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

FORM 10-Q

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

Commission file number:  000-32249

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

Florida
  
98-0222013
(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification No.)
     
16F, National Development Bank Tower,
    
No. 2, Gaoxin 1st. Road, Xi’an, PRC
  
710075
(Address of principal executive offices)
  
(Zip Code)
 
011-86-29-88386415
           (Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes R   No  o
 
    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes  o   No o
 
 
 

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer  o  Accelerated filer    o
 Non-accelerated filer    o  Smaller reporting company    x
 (Do not check if a 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 o No  R

    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding at November 10, 2009
Common Stock, $0.001 par value per share
Preferred Stock, $0.001 par value per share
  
17,547,894 shares
3,448,480 shares

 
 
 
 
SKYPEOPLE FRUIT JUICE, INC.

INDEX
 
 
Page
     
  Forward-Looking Statements 1
     
 
     
 
     
 
2
     
 
3
     
 
4
     
 
5
     
19
     
34
     
  Item 4.
34
     
 
     
35
     
35
     
35
     
35
     
35
     
35
     
 
36
Exhibits
 
 
Certifications
 
 
 
 
- i - 

SKYPEOPLE FRUIT JUICE, INC.

FORWARD-LOOKING STATEMENTS


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

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

 
-1-

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SKYPEOPLE FRUIT JUICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, UNAUDITED
   
September 30,
    
December 31,
  
   
2009
    
2008
  
ASSETS
  
(Unaudited)
        
             
CURRENT ASSETS
            
Cash and equivalents
   $ 12,320,597     $ 15,274,171  
Accounts receivable
     14,905,880       11,610,506  
Other receivables
     1,448,234       297,394  
Inventories
     3,768,088       1,844,397  
Prepaid expenses and other current assets
     859,620       1,087,076  
                       Total current assets
     33,302,419       30,113,544  
                 
PROPERTY, PLANT AND EQUIPMENT, Net
     19,321,792       20,406,967  
LAND USAGE RIGHTS (Note 9)
     6,275,908       6,404,771  
OTHER ASSETS
     5,053,049       2,362,049  
TOTAL ASSETS
   $ 63,953,168     $ 59,287,331  
                 
LIABILITIES AND EQUITY
                
                 
 CURRENT LIABILITIES
                
        Accounts payable
   $ 1,126,080     $ 663,092  
        Accrued expenses
     735,715       1,657,437  
        Accrued liquidated damages
     -       254,301  
        Related party payables
     -       23,452  
        Income taxes payable
     783,022       1,450,433  
        Advances from customers
     1,781,699       1,375,460  
        Short-term notes payable
     11,280,068       11,256,871  
                   Total current liabilities
     15,706,584       16,681,046  
                 
                 
TOTAL LIABILITIES
     15,706,584       16,681,046  
                 
                 
EQUITY
                
SkyPeople Fruit Juice, Inc. stockholders’ equity:
                
        Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 3,448,480 Series B Preferred Stock issued and outstanding as of  September 30, 2009 and December 31, 2008, respectively
     3,448       3,448  
 Common Stock, $0.001 par value; 66,666,666 shares authorized; 14,847,857 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively
      14,848       14,848  
        Additional paid-in capital
     14,253,894       13,999,593  
        Accumulated retained earnings
     27,465,404       22,468,934  
        Accumulated other comprehensive income
     4,462,381       4,573,143  
                   Total SkyPeople Fruit Juice, Inc. stockholders' equity
     46,199,975       41,059,966  
 Noncontrolling interests
     2,046,609       1,546,319  
       TOTAL EQUITY
     48,246,584       42,606,285  
                 
TOTAL LIABILITIES AND EQUITY
   $ 63,953,168     $ 59,287,331  
 
See accompanying notes to condensed consolidated financial statements.

 
-2-

SKYPEOPLE FRUIT JUICE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME,
UNAUDITED
   
Three Months Ended
    
Nine Months Ended
  
 
  
September 30,
    
September 30,
    
September 30,
  
September 30,
  
 
  
2009
    
2008
    
2009
  
2008
  
   
(Unaudited)
    
(Unaudited)
    
(Unaudited)
  
(Unaudited)
  
                       
Revenue
   $ 10,604,655     $ 6,345,778     $ 23,472,717     $ 22,442,329  
Cost of Sales
     6,753,327       3,315,431       14,773,081       14,635,767  
Gross Profit
     3,851,328       3,030,347       8,699,636       7,806,562  
                                 
Operating Expenses
                                
            General and administrative
     501,831       702,385       1,469,128       1,409,895  
            Selling expenses
     188,426       311,931       563,548       808,576  
            Research and development
     275,571       175,431       827,363       199,056  
            Accrued liquidated damages
     -       208,658       -       208,658  
                    Total operating expenses
     965,828       1,398,405       2,860,039       2,626,185  
                                 
Income from Operations
     2,885,500       1,631,942       5,839,597       5,180,377  
                                 
Other Income (Expense)
                                
             Interest expense
     (191,717 )     (179,699 )     (677,375 )     (624,802 )
             Interest income
     15,371       18,377       54,404       41,342  
             Subsidy income
     4,661       3,428       1,557,340       52,206  
             Other income (expense)
     334,058       (1,119 )      691,935       32,827  
                     Total other income (expense)
     162,373       (159,013 )     1,626,304       (498,427 )
                                 
Income Before Income Taxes
     3,047,873       1,472,929       7,465,901       4,681,9500  
                                 
Income Tax Provision
     782,660       214,387       1,998,227       525,585  
                                 
Net Income
     2,265,213       1,258,542       5,467,674       4,156,365  
                                 
Less: Net income attributable to noncontrolling interests
     181,292       73,459       471,204       256,242  
                                 
NET INCOME ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC.
   $ 2,083,921     $ 1,185,083     $ 4,996,470     $ 3,900,123  
                                 
Earnings Per Share:
                                
Basic earnings per share
   $ 0.12     $ 0.06     $ 0.28     $ 0.22  
Diluted earnings per share
   $ 0.11     $ 0.06     $ 0.25     $ 0.21  
                                 
Weighted Average Shares Outstanding:
                                
Basic
     14,847,789       14,847,789       14,847,789       14,810,966  
Diluted
     18,502,518       18,480,109       19,633,360       18,151,026  
                                 
Comprehensive Income:
                                
Net income
   $ 2,265,213     $ 1,258,542     $ 5,467,674     $ 4,156,365  
Foreign currency translation adjustment
     28,268       414,475       (81,676 )     1,711,288  
                                 
Comprehensive Income
   $ 2,293,481     $ 1,673,017     $ 5,389,998     $ 5,867,653  
Comprehensive income attributable to the noncontrolling interest
     (181,246 )     (69,863 )      (500,290 )     53,654  
Comprehensive Income Attributable to SkyPeople Fruit Juice, Inc.
   $ 2,112,235     $ 1,603,154     $ 4,885,708     $ 5,921,307  
                                                                                   
See accompanying notes to condensed consolidated financial statements.
 
-3-

SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, UNAUDITED 
   
September 30,
    
September 30,
  
   
2009
    
2008
  
   
(Unaudited)
    
(Unaudited)
  
Cash Flow from Operating Activities
            
Net income
   $ 4,996,470     $ 3,900,123  
Adjustments to reconcile net income to net cash flow (used in) provided by operating activities
                
Bad debt expenses
     1,130       -  
Depreciation and amortization
     1,488,748       1,409,907  
Loss on sale of property, plant and equipment
     -       1,274  
D     Earnings attributable to noncontrolling interests
     471,204       256,242  
Changes in operating assets and liabilities, net of acquisition effects
                
  Accounts receivable
     (3,300,512 )     6,030,436  
  Other receivables
     (1,150,327 )     13,759  
  Prepaid expenses and other current assets
     (2,463,972 )     (1,224,295 )
  Inventories
     (1,923,564 )     2,847,423  
  Accounts payable
     244,392       (1,662,730 )
  Accrued expenses and other current liabilities
     322,711       114,013  
  Accrued liquidated damages
     -       208,658  
  Advances from customers
     406,746       17,425  
  Taxes  payable
     (1,427,024 )     90,920  
Net cash (used in)  provided by operating activities
     (2,333,998 )     12,003,155  
                 
Cash Flow from Investing Activities
                
Prepayment for lease improvement
     -       (356,860 )
Deposits to purchase target company
     -       (2,141,158 )
Loan repayment from related parties
     -       5,475,092  
Loan advanced to related parties
     -       (7,179,883 )
Additions to property, plant and equipment
     (289,945 )     (2,826,179 )
  Proceeds from sale of property, plant and equipment
             4,996  
Net cash used in investing activities
     (289,945 )     (7,023,992 )
                 
Cash Flow from Financing Activities
                
Proceeds from stock issuance
     -       3,115,072  
Proceeds from bank loans
     9,516,559       14,988,105  
Repayment of bank loans
     (9,487,277 )     (14,531,324 )
Dividend paid to non-controlling interest
     -       (309,896 )
Repayments of related party loan
     -       (149,486 )
Net cash provided by financing activities
     29,282       3,112,471  
                 
Effect of Changes in Exchange Rate
     (358,913 )     610,687  
                 
NET (DECREASE) INCREASE IN CASH
     (2,953,574 )     8,702,321  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
     15,274,171       4,094,238  
CASH AND CASH EQUIVALENTS, END OF PERIOD
   $ 12,320,597     $ 12,796,559  
Supplementary Information of Cash Flows
                
Cash paid for interest
   $ 677,446     $ 649,327  
Cash paid for taxes
   $ 2,664,330     $ 1,049,534  
Purchase of Huludao, offset by related party receivables
   $ -     $ 6,887,391  
                                                                           
See accompanying notes to condensed consolidated financial statements.
 
-4-

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

1.  
CORPORATE INFORMATION

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

Shaanxi Tianren holds a 91.15% interest in Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd. (“Shaanxi Qiyiwangguo”). The acquisition was accounted for using the purchase method, and the financial statements of Shaanxi Tianren and Shaanxi Qiyiwangguo have been consolidated on the purchase date of May 27, 2006 and forward.
 
Shaanxi Tianren also holds a 100% interest in Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”). The payment was made through the offset of related party receivables from Shaanxi Hede Investment Management Co., Ltd. (“Hede”). Before the acquisition, Huludao Wonder had been a variable interest entity of Shaanxi Tianren for accounting purposes since June 1, 2007, and the financial statements of Shaanxi Tianren and Huludao Wonder have been consolidated as of June 1, 2007 and forward. See Note 13-Related Party Transactions.

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

 
-5-

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

The Company’s current structure is set forth in the diagram below:
 
 
*Xi’an Qinmei Food Co., Ltd., an entity which is not affiliated with the Company, owns the other 8.85% of the equity interests in Shaanxi Qiyiwangguo (formerly called Xi’an Tianren Modern Organic Co., Ltd.).

Subsequent Event
 
On October 26, 2009, the Company approved and filed with the Florida Secretary of State's office an amendment to its Articles of Incorporation to carry out a reverse stock split of the Company's Common Stock on a two (2) for three (3) basis. The number of issued and outstanding shares has been retroactively adjusted for this reverse split, which became effective on October 29, 2009. All references as to the shares of the Company's Common Stock, since inception, have been restated to reflect the stock split.

On November 3, 2009, the Company completed a public offering of 2,700,000 shares of Common Stock at a public offering price of $3.00 per share, pursuant to a Registration Statement on Form S-1 declared effective by the U.S. Securities and Exchange Commission (“SEC”). The shares of Common Stock sold in the public offering were issued upon the exercise of warrants that had been issued to the Investors pursuant to an Exchange Agreement dated as of May 28, 2009.  The Company received approximately $6.9 million in gross proceeds from the exercise of all of the foregoing warrants. The Company intends to use the net proceeds to fund potential acquisitions and for general corporate purposes, including acquisitions and other expansion of its current production capacity.

 
-6-
 
2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Certain amounts in the 2008 financial statements have been reclassified to conform to the 2009 financial statement presentation. Such reclassification had no effect on net income.
 
Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of SkyPeople, Pacific, HMN, Shaanxi Tianren, Shaanxi Qiyiwangguo and Huludao Wonder. All material inter-company accounts and transactions have been eliminated in consolidation.
 
The pooling method (entity under common control) is applied to the consolidation of Pacific with Shaanxi Tianren and Shaanxi Tianren with Huludao Wonder. The reverse merger accounting is applied to the consolidation of SkyPeople with Pacific.

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

 
-7-

As of September 30, 2009, the cash balance in financial institutions in the United States was $19,946. Accounts at these financial institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At September 30, 2009, the Company had no deposits that were in excess of the FDIC insurance limit.
 
Accounting for the Impairment of Long-Lived Assets
 
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. During the reporting periods there was no impairment loss.
 
Earnings Per Share
 
Basic earnings per share of Common Stock (“EPS”) are calculated by dividing net income available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period. The Series B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in determining net income available to common stockholders.
 
Diluted EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation. The numerators and denominators used in the computations of basic and diluted EPS are presented in the following table.

 
-8-

   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
    
September 30,
    
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
NUMERATOR FOR BASIC AND DILUTED EPS
                        
Net income attributable to SkyPeople Fruit Juice, Inc. (numerator for Diluted EPS)
   $ 2,083,921     $ 1,185,083     $ 4,996,470     $ 3,900,123  
Net income allocated to Preferred Stock
     (279,454 )      (232,987 )     (883,876 )      (634,550 ) 
Net income available to SkyPeople Fruit Juice, Inc. common stockholders (Basic)
   $ 1,804,467     $ 952,096     $ 4,112,594     $ 3,265,573  
                                 
DENOMINATORS FOR BASIC AND DILUTED EPS
                                
Common Stock outstanding
     14,847,789       14,847,789       14,847,789       14,810,966  
                                 
    Add:  Weighted average preferred as if converted
     2,298,987       3,632,320       3,190,311       2,878,188  
    Add: Weighted average stock warrants outstanding
     1,355,742       -       1,595,260       461,872  
                                 
DENOMINATOR FOR DILUTED EPS
     18,502,518       18,480,109       19,633,360       18,151,026  
                                 
 EPS – Basic
   $ 0.12     $ 0.06     $ 0.28     $ 0.22  
 EPS – Diluted
   $ 0.11     $ 0.06     $ 0.25     $ 0.21  

Shipping and Handling Costs
 
Shipping and handling amounts billed to customers in related sales transactions are included in sales revenues. The shipping and handling expenses of $500,977 and $676,492 for the nine months ended September 30, 2009 and 2008, respectively, are reported in the Consolidated Statement of Operations as a component of selling expenses.
 
Accumulated Other Comprehensive Income
 
Accumulated other comprehensive income represents foreign currency translation adjustments.

 
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Trade Accounts Receivable
 
During the normal course of business, the Company extends unsecured credit to its customers. Accounts receivable and other receivables are recognized and carried at the original invoice amount less an allowance for any uncollectible amount. Allowance is made when collection of the full amount is no longer probable. Management reviews and adjusts this allowance periodically based on historical experience, the current economic climate, as well as its evaluation of the collectability of outstanding accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to management, the Company believed that its allowance for doubtful accounts was adequate as of September 30, 2009. The Company evaluates the credit risks of its customers utilizing historical data and estimates of future performance.
 
Inventories
 
Inventories consist primarily of raw materials and packaging (which include ingredients and supplies) and finished goods (which include finished juice in the Company’s bottling and canning operations). Inventories are valued at the lower of cost or market. The Company determines cost on the basis of the average cost or first-in, first-out methods.
 
Inventories consisted of:
   
September 30,
2009
    
December 31,
2008
  
Raw materials and packaging
  
$
1,696,047
    
$
611,755
  
Finished goods
    
2,072,041
      
1,232,642
  
Inventories
  
$
3,768,088
    
$
1,844,397
  
 
Intangible Assets
 
In accordance with the Accounting Standard Codification (“ASC”) Subtopic 350-50, General Intangibles Other than Goodwill, goodwill and indefinite lived intangible assets are not amortized, but are reviewed annually for impairment, or more frequently, if indications of possible impairment exist. The Company has no indefinite lived intangible assets.
 
 
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Revenue Recognition
 
The Company recognizes revenue upon meeting the recognition requirements of Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition. Revenue from sales of the Company’s products is recognized upon shipment or delivery to its distributors or end users, depending upon the terms of the sales order, provided that persuasive evidence of a sales arrangement exists, title and risk of loss have transferred to the customer, the sales amount is fixed and determinable and collection of the revenue is reasonably assured. More than 69% of the Company’s products are exported either through distributors with good credit or to end-users directly. Of this amount, 80% of the revenue is exported through distributors. The Company’s general sales agreement requires distributors to pay the Company after it delivers the products to them, and payment terms with distributors are not determined by the distributor’s resale to end customers. The Company’s credit term for distributors with good credit history is from 30 days to 90 days. For new customers, the Company usually requires 100% advance payment for direct export sales. Advances from customers are recorded as unearned revenue, which is a current liability. According to the Company’s past collection history, the bad debt rate of accounts receivables is less than 0.5%. The problem of quality hardly occurs during production, storage and transportation due to the Company’s maintenance of strict standards during the entire process. The Company’s 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.

Advertising and Promotional Expense
 
Advertising and promotional costs are expensed as incurred. The Company incurred $5,271 and $164 in advertising and promotional costs for the nine months ended September 30, 2009 and 2008, respectively.

Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The significant areas requiring the use of management estimates include the provisions for doubtful accounts receivable, useful life of fixed assets and valuation of deferred taxes. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates.
 
 
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Property, Plant and Equipment
 
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment used in production is reported in cost of sales. Property, plant and equipment are depreciated over their estimated useful lives as follows:
 
Buildings
20-30 years
Machinery and equipment
10 years
Furniture and office equipment
5 years
Motor vehicles
5 years 
 
   
September 30,
2009
    
December 31,
2008
  
Machinery and equipment
  
$
14,634,497
    
$
14,531,577
  
Furniture and office equipment
    
230,484
      
226,929
  
Motor vehicles
    
194,157
      
194,262
  
Buildings
    
10,419,304
      
8,521,537
  
Construction in progress
    
175,642
      
1,903,418
  
Subtotal
    
25,654,084
      
25,377,723
  
Less: accumulated depreciation
    
(6,332,292
)
    
(4,970,756
)
Net property and equipment
  
$
19,321,792
    
$
20,406,967
  

Depreciation expense included in general and administrative expenses for the nine months ended September 30, 2009 and 2008 was $220,858 and $302,175, respectively. Depreciation expense included in cost of sales for the nine months ended September 30, 2009 and 2008 was $1,142,573 and $998,504, respectively.

Long-term assets of the Company are reviewed annually to assess whether the carrying value has become impaired according to the guidelines established in the ASC Subtopic 360-10-5, Impairment or Disposal of Long-Lived Assets. No impairment of assets was recorded in the periods reported.

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

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into U.S. dollars at rates used in translation.
 

 
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Taxes
 
Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. In accordance with ASC Topic 740, Income Taxes, these deferred taxes are measured by applying currently enacted tax laws.
 
The Company has implemented ASC Topic 740, Income Taxes, which provides for a liability approach to accounting for income taxes. Deferred income taxes result from the effect of transactions that are recognized in different periods for financial and tax reporting purposes. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740.

Restrictions on Transfer of Assets Out of the PRC

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

Accounting Treatment of the February 26, 2008 Private Placement
 
The shares held in escrow pursuant to the terms of the Make Good Escrow Agreement as will not be accounted for on the Company’s books until such shares are released from escrow. During the time such shares are held in escrow, they will be accounted for as contingently issuable shares in determining the diluted EPS denominator in accordance with ASC Topic 215, Statement of Shareholder Equity.
 
Liquidated damages potentially payable by the Company under the Stock Purchase Agreement and the Registration Rights Agreement were accounted for in accordance with Financial Accounting Standard Board Staff Position ASC Topic 825. Estimated damages at the time of closing were recorded as a liability and deducted from additional paid-in capital as costs of issuance. Liquidated damages determined later pursuant to the criteria for ASC Topic 450 were recorded as a liability and deducted from operating income.

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

The Company initially filed a registration statement on Form S-1 with the SEC on March 26, 2008, which date was before the filing date deadline of March 30, 2008 in the Registration Rights Agreement but  the registration statement was not declared effective by the SEC until February 5, 2009.  Therefore, the Company recorded liquidated damages of $254,301 in fiscal 2008 for failure to meet the timetables provided for in the Registration Rights Agreement.

 
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On June 2, 2009, the Company entered into an Exchange Agreement dated as of May 28, 2009 with Barron Partners L.P. ("Barron") and Eos Holdings LLC ("Eos," and together with Barron, the "Investors"), pursuant to which the Company issued to the Investors warrants to purchase an aggregate of 4,333,333 shares of Common Stock at a reduced exercise price (the “New Warrants”) in exchange for warrants to purchase an aggregate of 4,666,667 shares of Common Stock which had been issued to the Investors in February 2008 (the “February 2008 Warrants”). In the Exchange Agreement the Investors agreed to release the Company from all liability for damages, including any and all liquidated damages, penalties and interest thereon, relating to any breach or breaches of any obligation of the Company under the Registration Rights Agreement, dated as of February 25, 2008 between the Investors and the Company from the date of execution of such agreement through the date of such release and the waiver by the Investors of their right to receive up to 2,000,000 additional shares of the Company’s Series B Preferred Stock solely as a result of, and to the extent that, such stock would be deliverable to the Investors because Pre-Tax Income Per Share for the Company’s fiscal year ending December 31, 2009 is reduced as a result of any reduction in net income available to common stockholders for such fiscal year and/or an increase in the weighted average number of shares of Common Stock outstanding during the period due to the issuance and delivery to the Investors of the New Warrants. Accordingly, in the second quarter of fiscal 2009, the Company reversed the liquidated damages of $254,301 that were accrued in fiscal 2008 to additional paid-in capital.
 
Research and Development
 
Shaanxi Tianren established a research and development institution which has 41 research and development personnel as of September 30, 2009. Shaanxi Tianren also from time to time retains external experts and research institutions. The research and development expenses were $827,363 and $199,056 for the nine months ended September 30, 2009 and 2008, respectively.
 
New Accounting Pronouncements

In June 2009 the FASB established the Accounting Standards Codification ("Codification" or "ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). Rules and interpretive releases of the Securities and Exchange Commission ("SEC") issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact the Company’s financial statements. The ASC does change the way the guidance is organized and presented.

Statement of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855), Subsequent Events, SFAS No. 166 (ASC Topic 810), "Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140", SFAS No. 167 (ASC Topic 810), "Amendments to FASB Interpretation No. 46(R)", and SFAS No. 168 (ASC Topic 105), "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162" were recently issued. SFAS No. 165, 166, 167, and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.

Accounting Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

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

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

SFAS No. 166 is a revision to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  It requires more information about transfers of financial assets, including securitization transactions and the continued risk exposures related to such transfers.  It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.
 
SFAS No. 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights should be consolidated.  The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.  Additional disclosures are also required. The Company does not expect the adoption of SFAS No. 166 and No. 167 to have a significant impact on its financial statements.
 
3.           CONVERTIBLE PREFERRED STOCK

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

 
-15-

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

Upon effectiveness of the reverse stock split on May 23, 2009, each share of Series B Preferred Stock is convertible at any time into one share of Common Stock at the option of the holder. If the conversion price (initially $1.20) is adjusted, the conversion ratio will likewise be adjusted and the new conversion ratio will be determined by multiplying the conversion ratio in effect by a fraction, the numerator of which is the conversion price in effect before the adjustment and the denominator of which is the new conversion price.

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

On October 26, 2009, the Company approved and filed with the Florida Secretary of State's office an amendment to its Articles of Incorporation to carry out a reverse stock split of the Company's Common Stock on a two (2) for three (3) basis. The conversion price of Preferred Stock to Common Stock was adjusted to $1.80, and the conversion ratio was adjusted on a two (2) for three (3) basis according to the terms of the Preferred Stock.

4.  
     WARRANTS

The  Warrants that were issued pursuant to the Exchange Agreement became exercisable after the consummation of a 1-for-328.72898 reverse split of the Company’s outstanding Common Stock, which was effective on May 23, 2008, and the 4,666,667 shares issuable upon exercise of such warrants were not adjusted as a result of such reverse split.

On June 2, 2009 the Company and the Investors entered into and consummated an Exchange Agreement, dated as of May 28, 2009, pursuant to which the Investors exchanged all of the February 2008 Warrants for New Warrants with an exercise price of $2.55 per share (which exercise price, in the case of New Warrants to purchase an aggregate of 666,667 shares of the Company’s Common Stock, shall be increased to $4.50 per share if the New Warrants are not exercised by September 30, 2009).

On October 26, 2009, the Company and the Investors entered into an underwriting agreement and certain pricing agreements with Roth Capital Partners, LLC for the sale of 2,700,000 shares of the Company’s Common Stock. Under the terms of the pricing agreements, the Investors granted Roth Capital Partners, LLC an option, exercisable for 30 days, to purchase up to an additional 405,000 shares of Common Stock to cover over-allotments, if any. The Common Stock on sale in the public offering was issuable upon exercise of the New Warrants. The remaining outstanding New Warrants have an exercise price of $2.55 per share.

The number of warrants and the exercise price of the warrants have been retroactively adjusted because of the stock split described above in Note 1 – Corporate Information.

 
-16-

5.  
     NOTE PURCHASE AGREEMENT

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

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

6.  
ACCQUISITION OF HULUDAO WONDER
 
On June 10, 2008, the Company completed the acquisition of Huludao for a total purchase price of RMB 48,250,000, or approximately U.S. $6,308,591 based on the exchange rate of June 1, 2007.  The acquisition is accounted for according to ASC Topic 805, Business combinations. When accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer and report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period. 
 
Prior to the June 2008 acquisition, Huludao Wonder was classified as a variable entity of Shaanxi Tianren according to ASC Topic 810, Consolidation. ASC Topic 810 requires the primary beneficiary of the variable interest entity to consolidate its financial results with the variable interest entity. The Company had evaluated its relationship with Huludao and had concluded that Huludao Wonder was a variable interest entity for accounting purposes after June 2007 and prior to June 2008.

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

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