change in fair value of warrant liability.

 
As we have been recognized as a High and New Technology Enterprise in Shaanxi Province for the past three years, the local government has granted us various subsidies.  We had subsidy income of $2.2 million in 2009, which increased from $316,152 for 2008. Of the total in 2009, RMB 9 million, or $1.3 million, was provided to support our kiwifruit industrialization development plan; RMB 1.6 million, or $234,285, was to support our pear processing and production operations and the remainder was provided in support of other aspects of our activities.  Of the total in 2008, RMB 1.5 million, or $215,559, was a rebate for interest expense on loans from local banks and RMB 0.7 million, or $100,593, was in recognition of our efforts to protect the environment from the effects of our production processes. Although we have enjoyed government support and subsidies in the past, we cannot assure you that we will continue to be eligible for government grants or other forms of government support or that if we are eligible, we will continue to obtain the same level of subsidies.
 
Income Taxes
 
Our provision for income taxes was $6.0 million for 2009, an increase of $3.8 million or 170%, from $2.2 million for 2008.   The increase in tax provision was due to an increase in income before taxes and an increase in the effective tax rate of SkyPeople (China). SkyPeople (China) was awarded the status of a nationally recognized High and New Technology Enterprise in December 2006, which entitled SkyPeople (China) to tax-free treatment from January 2007 to December 2008. Starting in January 2009, SkyPeople (China) was subject to the regular tax rate of 25%. The tax rate of our indirect PRC subsidiaries, Qiyiwangguo and Huludao Wonder, was reduced from 33% to 25%, effective January 2008 pursuant to the new PRC tax law passed on March 1, 2007.  Yingkou has not commenced operating business as of the date of this prospectus. As a result, our consolidated income tax rates were effectively 26% and 17% in 2009 and 2008, respectively.
 
We adopted ASC Topic 740, Income Taxes, on July 1, 2007 and have had no material adjustment to liabilities to unrecognized income tax benefits since its adoption.
 
Noncontrolling Interest
 
As of December 31, 2009, SkyPeople (China) held a 91.15% interest in Qiyiwangguo and Pacific held a 99% interest in SkyPeople (China).  Net income attributable to noncontrolling interests, which is deducted from our net income, was $1.2 million for 2009 compared to $613,135 for 2008.  The increase in the net income attributable to noncontrolling interests was mainly due to the increase in the net income generated from SkyPeople (China).
 
Net Income
 
Net income was $15.2 million for fiscal 2009, an increase of $5.2 million, or 52%, from $10.0 million for 2008.
 
Liquidity and Capital Resources
 
As of June 30, 2010, we had cash and cash equivalents of $26.6 million, an increase of $12.2 million, or 84.7%, from $14.4 million as of December 31, 2009. We believe that projected cash flows from operations, anticipated cash receipts, cash on hand, and trade credit will provide the necessary capital to meet our projected operating cash requirements for at least the next 12 months, which does not take into account any potential expenditures related to the potential expansion of our current production capacity.