10-Q 1 f10q0914_skypeoplefruit.htm QUARTELRY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____ to ____

 

Commission file number: 001-34502

 

SKYPEOPLE FRUIT JUICE, INC.
(Exact name of registrant as specified in its charter)
 
Florida   98-0222013
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

 

16F, China Development Bank Tower, No. 2, Gaoxin 1st Road, Xi’an, PRC

710075

 
  (Address of principal executive offices including zip code)  
     
  86-29-88377161  
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company

 

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

 

Class   Outstanding at November 13, 2014 
 

Common Stock, $0.001 par value per share

    26,661,499 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION 3
  Item 1. Financial Statements 3
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 15
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
  Item 4. Controls and Procedures 27
PART II. OTHER INFORMATION 28
  Item 1. Legal Proceedings 28
  Item 1A. Risk Factors 28
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
  Item 3. Defaults upon Senior Securities 28
  Item 4. Mine Safety Disclosures 28
  Item 5. Other Information 28
  Item 6. Exhibits 29
  SIGNATURES 30

 

2
 

  

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

  

SKYPEOPLE FRUIT JUICE, INC.
CONSOLIDATED BALANCE SHEETS
 
   September 30, 2014   December 31, 2013 
   (Unaudited)     
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents  $33,879,350   $66,888,954 
Restricted cash   18,772,857    7,216,782 
Accounts receivables, net of allowance of $209,132 and $211,039 as of
September 30, 2014 and December 31, 2013, respectively
   46,668,461    34,179,426 
Other receivables   1,196,619    575,040 
Inventories   4,570,061    4,381,900 
Deferred tax assets   945,799    535,713 
Advances to suppliers and other current assets   618,438    1,298,201 
TOTAL CURRENT ASSETS   106,651,585    115,076,016 
           
PROPERTY, PLANT AND EQUIPMENT, NET   96,202,206    61,907,175 
LAND USE RIGHT, NET   6,326,001    6,522,152 
SECURITY DEPOSIT FOR CAPITAL LEASE   3,145,063    - 
OTHER ASSETS   68,503,757    49,614,200 
TOTAL ASSETS  $280,828,612   $233,119,543 
           
LIABILITIES          
           
CURRENT LIABILITIES          
Accounts payable  $15,606,626   $3,572,968 
Accrued expenses   9,276,149    4,008,715 
Income tax payable   1,125,917    1,749,138 
Advances from customers   413,607    355,968 
Notes payable -bank   22,836,245    10,825,173 
Short-term loan - related party   -    24,970 
Short-term bank loans   22,051,316    22,626,679 
Obligations under capital leases - current   4,037,530    - 
TOTAL CURRENT LIABILITIES   75,347,390    43,163,611 
           
NON-CURRENT LIABILITIES          
Long-term loan - related party   8,000,000    8,000,000 
Obligations under capital leases   16,133,086    - 
TOTAL NON-CURRENT LIABILITIES   24,133,086    8,000,000 
TOTAL LIABILITIES   99,480,476    51,163,611 
           
STOCKHOLDER' EQUITY          
           
SkyPeople Fruit Juice, Inc, Stockholders' equity          
Series B Preferred stock, $0.001 par value; 10,000,000 shares
authorized; None issued and outstanding as of September 30, 2014 and
December 31, 2013, respectively
   -    - 
Common stock, $0.001 par value; 66,666,666 shares authorized;
26,661,499 shares issued and outstanding as of September 30, 2014 and
December 31, 2013, repectively
   26,661    26,661 
Additional paid-in capital   59,189,860    59,189,860 
Retained earnings   100,078,248    94,962,299 
Accumulated other comprehensive income   17,800,879    19,354,599 
Total SkyPeople Fruit Juice, Inc. stockholders' equity   177,095,648    173,533,419 
Non-controlling interests   4,252,488    8,422,513 
TOTAL STOCKHOLDERS' EQUITY   181,348,136    181,955,932 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $280,828,612   $233,119,543 

 

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

 

3
 

 

SKYPEOPLE FRUIT JUICE, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

   For the three months Ended
September 30,
   For the Nine month Ended
September 30,
 
   2014   2013   2014   2013 
Revenue  $34,827,203   $19,472,130   $58,589,022   $48,433,495 
Cost of goods sold   24,676,265    12,254,866    40,212,499    30,221,343 
Gross profit   10,150,938    7,217,264    18,376,523    18,212,152 
                     
Operating Expenses                    
General and administrative expenses   1,317,546    1,628,699    3,506,497    4,216,128 
Selling expenses   1,628,415    997,213    3,877,904    2,951,300 
Research and development expenses   -         -    18,980 
Total operating expenses   2,945,961    2,625,912    7,384,401    7,186,408 
                     
Income from operations   7,204,977    4,591,352    10,992,122    11,025,744 
                     
Other income (expenses)                    
Interest income   75,809    76,775    387,682    231,295 
Subsidy income   91,362    194,587    562,333    981,400 
Interest expenses   (811,317)   (475,190)   (3,373,521)   (1,103,246)
Consulting fee related to capital lease   (20,952)   -    (903,652)   - 
Total other income (expenses)   (665,098)   (203,828)   (3,327,158)   109,449 
                     
Income before income tax   6,539,879    4,387,524    7,664,964    11,135,193 
Income tax provision   1,822,995    1,130,388    2,154,205    2,937,007 
Net income   4,716,884    3,257,136    5,510,759    8,198,186 
                     
Less: Net income attributable to non-controlling interests   153,475    243,260    394,810    686,120 
                     
NET INCOME ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC.  $4,563,409   $3,013,876   $5,115,949   $7,512,066 
                     
Other comprehensive income (loss)                    
Foreign currency translation adjustment   8,747    904,683    (1,708,333)   3,834,634 
Comprehensive income   4,572,156    3,918,559    3,407,616    11,346,700 
Other comprehensive income (loss) attributable to non-controlling interests   (49,216)   81,879    (154,613)   347,055 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC.  $4,621,372   $3,836,680   $3,562,229   $10,999,645 
                     
Earnings per share:                    
Basic and diluted earnings per share  $0.17   $0.11   $0.19   $0.28 
                     
Weighted average number of shares outstanding                    
Basic and diluted   26,661,499    26,661,499    26,661,499    26,661,499 

 

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

 

4
 

 

SKYPEOPLE FRUIT JUICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

   For the Nine months ended
September 30,
 
   2014   2013 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $5,510,759   $8,198,186 
Adjustments to reconcile net income to net cash provided by operating activities          
Depreciation and amortization   3,031,314    3,084,199 
Deferred income tax assets   (410,086)   (328,769)
Changes in operating assets and liabilities          
Accounts receivable   (12,813,534)   32,292,692 
Other receivable   (627,449)   (724,588)
Advances to suppliers and other current assets   668,853    14,436 
Inventories   730,838    (131,997)
Accounts payable   12,080,673    (9,740,930)
Accrued expenses   5,305,632    227,166 
Income tax payable   (608,156)   (2,027,925)
Advances from customers   60,930    520,020 
Net cash provided by operating activities   12,929,774    31,382,490 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Refund of purchase deposit   7,498,389    - 
Additions to property, plant and equipment   (16,430,606)   (663,182)
Prepayment for other assets   (28,184,348)   (38,531,578)
Net cash used in investing activities   (37,116,565)   (39,194,760)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Dividend paid to non-controlling shareholder   (4,410,222)   - 
Increased in restricted cash   (11,635,476)   (804,480)
Short-term notes payable   12,123,678    1,480,242 
Proceeds from rleated party loan   -    8,000,000 
Proceeds from short-term bank loans   20,302,162    13,649,887 
Repayment of short-term bank loans   (20,673,500)   (6,715,275)
Payment for security deposit of capital lease   (3,148,902)   - 
Payment for capital lease   (797,443)   - 
Repayment of related party loans   (24,970)   - 
Net cash provided by (used in) financing activities   (8,264,673)   15,610,374 
           
Effect of change in exchange rate   (558,140)   1,818,168 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (33,009,604)   9,616,272 
Cash and cash equivalents, beginning of period   66,888,954    77,560,278 
Cash and cash equivalents, end of period  $33,879,350   $87,176,550 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Cash paid for interest  $2,553,422   $852,705 
Cash paid for income taxes  $3,172,447   $5,293,700 
           
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION          
Transferred from other assets to property, plant and equipment and
construction in process
  $1,324,438   $318,606 
Properties acquired from capital lease  20,992,677   $- 

 

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

 

5
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Unaudited)

 

1.Basis of Presentation

 

The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2014 and the results of operations and cash flows for the periods ended September 30, 2014 and 2013. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2014. The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2013 as included in our Annual Report on Form 10-K.

 

2.Business Description and Significant Accounting Policies

 

The principal activities of the Company consist of production and sales of fruit juice concentrates, fruit juice beverages, and other fruit-related products in the PRC and overseas markets. All activities of the Company are principally conducted by subsidiaries operating in the PRC.

 

Organizational Structure

 

Current organizational structure is set forth in the diagram below:

 

 

6
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

 

(1)Xi’an Qinmei Food Co., Ltd., an entity not affiliated with the Company, owns the other 8.85% of the equity interest in Shaanxi Qiyiwangguo.
(2)Formerly known as Shaanxi Tianren Organic Food Co. Ltd.
(3)SkyPeople Juice Group Yidu Orange Products Co., Ltd. was established on March 13, 2012. Its scope of business includes deep processing and sales of oranges.
(4)Hedetang Fruit Juice Beverages (Yidu) Co., Ltd. was established on March 13, 2012. Its scope of business includes production and sales of fruit juice beverages.
(5)SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd. was established on April 26, 2012. Its scope of business includes initial processing, quick-frozen and sales of agricultural products and related by-products.
(6)SkyPeople Juice Group (Mei County) Kiwi Fruit and Farm Products Trading Market Co., Ltd. was established on April 19, 2013. Its scope of business includes preliminary processing of agricultural and subsidiary products; establishment of trading market, etc.
(7)Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. was established on April 19, 2013. Its scope of business includes producing kiwi fruit juice, kiwi puree and cider beverages, etc.
(8)Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an Hedetang”) was established on March 31, 2014. Its scope of business includes production and sales of fruit juice beverages.
(9)Xi’an Cornucopia International Co., Ltd. (“Cornucopia”) was established on July 2, 2014. Its scope of business includes retail and wholesale of pre-packaged food.
(10)Shaanxi Fruitee Fun Co., Ltd. (“Fruitee Fun”) was established on July 3, 2014. Its scope of business includes retail and wholesale of pre-packaged food.

 

Principles of Consolidation

 

Our consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

 

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), Shaanxi Qiyiwangguo, Huludao Wonder, Yingkou, Hedetang Juice Beverages, Orange Products, SkyPeople Suizhong, Kiwi Fruit & Farm Products, Guo Wei Mei, Xi’an Hedetang, Cornucopia and Fruitee Fun, 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.

 

Uses of estimates in the preparation of financial statements

 

The Company’s 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 and disclosure of contingent 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, but not limited to, the allowance for doubtful accounts receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation of change in fair value of warrant liability, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. 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.

 

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, or it is reasonably possible that these assets could become impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.

 

7
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

Inventories

 

Inventories consist of raw materials, packaging materials (which include ingredients and supplies) and finished goods (which include finished juice in the bottling and canning operations). Inventories are valued at the lower of cost or market. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are reserved or written off.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenue from sales of products is recognized upon shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss have been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably assured. Customers have no contractual right to return products. Historically, the Company has not had any returned products. Accordingly, no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the original fee if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.

 

Shipping and Handling Costs

 

Shipping and handling amounts billed to customers in related sales transactions are included in sales revenues and shipping expenses incurred by the Company are reported as a component of selling expenses. The shipping and handling expenses of $765,911 and $371,699 for three months ended September 30, 2014 and 2013, respectively; and $1,560,062 and $1,077,340 for the nine months ended September 30, 2014 and 2013, respectively; are reported in the Consolidated Statements of Comprehensive Income as a component of selling expenses.

 

Leases

 

Leases are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases. For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent account

 

In January 2014, the Company entered into a five-year equipment leasing agreement with Cinda Financial Leasing Co., Ltd. (“Cinda”). The total cost of equipment under this lease agreement is RMB129 million (approximately $21 million). Estimated lease payment will be approximately RMB 8 million per quarter (approximately $1.3 million). The Company has the right to purchase the equipment for $161 at the end of the lease. During the second quarter of 2014, equipment under the lease agreements were received and the Company has started making payment. The Company will classify the leases as capital leases in accordance with ASC 840 “Leases”. The Company also agreed to pay consulting fees of $831,100 (RMB 5,160,000) for consulting services and $414,492 (RMB 2,580,000) services fees to Cinda, which are amortized over service period. During the third quarter of 2014, the Company paid approximately RMB 8 million (approximately $1.3 million) to Cinda under capital lease agreement.

 

Foreign Currency and Other Comprehensive Income

 

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 are the United States dollar (“USD”). Assets and liabilities of the Company’s foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date while equity accounts are translated using the historical exchange rate. The average exchange rate for the period has been used to translate revenues and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation adjustment).

 

8
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Other comprehensive income for nine months ended September 30, 2014 and 2013 represented foreign currency translation adjustments and were included in the consolidated statements of income and comprehensive income.

 

Income Taxes

 

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

Earnings per share

 

Under ASC 260-10, Earnings Per Share, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing net income available to common stockholders by the weighted-average number of Common Stock outstanding for the period. Our Series B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in determining net income available to common stockholders.

 

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

 

The diluted earnings per share calculation for the three and nine months ended September 30, 2014 and 2013 did not include the warrants to purchase up to 175,000 shares of common stock, because their effect was anti-dilutive.

 

3.Inventories

 

Inventories by major categories are summarized as follows:

 

   September 30, 2014   December 31, 2013 
Raw materials and packaging  $2,297,809   $1,030,866 
Finished goods   1,304,036    3,351,034 
Work-in-process   968,216    - 
Inventories  $4,570,061   $4,381,900 

 

9
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

4.Short-term Bank Loan

 

Short-term bank loans consist of the following loans collateralized by assets of the company:

 

   September 30, 2014   December 31, 2013 
Loan payable to Huludao Bank, Suizhong branch due on June 10, 2014, bearing interest at 9.225% per annum, collateralized by the buildings, machinery and land use rights of Huludao Wonder. The loan was paid in full on June 25, 2014.  $-   $5,461,792 
Loan payable to Huludao Bank, Suizhong branch due on June 14, 2015, bearing interest at 9.6% per annum, collateralized by the buildings, machinery and land use rights of Huludao Wonder.   5,412,434    - 
Loan payable to China Construction Bank due on May 25, 2015, bearing interest at 6% per annum, collateralized by the buildings of SkyPeople (China)   2,129,215    2,148,633 
Loan payable to China Construction Bank due on November 3, 2014, bearing interest at 6% per annum, collateralized by the buildings and land use rights of Yingkou.  This loan was paid off on November 3, 2014.   2,291,751    2,312,651 
Loan payable to China Construction Bank due on March 19, 2014, bearing interest at 3.2% per annum, collateralized by certain accounts receivable of SkyPeople (China).  This loan was paid off on March 19, 2014.   -    291,693 
Loan payable to China Construction Bank due on March 24, 2014, bearing interest at 3.2% per annum, collateralized by certain accounts receivable of SkyPeople (China).  This loan was paid off on March 24, 2014.   -    274,594 
Loan payable to China Construction Bank due on January 18, 2015, bearing interest at 2.4% per annum, collateralized by certain accounts receivable of SkyPeople (China).   268,531    - 
Loan payable to China Citic Bank due on December 18, 2014, bearing interest at 5.2341% per annum, collateralized by certain accounts receivable of SkyPeople (China).   151,129    - 
Loan payable to Bank of Xi'an due on June 17, 2014, bearing interest at 7.8% per annum, guaranteed by a third party Shaanxi Bo Ai Medical Science & Technology Development Co., Ltd. and our CEO, Mr. Hongke Xue.  This loan was paid off on June 17, 2014.   -    1,640,178 
Loan payable to Shanghai Pudong Development Bank due on April 23, 2015, bearing interest at 6.6% per annum, collateralized by the buildings of SkyPeople (China).   4,876,067    4,920,533 
Loan payable to Bank of Beijing due on June 25, 2015, bearing interest at 7.8% per annum, collateralized by the buildings of a third party Shaanxi Bo Ai Medical Science & Technology Development Co., Ltd.   4,876,067    4,920,534 
Loan payable to China Merchants Bank due on October 30, 2014, bearing interest at 8.4% per annum, guaranteed by a third party Shaanxi Bo Ai Medical Science & Technology Development Co., Ltd. and our CEO, Mr. Hongke Xue.  This loan was paid off on October 30, 2014.   325,071    656,071 
Loan payable to China Merchants Bank due on February 24, 2015, bearing interest at 8.4% per annum, guaranteed by a third party Shaanxi Culture Industry Financing Guarantee Co., Ltd.   1,625,356    - 
Loan payable to Bank of Ningxia due on November 28, 2014, bearing interest at 3.1% per annum, collateralized by certain accounts receivable of SkyPeople (China).   95,695    - 
   $22,051,316   $22,626,679 

 

10
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

5.Notes Payable - Bank

 

Notes payable - bank consists of a series of bank notes from various banks. Bank notes are collateralized by restricted cash and assets of the Company. The following table sets forth the outstanding bank notes as of September 30, 2014:

 

   September 30, 2014   Restricted Cash   Due date
Shanghai Pudong Development Bank(1)  $1,625,356   $1,625,356   October 22, 2014
Shanghai Pudong Development Bank   4,876,067    4,876,067   April 28, 2015
Shanghai Pudong Development Bank   3,250,711    3,250,711   December 24, 2014
Shanghai Pudong Development Bank(2)   3,250,711    1,625,356   October 14, 2014
Bank of Ningxia   4,876,067    2,438,034   December 19, 2014
Bank of Beijing   4,876,067    4,876,067   December 27, 2014
China Construction Bank(3)   81,266    81,266   November 7, 2014
              
   $22,836,245   $18,772,857    

 

(1)Bank notes have been repaid on October 22, 2014.
(2)Bank notes have been repaid on October 14, 2014.
(3)Bank notes have been repaid on November 7, 2014.

 

6.Related Party Transactions

 

Sales to related party

 

The company’s subsidiary sold fruit beverages to a related entity, Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. ("Fullmart") for approximately $2,020,900 and $2,051,500 for the nine months ended September 30, 2014 and 2013, respectively and approximately $667,700 and $1,088,400 for the three months ended September 30, 2014 and 2013, respectively. The accounts receivable balances were approximately $1,040,700 and $731,000 as of September 30, 2014 and December 31, 2013, respectively. Fullmart is a company indirectly owned by our Chairman, Mr. Yongke Xue.

 

Short-term loan – related party

 

The Company borrowed $24,970 from SkyPeople International Holdings Group Limited during the year ended December 31, 2013. This loan is non-interest bearing and due on demand. This balance was paid in full in January 2014.

 

Long-term loan – related party

 

On February 18, 2013, SkyPeople (China) entered into a loan agreement with SkyPeople International Holdings Group Limited (the "Lender"). The Lender indirectly holds 50.2% interest in the Company. Mr. Yongke Xue ("Y. K. Xue"), the Chairman of the board of directors of the Company (the "Board"), and Mr. Hongke Xue, the Chief Executive Officer of the Company and director of the Board, indirectly and beneficially own 80.0% and 9.4% of equity interest in the Lender, respectively. Pursuant to the Agreement, the Lender agrees to extend to the Company a one-year unsecured term loan with a principal amount of $8.0 million at an interest rate of 6% per annum. During 2013, the Company received $8.0 million from the Lender. In February 2014, both parties extended this loan for another two years.

 

The Company recorded interest expense of $351,717 and $208,672 for the nine months ended September 30, 2014 and 2013, respectively and of $95,146 and $118,079 for the three months ended September 30, 2014 and 2013, respectively.

 

11
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

 

7.Commitments and Contingencies

 

As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, the Company reached a settlement on the Zachary Lewy et al. consolidated securities fraud class action on January 27, 2014. The settlement amount of $2,200,000 has been paid in full to the settlement fund.

As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, in connection with a shareholder demand letter received August of 2011, the Company entered into a settlement agreement on April 17, 2014. The settlement amount of $100,000 has been paid in full.

From time to time we may be a party to various litigation proceedings arising in the ordinary course of business, none of which, in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.

 

8.Concentrations

 

(1)Concentration of customers

 

Sales to five largest customers accounted for approximately 25% and 20% of our net sales during the nine months ended September 30, 2014 and 2013, respectively. There was no single customer representing 10% of total sales for the nine months ended September 30, 2014 and 2013, respectively.

 

Sales to our five largest customers accounted for approximately 38% and 25% of our net sales during the three months ended September 30, 2014 and 2013, respectively. The two largest customers accounted for 10.7% and 10.3% of net sales during the third quarter of 2014. There was no single customer representing 10% of total sales for the three months ended September 30, 2013.

  

(2)Concentration of suppliers

 

During nine months ended September 30, 2014, two suppliers accounted for 34% and 15% of our purchases. During the nine months ended September 30, 2013, two suppliers accounted for 38% and 12% of our purchases. There was no other single supplier representing 10% of purchase during both periods.

 

During the three months ended September 30, 2014, one supplier accounted for 59% of our purchases. During the three months ended September 30, 2013, one supplier accounted for 14% of our purchases. There was no other single supplier representing 10% of purchase during both periods.

 

9.Segment Reporting

 

The Company operates in six segments: concentrated apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, concentrated pear juice, fruit juice beverages and fresh fruits and vegetables, and others. Our concentrated apple juice and apple aroma is primarily produced by the Company’s Huludao Wonder factory; concentrated pear juice is primarily produced by the Company’s Jingyang factory. However, as the Company use the same production line to manufacture concentrated apple juice and concentrated pear juice. In addition, both Shaanxi Province, where the factory of Jingyang factory is located, and Liaoning Province, where the factory of Huludao Wonder is located, are rich in fresh apple and pear supplies, Jingyang factory also produces concentrated apple juice and Huludao Wonder factory also produces concentrated pear juice when necessary. Concentrated kiwifruit juice and kiwifruit puree is primarily produced by the Company’s Qiyiwangguo factory, and fruit juice beverages is primarily produced by the Company’s Qiyiwangguo factory. The Company’s other products include fructose, concentrated turnjujube juice, and other by products, such as kiwifruit seeds.

 

Concentrated fruit juice is used as a basic ingredient for manufacturing juice drinks and as an additive to fruit wine and fruit jam, cosmetics and medicines. The Company sells its concentrated fruit juice to domestic customers and exported directly or via distributors. The Company believes that its main export markets are the United States, the European Union, South Korea, Russia and the Middle East to North America, Europe, Russia, South Korea and the Middle East.  The Company sells its Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the PRC. The Company sells its fresh fruit and vegetables to supermarkets and whole sellers in the PRC.

 

Some of these product segments might never individually meet the quantitative thresholds for determining reportable segments and we determine the reportable segments based on the discrete financial information provided to the chief operating decision maker. The chief operating decision maker evaluates the results of each segment in assessing performance and allocating resources among the segments. Since there is an overlap of services provided and products manufactured between different subsidiaries of the Company, the Company does not allocate operating expenses and assets based on the product segments. Therefore, operating expenses and assets information by segment are not presented.  Segment profit represents the gross profit of each reportable segment.

 

12
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(Amount in thousands)
For the Three Months
Ended September 30, 2014
  Concentrated apple juice and apple aroma   Concentrated kiwifruit juice and kiwifruit puree   Concentrated pear juice   Fruit juice beverages   Fresh fruits and vegetables   Other   Total 
Reportable segment revenue  $5,673   $357   $10,506   $37,322   $3,862   $15   $57,735 
Inter-segment revenue   (56)   -    -    (22,847)   -    (5)   (22,908)
Revenue from external customers   5,617    357    10,506    14,475    3,862    10    34,827 
Segment gross profit  $103   $(23)  $2,605   $6,346   $1,121   $(1)  $10,151 

  

(Amount in thousands)
For the Three Months
Ended September 30, 2013
  Concentrated apple juice and apple aroma   Concentrated kiwifruit juice and kiwifruit puree   Concentrated pear juice   Fruit juice beverages   Fresh fruits and vegetables   Other   Total 
Reportable segment revenue  $102   $328   $6,716   $12,995   $1    147   $20,289 
Inter-segment revenue   (47)   (59)   (560)   (151)   -    -    (817)
Revenue from external customers   55    269    6,156    12,844    1    147    19,472 
Segment gross profit  $(20)  $187   $2,213   $4,846   $-    (9)  $7,217 

 

(Amount in thousands)
For the Nine Months
Ended September 30, 2014
  Concentrated apple juice and apple aroma   Concentrated kiwifruit juice and kiwifruit puree   Concentrated pear juice   Fruit juice beverages   Fresh fruits and vegetables   Other   Total 
Reportable segment revenue  $7,208   $2,218   $12,987   $55,889   $3,867   $98   $82,267 
Inter-segment revenue   (544)   (22)   (78)   (22,983)   (1)   (50)   (23,678)
Revenue from external customers   6,664    2,196    12,909    32,906    3,866    48    58,589 
Segment gross profit  $184   $731   $3,271   $13,065   $1,125   $1   $18,377 

 

13
 

 

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(Amount in thousands)
For the Nine months
Ended September 30, 2013
  Concentrated apple juice and apple aroma   Concentrated kiwifruit juice and kiwifruit puree   Concentrated pear juice   Fruit juice beverages   Fresh fruits and vegetables   Other   Total 
Reportable segment revenue  $1,887   $3,818   $12,613   $30,363   $803   $153   $49,637 
Inter-segment revenue   (144)   (120)   (600)   (340)   -    -    (1,204)
Revenue from external customers   1,743    3,698    12,013    30,023    803    153    48,433 
Segment gross profit  $88   $2,306   $3,933   $11,505   $388   $(8)  $18,212 

 

The following table reconciles reportable segment profit to the Company’s condensed consolidated income before income tax provision for the three months ended September 30, 2014 and 2013:

  

   Three Months ended
September 30,
 
   2014   2013 
Segment profit  $10,150,938   $7,217,264 
Unallocated amounts:          
Operating expenses   (2,945,961)   (2,625,912)
Other (income)/expenses   (665,098)   (203,828)
Income before tax provision  $6,539,879   $4,387,524 

  

   Nine months ended
September 30,
 
   2014   2013 
Segment profit  $18,376,523   $18,212,152 
Unallocated amounts:          
Operating expenses   (7,384,401)   (7,186,408)
Other (income)/expenses   (3,327,158)   109,449 
Income before tax provision  $7,664,964   $11,135,193 

 

10.Dividend Distribution made by Qiyiwangguo

 

Pursuant to a resolution approved by Qiyiwangguo’s shareholders’ meeting, which was hosted on March 7, 2014, 65% of the retained earnings of Qiyiwangguo as of December 31, 2013, approximately RMB306 million (approximately $50 million) was distributed to its two shareholders, SkyPeople (China), which owns 91.15% of Qiyiwangguo’s shares; and Xi’an Qinmei Food Co., Ltd, an entity not affiliated with the Company, owns the other 8.85% of the equity interest in Shaanxi Qiyiwangguo.

 

On April 10, 2014, approximately RMB27 million (approximately $4.4 million) was wired from Qiyiwangguo to Xi’an Qinmei Food Co., Ltd.

 

11.Subsequent Events

 

In accordance with ASC 855, “Subsequent Events,” the Company has evaluated subsequent events that have occurred through the date of issuance of these financial statements and has determined that there was no material event that occurred after the date of the balance sheets included in this report.

 

14
 

 

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

 

The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.

 

DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

Overview of Our Business

 

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) in and from the PRC. Our fruit juice concentrates, which include apple, pear and kiwifruit concentrates, are sold to domestic customers and exported directly or via distributors. We sell our Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the PRC. For the nine months ended September 30, 2014, sales of our fruit concentrates, fruit beverages, fresh fruits and other fruit related products represented 37%, 56% and 7% of our revenue, respectively, compared to 36%, 62% and 2%, respectively, for the same period of 2013.

 

We export our products as well as sell them domestically. We sell our products either through distributors with good credit or to end users directly. We believe that our main export markets are the Asia, North America, Europe, Russia and the Middle East. We sell our other fruit related products to domestic customers.

 

During the nine months ended September 30, 2014, we exported our Hedetang-branded fruit juice beverages to Mongolia and Canada. 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. Currently we produce six flavors of fruit beverages in 280 ml glass bottles, 418 ml glass and 500 ml glass bottles and BIB package, including apple juice, pear juice, kiwifruit juice, mulberry juice, kiwifruit cider and mulberry cider. We currently sell our fruit beverages to over 100 distributors and more than 20,000 retail stores in approximately 20 provinces. Our products are sold through distributors in stores such as Hualian Supermarket in Beijing, RT-Mart in Shenyang, Carrefour in Chongqing and Shenyang and Lianhua Supermarket in Shanghai, etc.

 

We plan to continue to focus on creating new products with high margins to supplement our current product offering.

 

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 September 30, 2014, we are in the process of building up an internal research and development team, we will use external experts and research institutions for additional consultation when necessary. In nine months ended September 30, 2014 and 2013, our research and development expenses were $nil and $18,980, 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 efforts in identifying new products with harvesting seasons complementary to our current product mix. 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. With continuous efforts in marketing of our beverages in domestic market, we believe that our seasonality will be reduced.

 

15
 

 

Fresh fruits are the primary raw materials needed for the production of our products. Our raw materials mainly consist of apples, pears and kiwifruits. 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 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. Fruit concentrate and fruit juice beverage companies generally do not enter into purchasing agreements. 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.

 

Shaanxi and Liaoning Provinces, where our manufacturing facilities are located, are large fruit producing provinces. We own and operate four manufacturing facilities 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, generally, each of our manufacturing facilities has a focus on products made from one particular fruit according to the proximity of such manufacturing 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. Our apple processing facilities are located in Liaoning Province, a region that abounds with high acidity apples. As we use the same production line for concentrated apple juice and concentrated pear juice and both Shaanxi Province and Liaoning Province are rich in fresh apple and pear production, our Liaoning facilities also produced concentrated apple juice and our Shaanxi Province facilities also produced concentrated apple juice based on customer need. We believe that these regions provide adequate supply of raw materials for our production needs in the foreseeable future.

 

On August 30, 2010, we closed the public offering of 5,181,285 shares of our Common Stock at a price of $5.00 per share for approximately $25.9 million. We received an aggregate of approximately $24 million as net proceeds after deducting underwriting discounts and commissions and offering expenses. As of September 30, 2014, we had spent approximately $11 million on various capital projects in Huludao Wonder as described in projects (4) and (5) below. The following table presents the capital projects on which we currently plan to use the proceeds from this offering. We review these projects and capital expenditures on a quarterly basis based on the market conditions and associated costs of these projects.

 

16
 

 

Capital Wonder Projects

 

Subsidiary  No.  Priority Projects  Progress  Estimated capital expenditure
(in Millions)
 
SkyPeople Suizhong   (1)  Construction of a refrigeration storage unit for the storage of concentrated fruit juices and fresh fruits and vegetables  The design of the facility has been completed. Construction has started during the third quarter of 2012. The Company suspended the construction of the refrigeration storage unit to apply land use right certificate from local government. It is expected that the certificate of land use right will be granted to the Company in 2014.  $2.7 
Huludao Wonder   (2)  Construction of concentrated fruit juice mixing center  The design of the facility has been completed. The first stage of construction has started. During the fourth quarter of 2012, the civil work has been completed. The project was completed in 2013.   1.9 
Huludao Wonder   (3)  Construction of a 30 ton/hour comprehensive fruits and vegetables processing line  The construction of this 30 ton/hour comprehensive fruits and vegetables processing line was delayed. The installation and adjustment of machinery has been completed during the fourth quarter of 2012. The project was completed in 2013.   3 
Huludao Wonder   (4)  Construction of a fruit juice beverage production line of 6,000 bottles/hour  The construction of the production line was completed and the production line commenced operation in the second quarter of 2012.   3 
Huludao Wonder   (5)  Environmental project (waste water treatment facility for concentrated apple juice production line)  The construction of the environmental project was completed in the third quarter of 2012.   8 
Total Capital Expenditure            $18.6 

 

(1)Our initial plan was to construct both the refrigeration storage (see Project (1) above) and fruit juice mixing center (see Project (2) above) in Huludao, Liaoning Province, for which the original estimated total capital expenditure was $4.4 million. We initially planned to start the construction of the refrigeration storage unit and a concentrated fruit juice-mixing center in the fourth quarter of 2011. However, the construction of the refrigeration storage unit has been delayed due to a change of plan. Management concluded that it is in the best interest of the Company to build the refrigeration storage unit in Suizhong, Liaoning Province, which is in close geographic proximity of Huludao Wonder in Liaoning Province. The total estimated capital expenditure for Projects (1) and (2) based on the changed plan is expected to be $4.6 million. The Company is now in the process of evaluating the new plan and in negotiation with the local government to acquire land use right for approximately 7.8 acres for consideration of approximately$290,000 per acre. In April 2012, the Company paid partial consideration of approximately $1,200,000. As of the date of this report, the certificate of land use right has not been granted to the Company. The Company suspended the construction of the refrigeration storage unit to apply land use right certificate from local government. It is expected that the certificate of land use right will be granted to the Company in 2014.
(2)The fruit juice-mixing center will be built in Huludao Wonder. The design of the fruit juice-mixing center has been completed. During the fourth quarter of 2012, the civil work has been completed. The project was completed in 2013.
(3)Our initial plan was to construct a 50 ton/hour concentrated apple juice production line in Huludao Wonder. We later decided to cancel the plan due to certain amendment to the Catalogue of Industry Structure Adjustment effective in June 2011, which classified concentrated apple juice business in the category of Restricted Industry. To avoid exposure to potential government restrictions on the expansion of this industry by, among other things, putting limitations on the increase in production capacity, increasing the product quality standard, reducing government financial support, we decided to change our existing 30 ton/hour concentrated apple juice line into a 30 ton/hour comprehensive fruits and vegetables processing line by adding additional equipment and machinery. The 30 ton/hour comprehensive fruits and vegetables processing line is expected to process a variety of fruits and vegetables (including apple, pear, and other fruits and vegetables) into juices. The estimated investment for this project is $3.0 million. We believe that this project could provide us more flexibility. The project was completed in 2013.
(4)We started the construction of infrastructure for the fruit juice beverage production line on September 28, 2010. The construction of a fruit juice beverage production line with a maximum production capacity of 6,000 bottles per hour has been completed. On April 25, 2012, Huludao Wonder was granted a beverage production license (including fruit juice and vegetable juice) by Liaoning Bureau of Quality and Technical Supervision. Huludao Wonder commenced operation of the new production line on April 28, 2012.

 

17
 

 

(5)The environmental project mainly consists of a wastewater processing facility that is required in our production of fruit and vegetable juice concentrates. The construction of the environmental project (waste water treatment facility for concentrated apple juice production line) has been completed in the third quarter of 2012.

  

Shaanxi Qiyiwangguo Projects

 

We previously identified several projects for our Shaanxi Qiyiwangguo factory, which we expected to finance by using our operating cash flow. These projects included a 24,000 PET bottle/hour fruit juice beverage aseptic cold-filling line, and a PET bottle blowing machine system. Based on the current market conditions and other potential opportunities, management has decided to delay these projects to a future date when appropriate.

 

Other Projects

 

Investment/Service Agreement with Yidu Municipal People’s Government

 

On October 29, 2012, SkyPeople (China) entered into an investment/service agreement (the “Investment Agreement”) with Yidu Municipal People’s Government in Hubei Province of China.

 

Under the Investment Agreement, the parties agree to invest and establish an orange comprehensive deep processing zone in Yidu.

 

The Company will be responsible for the establishment, construction and financing of the project with a total investment of RMB 300 million (approximately $48 million), in fixed assets and the purchase of land use rights, while Yidu government agrees to provide a parcel of land for the project that is approximately 280 mu in size located at Gaobazhou Town of Yidu for a fee payable by the Company. The consideration for transferring the land use right for the project land shall be RMB 0.3 million per mu.

 

The main scope of the Yidu project includes the establishment of:

 

1.  one modern orange distribution and sales center (the “distribution center”);

 

2.  one orange comprehensive utilization deep processing zone (the “deep processing zone”), including:

 

  a) one 45 ton/hour concentrated orange juice and byproduct deep processing production line;
  b) one bottled juice drink production line with a capacity to produce 6,000 glass bottles per hour;
  c)    one storage freezer facility with a capacity to store 20,000 tons of concentrated orange juice; and
  d) general purpose facilities within the zone, office space, general research and development facilities, service area, living quarters and other ancillary support areas

 

3. one research and development center for orange varietal improvement and engineering technology (the “R&D center”) and
   
4. one standardized orange plantation (the “orange plantation”).

 

The total amount of RMB 300 million (approximately $48 million) will mainly be used to establish the distribution center and the deep processing zone on the project land of approximately 280 mu. SkyPeople and Yidu Municipal People’s Government agreed to discuss the investment amount and location for establishing the R&D center and the orange plantation in the future.

 

Yidu Municipal People’s Government is in the process of demolition buildings on project land. It is expected that demolition of buildings will be completed in the next few months. The Company is actively working with various bodies of local government making preparations for the start of the project.

 

18
 

 

Investment/Service Agreement with Mei County National Kiwi Fruit Wholesale Trading Center

 

On April 3, 2013, SkyPeople (China) entered into an Investment Agreement (the "Agreement") with the Managing Committee of Mei County National Kiwi Fruit Wholesale Trading Center (the "Committee"). The Committee has been authorized by the People’s Government of Mei County to be in charge of the construction and administration of the Mei County National Kiwi Fruit Wholesale Trading Center (the “Trading Center”).

 

Under the Agreement, the parties agreed to invest and establish a kiwi fruit comprehensive deep processing zone and kiwi fruit and fruit-related materials trading zone in Yangjia Village, Changxing Town of Mei County with a total planned area of total planned area of 286 mu (approximately 47 acres) (the “Project”).

 

Pursuant to the Agreement, the Company will be responsible for the construction and financing of the Project with a total investment of RMB 445.6 million (approximately $ 71.9 million) in buildings and equipment. In addition, the Company agreed to pay for the land use rights for the Project land a fee of RMB 0.3 million per mu. The Committee is responsible for financing and constructing the basic infrastructure surrounding the Project, such as the main water supply, main water drainage, natural gas, electricity, sewage, access roads to the Project, natural gas and communications networks.

 

As of the date of this report, the Company is in the process of building up facilities and purchasing equipment. The construction of kiwi fruit and fruit-related materials trading zone has been mostly completed. Trail production has been delayed until second half of 2014.

 

Suizhong Project

 

On July 15, 2011, SkyPeople entered into a Letter of Intent with the People’s Government of Suizhong County, Liaoning Province, to establish a fruit and vegetable industry chain and further processing demonstration zone in Suizhong County, Liaoning Province (the “Suizhong project”).

 

The Suizhong project may include one or more of the following: the construction and operation of fruit juice production lines, vegetable and fruit flash freeze facility, refrigeration storage facility and warehouse, a world class food safety testing center, fruit and vegetable modern supply chain and e-commerce platform, fruit and vegetable finished products processing center and exhibition center, etc. The implementation of the project is subject to government approval of the project.

 

During first quarter of 2014, the Company finished the feasibility study and submitted detailed project proposal to the local government. Both parties decided to continue the project. The Company has made partial payment to acquire land use right from the local government, purchase equipment and build facilities.

 

Results of Operations

 

Comparison of Three Months ended September 30, 2014 and 2013:

 

Revenue

 

The following table presents our consolidated revenues for each of our main products for the three months ended September 30, 2014 and 2013 respectively (in thousands):

 

   Three month ended
 September 30,
   Change 
   2014   2013   Amount   % 
Concentrated apple juice and apple aroma  $5,617   $55   $5,562    10,113%
Concentrated kiwifruit juice and kiwifruit puree   357    269    88    33%
Concentrated pear juice   10,506    6,156    4,350    71%
Fruit juice beverages   14,475    12,844    1,631    13%
Fresh fruits and vegetables   3,862    1    3,861    386100%
Other   10    147    (137)   (93%)
Total  $34,827   $19,472   $15,355    79%

 

19
 

 

Our gross revenue for the three months ended September 30, 2014 was $34.8 million, an increase of $15.3 million, or 79%, from $19.5 million for the three months ended September 30, 2013. This increase was primarily due to an increase in sales in almost all of our products lines, offset by the decrease of revenue from other products.

 

Sales from apple related products increased by $5.6 million, or 10,113%, from $0.055 million for the three months ended September 30, 2013, to $5.6 million for the same period of 2014. During the third quarter of 2013, the Company sold approximately 50 tons of concentrated apple juice, which increased to approximately 4,370 tons of concentrated apple juice sold in the same period of 2014. The increase of revenue generated from concentrated apple juice was mainly caused by the increase of amount sold, which was coupled with unit price.

 

Sales from concentrated kiwifruit juice and kiwifruit puree were $0.036 million for the third quarter of 2014, an increase of $0.009 million, or 33%, from $0.027 million in the same quarter of 2013, primarily due to increase in unit price, which was partially offset by the decreased amount of kiwi-related products sold. During the three months ended September 30, 2014, the Company sold approximately 105.7 tons of kiwi-related products. During the three months ended September 30, 2013, the Company sold approximately 221.2 tons of kiwi-related products.

 

Sales of concentrated pear juice increased to $10.5 million in the third quarter of 2014, an increase of $4.3 million, or 71%, from $6.2 million in the same quarter of 2013. During the third quarter of 2014 and 2013, the Company sold 7,644 and 3,802 tons of concentrated pear juice, respectively. The increase of revenue generated from concentrated pear juice was mainly due to increased amount of concentrated pear juice sold, which was partially offset by decreased unit price.

 

Revenue from our fruit juice beverages in the PRC increased to $14.5 million, an increase of $1.7 million or 13%, from $12.8 million for the same period of 2013, primarily due to bigger market share gained from our continuous efforts of expanding sales channel.

 

Revenue from our fresh fruits and vegetables in the PRC were $3.9 million and $0.001 for the third quarter of 2013 and 2014, respectively.

 

Revenue from other products decreased to $0.01 million, a decrease of $0.137 million or 93%, from $0.15 million for the same period of 2013. The amount of sales of other products is expected to be unstable and is generally not indicative of our future sales of other products.

 

Gross Margin

 

The following table presents the consolidated gross profit of each of our main products and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the three months ended September 30, 2014 and 2013, respectively (in thousands for the gross profit):

 

   Three months ended September 30, 
   2014   2013 
   Gross
profit
   Gross
margin
   Gross
profit
   Gross
margin
 
Concentrated apple juice and apple aroma  $103    2%  $(20)   (36%)
Concentrated kiwifruit juice and kiwifruit puree   (23)   (6%)   187    70%
Concentrated pear juice   2,605    25%   2,213    36%
Fruit juice beverages   6,346    44%   4,846    38%
Fresh fruits and vegetables   1,121    29%   -    - 
Other   (1)   (10%)   (9)   (6%)
Total/Overall (for gross margin)  $10,151    29%  $7,217    37%

 

20
 

  

The consolidated gross profit for the three months ended September 30, 2014 was $10.2 million, an increase of $3 million, or 41%, from $7.2 million for the same period of 2013, primarily due to increased amount of gross profit generated from apple-related products, concentrated pear juice, fruit juice beverages, fresh fruits and vegetables and other products segments, which was partially offset by less amount of gross profit generated from kiwi-related products.

 

The consolidated gross profit margin for the three months ended September 30, 2014 was 29%, a decrease of 8%, from 37% for the same period of 2013, primarily due to an increase in gross margin of apple-related products, fruit juice beverages and fresh fruit and vegetables, which was partially offset by a decrease in gross profit margin of kiwi-related products, concentrated pear juice and other products.

 

The gross margin of concentrated apple juice and apple aroma increased to 2% for the three months ended September 30, 2014 from gross loss margin of 36% for the same period of 2013, primarily due to higher selling price of concentrated apple juice.

 

The gross profit margin of the concentrated kiwifruit juice and kiwifruit puree decreased from 70% for the three months ended September 30, 2013 to gross loss margin of 6% for the same period of 2014. During the current quarter of 2014, the Company sold kiwifruit juice only, which had a negative gross profit margin.

 

The gross margin of the concentrated pear juice decreased from 36% to 25% for third quarter of 2013 to 2014, primarily due to decreased selling price in the current quarter of 2014 as compared to same period of 2013.

 

The gross profit margin of our fruit juice beverages increased from 38% for the three months ended September 30, 2013, to 44% for the same period of 2014, primarily due to lower cost of raw materials purchased in the three months ended September 30, 2014 as compared to same period of 2013.

 

Gross margin for the fruits and vegetables was 29% for the second quarter of 2013, during the same period of 2014, the Company did not sell any fresh fruits and vegetables.

  

The gross loss margin for other products was 10% for the three months ended September 30, 2014 and 6% for the same period of 2013. Given the relatively low production volume and sales of other products, the gross profit margin is expected to change from time to time. 

 

Operating Expenses

 

The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the three months ended September 30, 2014 and 2013, respectively:

 

   Three months ended September 30, 
   2014   2013 
   Amount   % of revenue   Amount   % of revenue 
General and administrative  $1,317,546    4%  $1,628,699    8%
Selling expenses   1,628,415    5%   997,213    5%
Research and development   -    -    -    - 
Total operating expenses  $2,945,961    9%  $2,625,912    13%

  

Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses increased $320,049 or 12% for the three months ended September 30, 2014 compare to the corresponding period in 2013.

 

General and administrative expenses decreased by $311,153, or 19%, to $1,317,546 for the three months ended September 30, 2014, from $1,628,699 for the same period of 2013. The decrease in general and administrative expenses was mainly due to decreased amount of legal fees related to our pending litigation for the year ago period, and offset by higher salary expenses resulted from an increase in the headcount of our management staff.

 

21
 

 

Selling expenses increased by $631,202, or 63%, to $1,628,415 for the three months ended September 30, 2014 from $997,213 for the same period of 2013, mainly due to an increase in the shipping and handling costs as a result of increased sales.

 

The Company did not incur research and development expenses for the three months ended September 30, 2014 and 2013. The Company does not have any research and development agreements with research institutions but concentrate on building up a research and development team of itself.

 

Income from Operations

 

Income from operations increased from $4,591,352, an increase of 57% or $2,613,625 to $7,204,977, for the three months ended September 30, 2014.The increase in the income from operations was mainly due to increase in both revenue as well as gross margin and increase in the operating expenses.

 

Other Income (Expense)

 

Other expense was $665,098, for the third quarter of 2014, representing an increase of $461,270 or 226% from other expense of $203,828 for the three months ended September 30, 2013, primarily due to increased amount of $336,127 interest expense for the current period as compare to same period of last year, mainly due to interest incurred by our capital lease. Subsidy income decreased $103,225 during the third quarter of 2014 as contrast of same period of 2013.

 

Income Tax

 

Our provision for income taxes was $1,822,995 and $1,130,388 for the three months ended September 30, 2014 and 2013, respectively, an increase of $692,607, or 61%. The increase in tax provision was due to increased amount of income before taxes in the third quarter of 2014. Our consolidated income tax rates were 28% and 26% for the three months ended September 30, 2014 and 2013, respectively.

 

Net Income

 

Net income was $4,716,884 for the three months ended September 30, 2014; in contrast, net income was $3,257,136 for the same period of 2013, an increase of $1,459,748, or 45%, primarily due to the 41% increase in gross profit, offset by 12% increase in total operating expenses and other factors discussed above.

 

Noncontrolling Interests

 

As of September 30, 2014, SkyPeople (China) held a 91.15% interest in Shaanxi Qiyiwangguo and Pacific held a 99.78% interest in SkyPeople (China). Net income attributable to noncontrolling interests, which is deducted from our net income, was $153,475 and $243,260 for the three months ended September 30, 2014 and 2013, respectively. The decrease in the net income attributable to noncontrolling interests was mainly due to the increase in the net income generated from SkyPeople (China).

 

Net Income Attributable to SkyPeople Fruit Juice, Inc.

 

Net income attributable to the Company was $4,563,409 for the three months ended September 30, 2014; in contrast, during the same period of 2013, net income attributable to the Company was $3,013,876 for the reasons described above.

 

22
 

 

Comparison of Nine months ended September 30, 2014 and 2013:

 

Revenue

 

The following table presents our consolidated revenues for each of our main products for the nine months ended September 30, 2014 and 2013, respectively (in thousands):

 

   Nine months ended
September 30,
   Change 
   2014   2013   Amount   % 
Concentrated apple juice and apple aroma  $6,664   $1,743   $4,921    282%
Concentrated kiwifruit juice and kiwifruit puree   2,196    3,698    (1,502)   (41%)
Concentrated pear juice   12,909    12,013    896    7%
Fruit juice beverages   32,906    30,023    2,883    10%
Fresh fruits and vegetables   3,866    803    3,063    381%
Other   48    153    (105)   (69%)
Total  $58,589   $48,433   $10,156    21%

 

Our gross revenue for the nine months ended September 30, 2014 and 2013 was 58.6 million and $48.4 million, respectively, representing an increase of $10.2 million, or 21%. This increase was primarily due to an increase in sales of apple-related products, concentrated pear juice, fruit juice beverage and fresh fruits and vegetables, which was partially offset by reduced revenue generated by kiwi-related products and other products.

 

Sales from apple related products increased by $5 million, or 282%, to $6.7 million for the nine months ended September 30, 2014, from $1.7 million for the same period of 2013. During the nine months ended September 30, 2014, the Company sold approximately 5,062 tons of concentrated apple juice, which increased from approximately 1,060 tons of concentrated apple juice sold in the same period of 2013.

 

Sales from concentrated kiwifruit juice and kiwifruit puree were $2.2 million for the nine months ended September 30, 2014, a decrease of $1.5 million, or 41%, from $3.7 million in the same period of 2013. During the nine months ended September 30, 2014, the Company sold 1,673 tons kiwi-related products. The decrease in sales was primarily due to decrease in amount sold.

 

Sales of concentrated pear juice increased from $12 million in the nine months ended September 30, 2013 to $12.9 million during the same period of 2014, representing an increase of $0.9 million, or 7%. During the nine months ended September 30, 2014 and 2013, the Company sold 9,262 and 7,701 tons of concentrated pear juice, respectively. During the nine months ended September 30, 2014, the unit selling price of concentrated pear juice decreased.

 

Revenue from our fruit juice beverages in the PRC increased to $32.9 million, an increase of $2.9 million or 10%, from $30 million for the same period of 2013, primarily due to bigger market share gained from our continuous efforts of expanding sales channel.

 

Revenue from our fresh fruits and vegetables in the PRC were $3.9 million and $0.8 million for the nine months ended September 30, 2014 and 2013, respectively.

 

Revenue from other products increased from $0.153 million for nine months ended September 30, 2013 to $0.048 million for the same period of 2014. The amount of sales of other products is expected to be unstable and is generally not indicative of our future sales of other products.

 

23
 

 

Gross Margin

 

The following table presents the consolidated gross profit of each of our main products and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the nine months ended September 30, 2014 and 2013, respectively (in thousands for the gross profit):

 

   Nine months ended September 30, 
   2014   2013 
   Gross
profit
   Gross
margin
   Gross
profit
   Gross
margin
 
Concentrated apple juice and apple aroma  $184    3%  $88    5%
Concentrated kiwifruit juice and kiwifruit puree   731    33%   2,306    62%
Concentrated pear juice   3,271    25%   3,933    33%
Fruit juice beverages   13,065    40%   11,505    38%
Fresh fruits and vegetables   1,125    29%   388    48%
Other   1    2%   (8)   (5%)
Total/Overall (for gross margin)  $18,377    31%  $18,212    38%

  

The consolidated gross profit for the nine months ended September 30, 2014 was $18.4 million, an increase of $0.2 million, or 1%, from $18.2 million for the same period of 2013, primarily due to increased amount of gross profit generated from our apple-related products, fruit juice beverages, fresh fruit and vegetables and other products, which was partially offset by decreased gross profit generated from kiwi-related products and concentrated pear juice.

 

The consolidated gross profit margin for the nine months ended September 30, 2014 and 2013 was 31% and 38%, respectively, primarily due to decreased amount of cost of sales incurred. During the nine months ended September 30, 2014, gross margin of fruit juice beverages and other products increased; however, gross margin of concentrated apple juice and apple aroma, concentrated kiwi-related products, concentrated pear juice and fresh fruit and vegetables decreased.

 

The gross profit margin of concentrated apple juice and apple aroma was 3% for the nine months ended September 30, 2014 and 5% for the same period of 2013, primarily due to lower selling price of concentrated apple juice.

 

The gross profit margin of the concentrated kiwifruit juice and kiwifruit puree decreased from 62% for the nine months ended September 30, 2013 to 33% for the same period of 2014, primarily due to higher cost of fresh kiwi purchased in nine months ended September 30, 2014 as compared to the same period of 2013.

 

The gross profit margin of the concentrated pear juice decreased from 33% to 25% for the nine months ended September 30, 2013 and 2014, primarily due to lower selling price.

 

The gross profit margin of our fruit juice beverages slightly increased from 38% for the nine months ended September 30, 2013, to 40% for the same period of 2014.

 

Gross profit margin for the fruits and vegetables was 29% and 48% for the nine months ended September 30, 2014 and 2013, respectively.

 

The gross loss margin for other products was 5% for the nine months ended September 30, 2013 and for the same period of 2014, the gross profit margin was 2%. Given the relatively low production volume and sales of other products, the gross profit margin is expected to change from time to time.

 

Operating Expenses

 

The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the nine months ended September 30, 2014 and 2013, respectively:

 

   Nine months ended September 30, 
   2014   2013 
   Amount   % of revenue   Amount   % of revenue 
General and administrative  $3,506,497    6%  $4,216,128    9%
Selling expenses   3,877,904    7%   2,951,300    6%
Research and development   -    -    18,980    <1%
Total operating expenses  $7,384,401    13%  $7,186,408    15%

 

24
 

 

Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses increased $197,993 or 3% for the nine months ended September 30, 2014 compare to the corresponding period in 2013.

 

General and administrative expenses decreased to $3,506,497 from $4,216,128, representing $709,631 or 17% decrease for the nine months ended September 30, 2014 and 2013, respectively. The decrease in general and administrative expenses was mainly due to decreased amount of legal fees related to our current pending litigation, and offset by higher salary expenses resulted from an increase in the headcount of our management staff.

 

Selling expenses increased to $3,877,904 from $2,951,300, for the nine months ended September 30, 2014 and 2013, respectively, representing $926,604 or 31% increase. The increase in selling expenses mainly due to an increase in the payroll and related expenses as a result of an increase in our headcounts to handle the increased sales work and increased shipping and handling costs in the current period of 2014 as a result of increased sales.

 

During the nine months ended September 30, 2013, the Company incurred $18,980 research and development expense. In the same period of 2014, the Company did not have any research and development agreements with research institutions but concentrate on building up a research and development team of itself and comparably, did not incur any research and development expenses.

 

Income from Operations

 

Income from operations decreased to $10,992,122 from $11,025,744, representing a decrease of less than 1% or $33,622, for the nine months ended September 30, 2014 and 2013. The decrease in the income from operations was mainly due to increase in revenue and gross profit, which was partially offset by increased amount of operating expenses.

 

Other Income (Expense)

 

Other income, net of other expenses was $109,449 for the nine months ended September 30, 2013. In contrast, during the same period of 2014, other expense, net of other income was $3,327,158, primarily due to an increase of $2,270,275 in interest expenses.

 

Income Tax

 

Our provision for income taxes was $2,154,205 and $2,937,007 for the nine months ended September 30, 2014 and 2013, respectively, a decrease of $782,802 or 27%. The decrease in tax provision was due to decreased amount of income before taxes in the nine months ended September 30, 2014. Our consolidated income tax rates were 28% and 26% for the nine months ended September 30, 2014 and 2013, respectively.

 

Net Income

 

Net income was $5,510,759 and $8,198,186 for the nine months ended September 30, 2014 and 2013, respectively, representing a decrease of $2,687,427 or 33%, primarily due to 3% increase in total operating expenses and $3.4 million increase in other expense and other factors discussed above.

 

25
 

 

Noncontrolling Interests

 

As of September 30, 2014, SkyPeople (China) held a 91.15% interest in Shaanxi Qiyiwangguo and Pacific held a 99.78% interest in SkyPeople (China). Net income attributable to noncontrolling interests, which is deducted from our net income, was $394,810 and $686,120 for the nine months ended September 30, 2014 and 2013, respectively. The decrease in the net income attributable to noncontrolling interests was mainly due to the decrease in the net income generated from SkyPeople (China).

 

Net Income Attributable to SkyPeople Fruit Juice, Inc.

 

Net income attributable to the Company was $5,115,949 for the nine months ended September 30, 2014; in contrast, during the same period of 2013, net income attributable to the Company was $7,512,066 for the reasons described above.

 

Liquidity and Capital Resources

 

As of September 30, 2014, we had cash, cash equivalents of $33,879,350, a decrease of $33,009,604, or 49%, from $66,888,954 as of December 31, 2013. We expect the projected cash flows from operation, anticipated cash receipts, cash on hand, and trade credit to provide necessary capital to meet our projected operating cash requirements at least for the next 12 months, which does not take into account any potential expenditures related to the potential expansion of our current production capacity.

 

Our working capital has historically been generated from our operating cash flows, advances from our customers and loans from bank facilities. Our working capital was $31,304,195 as of September 30, 2014, a decrease of $40,608,210, from working capital of $71,912,405 as of December 31, 2013. During the nine months ended September 30, 2014, our operating activities generated net cash inflow of $12,929,774, a decrease of $18,452,716 or 59% from $31,382,490, net cash inflow from operating activities of same period of 2013.

  

During the nine months ended September 30, 2014 and 2013, our investing activities used net cash of $37,116,565 and $39,194,760, respectively. During nine months ended September 30, 2014 and 2013, our investing activities cash outflow included $28,184,348 and $38,531,578 of deposits to land use right and equipment.

 

During the nine months ended September 30, 2014 and 2013, our financing activities incurred net cash outflow of $8,264,673, in contrast, during the same period of 2013, our financing activities generated net cash inflow of $15,610,374.

 

In January 2014, the Company entered into a five-year equipment leasing agreement with Cinda Financial Leasing Co., Ltd. (“Cinda”). The total cost of equipment under this lease agreement is RMB129 million (approximately $21 million). Estimated lease payment will be approximately RMB 8 million per quarter (approximately $1.3 million). The Company has the right to purchase the equipment for $161 at the end of the lease. During the nine months ended September 30, 2014, equipment under the lease agreements were received and the Company has paid and accrued interest on capital lease for approximately $796,000. The Company classified the lease as a capital lease in accordance with ASC 840 “Leases”. The Company also agreed to pay consulting fees of $831,100 (RMB 5,160,000) for consulting services and $414,492 (RMB 2,580,000) services fees to Cinda, which was amortized over service period.

 

Pursuant to a resolution approved by Qiyiwangguo’s shareholders’ meeting held on March 7, 2014, 65% of the retained earnings of Qiyiwangguo as of December 31, 2013, approximately RMB 306 million (approximately $50 million) will be distributed to its two shareholders, SkyPeople (China), which owns 91.15% of Qiyiwangguo’s shares; and Xi’an Qinmei Food Co., Ltd, an entity not affiliated with the Company, owns the other 8.85% of the equity interest in Shaanxi Qiyiwangguo. The distribution to SkyPeople (China) was treated as inter-company transaction and the amount was eliminated during the consolidation. On April 10, 2014, approximately RMB 27 million (approximately $4.4 million) was wired from Qiyiwangguo to Xi’an Qinmei Food Co., Ltd.

 

26
 

 

During the nine months of 2014, the Company borrowed $20,302,162 from local banks and repaid $20,673,500 to local banks. In contrast, during the same period of 2013, the Company borrowed 13,649,887 from local banks and repaid $6,715,275 to them. During the nine months of current year, the Company raised $12,123,678 through short-term bank notes and used $11,635,476 for restricted cash as collaterals on bank notes. The Company also paid $3,148,902 to Cinda as deposit of capital lease and $797,443 for obligations under capital lease. There was no transaction in similar nature during the same period of last year.

 

On February 18, 2013, SkyPeople (China) entered into a loan agreement with SkyPeople International Holdings Group Limited (the “Lender”). The Lender indirectly holds 50.2% interest in the Company. Mr. Yongke Xue (“Y. K. Xue”), the Chairman of the board of directors of the Company (the “Board”), and Mr. Hongke Xue, the newly elected Chief Executive Officer of the Company and director of the Board, indirectly and beneficially own 80.0% and 9.4% of equity interest in the Lender, respectively. Pursuant to the Agreement, the Lender agrees to extend to the Company a one-year unsecured term loan with a principal amount of $8.0 million at an interest rate of 6% per annum. During the nine months of 2013, the Company received $8.0 million from the Lender. Both parties extended this loan for another two years in February 2014.

 

Off-balance sheet arrangements

 

As of September 30, 2014, we did not have any off-balance sheet arrangements.

 

Item 3.     Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4.     Controls and Procedures

 

Disclosure Controls and Procedures

 

An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2014, the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2014, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures were completed, our disclosure controls and procedures were effective in providing reasonable assurance of achieving their objectives for the three months ended September 30, 2014.

 

Changes in Internal Controls Over Financial Reporting

 

There have been no changes to the Company’s internal control over financial reporting during the three months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

27
 

 

PART II.     OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, the Company reached a settlement on the Zachary Lewy et al. consolidated securities fraud class action on January 27, 2014. The settlement amount of $2,200,000 has been paid in full to the settlement fund.

As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, in connection with a shareholder demand letter received August of 2011, the Company entered into a settlement agreement on April 17, 2014. The settlement amount of $100,000 has been paid in full.

From time to time we may be a party to various litigation proceedings arising in the ordinary course of business, none of which, in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.

 

Item 1A. Risk Factors

 

Not applicable.

 

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

 

None.

 

Item 3.     Defaults upon Senior Securities

 

None.

 

Item 4.     Mine Safety Disclosures

 

Not applicable.

 

Item 5.     Other Information

 

None.

 

28
 

 

Item 6.     Exhibits

 

Exhibit
No.
  Description
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule15d-14(a) of the Securities Exchange Act of 1934, as amended*
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
32.1   Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2   Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS   XBRL Instance Document*+
101.SCH   XBRL Schema Document*+
101.CAL   XBRL Calculation Linkbase Document*+
101.DEF   XBRL Definition Linkbase Document*+
101.LAB   XBRL Label Linkbase Document*+
101.PRE   XBRL Presentation Linkbase Document*+

 

*filed herewith
   
+As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

 

29
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

 

  SKYPEOPLE FRUIT JUICE, INC.
     
  By: /s/ Hongke Xue
   

Hongke Xue

Chief Executive Officer

    (Principal Executive Officer)
    November 14, 2014
     
  By: /s/ Xin Ma
   

Xin Ma

Chief Financial Officer

    (Principal Financial and Accounting Officer)
    November 14, 2014

 

 

30