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

August 14, 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 six months ended June 30, 2014, sales of our fruit concentrates, fruit beverages, fresh fruits and other fruit related products represented 8%, 92% and 0% of our revenue, respectively, compared to 38%, 59% and 3%, 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 half 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 June 30, 2014, we are in the process of building up an internal research and development team, we will use external experts and research institutions for additional consultation when necessary. In six months ended June 30, 2014 and 2013, our research and development expenses were $nil and

$18,980, respectively. 16 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. 17 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 June 30, 2014, we had spent approximately $11 million on various capital projects in Huludao Wonder as described in projects (4) and (5) below. The following table presents the capital projects on which we currently plan to use the proceeds from this offering. We review these projects and capital expenditures on a quarterly basis based on the market conditions and associated costs of these projects. Capital Wonder Projects Estimated capital Priority expenditure Subsidiary No. Projects Progress (in Millions) SkyPeople (1) Construction The design of the facility has been Suizhong of a completed. refrigeration Construction has started during the storage unit third quarter of 2012. The Company for the suspended the construction of the storage of refrigeration storage unit to apply concentrated land use right certificate from local fruit juices government. It is expected that the and fresh certificate of land use right will be fruits and granted to the Company in 2014. vegetables $ 2.7 Huludao (2) Construction The design of the facility has been Wonder of completed. concentrated The first stage of construction has fruit juice started. During the fourth quarter of mixing center 2012, the civil work has been completed. The project was completed in 2013. 1.9 Huludao (3) Construction The construction of this 30 ton/hour Wonder of a 30 comprehensive fruits and vegetables ton/hour processing line was delayed. The comprehensive installation and adjustment of fruits and machinery has been completed during vegetables the fourth quarter of 2012. The processing project was completed in 2013. line 3 Huludao (4) Construction The construction of the production Wonder of a fruit line was completed and the production juice beverage line commenced operation in the production second quarter of 2012. line of 6,000 bottles/hour 3 Huludao (5) Environmental The construction of the environmental Wonder project (waste project was completed in the third water quarter of 2012. treatment facility for concentrated apple juice production line) 8 Total Capital Expenditure $ 18.6



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

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

Liaoning Province, for which the original estimated total capital expenditure

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

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

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

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

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

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

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

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

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

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

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

In April 2012, the Company paid partial consideration of approximately

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

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

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

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

be granted to the Company in 2014.

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

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

of 2012, the civil work has been completed. The project was completed in 2013.



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

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

certain amendment to the Catalogue of Industry Structure Adjustment effective

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

category of Restricted Industry. To avoid exposure to potential government

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

putting limitations on the increase in production capacity, increasing the

product quality standard, reducing government financial support, we decided

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

ton/hour comprehensive fruits and vegetables processing line by adding

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

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

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

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

that this project could provide us more flexibility. The project was

completed in 2013.

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

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

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

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

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

Liaoning Bureau of Quality and Technical Supervision. Huludao Wonder

commenced operation of the new production line on April 28, 2012.

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



Other Projects

Investment/Service Agreement with Yidu Municipal People's Government

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

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

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



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

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

2. one orange comprehensive utilization deep processing zone (the "deep

processing zone"), including:

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

production line;

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

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



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

and development facilities, service area, living quarters and other

ancillary support areas

3. one research and development center for orange varietal improvement and

engineering technology (the "R&D center"); and

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

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



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

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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, purchasing equipment and making preparations for trail products. Trail production has been delayed until second half of 2014.

Suizhong Project On July 15, 2011, SkyPeople entered into a Letter of Intent with the People's Government of Suizhong County, Liaoning Province, to establish a fruit and vegetable industry chain and further processing demonstration zone in Suizhong County, Liaoning Province (the "Suizhong project"). The Suizhong project may include one or more of the following: the construction and operation of fruit juice production lines, vegetable and fruit flash freeze facility, refrigeration storage facility and warehouse, a world class food safety testing center, fruit and vegetable modern supply chain and e-commerce platform, fruit and vegetable finished products processing center and exhibition center, etc. The implementation of the project is subject to government approval of the project.



During half 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. As of the date of this report, the Company is in the process of purchasing equipment.

Results of Operations



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

Revenue The following table presents our consolidated revenues for each of our main products for the three months ended June 30, 2014 and 2013 respectively (in thousands): Three months ended June 30, Change 2014 2013 Amount %

Concentrated apple juice and apple aroma $ 773$ 1,052$ (279 ) (27 %) Concentrated kiwifruit juice and kiwifruit puree 5 10 (5 ) (50 %) Concentrated pear juice 190 684 (494 ) (72 %) Fruit juice beverages 10,991 8,594 2,397 28 % Fresh fruits and vegetables - 4 (4 ) (100 %) Other 20 6 14 233 % Total $ 11,979$ 10,350$ 1,629 16 % 20 Our gross revenue for the three months ended June 30, 2014 was $11.98 million, an increase of $1.63 million, or 16%, from $10.35 million for the three months ended June 30, 2013. This increase was primarily due to an increase in sales fruit juice beverages, which was partially offset by a decrease of revenue generated from apple-related product, kiwi-related products, concentrated pear juice, fresh fruits and vegetables and other products. Sales from apple related products decreased by $0.3 million, or 27%, from $1.1 million for the three months ended June 30, 2013, to $0.8 million for the same period of 2014. During the second quarter of 2013, the Company sold approximately 615 tons of concentrated apple juice decreased to approximately 480 tons of concentrated apple juice sold in the same period of 2014. The decrease of revenue generated from concentrated apple juice was mainly caused by the decrease of unit price and amount sold. Sales from concentrated kiwifruit juice and kiwifruit puree were $0.005 million for the second quarter of 2014, a decrease of $0.005 million, or 50%, from $0.01 million in the same quarter of 2013, primarily due to decrease in both amount sold and unit price. During the three months ended June 30, 2014, the Company sold approximately 2.7 tons of kiwi-related products. Sales of concentrated pear juice decreased to $0.2 million in the second quarter of 2014, a decrease of $0.5 million, or 72%, from $0.7 million in the same quarter of 2013. During the second quarter of 2014, the unit selling price and amount of concentrated pear juice decreased. During the second quarter of 2014 and 2013, the Company sold 100 and 527 tons of concentrated pear juice, respectively. The decrease of revenue generated from concentrated pear juice was mainly due to reduced amount of concentrated pear juice sold, which was partially offset by increased unit price. Revenue from our fruit juice beverages in the PRC increased to $11 million, an increase of $2.4 million or 28%, from $8.6 million for the same period of 2013, primarily due to bigger market share gained from our continuous efforts of expanding sales channel.



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

Revenue from other products increased to $0.02 million, an increase of $0.014 million or 233%, from $0.006 million for the same period of 2013. The amount of sales of other products is expected to be unstable and is generally not indicative of our future sales of other products. Gross Margin The following table presents the consolidated gross profit of each of our main products and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the three months ended June 30, 2014 and 2013, respectively (in thousands for the gross profit): Three months ended June 30, 2014 2013 Gross Gross Gross Gross profit margin profit margin

Concentrated apple juice and apple aroma $ 153 20 % $ 77 7 % Concentrated kiwifruit juice and kiwifruit puree 1 20 % 5 50 % Concentrated pear juice 90 47 % 121 18 % Fruit juice beverages 4,302 39 % 3,147 37 % Fresh fruits and vegetables - - % 3 75 % Other 8 40 % 1 17 %

Total/Overall (for gross margin) $ 4,554 38 % $

3,354 32 % 21

The consolidated gross profit for the three months ended June 30, 2014 was $4.6 million, an increase of $1.2 million, or 37%, from $3.4 million for the same period of 2013, primarily due to increased amount of gross profit generated from fruit juice beverages and apple-related products, which was partially offset by less amount of gross profit generated from kiwi-related products and concentrated pear juice segments. The consolidated gross profit margin for the three months ended June 30, 2014 was 38%, an increase of 6%, from 32% for the same period of 2013, primarily due to an increase in gross margin of apple-related products, concentrated pear juice and fruit juice beverages, which was partially offset by a decrease in gross profit margin of both kiwi-related products. The gross margin of concentrated apple juice and apple aroma increased to 20% for the three months ended June 30, 2014 from 7% for the same period of 2013, primarily due to higher selling price of concentrated apple juice. The gross profit margin of the concentrated kiwifruit juice and kiwifruit puree decreased from 50% for the three months ended June 30, 2013 to 20% for the same period of 2014, primarily due to higher cost of fresh kiwi purchased in three months ended June 30, 2014 as compared to the same period of 2013.



The gross margin of the concentrated pear juice increased from 18% to 47% for second quarter of 2013 to 2014, primarily due to increase unit price.

The gross profit margin of our fruit juice beverages increased from 37% for the three months ended June 30, 2013, to 39% for the same period of 2014.

Gross margin for the fruits and vegetables was 75% for the second quarter of 2013, during the same period of 2014, the Company did not sell any fresh fruits and vegetables.



The gross profit margin for other products was 17% for the three months ended June 30, 2013 and 40% for the same period of 2014. Given the relatively low production volume and sales of other products, the gross profit margin is expected to change from time to time.

Operating Expenses The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the three months ended June 30, 2014 and 2013, respectively: Three months ended June 30, 2014 2013 Amount % of revenue Amount % of revenue

General and administrative $ 995,830 8 % $ 1,281,515

12 % Selling expenses 1,384,991 12 % 1,212,921 12 % Research and development - - (79,642 ) (1 %) Total operating expenses $ 2,380,821 20 % $ 2,414,794 23 % Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses decreased $33,973 or 14% for the three months ended June 30, 2014 compare to the corresponding period in 2013. General and administrative expenses decreased by $285,685, or 22%, to $995,830 for the three months ended June 30, 2014, from $1,281,515 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 current pending litigation, and offset by higher salary expenses resulted from an increase in the headcount

of our management staff.



Selling expenses increased by $172,070, or 14%, to $1,384,991 for the three months ended June 30, 2014 from $1,212,921 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 headcounts to the handle the increased sales work.

During the second quarter of 2013, the Company suspended research and development work and received refund of $79,642 from outside research and development institutions; comparably, the Company did not inure research and development expenses for the three months ended June 30, 2014. In the second quarter of 2014, the Company did not have research and development agreements with research institutions but concentrate on building up a research and development team of itself. 22 Income from Operations Income from operations increased from $939,196, an increase of 131% or $1,234,333 to $2,173,529, for the three months ended June 30, 2014.The increase in the income from operations was mainly due to increase in both revenue as well as gross margin and offset by the increase in the operating expenses. Other Income (Expense) Other expense was $1,914,105, for the second quarter of 2014, comparing with other income of $167,747 for the three months ended June 30, 2013, primarily due to higher amount of interest expense for the current period as compare to same period of last year, which were mainly due to interest incurred by our capital lease and bank notes. During the three months ended June 30, 2014, the Company incurred consulting fees related to capital lease of $439,908; there was no transaction in similar nature during same period of previous year. Subsidy income decreased $398,465 during the second quarter of 2014 as contrast of

same period of 2013. Income Tax Our provision for income taxes was $102,608 and $322,754 for the three months ended June 30, 2014 and 2013, respectively, a decrease of $220,146, or 68%. The increase in tax provision was due to decreased amount of income before taxes in the second quarter of 2014. Net Income Net income was $156,816 for the three months ended June 30, 2014; in contrast, net income was $784,189 for the same period of 2013, a decrease of $627,373, or 80%, primarily due to the 36% increase in gross profit, coupled with 1% decrease in total operating expenses, the change of $0.17 million other income into $1.9 million other expense and other factors discussed above. Noncontrolling Interests As of June 30, 2014, SkyPeople (China) held a 91.15% interest in Shaanxi Qiyiwangguo and Pacific held a 99.78% interest in SkyPeople (China). Net income attributable to noncontrolling interests, which is deducted from our net income, was $107,948 and $104,147 for the three months ended June 30, 2014 and 2013, respectively. The increase in the net income attributable to noncontrolling interests was mainly due to the increase in the net income generated from SkyPeople (China).



Net Income Attributable to SkyPeople Fruit Juice, Inc.

Net income attributable to the Company was $48,868 for the three months ended June 30, 2014; in contrast, during the same period of 2013, net income attributable to the Company was $680,042 for the reasons described above.

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Comparison of Six Months ended June 30, 2014 and 2013:

Revenue The following table presents our consolidated revenues for each of our main products for the six months ended June 30, 2014 and 2013, respectively (in thousands): Six months ended June 30, Change 2014 2013 Amount %

Concentrated apple juice and apple aroma $ 1,047$ 1,688$ (641 ) (38 %) Concentrated kiwifruit juice and kiwifruit puree 1,839 3,429 (1,590 ) (46 %) Concentrated pear juice 2,403 5,857 (3,454 ) (59 %) Fruit juice beverages 18,431 17,179 1,252 7 %

Fresh fruits and vegetables 4 802

(798 ) (100 %) Other 38 6 32 5,333 % Total $ 23,762$ 28,961$ (5,199 ) (18 %)

Our gross revenue for the six months ended June 30, 2014 and 2013 was $23.8 million and $29.0 million, respectively, representing a decrease of $5.2 million, or 18%. This decrease was primarily due to a decrease in sales of apple-related products, kiwi-related products, concentrated pear juice, fresh fruits, vegetables and other products, which was partially offset by an increase in revenue generated by fruit juice beverages. Sales from apple related products decreased by $0.6 million, or 38%, to $1.0 million for the six months ended June 30, 2014, from $1.7 million for the same period of 2013. During the first half of 2014, the Company sold approximately 691 tons of concentrated apple juice decreased from approximately 1,011 tons of concentrated apple juice sold in the same period of 2013. The decrease in the volume of concentrated apple juice sold was coupled with decrease in unit price. Sales from concentrated kiwifruit juice and kiwifruit puree were $1.8 million for the first half of 2014, a decrease of $1.6 million, or 46%, from $3.4 million in the same period of 2013, primarily due to decrease in both amount sold and unit price. During the first half of 2014, the Company sold 1,567

tons kiwi-related products. Sales of concentrated pear juice decreased from $5.9 million in the first half of 2013 to $2.4 million during the same period of 2014, representing a decrease of $3.5 million, or 59%. During the first half of 2014 and 2013, the Company sold 1,619 and 3,977 tons of concentrated pear juice, respectively. During the first half of 2014, the unit selling price and amount of concentrated pear

juice sold both decreased. Revenue from our fruit juice beverages in the PRC increased to $18.4 million, an increase of $1.3 million or 7%, from $17.2 million for the same period of 2013, primarily due to bigger market share gained from our continuous efforts of expanding sales channel.



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

Revenue from other products increased from $0.006 million for first half of 2013 to $0.04 million for the same period of 2014. The amount of sales of other products is expected to be unstable and is generally not indicative of our future sales of other products.

24 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 six months ended June 30, 2014 and 2013, respectively (in thousands for the gross profit): Six months ended June 30, 2014 2013 Gross profit Gross margin Gross profit Gross margin Concentrated apple juice and apple aroma $ 81 8 % $ 108 6 % Concentrated kiwifruit juice and kiwifruit puree 754 41 % 2,119 62 % Concentrated pear juice 666 28 % 1,720 29 % Fruit juice beverages 6,719 36 % 6,659 39 % Fresh fruits and vegetables 4 100 % 388 48 % Other 2 5 % - 17 %

Total/Overall (for gross margin) $ 8,226 35

% $ 10,995 38 % The consolidated gross profit for the six months ended June 30, 2014 was $8.2 million, a decrease of $2.8 million, or 25%, from $11 million for the same period of 2013, primarily due to decreased amount of gross profit generated from our apple-related products, kiwi-related products, concentrated pear juice, which was partially offset by increased gross profit of fruit juice beverages. The consolidated gross profit margin for the six months ended June 30, 2014 and 2013 was 35% and 38%, respectively, the decrease of gross profit margin was primarily due to decreased amount of gross profit generated, which was partially offset by decreased amount of revenue. The gross profit margin of concentrated apple juice and apple aroma was 8% for the six months ended June 30, 2014 from gross profit margin of 6% for the same period of 2013, primarily due to higher selling price of concentrated apple juice. The gross profit margin of the concentrated kiwifruit juice and kiwifruit puree decreased from 62% for the six months ended June 30, 2013 to 41% for the same period of 2014, primarily due to higher cost of fresh kiwi purchased in six months ended June 30, 2014 as compared to the same period of 2013.



The gross margin of the concentrated pear juice decreased from 29% to 28% for first half of 2013 to 2014.

The gross profit margin of our fruit juice beverages increased from 39% for the six months ended June 30, 2013, to 36% for the same period of 2014.

Gross margin for the fruits and vegetables was 48% for the first half of 2013, and 100% for the first half of 2014.

The gross profit margin for other products was 17% for the six months ended June 30, 2013 and 5% for the same period of 2014. Given the relatively low production volume and sales of other products, the gross profit margin is expected to

change from time to time. Operating Expenses The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the six months ended June 30, 2014

and 2013, respectively: Six months ended June 30, 2014 2013 Amount % of revenue Amount % of revenue

General and administrative $ 2,188,951 9 % 2,587,429

9 % Selling expenses 2,249,489 10 % 1,954,087 7 % Research and development - - 18,980 <1 % Total operating expenses $ 4,438,440 19 % 4,560,496 16 % Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses decreased $122,056 or 3% for the six months ended June 30, 2014 compare to the corresponding period in 2013. 25 General and administrative expenses decreased to $2,188,951 for the six months ended June 30, 2014, comparing with $2,587,429 for the six months ended June 30, 2013, representing $398,478 or 15% decrease. The decrease in general and administrative expenses was mainly due to decreased amount of legal fees related to our current pending litigation, offset by higher salary expenses resulted from an increase in the headcount of our management staff. Selling expenses increased to $2,249,489 from $1,954,087, for the six months ended June 30, 2014 and 2013, respectively, representing $295,402 or 15% increase. The increase in selling expenses mainly due to an increase in the payroll and related expenses as a result of an increase in our headcounts to the handle the increased sales work.



During the first half of 2013, the Company incurred $18,980 research and development expense. In the first half of 2014, the Company did not have research and development agreements with research institutions but concentrate on building up a research and development team of itself.

Income from Operations

Income from operations decreased to $3,787,145 from $6,434,392 for the six months ended June 30, 2014 and 2013, representing a decrease of 41% or $2,647,247. The decrease in the income from operations was mainly due to 18% decrease in revenue as well as 25% decrease in gross profit, which was partially offset by 3% decreased amount of operating expenses. Other Income (Expense) Other income, net was $313,277 for the six months ended June 30, 2013. In contrast, during the first half of 2014, other expense was $2,662,060, primarily due to a decrease of $315,842 or 40% in subsidy income and an increase of $1,934,148 or 308% of interest expenses which were mainly due to interest incurred by our capital lease and bank notes. During the six months ended June 30, 2014, the Company incurred consulting fees related to capital lease of $882,700; there was no transaction in similar nature during same period of previous year. The subsidy income was provided with respect to the value added tax rebates on our exports in the first half of 2014 and 2013. Income Tax Our provision for income taxes was $331,210 and $1,806,619 for the six months ended June 30, 2014 and 2013, respectively, a decrease of $1,475,409 or 82%. The decrease in tax provision was due to decreased amount of income before taxes in the first half of 2014. Our consolidated income tax rates were 29% and 27% for the six months ended June 30, 2014 and 2013, respectively. Net Income Net income was $793,875 and $4,941,050 for the six months ended June 30, 2014 and 2013, respectively, representing a decrease of $4,147,175 or 84%, primarily due to the 25% decrease in gross profit, coupled with 3% decrease in total operating expenses, the change of $0.3 million other income to $2.7 million other expense and other factors discussed above. Noncontrolling Interests As of June 30, 2014, SkyPeople (China) held a 91.15% interest in Shaanxi Qiyiwangguo and Pacific held a 99.78% interest in SkyPeople (China). Net income attributable to noncontrolling interests, which is deducted from our net income, was $241,335 and $442,860 for the six months ended June 30, 2014 and 2013, respectively. The decrease in the net income attributable to noncontrolling interests was mainly due to the increase in the net income generated from SkyPeople (China).



Net Income Attributable to SkyPeople Fruit Juice, Inc.

Net income attributable to the Company was $552,540 for the first half of 2014; in contrast, during the same period of 2013, net income attributable to the Company was $4,498,190 for the reasons described above.

26



Liquidity and Capital Resources

As of June 30, 2014, we had cash, cash equivalents of $79,723,955, an increase of $12,835,001, or 19%, 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 $60,797,884 as of June 30, 2014, a decrease of $11,114,542, from working capital of $71,912,405 as of December 31, 2013. During the first half of 2014, our operating activities generated net cash inflow of $22,352,391, a decrease of $7,463,688 or 25% from $29,816,079, net cash inflow from operating activities of same period of 2013. During the six months ended June 30, 2014 and 2013, our investing activities used net cash of $2,478,657 and $38,485,811, respectively. During first half 2013, $38,000,669 of deposits to land use right was paid. Our financing activities generated net cash inflow of $10,098,821 during the first half of 2013 and generated cash outflow of $6,395,697 during the first half of 2014. In January 2014, the Company entered into a five-year equipment leasing agreement with Cinda Financial Leasing Co., Ltd. ("Cinda"). The total cost of equipment under this lease agreement is RMB129 million (approximately $21 million). Estimated lease payment will be approximately RMB 8 million per quarter (approximately $1.3 million). The Company has the right to purchase the equipment for $161 at the end of the lease. During the second quarter of 2014, equipment under the lease agreements were received and the Company has paid and accrued interest on capital lease for approximately $478,000. The Company classified the lease as a capital lease in accordance with ASC 840 "Leases". The Company also agreed to pay consulting fees of $831,100 (RMB 5,160,000) for consulting services and $414,492 (RMB 2,580,000) services fees to Cinda, which was amortized over service period. Pursuant to a resolution approved by Qiyiwangguo's shareholders' meeting held on March 7, 2014, 65% of the retained earnings of Qiyiwangguo as of December 31, 2013, approximately RMB 306 million (approximately $50 million) will be distributed to its two shareholders, SkyPeople (China), which owns 91.15% of Qiyiwangguo's shares; and Xi'an Qinmei Food Co., Ltd, an entity not affiliated with the Company, owns the other 8.85% of the equity interest in Shaanxi Qiyiwangguo. The distribution to SkyPeople (China) was treated as inter-company transaction and the amount was eliminated during the consolidation. On April 10, 2014, approximately RMB 27 million (approximately $4.4 million) was wired from Qiyiwangguo to Xi'an Qinmei Food Co., Ltd. During first half of 2014, the Company borrowed $19,489,005 from local banks and repaid $19,595,955 to local banks. In contrast, during the same period of 2013, the Company borrowed 8,653,944 from local banks and repaid $6,555,123 to them. During the first half of current year, the Company raised $14,254,064 through short-term bank notes and used $12,950,836 for restricted cash as collaterals on bank notes. The Company also paid $3,152,185 to Cinda as deposit of capital lease. There was no transaction in similar nature during the same period of

last year.

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



Off-balance sheet arrangements

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


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Source: Edgar Glimpses


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