News Column

SKYPEOPLE FRUIT JUICE, INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

May 15, 2014

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

DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

The following discussion and analysis of the condensed consolidated financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and with the information under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed in this report and under the heading "Risk Factors" in our most recent Annual Report on Form 10-K.



Overview of Our Business

We are engaged in the production and sales of fruit juice concentrates (including fruit purees, concentrated fruit purees and concentrated fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages), and other fruit related products (including organic and non-organic fresh fruits) in and from the PRC. Our fruit juice concentrates, which include apple, pear and kiwifruit concentrates, are sold to domestic customers and exported directly or via distributors. We sell our Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the PRC. For the three months ended March 31, 2014, sales of our fruit concentrates, fruit beverages, fresh fruits and other fruit related products represented 37%, 63% and 0% of our revenue, respectively, compared to 51%, 44% and 5%, respectively, for the same period of 2013. We export our products as well as sell them domestically. We sell our products either through distributors with good credit or to end users directly. We believe that our main export markets are the Asia, North America, Europe, Russia and the Middle East. We sell our other fruit related products to domestic customers. During the first quarter of 2014, we exported our Hedetang-branded fruit juice beverages to Mongolia and Canada. We currently market our Hedetang brand fruit beverages in only certain regions of the PRC. We plan to expand the market presence of Hedetang over a broader geographic area in the PRC. In particular, we plan to expand our glass bottle production line to produce higher margin portable fruit juice beverages targeting consumers in more populated Chinese cities. Currently we produce six flavors of fruit beverages in 280 ml glass bottles, 418 ml glass and 500 ml glass bottles and BIB package, including apple juice, pear juice, kiwifruit juice, mulberry juice, kiwifruit cider and mulberry cider. We currently sell our fruit beverages to over 100 distributors and more than 20,000 retail stores in approximately 20 provinces. Our products are sold through distributors in stores such as Hualian Supermarket in Beijing, RT-Mart in Shenyang, Carrefour in Chongqing and Shenyang and Lianhua Supermarket in Shanghai, etc.



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

We believe that continuous investment in research and development is a key component to being a leader in fruit juice concentrate and fruit beverage quality. As of March 31, 2014, we are in the process of building up an internal research and development team, we will use external experts and research institutions for additional consultation when necessary. In three months ended March 31, 2014 and 2013, our research and development expenses were $nil and $98,622, respectively. 14

-------------------------------------------------------------------------------- Our business is highly seasonal and can be greatly affected by weather because of the seasonal nature in the growing and harvesting of fruits and vegetables. Our core products are apple, pear and kiwifruit juice concentrates, which are produced from July or August to April of the following year. The squeezing season for (i) apples is from August to January or February; (ii) pears is from July or August until April of next year; and (iii) kiwifruit is from September through December. Typically, a substantial portion of our revenues is earned during our first and fourth quarters. To minimize the seasonality of our business, we make continued efforts in identifying new products with harvesting seasons complementary to our current product mix. Our goal is to lengthen our squeezing season, thus increasing our annual production of fruit juice concentrates and fruit beverages. In the first quarter of 2009, we introduced mulberry and kiwifruit cider beverages in the Chinese market. Unlike fruit juice concentrates, which can only be produced during the squeezing season, such fruit beverages are made out of fruit juice concentrates and can be produced and sold in all seasons. With continuous efforts in marketing of our beverages in domestic market, we believe that our seasonality will be reduced.



Fresh fruits are the primary raw materials needed for the production of our products. Our raw materials mainly consist of apples, pears and kiwifruits. Other raw materials used in our business include pectic enzyme, amylase, auxiliary power fuels and other power sources such as coal, electricity and water.

We purchase raw materials from local markets and fruit growers that deliver directly to our plants. We have implemented a fruit-purchasing program in areas surrounding our factories. In addition, we organize purchasing centers in rich fruit production areas, helping farmers deliver fruit to our purchasing agents easily and in a timely manner. We are then able to deliver the fruit directly to our factory for production. We have assisted local farmers in their development of kiwifruit fields to help ensure a high quality product throughout the production channel. Our raw material supply chain is highly fragmented and raw fruit prices are highly volatile in China. Fruit concentrate and fruit juice beverage companies generally do not enter into purchasing agreements. In addition to raw materials, we purchase various ingredients and packaging materials such as sweeteners, glass and plastic bottles, cans and packing barrels. We generally purchase our materials or supplies from multiple suppliers. We are not dependent on any one supplier or group of suppliers. Shaanxi and Liaoning Provinces, where our manufacturing facilities are located, are large fruit producing provinces. We own and operate four manufacturing facilities in the PRC, all of which are strategically located near fruit growing centers so that we can better preserve the freshness of the fruits and lower our transportation costs. To take advantage of economies of scale and to enhance our production efficiency, generally, each of our manufacturing facilities has a focus on products made from one particular fruit according to the proximity of such manufacturing to the sources of supply for that fruit. Our kiwifruit processing facilities are located in Zhouzhi County of Shaanxi Province, which has the largest planting area of apples and kiwifruit in the PRC. Our pear processing facilities are located in Shaanxi Province, which is the main pear-producing province in the PRC. Our apple processing facilities are located in Liaoning Province, a region that abounds with high acidity apples. As we use the same production line for concentrated apple juice and concentrated pear juice and both Shaanxi Province and Liaoning Province are rich in fresh apple and pear production, our Liaoning facilities also produced concentrated apple juice and our Shaanxi Province facilities also produced concentrated apple juice based on customer need. We believe that these regions provide adequate supply of raw materials for our production needs in the foreseeable future. On August 30, 2010, we closed the public offering of 5,181,285 shares of our Common Stock at a price of $5.00 per share for approximately $25.9 million. We received an aggregate of approximately $24 million as net proceeds after deducting underwriting discounts and commissions and offering expenses. As of March 31, 2014, we had spent approximately $11 million on various capital projects in Huludao Wonder as described in projects (4) and (5) below. The following table presents the capital projects on which we currently plan to use the proceeds from this offering. We review these projects and capital expenditures on a quarterly basis based on the market conditions and associated costs of these projects. 15

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Capital Wonder Projects Estimated capital Priority expenditure Subsidiary No. Projects Progress (in Millions) SkyPeople (1) Construction of The design of the facility $ 2.7 Suizhong a refrigeration has been completed. storage unit for Construction has started the storage of during the third quarter of concentrated 2012. The Company suspended fruit juices and the construction of the fresh fruits and refrigeration storage unit vegetables to apply land use right certificate from local government. It is expected that the certificate of land use right will be granted to the Company in 2014. Huludao Wonder (2) Construction of The design of the facility 1.9 concentrated has been completed. fruit juice The first stage of mixing center construction has started. During the fourth quarter of 2012, the civil work has been completed. The project was completed in 2013. Huludao Wonder (3) Construction of The construction of this 30 3 a 30 ton/hour ton/hour comprehensive comprehensive fruits and vegetables fruits and processing line was delayed. vegetables The installation and processing line adjustment of machinery has been completed during the fourth quarter of 2012. The project was completed in 2013. Huludao Wonder (4) Construction of The construction of the 3 a fruit juice production line was beverage completed and the production production line line commenced operation in of 6,000 the second quarter of 2012. bottles/hour Huludao Wonder (5) Environmental The construction of the 8 project (waste environmental project was water treatment completed in the third facility for quarter of 2012. concentrated apple juice production line) Total Capital $ 18.6 Expenditure 16

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(1) Our initial plan was to construct both the refrigeration storage (see Project

(1) above) and fruit juice mixing center (see Project (2) above) in Huludao,

Liaoning Province, for which the original estimated total capital expenditure

was $4.4 million. We initially planned to start the construction of the

refrigeration storage unit and a concentrated fruit juice-mixing center in

the fourth quarter of 2011. However, the construction of the refrigeration

storage unit has been delayed due to a change of plan. Management concluded

that it is in the best interest of the Company to build the refrigeration

storage unit in Suizhong, Liaoning Province, which is in close geographic

proximity of Huludao Wonder in Liaoning Province. The total estimated capital

expenditure for Projects (1) and (2) based on the changed plan is expected to

be $4.6 million. The Company is now in the process of evaluating the new plan

and in negotiation with the local government to acquire land use right for

approximately 7.8 acres for consideration of approximately$290,000 per acre.

In April 2012, the Company paid partial consideration of approximately

$1,200,000. As of the date of this report, the certificate of land use right

has not been granted to the Company. The Company suspended the construction

of the refrigeration storage unit to apply land use right certificate from

local government. It is expected that the certificate of land use right will

be granted to the Company in the second quarter of 2014.

(2) The fruit juice-mixing center will be built in Huludao Wonder. The design of

the fruit juice-mixing center has been completed. During the fourth quarter

of 2012, the civil work has been completed. The project was completed in

2013.



(3) Our initial plan was to construct a 50 ton/hour concentrated apple juice

production line in Huludao Wonder. We later decided to cancel the plan due to

certain amendment to the Catalogue of Industry Structure Adjustment effective

in June 2011, which classified concentrated apple juice business in the

category of Restricted Industry. To avoid exposure to potential government

restrictions on the expansion of this industry by, among other things,

putting limitations on the increase in production capacity, increasing the

product quality standard, reducing government financial support, we decided

to change our existing 30 ton/hour concentrated apple juice line into a 30

ton/hour comprehensive fruits and vegetables processing line by adding

additional equipment and machinery. The 30 ton/hour comprehensive fruits and

vegetables processing line is expected to process a variety of fruits and

vegetables (including apple, pear, and other fruits and vegetables) into

juices. The estimated investment for this project is $3.0 million. We believe

that this project could provide us more flexibility. The project was completed in 2013.



(4) We started the construction of infrastructure for the fruit juice beverage

production line on September 28, 2010. The construction of a fruit juice

beverage production line with a maximum production capacity of 6,000 bottles

per hour has been completed. On April 25, 2012, Huludao Wonder was granted a

beverage production license (including fruit juice and vegetable juice) by

Liaoning Bureau of Quality and Technical Supervision. Huludao Wonder commenced operation of the new production line on April 28, 2012.



(5) The environmental project mainly consists of a wastewater processing facility

that is required in our production of fruit and vegetable juice concentrates.

The construction of the environmental project (waste water treatment facility

for concentrated apple juice production line) has been completed in the third

quarter of 2012. 17

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Shaanxi Qiyiwangguo Projects

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



Other Projects

Investment/Service Agreement with Yidu Municipal People's Government

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

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

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



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

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

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

a) one 45 ton/hour concentrated orange juice and byproduct deep processing

production line;

b) one bottled juice drink production line with a capacity to produce 6,000

glass bottles per hour; c) one storage freezer facility with a capacity to store 20,000 tons of concentrated orange juice; and



general purpose facilities within the zone, office space, general research

d) and development facilities, service area, living quarters and other ancillary support areas



3. one research and development center for orange varietal improvement and engineering technology (the "R&D center"); and

4. one standardized orange plantation (the "orange plantation").

The total amount of RMB 300 million (approximately $48 million) will mainly be used to establish the distribution center and the deep processing zone on the project land of approximately 280 mu. SkyPeople and Yidu Municipal People's Government agreed to discuss the investment amount and location for establishing the R&D center and the orange plantation in the future. 18 --------------------------------------------------------------------------------



Yidu Municipal People's Government is in the process of demolition buildings on project land. The Company is actively working with various bodies of local government making preparations for the start of the project.

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

On April 3, 2013, SkyPeople (China) entered into an Investment Agreement (the "Agreement") with the Managing Committee of Mei County National Kiwi Fruit Wholesale Trading Center (the "Committee"). The Committee has been authorized by the People's Government of Mei County to be in charge of the construction and administration of the Mei County National Kiwi Fruit Wholesale Trading Center (the "Trading Center"). Under the Agreement, the parties agreed to invest and establish a kiwi fruit comprehensive deep processing zone and kiwi fruit and fruit-related materials trading zone in Yangjia Village, Changxing Town of Mei County with a total planned area of total planned area of 286 mu (approximately 47 acres) (the "Project"). Pursuant to the Agreement, the Company will be responsible for the construction and financing of the Project with a total investment of RMB 445.6 million (approximately $ 71.9 million) in buildings and equipment. In addition, the Company agreed to pay for the land use rights for the Project land a fee of RMB 0.3 million per mu. The Committee is responsible for financing and constructing the basic infrastructure surrounding the Project, such as the main water supply, main water drainage, natural gas, electricity, sewage, access roads to the Project, natural gas and communications networks.



As of the date of this report, the Company is in the process of building up facilities and purchasing equipment, it is expected that the trial production will be started by the end of June.

Suizhong Project

On July 15, 2011, SkyPeople entered into a Letter of Intent with the People's Government of Suizhong County, Liaoning Province, to establish a fruit and vegetable industry chain and further processing demonstration zone in Suizhong County, Liaoning Province (the "Suizhong project"). The Suizhong project may include one or more of the following: the construction and operation of fruit juice production lines, vegetable and fruit flash freeze facility, refrigeration storage facility and warehouse, a world class food safety testing center, fruit and vegetable modern supply chain and e-commerce platform, fruit and vegetable finished products processing center and exhibition center, etc. The implementation of the project is subject to government approval of the project. During first quarter of 2014, the Company finished the feasibility study and submitted detailed project proposal to the local government. Both parties decided to continue the project. The Company has made partial payment to acquire land use right from the local government, purchase equipment and build facilities. 19 --------------------------------------------------------------------------------



Results of Operations

Comparison of Three Months ended March 31, 2014 and 2013:

Revenue

The following table presents our consolidated revenues for each of our main products for the three months ended March 31, 2014 and 2013, respectively (in thousands): Three month ended March 31, Change 2014 2013 Amount % Concentrated apple juice and apple aroma 274 636 (362 ) (57 %) Concentrated kiwifruit juice and kiwifruit puree 1,834 3,419 (1,585 ) (46 %) Concentrated pear juice 2,213 5,173 (2,960 ) (57 %) Fruit juice beverages 7,440 8,585 (1,145 ) (13 %) Fresh fruits and vegetables 4 798 (794 ) (99 %) Others 18 - 18 100 % Total 11,783 18,611 (6,828 ) (37 %) Our gross revenue for the three months ended March 31, 2014 was $11.8 million, a decrease of $6.8 million, or 37%, from $18.6 million for the same period of 2013. This decrease was primarily due to decrease of sales in all of our product lines except for the other products. Sales from apple related products decreased by $0.37 million, or 57%, to $0.27 million for the three months ended March 31, 2014, from $0.64 million for the same period of 2013. During the first quarter of 2014, the Company sold approximately 211 tons of concentrated apple juice decreased from approximately 461 tons of concentrated apple juice sold in the same period of 2013. Such decrease was coupled with a decrease in unit price of concentrated apple juice. During the first quarter of 2014, due to reduced market demand the selling price of apple related products were lower than that of the same period of previous year. Thus the amount of apple related products sold and selling price both decreased. Sales from concentrated kiwifruit juice and kiwifruit puree were $1.8 million for the first quarter of 2014, a decrease of $1.6 million, or 46%, from $3.4 million in the same quarter of 2013, primarily due to decrease in both amount sold and unit price. During the three months ended March 31, 2014 and 2013, the Company sold approximately 1,513 and 2,800 tons of kiwi-related products, respectively. The Company has less amount of inventory of concentrated kiwifruit juice and kiwifruit puree during the current quarter than the year ago quarter. Therefore, the Company sold less amount of concentrated kiwifruit juice and kiwifruit puree during the current period than the same period of 2013. Sales of concentrated pear juice decreased to $2.2 million in the first quarter of 2014, a decrease of $3.0 million, or 57%, from $5.2 million in the same quarter of 2013. During the first quarter of 2014, the unit selling price of concentrated pear juice decreased, which was coupled by a decrease of the amount of pear juice sold. During the first quarter of 2014 and 2013, the Company sold 1,519 and 3,400 tons of concentrated pear juice, respectively. The Company has less amount of inventory of concentrated pear juice during the current quarter than the year ago quarter. As a result, the Company sold less amount of concentrated pear juice during the current period than the same period of 2013. Revenue from our fruit juice beverages in the PRC decreased to $7.4 million, a decrease of $1.2 million or 13%, from $8.6 million for the same period of 2013, primarily due to holidays in the first quarter of 2014, when the market demand was lower than the same period of previous year. 20 --------------------------------------------------------------------------------



Revenue from our fresh fruits and vegetables in the PRC were $0.004 million and $0.8 million for the first quarter of 2014 and 2013, respectively.

Revenue from other products were $0.018 million and $nil for the three months ended March 31, 2014 and 2013, respectively. The amount of sales of other products is expected to be unstable and is generally not indicative of our future sales of other products.

Gross Margin

The following table presents the consolidated gross profit of each of our main products and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the three months ended March 31, 2014 and 2013, respectively (in thousands for the gross profit): Three months ended March 31, 2014 2013 Gross profit Gross margin Gross profit Gross margin Concentrated apple juice and apple aroma $ (72 ) (26 %) $ 31 5 % Concentrated kiwifruit juice and kiwifruit puree 753 41 % 2,114 62 % Concentrated pear juice 576 26 % 1,599 31 % Fruit juice beverages 2,416 32 % 3,512 41 % Fresh fruits and vegetables 4 100 % 385 48 % Others (6 ) (33 %) - - Total/Overall (for gross margin) $ 3,671 31 % $ 7,641 41 %



The consolidated gross profit for the three months ended March 31, 2014 was $3.7 million, a decrease of $3.9 million, or 51%, from $7.6 million for the same period of 2013, primarily due to decrease of profit margin of all of our products.

The Company sold 57% less concentrated apple juice during first quarter of 2014 as compare to same period of 2013. The gross profit margin of concentrated apple juice for the first quarter of 2014 and 2013 were negative 26% and 5%, respectively, primarily due to significantly lower selling price of concentrated apple juice, which was caused by reduced market demand of concentrated apple juice. The gross profit margin of the concentrated kiwifruit juice and kiwifruit puree decreased from 62% for the three months ended March 31, 2013 to 41% for the same period of 2014, primarily due to higher cost of fresh kiwi purchased in the last squeezing season, which caused higher cost of concentrated kiwifruit juice and kiwifruit puree sold during the current period as compared to the cost of concentrated kiwifruit juice and kiwifruit puree sold in the same period of 2013. The gross profit margin of the concentrated pear juice decreased from 31% to 26% for first quarter of 2014 to 2013, primarily due to higher cost of pear purchased in the last quarter of 2013 as compared to the same period of 2012 and lower selling price of concentrated pear juice. The gross profit margin of our fruit juice beverages decreased from 41% for the three months ended March 31, 2013, to 32% for the same period of 2014. The decrease of gross margin of fruit juice beverages was primarily due to higher cost of raw materials purchased in the first quarter of 2014 as compared to same period of 2013. 21

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Gross profit margin for the fruits and vegetables was almost 100% and 48% for the first quarter of 2014 and 2013, respectively.

Gross loss margin for other products was 33% for the three months ended March 31, 2014. There was no revenue generated from this product segment during the same period of 2013. Operating Expenses The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the three months ended March 31, 2014 and 2013, respectively: First quarter of 2014 First quarter of 2013 Amount % of revenue Amount % of revenue General and administrative $ 1,193,121 10 % $ 1,305,914 7 % Selling expenses 864,498 7 % 741,166 4 % Research and development - - 98,622 1 % Total operating expenses $ 2,057,619 17 % $ 2,145,702 12 % Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses decreased slightly for the three months ended March 31, 2014 compared to the corresponding period in 2013. General and administrative expenses decreased by $112,793, or 9%, to $1,193,121 for the three months ended March 31, 2014, from $1,305,914 for the same period of 2013. The decrease in general and administrative expenses was mainly due to decreased amount of legal fees related to our pending litigation, payroll and related expenses. Selling expenses increased by $123,332, or 17%, to $864,498 for the three months ended March 31, 2014 from $741,166 for the same period of 2013, mainly due to an increase in the payroll and related expenses as a result of an increase in our headcount to the handle the increased sales work. The Company did not incur research and development expense for the current period, comparably, research and development expenses was $98,622, for the three months ended March 31, 2013. The Company is in the process of building up its own research and development team.



Income from Operations

Income from operations decreased to $1,613,616, a decrease of $3,881,580 or 71% from $5,495,196 for the three months ended March 31, 2013. The decrease in the income from operations was mainly due to a decrease in both revenue as well as gross profit margin and increase in the operating expenses. 22 --------------------------------------------------------------------------------



Other Income (Expense), Net

Other income, net was $145,530 for the three months ended March 31, 2013, comparably during the same period of 2014, the Company incurred other expense of $747,955. Interest expense increased to $812,421, representing an increase of $535,398 or 193% during the current period as compared to interest expense of $277,023 for the same period of 2013. The increase of interest expense was mainly due to increased amount of borrowings from local financial institutions and related parties. Meanwhile, during the three months ended March 31, 2014, the Company incurred consulting fees related to capital lease of $442,792; there was no transaction in similar nature during same period of previous year. In January 2014, the SkyPeople (China), Xinda Financial Leasing Co., Ltd. ("Xinda") entered into equipment leasing agreements with three suppliers, pursuant to which consideration of machinery and equipment will be paid by Xinda, SkyPeople (China) will lease these machinery and equipment from Xinda for five years. The Company has the right to purchase the equipment at $161 the end of the lease. The total cost of equipment under this lease agreement is RMB129 million (approximately $21 million). Estimated lease payments will be approximately RMB 8 million per quarter (approximately $1.3 million). The Company will classify the leases as capital leases in accordance with ASC 840 "Leases"



Income Tax

Our provision for income taxes was $228,602 and $1,483,865 for the three months ended March 31, 2014 and 2013, respectively, a decrease of $1,255,263, or 85%. The decrease in tax provision was due to less income before taxes in the first quarter of 2014. Our consolidated income tax rates were 26% for the three months ended March 31, 2014 and 2013, respectively.



Net Income

Net income was $637,059 for the three months ended March 31, 2014, comparably, during the same period of 2013, the Company generated net income of $4,156,861, primarily due to the 52% decrease in gross profit, coupled with 4% decrease in total operating expenses, 614% decrease from other income to other expense, as previously discussed. Noncontrolling Interests As of March 31, 2014, SkyPeople (China) held a 91.15% interest in Shaanxi Qiyiwangguo and Pacific held a 99.78% interest in SkyPeople (China). Net income attributable to noncontrolling interests, which is deducted from our net income, was $133,387 and $338,713 for the three months ended March 31, 2014 and 2013, respectively. The decrease in the net income attributable to noncontrolling interests was mainly due to the decrease in the net income generated from SkyPeople (China).



Net Income Attributable to SkyPeople Fruit Juice, Inc.

Net income attributable to SkyPeople Fruit Juice, Inc. was $503,672, for the first quarter of 2014, net income attributable to the Company was $3,818,148 for the same period of 2013, representing $3,314,476 or 87% decrease for the reasons described above. 23

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Liquidity and Capital Resources

As of March 31, 2014, we had cash, cash equivalents and restricted cash of $76,035,402, an increase of $9,146,448, or 14%, from $66,888,954 as of December 31, 2013. We expect the projected cash flows from operation, anticipated cash receipts, cash on hand, and trade credit to provide necessary capital to meet our projected operating cash requirements at least for the next 12 months, which does not take into account any potential expenditures related to the potential expansion of our current production capacity. Our working capital has historically been generated from our operating cash flows, advances from our customers and loans from bank facilities. Our working capital was $67,790,086 as of March 31, 2014, a decrease of $4,122,319, from working capital of $71,912,405 as of December 31, 2013. During the first quarter of 2014, our operating activities generated net cash inflow of $14,867,346, an increase of $1,674,395 or 13% from $13,192,951, net cash inflow from operating activities of same period of 2013. During the three months ended March 31, 2014, our investing activities used net cash of $3,866,882, including $3,851,844 of additions to property, plant and equipment, as compare to $428,692 for the same period of 2013.



During the three months ended March 31, 2014, our financing activities used net cash of $1,199,800, in the same period of 2013, our financing activities generated net cash inflow of $814,526.

On February 18, 2013, SkyPeople (China) entered into a loan agreement with SkyPeople International Holdings Group Limited (the "Lender"). The Lender indirectly holds 50.2% interest in the Company. Mr. Yongke Xue ("Y. K. Xue"), the Chairman of the board of directors of the Company (the "Board"), and Mr. Hongke Xue, the newly elected Chief Executive Officer of the Company and director of the Board, indirectly and beneficially own 80.0% and 9.4% of equity interest in the Lender, respectively. Pursuant to the Agreement, the Lender agrees to extend to the Company a one-year unsecured term loan with a principal amount of $8.0 million at an interest rate of 6% per annum. During first quarter of 2013, the Company received $4.0 million from the Lender.



During the first quarter of 2013, the Company repaid $3,185,474 bank loans; comparably, during the same period of 2014, the Company borrowed $2,025,169 and repaid $564,334 bank loans. During first quarter of 2014, the Company paid $2,635,665 as prepayment of capital lease.

Off-balance sheet

As of March 31, 2014, we did not have any off-balance sheet arrangements.


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