UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________________ to ________________
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Commission file number: 000-32249
SKYPEOPLE FRUIT JUICE, INC.
(Exact name of registrant as specified in its charter)
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Florida
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98-0222013
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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16F, National Development Bank Tower,
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No. 2, Gaoxin 1st. Road, Xi’an, PRC
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710075
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(Address of principal executive offices)
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(Zip Code)
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011-86-29-88377161
(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 x 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 |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
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Class
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Outstanding at August 10, 2010
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Common Stock, $0.001 par value per share
Preferred Stock, $0.001 par value per share
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20,410,117 shares
1,605,147 shares
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SKYPEOPLE FRUIT JUICE, INC.
INDEX
SKYPEOPLE FRUIT JUICE, INC.
FORWARD-LOOKING STATEMENTS
The discussions of the business and activities of SkyPeople Fruit Juice, Inc. (together with its direct and indirect subsidiaries, “we,” “us,” “our” or “the Company”) set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements and assumptions regarding future activities and results of operations of the Company. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plans," “potential," "projects," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend" or the negative of these words or other variations on these words or comparable terminology. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.
Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in the most recent Form 10-K filed by the Company. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SKYPEOPLE FRUIT JUICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2010 AND DECEMBER 31, 2009 (UNAUDITED)
| |
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June 30,
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December 31,
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| |
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2010
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|
|
2009
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|
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ASSETS
|
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|
|
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|
|
| |
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
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Cash and cash equivalents
|
|
$ |
26,611,597 |
|
|
$ |
14,404,500 |
|
Accounts receivable, net of allowance of $43,231 and $42,950
|
|
|
24,286,492 |
|
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|
27,398,821 |
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|
|
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|
2,660,383 |
|
|
|
222,932 |
|
|
|
|
|
2,607,909 |
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|
4,925,625 |
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Advances to suppliers and other current assets
|
|
|
1,786,334 |
|
|
|
1,536,042 |
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|
|
|
|
57,952,715 |
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|
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48,487,920 |
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| |
|
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|
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PROPERTY, PLANT AND EQUIPMENT, Net
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|
|
25,735,812 |
|
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|
23,855,648 |
|
|
|
|
|
6,494,424 |
|
|
|
6,577,834 |
|
|
|
|
|
9,673,075 |
|
|
|
4,740,242 |
|
|
|
|
$ |
99,856,026 |
|
|
$ |
83,661,644 |
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| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,861,073 |
|
|
$ |
2,684,113 |
|
|
|
|
|
3,527,196 |
|
|
|
4,368,852 |
|
|
|
|
|
1,419,742 |
|
|
|
2,592,493 |
|
|
|
|
|
576,249 |
|
|
|
1,009,624 |
|
|
|
|
|
11,811,546 |
|
|
|
5,420,531 |
|
|
|
|
|
202,418 |
|
|
|
- |
|
|
|
|
|
- |
|
|
|
3,377,917 |
|
Total current liabilities
|
|
|
19,398,224 |
|
|
|
19,453,530 |
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| |
|
|
|
|
|
|
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Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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SkyPeople Fruit Juice, Inc. stockholders’ equity:
|
|
|
|
|
|
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Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 1,605,147 and 3,448,480 Series B Convertible Preferred Stock issued and outstanding as of June 30, 2010 and December 31, 2009, respectively
|
|
|
1,605 |
|
|
|
3,448 |
|
Common Stock, $0.001 par value; 66,666,666 shares authorized; 20,410,117 and 17,952,894 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively
|
|
|
20,410 |
|
|
|
17,953 |
|
Additional paid-in capital
|
|
|
35,312,540 |
|
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|
26,699,154 |
|
|
|
|
|
36,666,136 |
|
|
|
30,237,707 |
|
Accumulated other comprehensive income
|
|
|
5,017,239 |
|
|
|
4,487,706 |
|
Total SkyPeople Fruit Juice, Inc. stockholders' equity
|
|
|
77,017,930 |
|
|
|
61,445,968 |
|
|
|
|
|
3,439,872 |
|
|
|
2,762,146 |
|
|
|
|
|
80,457,802 |
|
|
|
64,208,114 |
|
TOTAL LIABILITIES AND EQUITY
|
|
$ |
99,856,026 |
|
|
$ |
83,661,644 |
|
See accompanying notes to condensed consolidated financial statements
SKYPEOPLE FRUIT JUICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)
| |
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Three Months Ended
|
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Six Months Ended
|
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|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
| |
|
|
|
|
|
|
|
|
|
|
|
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Revenue
|
|
$ |
13,396,783 |
|
|
$ |
6,197,001 |
|
|
$ |
31,118,079 |
|
|
$ |
12,868,062 |
|
|
Cost of Sales
|
|
|
7,039,098 |
|
|
|
4,273,595 |
|
|
|
17,597,346 |
|
|
|
8,019,754 |
|
|
Gross Profit
|
|
|
6,357,685 |
|
|
|
1,923,406 |
|
|
|
13,520,733 |
|
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|
4,848,308 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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General and administrative
|
|
|
848,107 |
|
|
|
555,393 |
|
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|
1,614,339 |
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|
967,297 |
|
|
Selling expenses
|
|
|
214,101 |
|
|
|
101,534 |
|
|
|
578,878 |
|
|
|
375,122 |
|
|
Research and development expenses
|
|
|
267,181 |
|
|
|
276,282 |
|
|
|
545,333 |
|
|
|
551,792 |
|
|
Total operating expenses
|
|
|
1,329,389 |
|
|
|
933,209 |
|
|
|
2,738,550 |
|
|
|
1,894,211 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
5,028,296 |
|
|
|
990,197 |
|
|
|
10,782,183 |
|
|
|
2,954,097 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(216,957 |
) |
|
|
(259,262 |
) |
|
|
(439,916 |
) |
|
|
(485,658 |
) |
|
Interest income
|
|
|
24,657 |
|
|
|
31,717 |
|
|
|
46,753 |
|
|
|
39,033 |
|
|
Subsidy income
|
|
|
2,204,843 |
|
|
|
1,464,879 |
|
|
|
2,248,405 |
|
|
|
1,552,679 |
|
|
Other income
|
|
|
1,672 |
|
|
|
357,917 |
|
|
|
1,434 |
|
|
|
357,877 |
|
|
Change in fair value of warrant liabilities
|
|
|
(10,860 |
) |
|
|
- |
|
|
|
(2,103,832 |
) |
|
|
- |
|
|
Total other income (expense)
|
|
|
2,003,355 |
|
|
|
1,595,251 |
|
|
|
(247,156 |
) |
|
|
1,463,931 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
7,031,651 |
|
|
|
2,585,448 |
|
|
|
10,535,027 |
|
|
|
4,418,028 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expenses
|
|
|
1,922,974 |
|
|
|
721,697 |
|
|
|
3,428,871 |
|
|
|
1,215,567 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
5,108,677 |
|
|
|
1,863,751 |
|
|
|
7,106,156 |
|
|
|
3,202,461 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
345,465 |
|
|
|
190,638 |
|
|
|
677,727 |
|
|
|
289,912 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC.
|
|
$ |
4,763,212 |
|
|
$ |
1,673,113 |
|
|
$ |
6,428,429 |
|
|
$ |
2,912,549 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
0.22 |
|
|
$ |
0.09 |
|
|
$ |
0.31 |
|
|
$ |
0.16 |
|
|
Diluted earnings per share
|
|
$ |
0.22 |
* |
|
$ |
0.09 |
|
|
$ |
0.31 |
* |
|
$ |
0.15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,185,555 |
|
|
|
14,847,894 |
|
|
|
19,268,424 |
|
|
|
14,847,894 |
|
|
Diluted
|
|
|
21,481,227 |
|
|
|
18,411,461 |
|
|
|
21,063,637 |
|
|
|
18,862,719 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
5,108,677 |
|
|
$ |
1,863,751 |
|
|
$ |
7,106,156 |
|
|
$ |
3,202,461 |
|
|
Foreign currency translation adjustment
|
|
|
528,500 |
|
|
|
(16,519 |
) |
|
|
499,135 |
|
|
|
(109,944 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$ |
5,637,177 |
|
|
$ |
1,847,232 |
|
|
$ |
7,605,291 |
|
|
$ |
3,092,517 |
|
|
Comprehensive income attributable to the noncontrolling interest
|
|
|
(345,628 |
) |
|
|
(191,490 |
) |
|
|
(647,329 |
) |
|
|
(319,044 |
) |
|
Comprehensive Income Attributable to SkyPeople Fruit Juice, Inc.
|
|
$ |
5,291,549 |
|
|
$ |
1,655,742 |
|
|
$ |
6,957,962 |
|
|
$ |
2,773,473 |
|
* The effect of change in fair value of warrant liability was not included for the computation of diluted earnings per share for the period ended as the inclusion would be anti-dilutive.
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)
| |
|
June 30,
|
|
|
June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
| Cash Flow from Operating Activities |
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
7,106,156 |
|
|
$ |
3,202,461 |
|
|
Adjustments to reconcile net income to net cash flow provided by operating activities
|
|
|
|
|
|
|
|
|
|
Bad debt expenses
|
|
|
- |
|
|
|
1,130 |
|
|
Depreciation and amortization
|
|
|
1,089,379 |
|
|
|
974,197 |
|
|
Change in fair value of warrant liability
|
|
|
2,103,832 |
|
|
|
- |
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,269,969 |
|
|
|
4,432,256 |
|
|
Other receivables
|
|
|
(2,419,962 |
) |
|
|
(1,181,728 |
) |
|
Advances to suppliers and other current assets
|
|
|
(239,364 |
) |
|
|
(2,967,925 |
) |
|
Inventories
|
|
|
2,334,439 |
|
|
|
(407,935 |
) |
|
Accounts payable
|
|
|
(835,060 |
) |
|
|
657,335 |
|
|
Accrued expenses
|
|
|
(862,609 |
) |
|
|
225,064 |
|
|
Advances from customers
|
|
|
(437,079 |
) |
|
|
51,829 |
|
|
Short-term notes payable
|
|
|
201,081 |
|
|
|
- |
|
|
Income taxes payable
|
|
|
(1,181,865 |
) |
|
|
(1,488,223 |
) |
|
Net cash provided by operating activities
|
|
|
10,128,917 |
|
|
|
3,498,461 |
|
| |
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
Prepayment for other assets
|
|
|
(6,866,501 |
) |
|
|
- |
|
|
Additions to property, plant and equipment
|
|
|
(679,246 |
) |
|
|
(177,168 |
) |
|
Net cash used in investing activities
|
|
|
(7,545,747 |
) |
|
|
(177,168 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
Proceeds from stock issuance
|
|
|
3,132,252 |
|
|
|
- |
|
|
Proceeds from bank loans
|
|
|
6,855,536 |
|
|
|
6,002,928 |
|
|
Repayment of bank loans
|
|
|
(541,997 |
) |
|
|
(7,730,600 |
) |
|
Net cash provided by/(used in) financing activities
|
|
|
9,445,791 |
|
|
|
(1,727,672 |
) |
| |
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
12,028,961 |
|
|
|
1,593,621 |
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
14,404,500 |
|
|
|
15,274,171 |
|
|
Effect of Changes in Exchange Rate
|
|
|
178,136 |
|
|
|
(365,926 |
) |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
26,611,597 |
|
|
$ |
16,501,866 |
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
439,453 |
|
|
$ |
485,658 |
|
|
Cash paid for taxes
|
|
$ |
4,610,736 |
|
|
$ |
1,942,978 |
|
|
Supplementary disclosures of significant non-cash transactions:
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
$ |
(2,103,832 |
) |
|
$ |
- |
|
|
Exercise of warrants
|
|
$ |
5,481,749 |
|
|
$ |
- |
|
Note: During the six months ended June 30, 2010, the Company transferred other assets to property, plant and equipment with a total amount of $1,997,088 (For the six months ended June 30, 2009: Nil).
See accompanying notes to condensed consolidated financial statements.
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying condensed consolidated financial statements do reflect all the adjustments that, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. Such adjustments are of a normal, recurring nature. Our operating results for the six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009. There have been no material changes in the significant accounting policies followed by us during the six months ended June 30, 2010.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal activities of the Company consist of production and sales of fruit concentrate, 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.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of (i) SkyPeople Fruit Juice, Inc. (“SkyPeople”), (ii) Pacific Industry Holding Group Co., Ltd. (“Pacific”), a company incorporated under the laws of the Republic of Vanuatu and a wholly owned subsidiary of SkyPeople, (iii) Harmony MN Inc. (“HMN”), a company organized under the laws of Delaware and a wholly owned subsidiary of SkyPeople, (iv) SkyPeople Juice Group Co., Ltd., formerly known as Shaanxi Tianren Organic Food Co., Ltd. as of December 18, 2009 (“SkyPeople (China)”), a company incorporated under the laws of the People’s Republic of China (the “PRC”) and a 99% owned subsidiary of Pacific, (v) Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd. (PRC) (“Shaanxi Qiyiwangguo”), a company incorporated under the laws of the PRC and 91.15% owned subsidiary of SkyPeople (China), (vi) Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”), a company incorporated under the laws of the PRC and a wholly owned subsidiary of SkyPeople (China), and (vii) Yingkou Trusty Fruit Co., Ltd. (“Yingkou”), a company incorporated under the laws of the PRC and a wholly owned subsidiary of SkyPeople (China). 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 SkyPeople (China). The reverse merger accounting is applied to the consolidation of SkyPeople with Pacific.
Use of Estimates
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include the provisions for doubtful accounts receivable, useful life of fixed assets and valuation allowance for deferred taxes. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates.
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Cash and Cash Equivalents
Cash and cash equivalents included all highly liquid investments with an original maturity of three months or less.
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-live assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technological or other industrial changes. 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.
Fair Value of Financial Instruments
FASB Accounting Standards Codification Topic on Fair Value Measurements and Disclosures (“ASC 820”) requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
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 numerators and denominators used in the computations of basic and diluted EPS are presented in the following table.
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
|
Three Months Ended
|
|
|
Six Months Ended
|
|
| |
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
NUMERATOR FOR BASIC AND DILUTED EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,763,212 |
|
|
$ |
1,673,113 |
|
|
$ |
6,428,429 |
|
|
$ |
2,912,549 |
|
Net income allocated to Preferred Stock
|
|
|
(359,672 |
) |
|
|
(301,556 |
) |
|
|
(543,845 |
) |
|
|
(545,229 |
) |
Net income to common stockholders (Basic)
|
|
$ |
4,403,540 |
|
|
$ |
1,371,557 |
|
|
$ |
5,884,584 |
|
|
$ |
2,367,320 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,763,212 |
|
|
$ |
1,673,113 |
|
|
$ |
6,428,429 |
|
|
$ |
2,912,549 |
|
Change in fair value of warrant liability
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net income (numerator for Diluted EPS)
|
|
$ |
4,763,212 |
|
|
$ |
1,673,113 |
|
|
$ |
6,428,429 |
|
|
$ |
2,912,549 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATORS FOR BASIC AND DILUTED EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Stock outstanding
|
|
|
20,185,555 |
|
|
|
14,847,894 |
|
|
|
19,268,424 |
|
|
|
14,847,894 |
|
DENOMINATOR FOR BASIC EPS
|
|
|
20,185,555 |
|
|
|
14,847,894 |
|
|
|
19,268,424 |
|
|
|
14,847,894 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Weighted average preferred as if converted
|
|
|
1,289,439 |
|
|
|
3,207,412 |
|
|
|
1,781,909 |
|
|
|
3,418,692 |
|
Add: Weighted average stock warrants outstanding
|
|
|
6,233 |
|
|
|
356,155 |
|
|
|
13,304 |
|
|
|
596,133 |
|
DENOMINATOR FOR DILUTED EPS
|
|
|
21,481,227 |
|
|
|
18,411,461 |
|
|
|
21,063,637 |
|
|
|
18,862,719 |
|
|
|
|
$ |
0.22 |
|
|
$ |
0.09 |
|
|
$ |
0.31 |
|
|
$ |
0.16 |
|
|
|
|
$ |
0.22 |
* |
|
$ |
0.09 |
|
|
$ |
0.31 |
* |
|
$ |
0.15 |
|
|
*
|
The effect of change in fair value of warrant liability was not included for the computation of diluted earnings per share for the period ended as the inclusion would be anti-dilutive.
|
Shipping and Handling Costs
Shipping and handling amounts billed to customers in related sales transactions are included in sales revenues and are reported as a component of selling expenses. The shipping and handling expenses of $527,489 and $355,476 for the six months ended June 30, 2010 and 2009, respectively, are included in sales revenues and reported as a component of selling expenses in the condensed consolidated statements of operations and comprehensive income.
Accounts Receivable
Accounts receivable and other receivables are recognized and carried at the original invoice amount less an allowance for any uncollectible amount. Allowance is made when collection of the full amount is no longer probable. The Company periodically evaluates its receivables for collectability based on historical experience, current economic climate, as well as recent account activities and the length of time receivables are past due, and writes off receivables when they become uncollectible. The Company believed that its allowance for doubtful accounts was adequate as of June 30, 2010.
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 average cost method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are reserved or written off.
Intangible Assets
The Company follows the provision of ASC 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.
Revenue Recognition
The Company recognizes revenue upon meeting the recognition requirements of Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition. Revenue from sales of products is recognized upon the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed. 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.
Government Subsidies
A government subsidy is recognized only when there is reasonable assurance that the enterprise will comply with any conditions attached to the grant and the grant will be received.
The Company received government subsidies in the form of funds for research and development activities. The government subsidies recognized were $2,248,405 and $1,552,679 for the six months ended June 30, 2010 and 2009, respectively and are included in other income.
Advertising and Promotional Expense
Advertising and promotional costs are expensed as incurred. The Company incurred $1,980 and $2,416 in advertising and promotional costs for the six months ended June 30, 2010 and 2009, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. 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 expensed 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.
Construction in progress primarily represents the renovation costs of plant, machinery and equipment. Costs and interest on borrowings incurred are capitalized and transferred to property and equipment upon completion, at which time depreciation commences. Cost of repairs and maintenance is expensed as incurred.
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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:
|
|
|
|
|
|
Furniture and office equipment
|
|
|
|
|
Depreciation expense included in general and administration expenses for the six months ended June 30, 2010 and 2009 was $78,546 and $227,770, respectively. Depreciation expense included in cost of sales for the six months ended June 30, 2010 and 2009 was $885,193 and $662,880, 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. The Company is not aware of any events or circumstances which indicate the existence of an impairment which would be material.
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 is 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. The average exchange rate for the period has been used to translate revenues and expenses. Translation adjustments are reported separately and accumulated in separate component of equity (cumulative translation adjustment).
Other comprehensive income for the six months ended June 30, 2010 and 2009 represented foreign currency translation adjustments and were included in the condensed consolidated statements of operations and comprehensive income.
Income Taxes
Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Any tax paid by subsidiaries during the year is recorded. Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purpose and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred income tax liabilities or assets are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and the financial reporting amounts at each year end. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized.
The Company adopted FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN48), which is codified as ASC 740. ASC 740 provides guidance for recognizing and measuring uncertain tax positions, and it prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be recognized in the financial statements. ASC 740 also provides accounting guidance on derecognizing, classification and disclosure of these uncertain tax positions.
Restrictions on Transfer of Assets out of the PRC
Dividend payments by PRC subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by PRC subsidiaries without first receiving prior approval from the State Administration of Foreign Exchange. Dividend payments are restricted to 90% of profits, after tax.
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Research and Development
Research and development costs are expensed when incurred and are included in operating expenses. The expenses were $545,333 and $551,792 for the six months ended June 30, 2010 and 2009, respectively.
New Accounting Pronouncements
In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The FASB believes these amendments remove potential conflicts with the SEC’s literature. In addition, the amendments in the ASU require an entity that is a conduit bond obligor for conduit debt securities that are traded in a public market to evaluate subsequent events through the date of issuance of its financial statements and must disclose such date. All of the amendments in the ASU were effective upon issuance (February 24, 2010) except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The provisions of ASU 2010-09 did not have a material impact on the Company’s financial statements.
In February 2010, the FASB issued ASU No. 2010-08, Technical Corrections to Various Topics, thereby amending the FASB Accounting Standards CodificationTM (Codification). This ASU resulted from a review by the FASB of its standards to determine if any provisions are outdated, contain inconsistencies, or need clarifications to reflect the FASB’s original intent. The FASB believes the amendments do not fundamentally change U.S. GAAP. However, certain clarifications on embedded derivatives and hedging reflected in Topic 815, Derivatives and Hedging, may cause a change in the application of the guidance in Subtopic 815-15. Accordingly, the FASB provided special transition provisions for those amendments. The ASU contains various effective dates. The clarifications of the guidance on embedded derivatives and hedging (Subtopic 815-15) are effective for fiscal years beginning after December 15, 2009. The amendments to the guidance on accounting for income taxes in a reorganization (Subtopic 852-740) applies to reorganizations for which the date of the reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. All other amendments are effective as of the first reporting period (including interim periods) beginning after the date this ASU was issued (February 2, 2010). The provisions of ASU 2010-08 are not expected to have an impact on the Company’s financial statements.
In January 2010, the FASB issued Codification Accounting Standards Update No. 2010-06 (ASU No. 2010-06), improving Disclosure about Fair Value Measurements, under Topic 820, Fair Value Measurements and Disclosures, to improve and provide new disclosures for recurring and nonrecurring fair value measurements under the three-level hierarchy of input for transfers in and out of Levels 1 and 2, and activity in Level 3. This update also clarifies existing disclosures of the level of disaggregation for the classes of assets and liabilities and the disclosure about input and valuation techniques. ASU No. 2010-06 new disclosures and clarification of existing disclosure is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for financial statements issued for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU No. 2010-06 new disclosures and clarification of existing disclosure did not have a material impact on our condensed consolidated financial statements. The Company is currently assessing the impact, if any, of ASU No. 2010-06 disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements on our condensed consolidated financial statements.
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. ACQUISITION OF YINGKOU
On November 25, 2009, the Company completed the acquisition of Yingkou Trusty Fruits Co., Ltd. (“Yingkou”), an apple concentrate producer, pursuant to the Stock Purchase Agreement that SkyPeople (China) entered with Xi’an Dehao Investment & Consulting Co., Ltd. on November 18, 2009. Yingkou was in the process of completing the construction of its new facility at the time of the acquisition and is expected to commence production in August of 2010. The Company believed that acquiring an apple concentrate production business would enhance the Company’s future growth opportunities and develop additional market share in the fruit juice business in the PRC. The net cash purchase price was RMB 22,700,000 or approximately $3,323,913. In accordance with ASC Top 805, Business Combinations, we allocated the purchase price to tangible assets and intangible assets of Yingkou based on their estimated fair value. We estimated that the book value of the fixed assets acquired approximated the fair value of similar assets available on the market based on the information management received, as they are newly constructed. Accordingly, we allocated $1,880,046 to various items of current assets and $4,840,218 to fixed assets acquired. The excess purchase price over the fair value of net assets acquired, which was $266,499, was attributable to an identifiable intangible asset, the land usage right, based on estimates and assumptions determined by management. The economic life of this land usage right was approximately 50 years and the land usage right will be amortized over 50 years on the straight-line basis. No goodwill was recognized.
The following table summarizes the fair value of Yingkou’s assets and liabilities acquired as of November 25, 2009:
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Yingkou is expected to commence production in August of 2010.
4. INVENTORIES
Inventories by major categories are summarized as follows:
| |
|
June 30,
|
|
|
December 31,
|
|
| |
|
2010
|
|
|
2009
|
|
Raw materials and packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| |
|
June 30,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
15,370,518
|
|
|
|
|
|
Furniture and office equipment
|
|
|
263,914
|
|
|
|
|
|
|
|
|
|
411,306
|
|
|
|
|
|
|
|
|
|
13,567,491
|
|
|
|
|
|
|
|
|
|
3,944,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(7,821,989
|
|
|
|
|
|
Net property and equipment
|
|
|
25,735,812
|
|
|
|
|
|
There were no impairment provisions made at June 30, 2010 and December 31, 2009. On November 25, 2009, the Company completed the acquisition of Yingkou. After the purchase, the Company began renovation of its facility, office building and industrial waste water processing facility. The Company capitalized $3,840,342 as construction in progress of Yingkou as of June 30, 2010. This project is expected to be completed in August 2010, before the squeezing season of apples. The Company began to build its fructose production line in its Jingyang facility in September 2009. The Company capitalized $104,230 as construction in progress of Jingyang facility as of June 30, 2010. This project is expected to be completed by the end of August 2010.
6. LAND USAGE RIGHTS
According to the laws of the PRC, the government owns all of the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the PRC government. Accordingly, the Company paid in advance for land use rights. Prepaid land use rights are being amortized and recorded as lease expenses using the straight-line method over
the use terms of the lease, which were 30 to 50 years. The amortization expense was $125,640 and $83,547 for the six months ended June 30, 2010 and 2009, respectively.
7. INCOME TAX
The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made, as the Company had no U.S. taxable income for the six months ended June 30, 2010 and June 30, 2009. The applicable income tax rate for the Company for each of the six months ended June 30, 2010 and 2009 was 34%.
Effective on January 1, 2008, the PRC Enterprise Income Tax Law and Implementing Rules imposed a unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign-invested enterprises in the PRC, unless they qualify under certain limited exceptions. In December 2006, SkyPeople (China) was awarded the status of a nationally recognized High and New Technology Enterprise, which entitled SkyPeople (China) to tax-free treatment from January 2007 to December 2008. As such, starting from January 1, 2009, three of the Company’s subsidiaries in the PRC, including SkyPeople (China), Shannxi Qiywangguo and Huludao Wonder, are subject to an enterprise income tax rate of 25%. Yingkou Trusty has not yet commenced operating activities and as such was not subject to income taxes in the six months ended June 30, 2010 and 2009.
SKYPEOPLE FRUIT JUICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740, Income Taxes. The income tax expense was $3,428,871 and $1,215,567 for the six months ended June 30, 2010 and June 30, 2009, respectively, and it was $1,922,974 and $721,691 for the three months ended June 30, 2010 and June 30, 2009, respectively. The Company had recorded no deferred tax assets or liabilities as of June 30, 2010 and 2009, since nearly all differences in tax basis and financial statement carrying values are permanent differences.
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,922,974 |
|
|
$ |
721,697 |
|
|
$ |
3,428,871 |
|
|
$ |
1,215,567 |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
$ |
1,922,974 |
|
|
$ |
721,697 |
|
|
$ |
3,428,871 |
|
|
$ |
1,215,567 |
|
The effective income tax expenses differed from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Statutory income tax rate
|
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
|
|
|
|
2 |
% |
|
|
3 |
% |
|
|
2 |
% |
|
|
3 |
% |
|
|