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

FORM 10-Q

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____

Commission file number: 001-34502

SKYPEOPLE FRUIT JUICE, INC.
(Exact name of registrant as specified in its charter)
 
Florida
 
98-0222013
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
 
16F, China Development Bank Tower, No. 2, Gaoxin 1st Road, Xi’an, PRC
710075
 
 
(Address of principal executive offices including zip code)
 
     
 
86-29-88377161
 
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

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

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


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [   ] Yes    [X] No
 
Class
 
Outstanding at August 13, 2012
Preferred Stock, $0.001 par value per share
 
641,647
Common Stock, $0.001 par value per share
 
26,233,735
TABLE OF CONTENTS

 
Item 1.  Financial Statements
 
SKYPEOPLE FRUIT JUICE, INC.
CONSOLIDATED BALANCE SHEETS

 
June 30,
2012
   
December 31,
2011
 
   
(Unaudited)
       
ASSETS
           
             
CURRENT ASSETS
           
    Cash and cash equivalents
  $ 87,712,871     $ 61,154,007  
    Restricted cash
    31,621       316,396  
    Accounts receivables, net of allowance of $46,352
        and $46,529 as of June 30, 2012 and December 31, 2011, respectively
    15,065,938       35,999,858  
    Other receivables
    229,795       192,032  
    Inventories
    5,951,049       6,126,376  
    Deferred tax assets
    132,629       174,285  
    Advances to suppliers and other current assets
    149,628       66,528  
TOTAL CURRENT ASSETS
    109,273,531       104,029,482  
                 
PROPERTY, PLANT AND EQUIPMENT, NET
    48,435,375       44,277,228  
LAND USE RIGHT, NET
    7,760,565       6,673,496  
OTHER ASSETS
    1,026,167       5,323,162  
TOTAL ASSETS
  $ 166,495,638     $ 160,303,368  
                 
                 
LIABILITIES
               
                 
CURRENT LIABILITIES
               
    Accounts payable
  $ 3,024,270     $ 2,972,916  
    Accrued expenses
    3,144,146       4,701,054  
    Income tax payable
    880,708       1,910,779  
    Advances from customers
    -       178,857  
    Short-term bank loans
    11,589,116       6,425,713  
    Short-term notes payable
    -       284,654  
TOTAL CURRENT LIABILITIES
    18,638,240       16,473,973  
                 
SHAREHOLDERS' EQUITY
               
                 
SkyPeople Fruit Juice, Inc, Stockholders' equity
               
    Series B Preferred stock, $0.001 par value; 10,000,000 shares authorized;1,051,647 shares and 1,456,647 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively
    1,052       1,457  
    Common stock, $0.001 par value; 66,666,666 shares authorized; 25,960,402 shares and 25,690,402 shares issued and outstanding as of June 30, 2012 and  December 31, 2011, repectively
    25,960       25,690  
    Additional paid-in capital
    59,189,509       59,189,374  
    Retained earnings
    68,943,262       64,623,453  
    Accumulated other comprehensive income
    13,551,231       14,086,620  
    Total SkyPeople Fruit Juice, Inc. stockholders' equity
    141,711,014       137,926,594  
    Non-controlling interests
    6,146,384       5,902,801  
TOTAL EQUITY
    147,857,398       143,829,395  
TOTAL LIABILITIES AND EQUITY
  $ 166,495,638     $ 160,303,368  
 
The accompanying notes are an integral part of these consolidated financial statements.


SKYPEOPLE FRUIT JUICE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

 
For the Three Months Ended June 30,
   
For the Six Months Ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Revenue
$   12,837,273     $ 12,210,706     $ 27,830,773     $ 31,625,621  
Cost of goods sold
    8,615,882       8,043,560       18,823,383       18,852,917  
Gross profit
    4,221,391       4,167,146       9,007,390       12,772,704  
                                 
Operating Expenses
                               
    General and administrative expenses
    653,771       1,008,734       2,131,375       1,824,894  
    Selling expenses
    521,782       648,929       1,047,116       1,103,603  
    Research and development expenses
    142,685       138,241       285,370       274,708  
Total operating expenses
    1,318,238       1,795,904       3,463,861       3,203,205  
                                 
Income from operations
    2,903,153       2,371,242       5,543,529       9,569,499  
                                 
Other income (expenses)
                               
    Interest income
    87,016       65,774       156,705       142,086  
    Subsidy income
    649,607       88,697       1,083,111       571,764  
    Interest expenses
    (248,332 )     (176,393 )     (403,144 )     (340,188 )
    Others income (expenses)
    (32 )     42,605       (1,000 )     39,572  
Total other income (expenses)
    488,259       20,683       835,672       413,234  
                                 
Income before income tax
    3,391,412       2,391,925       6,379,201       9,982,733  
    Income tax provision
    864,293       763,578       1,792,673       2,693,386  
Net income
    2,527,119       1,628,347       4,586,528       7,289,347  
                                 
Less: Net income attributable to non-controlling interests
    126,468       140,398       266,719       509,222  
                                 
NET INCOME ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC.
$   2,400,651     $ 1,487,949     $ 4,319,809     $ 6,780,125  
                                 
Earnings per share:
                               
    Basic earnings per share
$   0.09     $ 0.06     $ 0.16     $ 0.25  
    Diluted earnings per share
$   0.09     $ 0.06     $ 0.16     $ 0.25  
                                 
Weighted average number of shares outstanding
                               
    Basic
    25,820,951       25,690,402       25,755,677       25,690,402  
    Diluted
    26,661,500       26,661,500       26,661,500       26,661,500  
                                 
Comprehensive Income
                               
Net income
$   2,527,119     $ 1,628,347     $ 4,586,528     $ 7,289,347  
Foreign currency translation adjustment
    (715,096 )     1,810,214       (558,525 )     2,951,792  
Total Comprehensive income
    1,812,023       3,438,561       4,028,003       10,241,139  
Comprehensive income attributable to non-controlling interests
    96,851       203,924       243,583       617,726  
Comprehensive income attributable to SkyPeople Fruit Juice, Inc.
$   1,715,172     $ 3,234,637     $ 3,784,420     $ 9,623,413  
                                 
The accompanying notes are an integral part of these consolidated financial statements.


SKYPEOPLE FRUIT JUICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
     
For the Six Months Ended June 30,
 
      2012       2011  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income
  $ 4,586,528     $ 7,289,347  
Adjustments to reconcile net income to net cash provided by operating activities
 
    Depreciation and amortization
    1,434,420       1,748,456  
    Deferred income tax assets
    41,656       -  
Changes in operating assets and liabilities
               
    Accounts receivable
    20,855,020       24,269,825  
    Other receivable
    (38,559 )     (302,428 )
    Advances to suppliers and other current assets
    (83,436 )     (38,099 )
    Inventories
    945,181       38,114  
    Accounts payable
    62,809       704,376  
    Accrued expenses
    (1,545,105 )     (1,994,692 )
    Income tax payable
    (1,025,682 )     (3,666,772 )
    Advances from customers
    (178,673 )     (508,717 )
Net cash provided by operating activities
    25,054,159       27,539,410  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
         
    Additions to property, plant and equipment
    (1,249,417 )     (134,415 )
    Additions to land use right
    (1,206,012 )     -  
    Prepayment for other assets
    (936,644 )     (4,714,425 )
Net cash used in investing activities
    (3,392,073 )     (4,848,840 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
         
    Decrease (increase) in restricted cash
    284,361       (273,047 )
    Short-term notes payable
    (284,361 )     273,047  
    Proceeds from short-term bank loans
    6,341,757       7,585,239  
    Repayment of short-term bank loans
    (1,139,578 )     (5,082,262 )
Net cash provided by (used in) financing activities
    5,202,179       2,502,977  
                 
Effect of change in exchange rate
    (305,401 )     1,602,342  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    26,558,864       26,795,889  
    Cash and cash equivalents, beginning of period
    61,154,007       49,350,385  
    Cash and cash equivalents, end of period
  $ 87,712,871     $ 76,146,274  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
    Cash paid for interest
  $ 403,145     $ 340,188  
    Cash paid for income taxes
  $ 2,776,698     $ 6,360,158  
                 
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION
 
    Transferred from other assets to property, plant and equipment and construction in process
  $ 5,225,307     $ 445,384  
   
The accompanying notes are an integral part of these consolidated financial statements.

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)

1.  
Basis of Presentation
 
The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2012 and the results of operations and cash flows for the periods ended June 30, 2012 and 2011. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and six months, respectively ended June 30, 2012 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2012. The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2011 as included in our Annual Report on Form 10-K.
 
2.  
BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
 
The principal activities of the Company consist of production and sales of fruit juice concentrates, fruit juice beverages, and other fruit-related products in the PRC and overseas markets. All activities of the Company are principally conducted by subsidiaries operating in the PRC.
 
Organizational Structure
 
Below is the Company’s current organizational structure as of the date of this report:
 
 
 
-4-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
(1)  
SkyPeople (China) holds a 91.15% interest in Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd. (“Shaanxi Qiyiwangguo”) since June 2006, after it acquired 21.05% of the shares held by Shaanxi Xirui Co. Ltd.  In July 2009, the Company canceled the registration of Shaanxi Qiyiwanguo with Xi’an SAIC and registered with Zhouzhi County SAIC. On June 14, 2012, the record of Zhouzhi County SAIC had been updated to reflect the increase in the Company’s interest percentage of Shaanxi Qiyiwangguo in June 2006.
 
(2)  
SkyPeople Juice Group Yidu Orange Products Co., Ltd. was established on March 13, 2012. Its scope of business includes deep processing and sales of oranges.
 
(3)  
Hedetang Fruit Juice Beverages (Yidu) Co., Ltd. was established on March 13, 2012. Its scope of business includes production and sales of fruit juice beverages.
 
(4)  
SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd. was established on April 26, 2012. Its scope of business includes initial processing, quick-frozen and sales of agricultural products and related by-products.
 
Principals of Consolidation
 
Our consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
 
The consolidated financial statements are prepared in accordance with U.S. GAAP. This basis differs from that used in the statutory accounts of SkyPeople (China), Shaanxi Qiyiwangguo, Huludao Wonder, Yingkou, Hedetang Juice Beverages, Orange Products and SkyPeople Suizhong, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC. All necessary adjustments have been made to present the financial statements in accordance with U.S. GAAP.
 
Uses of estimates in the preparation of financial statements
 
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful accounts receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation of change in fair value of warrant liability, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates.
 
Impairment of long-lived assets
 
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.

 
-5-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. During the reporting periods there was no impairment loss of long-lived assets recognized.
 
Inventories
 
Inventories consist of raw materials, packaging materials (which include ingredients and supplies) and finished goods (which include finished juice in the bottling and canning operations). Inventories are valued at the lower of cost or market. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are reserved or written off.
 
Revenue Recognition
 
The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenue from sales of products is recognized upon shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss have been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably assured. Customers have no contractual right to return products. Historically, the Company has not had any returned products. Accordingly, no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the original fee if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.
 
Shipping and Handling Costs
 
Shipping and handling amounts billed to customers in related sales transactions are included in sales revenues and shipping expenses incurred by the Company are reported as a component of selling expenses. The shipping and handling expenses of $244,502 and $224,344 for three months ended June 30, 2012 and 2011, respectively, and $524,314 and $542,744 for the six months ended June 30, 2012 and 2011, respectively, are reported in the Consolidated Statements of Income and Comprehensive Income as a component of selling expenses.
 
Foreign Currency and Other Comprehensive Income
 
The financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency; however, the functional currency and the reporting currency of the Company are the United States dollar (“USD”). Assets and liabilities of the Company’s foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date while equity accounts are translated using the historical exchange rate. The average exchange rate for the period has been used to translate revenues and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation adjustment).
 
Other comprehensive income for three and six months ended June 30, 2012 and 2011, respectively, represented foreign currency translation adjustments and were included in the consolidated statements of income and comprehensive income.
 
Income Taxes
 
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 
-6-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
 
Earnings per share
 
Under ASC 260-10, Earnings Per Share, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing net income available to common stockholders by the weighted-average number of Common Stock outstanding for the period. Our Series B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in determining net income available to common stockholders.
 
Diluted EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation. The numerators and denominators used in the computations of basic and diluted EPS are presented in the following table.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2012
 
2011
 
2012
 
2011
 
NUMERATOR FOR BASIC AND DILUTED EPS
                       
Net income (numerator for Diluted EPS)
$ 2,400,651     $ 1,487,949     $ 4,319,809     $ 6,780,125  
Net income allocated to Preferred Stock holders
    (75,685 )     (54,161 )     (146,765 )     (246,797 )
Net income allocated to Common Stock holders
$ 2,324,966     $ 1,433,788     $ 4,173,044     $ 6,533,328  
                                 
DENOMINATORS FOR BASIC AND DILUTED EPS
                               
Weighted average Common Stock outstanding
    25,820,951       25,690,402       25,755,677       25,690,402  
DENOMINATOR FOR BASIC EPS
    25,820,951       25,690,402       25,755,677       25,690,402  
                                 
Add: Weighted average Preferred Stock, as if converted
    840,549       971,098       905,823       971,098  
Add: Weighted average stock warrants outstanding
    -       -       -       -  
DENOMINATOR FOR DILUTIVED EPS
    26,661,500       26,661,500       26,661,500       26,661,500  
                                 
EPS - Basic
$ 0.09     $ 0.06     $ 0.16     $ 0.25  
EPS - Diluted
$ 0.09     $ 0.06     $ 0.16     $ 0.25  

 
-7-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
The diluted earnings per share calculation for the three and six months ended June 30, 2012 and 2011, respectively, did not include the warrants to purchase up to 175,000 shares of common stock, because their effect was anti-dilutive.
 
3.  
Inventories
 
Inventories by major categories are summarized as follows:
 
 
June 30, 2012
 
December 31, 2011
 
Raw materials and packaging
$ 2,549,653   $ 576,028  
Finished goods
  3,401,396     5,550,348  
Inventories
$ 5,951,049   $ 6,126,376  
 
4.  
Property, Plant and Equipment
 
Property, plant and equipment consist of the following:
 
 
June 30, 2012
 
December 31, 2011
 
Machinery and equipment
$ 30,708,041   $ 30,856,247  
Furniture and office equipment
    221,080       178,045  
Motor vehicles
    442,719       443,870  
Buildings
  32,123,715     25,777,820  
Property, plant and equipment, gross
    63,495,555       57,255,982  
Less: accumulated depreciation
  (15,060,180 )   (12,978,754 )
Property, plant and equipment, net
$ 48,435,375   $ 44,277,228  
 
Depreciation expense included in general and administration expenses for the three months ended June 30, 2012 and 2011 was $111,897 and $72,750, respectively, and was $194,736 and $120,822 for the six months ended June 30, 2012 and 2011, respectively. Depreciation expense included in cost of sales for the three months ended June 30, 2012 and 2011 was $571,191 and $768,302, respectively, and was $1,149,150 and $1,540,483 for the six months ended June 30, 2012 and 2011, respectively.

 
-8-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
5.  
Short-term Bank Loans
 
Short-term bank loans consist of the following loans collateralized by assets of the Company:
 
   
June 30,
2012
   
December 31,
2011
 
Loan payable to Bank of Huludao, Suizhong branch due on June 28, 2013, bearing interest at 9.465% per annum, collateralized by the buildings, machinery and land use rights of Huludao Wonder
  $ 5,264,906     $ 5,284,959  
Loan payable to Bank of Chongqing, due on March 20, 2013, bearing interest at 8.528% per annum, collateralized by the buildings and land use rights of SkyPeople (China).
    3,162,105       -  
Loan payable to China Construction Bank due on February 4, 2012, bearing interest at 4.4794% per annum, collateralized by certain accounts receivable of SkyPeople (China), which was paid off in January 2012
    -       420,387  
Loan payable to China Citic Bank due on February 3, 2012, bearing interest at 4.19465% per annum, collateralized by certain accounts receivable of SkyPeople (China), which was paid off in February 2012
    -       720,367  
Loan payable to China Construction Bank due on May 15, 2013, bearing interest at 6.56% per annum, collateralized by the buildings and machinery of SkyPeople (China).
    2,371,579       -  
Loan payable to Xian Bank Jiankang Road Branch due on May 22, 2013, bearing interest at 8.528% per annum, guaranteed by Shaanxi Boai Pharmaceutical Technology Development Co., LTD.
    790,526       -  
Total
  $ 11,589,116     $ 6,425,713  
 
6.  
Commitments and Contingencies
 
On April 20, 2011, plaintiff Paul Kubala (on behalf of his minor child N.K.) filed a securities fraud class action lawsuit in the United States District Court, Southern District of New York against the Company, certain of its individual officers and/or directors, Yongke Xue and Xiaoqin Yan, and Rodman & Renshaw, LLC, the underwriter of the Company’s follow-on public offering consummated in August 2010, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. On June 20, 2011, plaintiff Benjamin Padnos filed a securities fraud class action lawsuit in the United States District Court, Southern District of New York against the Company, all of its individual officers and/or directors, Yongke Xue, Xiaoqin Yan, Norman Ko, John W. Smagula, Spring Liu, Child Van Wagner & Bradshaw, PLLC, BDO Limited and Rodman & Renshaw, LLC, the underwriter of the Company’s follow-on public offering consummated in August 2010, alleging violations of Sections10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. On August 30, 2011, the court consolidated the foregoing two actions and appointed Zachary Lewy as lead plaintiff. On September 30, 2011, pursuant to the Court’s order, Lead Plaintiff filed a consolidated complaint, which names the Company, Rodman & Renshaw, LLC, BDO Limited, Child Van Wagoner & Bradshaw PLLC and certain of the Company’s current and former directors and majority shareholders as defendants and alleges violations of Section 11 and 12 of the Securities Act of 1933 and Section 10(b) and 20(a) of the Exchange Act, and the rules promulgated thereunder. In the consolidated complaint, the plaintiffs are seeking to be awarded, among other things, compensatory damages, reasonable costs and expenses incurred in the action. On May 3, 2012, Lead Plaintiff voluntarily dismissed the claims against BDO Limited and Child Van Wagoner & Bradshaw PLLC. We believe the allegations against the Company are baseless and are contesting the case vigorously. In this regard, the Company has filed a motion to dismiss the consolidated complaint, which is currently under submission. The Company believes the suit is without merit and is vigorously defending its position and has made no accrual for any potential contingencies.

 
-9-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)

On August 5, 2011, we received a shareholder demand letter from counsel for a purported shareholder. The letter was addressed to the Company’s Board of Directors and requested the Board of Directors to take a number of actions in order to repair the alleged “harm” caused to the Company by certain of its directors and officers, as well as its current and former auditors. The Board of Directors has been reviewing this shareholder demand letter and considering appropriate action that the Company should undertake. On November 7, 2011, Baosheng Lu and Tao Wang were appointed to serve as directors of the board and the independent directors of the board appointed them to serve as the members of the evaluation committee. The evaluation committee is in the process of evaluating the actions demanded by the shareholder and retaining counsel to respond to the shareholder inquiry. No formal shareholder derivative complaint has been filed to date on behalf of us. The company believes the suit is without merit and is vigorously defending its position and has made no accrual for any potential contingencies.
 
On July 8, 2011, we brought suit against Absaroka Capital Management, LLC (“Absaroka”) and its principal Kevin Barnes in the U.S. District Court of Wyoming under the caption SkyPeople, Inc. v. Absaroka Capital Management, LLC, et al., No. 11-cv-238. Absaroka is a purported independent investment analyst who, while holding a short position in our stock, issued a so-called research report (the “Report”) asserting, inter alia, that we had inflated revenues. We brought suit alleging three causes of action for libel per se, libel per quod and intentional interference with a prospective business relationship. In or around November, 2011, Absaroka and Barnes brought counter claims against us for defamation per se, defamation per quod and abuse of process. On June 22, 2012, the Company and Absaroka reached an out-of-court settlement of litigation in the U.S. District Court for the District of Wyoming. The settlement includes a dismissal of all claims and counterclaims filed by the Parties, with neither party admitting any wrongdoing or liability. As part of the settlement agreement, Absaroka has agreed to remove the Report from its website, undertake best efforts to remove the Report from third-party sites, and refrain from issuing any further articles, public statements, or research reports concerning the Company.
 
Other than the above, from time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which, in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
 
7.  
Concentrations
 
(1)  
Concentration of customers
 
Sales to five largest customers accounted for approximately 29% and 23% of our net sales during the six months ended June 30, 2012 and 2011, respectively. There was no single customer representing 10% of total sales for the six months ended June 30, 2012. Sales to one customer accounted for 10% of total sales for the six months ended June 30, 2011.
 
Sales to our five largest customers accounted for approximately 38% and 25% of our net sales during the three months ended June 30, 2012 and 2011, respectively. Sales to one customer accounted for 11% of total sales for the three months ended June 30, 2012. There was no single customer representing 10% of total sales for the three months ended June 30, 2011.
 
(2)  
Concentration of Suppliers
 
During the three months ended June 30, 2012, four suppliers accounted for 20%, 14%, 13% and 10% of our purchases. During the same period of 2011, three suppliers accounted for 31%, 16% and 13% of our purchases. There was no other single supplier representing 10% of purchase during both periods.
 
 
-10-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)

During six months ended June 30, 2012, four suppliers accounted for 19%, 19%, 11% and 10% of our purchases. During the same period of 2011, three suppliers accounted for 30%, 16% and 13% of our purchases. There was no other single supplier representing 10% of purchase during both periods.
 
8.  
Segment Reporting
 
The Company operates in six segments: concentrated apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, concentrated pear juice, fruit juice beverages, fresh fruits and vegetables, and other products. Our concentrated apple juice and apple aroma are primarily produced by our Huludao Wonder factory. Our concentrated pear juice is primarily produced by the Company’s Jingyang factory. The Company uses the same type of production line to manufacture both concentrated apple juice and concentrated pear juice. In addition, both Jingyang factory and Huludao Wonder factory are located in regions abundant with fresh apple and pear supplies. As such, Jingyang factory also produces concentrated apple juice and Huludao Wonder factory also produces concentrated pear juice when necessary. Our concentrated kiwifruit juice and kiwifruit puree, as well as our fruit juice beverages, are primarily produced by our Qiyiwangguo factory. The Company’s other products include fructose, concentrated turnjujube juice, and other by-products, such as kiwifruit seeds.
 
Concentrated fruit juice is used as a basic ingredient for manufacturing juice drinks and as an additive to fruit wine and fruit jam, cosmetics and medicines. The Company sells its concentrated fruit juice to domestic customers and exports directly or via distributors. The Company believes that its main export markets are the United States, the European Union, South Korea, Russia and the Middle East. The Company sells its Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the PRC. The Company sells its fresh fruit and vegetables to supermarkets and wholesalers in the PRC.
 
Some of these product segments may not individually meet the quantitative thresholds for determining reportable segments and we determine the reportable segments based on the discrete financial information provided to the chief operating decision maker. The chief operating decision maker evaluates the results of each segment in assessing performance and allocating resources among the segments. Since there is an overlap of services provided and products manufactured between different subsidiaries of the Company, the Company does not allocate operating expenses and assets based on the product segments. Therefore, operating expenses and assets information by segment are not presented.  Segment profit represents the gross profit of each reportable segment.
 
For the Three Months Ended June 30, 2012
 
Concentrated apple juice and apple aroma
   
Concentrated kiwifruit juice and kiwifruit puree
   
Concentrated pear juice
   
Fruit juice beverages
   
Fresh fruits and vegetables
   
Others
   
Total
 
Reportable segment revenue
  $ 1,157     $ 489       3,834     $ 6,366     $ -     $ 1,497     $ 13,343  
Inter-segment revenue
    (406 )     -       (100 )     -       -       -       (506 )
Revenue from external customers
    751       489       3,734       6,366       -       1,497       12,837  
Segment gross profit
  $ 94     $ 223     $ 1,705     $ 2,118     $ -     $ 81     $ 4,221  
 
 
-11-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)

For the Three Months Ended June 30, 2011
 
Concentrated apple juice and apple aroma
   
Concentrated kiwifruit juice and kiwifruit puree
   
Concentrated pear juice
   
Fruit juice beverages
   
Fresh fruits and vegetables
   
Others
   
Total
 
Reportable segment revenue
  $ 2,452     $ 1,870     $ 1,921     $ 5,433     $ -     $ 789     $ 12,465  
Inter-segment revenue
    (65 )     (159 )     (30 )     -       -       -       (254 )
Revenue from external customers
    2,387       1,711       1,891       5,433       -       789       12,211  
Segment gross profit
  $ 606     $ 941     $ 805     $ 1,668     $ -     $ 147     $ 4,167  
 
 
For the Six Months Ended June 30, 2012
 
Concentrated apple juice and apple aroma
   
Concentrated kiwifruit juice and kiwifruit puree
   
Concentrated pear juice
   
Fruit juice beverages
   
Fresh fruits and vegetables
   
Others
   
Total
 
Reportable segment revenue
  $ 4,383     $ 4,441     $ 8,663     $ 9,736     $ 588     $ 1,497     $ 29,308  
Inter-segment revenue
    (1,124 )     (191 )     (162 )     -       -       -       (1,477 )
Revenue from external customers
    3,259       4,250       8,501       9,736       588       1,497       27,831  
Segment gross profit
  $ 507     $ 1,910     $ 3,240     $ 2,973     $ 296     $ 81     $ 9,007  

 
For the Six Months Ended June 30, 2011
 
Concentrated apple juice and apple aroma
   
Concentrated kiwifruit juice and kiwifruit puree
   
Concentrated pear juice
   
Fruit juice beverages
   
Fresh fruits and vegetables
   
Others
   
Total
 
Reportable segment revenue
  $ 6,186     $ 5,028     $ 5,968     $ 12,710     $ 1,458     $ 789     $ 32,139  
Inter-segment revenue
    (126 )     (332 )     (55 )     -       -       -       (513 )
Revenue from external customers
    6,060       4,696       5,913       12,710       1,458       789       31,626  
Segment gross profit
  $ 1,688     $ 2,528     $ 2,026     $ 5,649     $ 735     $ 147     $ 12,773  

 
-12-

SKYPEOPLE FRUIT JUICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
The following table reconciles reportable segment profit to the Company’s consolidated income before income tax provision for the three and six months ended June 30, 2012 and 2011, respectively:
 
   
Three Months Ended June 30,
 
   
2012
   
2011
 
Segment profit
  $ 4,221,391     $ 4,167,146  
Unallocated amounts:
               
Operating expenses
    1,318,238       1,795,904  
Other (income)/expenses
    (488,259 )     (20,683 )
Income before tax provision
  $ 3,391,412     $ 2,391,925  
 
   
Six Months Ended June 30,
 
   
2012
   
2011
 
Segment profit
  $ 9,007,390     $ 12,772,704  
Unallocated amounts:
               
Operating expenses
    3,463,861       3,203,205  
Other (income)/expenses
    (835,672 )     (413,234 )
Income before tax provision
  $ 6,379,201     $ 9,982,733  
 
9.  
Common Stock
 
The following table reconciles the number of Common Stock and Series B Convertible Preferred Stocks as to the date of this report.
 
Date
 
 
 
B Series Preferred Stocks
   
Common Stocks
 
December 31, 2011
 
Issued and outstanding
  1,456,647     25,690,402  
May 17, 2012
 
Conversion of shares of Series B Preferred Stock into shares of Common Stock
  (405,000 )   270,000  
July 27, 2012(1)
 
Conversion of shares of Series B Preferred Stock into shares of Common Stock
  (410,000 )   273,333  
Date of this report
 
Issued and outstanding
  641,647 (2)   26,233,735  
 
(1)  
Please refer to Note 10 “Subsequent Event.”
 
(2)  
As of the date of this report, the outstanding Series B Preferred Convertible Stocks was 641,647, which can be converted into 427,765 shares of Common Stocks. Assuming all shares of Series B Convertible Preferred Stock are converted, the total number of shares of Common Stock to be issued and outstanding will be 26,661,500.
 
As of June 30, 2012, the Company had outstanding warrants to purchase 175,000 shares of the Company’s Common Stock.
 
10.  
Subsequent Events
 
On July 27, 2012, a holder of the Company’s Series B Convertible Preferred Stock converted 410,000 shares of Series B Convertible Preferred Stock into 273,333 shares of Common Stocks.
 
 
Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.
 
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS
 
The following discussion and analysis of the condensed consolidated financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and with the information under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed in this report and under the heading “Risk Factors” in our most recent Annual Report on Form 10-K.
 
Overview of Our Business
 
We are engaged in the production and sales of fruit juice concentrates (including fruit purees, concentrated fruit purees and concentrated fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages), and other fruit related products (including organic and non-organic fresh fruits) in and from the PRC. Our fruit juice concentrates, which include apple, pear and kiwifruit concentrates, are sold to domestic customers and exported directly or via distributors. For the six months ended June 30, 2012, sales of our fruit juice concentrates, fruit beverages and other fruit related products represented 58%, 35% and 7% of our revenue, respectively, compared to 53%, 40% and 7%, respectively, for the same period of 2011. For the three months ended June 30, 2012, sales of our fruit juice concentrates, fruit beverages and other fruit related products represented 39%, 50% and 11% of our revenue, respectively, compared to 49%, 45% and 6%, respectively, for the same period of 2011.
 
We export our products as well as sell them domestically. The Company sells its fruit juice concentrates to domestic customers and exports directly or via distributors with good credit. We believe that our main export markets are the United States, the European Union, South Korea, Russia and the Middle East. We sell our Hedetang-brand bottled fruit beverages domestically, primarily to supermarkets in the PRC. We sell our other fruit related products to domestic customers.


We currently market our Hedetang brand fruit beverages in certain regions of the PRC. We began selling our beverage to Mongolia during the second quarter of 2012. 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 eight flavors of fruit beverages in 280 ml glass bottles, 418 ml glass bottles and 500 ml glass bottles and 3 litre Bag-In-Box packing, including apple juice, pear juice, kiwifruit juice, mulberry juice, peach juice, pomegranate juice, kiwifruit cider and mulberry cider and sell our fruit beverages to distributors and retail stores in approximately 18 provinces. Our products are sold through distributors to stores such as Hualian, Aeon and Wal-Mart in Beijing; CR Vanguard, RenRenLe and Wal-Mart in Shaanxi; TESCO in Shanghai; Wal-Mart in Liaoning and 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 be a leader with respect to the quality of fruit juice concentrates and fruit beverages. As of June 30, 2012, we had an internal research and development team of approximately 40 employees, and we retained external experts and research institutions for additional consultation when necessary. For the six months ended June 30, 2012 and 2011, our research and development expenses were $285,370 and $274,708, respectively. In the three months ended June 30, 2012 and 2011, our research and development expenses were $142,685 and $138,241, respectively.
 
Our business is highly seasonal and can be greatly affected by weather because of the seasonal nature in the growing and harvesting of fruits and vegetables. Our core products are apple, pear and kiwifruit juice concentrates, which are produced from July or August to April of the following year. The squeezing season for apples is from August to January or February of the following year, the squeezing season for pears is from July or August until April of next year, the squeezing season for kiwifruits is from September through December each year. 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 increase our annual production of fruit juice concentrates and fruit beverages. Since the first quarter of 2009, we have been selling fruit beverages in the Chinese market. Unlike fruit juice concentrates, which can only be produced during the squeezing season, the fruit beverages are made out of fruit juice concentrates and can be produced and sold throughout the year. With continuous efforts in marketing our beverages in the domestic market, we expect that impact of our production seasonality to 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 fruits to our purchasing agents easily and in a timely manner. We are then able to deliver the fruits directly to our factory for production. We have assisted local farmers in their development of kiwifruit fields to help ensure high quality products 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. All of our four manufacturing facilities in the PRC 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 focuses on certain products made from one particular fruit according to the proximity of such manufacturing facility to the sources of that fruit supply Our kiwifruit processing facilities are located in Zhouzhi County of Shaanxi Province, which has the largest planting area of apples and kiwifruits 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 type of production line for both concentrated apple juices and concentrated pear juices and both Shaanxi Province and Liaoning Province are rich in production of fresh apples and pears, our Liaoning facilities also produce concentrated apple juices and our Shaanxi Province facilities also produce concentrated apple juices depending on customers’ needs. 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 June 30, 2012, we had spent approximately $12 million on various capital projects in Huludao Wonder as described in projects (4) and (5) below. We set forth below 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.
 

Recent Development
 
Corporate Restructure
 
On May 28, 2012, SkyPeople (China) received the approval by Shaanxi Administration for Industry and Commerce for the transfer of 99.78% equity interest in SkyPeople (China) held by Pacific to SkyPeople International, a wholly owned subsidiary of Pacific. As a result of the transfer, SkyPeople (China) has become an indirectly wholly owned subsidiary of Pacific and a 99.78%-owned subsidiary of SkyPeople International.
 
Sales of Fruit Juice Beverages through Automatic Fruit Juice Dispensing Machines
 
In the second quarter of 2012, we introduced Hedetang-branded fruit juice beverages into 24 Shaanxi Dongdongbao restaurant chain stores through automatic fruit juice dispensing machines. Dongdongbao is a restaurant chain with most of its stores located throughout Xi’an, Shaanxi province of China.
 
The use of automatic fruit juice dispensing machines for our Hedetang-branded fruit juice beverages is a relatively novel marketing approach for fruit juices since it mixes fruit juice syrup with water in accordance with a pre-set formula. We found that customers prefer fruit juice beverages produced and dispensed this way since it has an excellent flavor. In addition, there is an element of freshness to the process and there is a sense that the juice it is made especially for them. There are four flavors of Hedetang-branded fruit juice beverages made by automatic fruit juice dispensing machines currently available to customers, including kiwi, pear, mulberry and orange.
 
We expect automatic fruit juice dispensing machines in restaurant chain stores to bolster the presence of Hedetang-branded fruit juice beverages in the local market of Xi’an, and plans on gradually spreading this fruit juice beverage dispensing method for our fruit juice beverages to other provincial capital cities of China.
 
Hedetang-branded Bag-In-Box Fruit Juice Beverages
 
In the second quarter of 2012, we introduced Hedetang-branded Bag-In-Box (the “BIB”) fruit juice beverages into the local market of Xi’an, Shaanxi province of China. A high-tech, sterile, polyethylene (“PE”) inner film bag and corrugated paper box with axenic faucet is used as the container for the Hedetang-branded BIB fruit juice beverages. The container is highly resistant to contamination and represents an ideal liquid technology. SkyPeople is now offering three flavors of Hedetang-branded BIB fruit juice beverages including mulberry juice, pomegranate juice and kiwi juice beverages.
 
Compared with fruit juice beverages in traditional packages, fruit juice beverages contained in BIB packaging have longer shelf lives since the PE inner film bag and the faucet are sterile and the PE inner film bag also protects the fruit juice from light and heat. The Hedetang-branded BIB fruit juice beverages are healthy because they do not contain preservatives, artificial colors or essences.
 
Our plan is to introduce the BIB packing fruit juice beverages into the local market of Xi’an first and expect to gradually introduce them into other provincial capital cities of China.


Huludao Wonder Projects
 
Subsidiary
 
No.
 
Priority Projects
 
Progress
 
Estimated capital expenditure
(in Millions)
 
Huludao Wonder
    (1) (2)  
Construction of a refrigeration storage unit for the storage of concentrated fruit juices and fresh fruits and vegetables
 
The design of the facility has been completed.
Construction has been delayed due to change of plan.
 
  $ 2.7  
Huludao Wonder
    (1) (2)  
Construction of concentrated fruit juice mixing center
 
The design of the facility has been completed.
First stage of construction has started.
    1.9  
Huludao Wonder
    (3)  
Construction of a 30 ton/hour comprehensive fruits and vegetables processing line
 
The construction of this 30 ton/hour comprehensive fruits and vegetables processing line was delayed. The Company is purchasing machinery and equipment for the project.
    3  
Huludao Wonder
    (4)  
Construction of a fruit juice beverage production line of 6,000 bottles/hour
 
The construction of such production line has been substantially finished. Huludao Wonder commenced operation of this new production line on April 28, 2012.
    3  
Huludao Wonder
    (5)  
Environmental project (waste water treatment facility for concentrated apple juice production line)
 
The construction of such environmental project has been substantially finished.
    8  
Total Capital Expenditure
                $ 18.6  

 

(1)  
Our initial plan was to construct both the refrigeration storage (see (1) above) and fruit juice mixing center (see (2) above) in Huludao Wonder. We initially planned to start the construction of the refrigeration storage unit for the storage of concentrated fruit juices and fresh fruits and vegetables and a concentrated fruit juice-mixing center in the fourth quarter of 2011. However, the construction of 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 on a new location in Suizhong, Liaoning Province, which is geographically very close to Huludao Wonder. The total estimated capital expenditure for (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 has paid partial consideration of approximately $1,200,000, the certificate of land use right has not been granted to the Company.
 
(2)  
The fruit juice-mixing center will be built in Huludao Wonder. The design of the fruit juice-mixing center has been completed. First stage of construction has started in the second quarter of 2012.
 
(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. Due to extreme weather conditions, the construction of this 30 ton/hour comprehensive fruits and vegetables processing line was delayed. The Company is purchasing machinery and equipment for the project.
 
(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 maximum production capacity of 6,000 bottles per hour has been substantially finished. On April 25, 2012, “China Food Production License” for production of Beverage (including fruit juice and vegetable juice) was granted to Huludao Wonder by Liaoning Bureau of Quality and Technical Supervision. Huludao Wonder commenced operation of this 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 environmental project (waste water treatment facility for concentrated apple juice production line) has been substantially finished.
 

Results of Operations
 
Comparison of Three Months ended June 30, 2012 and 2011:
 
Revenue
 
The following table presents our consolidated revenues for each of our main products for the three months ended June 30, 2012 and 2011, respectively (in thousands):
 
   
Three month ended June 30,
   
Change
 
   
2012
   
2011
   
Amount
   
%
 
Concentrated apple juice and apple aroma
  $ 751     $ 2,387     $ (1,636 )     (68.5 )%
Concentrated kiwifruit juice and kiwifruit puree
    489       1,711       (1,222 )     (71.4 )%
Concentrated pear juice
    3,734       1,891       1,843       97.5 %
Fruit juice beverages
    6,366       5,433       933       17.2 %
Other
    1,497       789       708       89.7 %
Total
  $ 12,837     $ 12,211      $ 626       5.1 %
 
Our gross revenue for the three months ended June 30, 2012 was $12.8 million, an increase of $0.6 million, or 5.1%, from $12.2 million for the same period of 2011. This increase was primarily due to the increases in sales of concentrated pear juice, fruit juice beverages, as well as other products, which was partially offset by the decreases in revenue generated from sales of the concentrated apple juice and apple aroma, kiwi juice and kiwi puree.
 
Sales from apple related products decreased by $1.6 million, or 68.5%, to $0.8 million for the three months ended June 30, 2012, from $2.4 million for the same period of 2011. During the second quarter of 2012, the Company sold approximately 428 tons of concentrated apple juice, a 69% decrease from 1,367 tons of concentrated apple juice sold in the same period of 2011 while the unit price of concentrated apple juice has remained constant for the two periods. The company did not produce any apple juice during first half of 2012 due to shortage of raw materials resulting from seasonal factors. All sales of apple related products were made out of inventories from 2011, which had a higher inventory cost as compared that of this year.
 


Sales from concentrated kiwifruit juice and kiwifruit puree were $0.5 million for the second quarter of 2012, a decrease of $1.2 million, or 71.4%, from $1.7 million in the same quarter of 2011. During the second quarter of 2012, the Company did not produce any concentrated kiwifruit juice and kiwifruit puree due to shortage of fresh kiwi supply resulting from seasonal factors. All sales of concentrated kiwifruit juice and kiwifruit puree were made out of inventories from the previous quarter, thus the amount of the sales of the concentrated kiwifruit juice and kiwifruit puree decreased significantly as compared with the corresponding period of 2011.
 
Sales of concentrated pear juice increased to $3.7 million in the second quarter of 2012, an increase of $1.8 million, or 97.5%, from $1.9 million in the same quarter of 2011. The increase was primarily attributable to the 69% increase in sales volume and a slight increase in the unit price of the concentrated pear juice. During the second quarter of 2012 and 2011, the Company sold approximately 2,200 tons and 1,300 tons, respectively.
 
Revenue from our fruit juice beverages in the PRC increased to $6.4 million, an increase of $1.0 million or 17.2%, from $5.4 million for the same period of 2011, primarily due to an increase sale volume as a result of the downward pricing adjustment for our beverage products with an aim to improve our competitiveness and to gain more market shares.
 
Revenue from other products increased to $1.5 million, an increase of $0.7 million or 90%, from $0.8 million for the same period of 2011. 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 its consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the three months ended June 30, 2012 and 2011, respectively (in thousands for the gross profit):
 

 
   
Three Months Ended June 30,
 
   
2012
   
2011
 
   
Gross profit
   
Gross margin
   
Gross profit
   
Gross margin
 
Concentrated apple juice and apple aroma
  $ 94       13 %   $ 606       25 %
Concentrated kiwifruit juice and kiwifruit puree
    223       46 %     941       55 %
Concentrated pear juice
    1,705       46 %     805       43 %
Fruit juice beverages
    2,118       33 %     1,668       31 %
Other
    81       5 %     147       19 %
Total/Overall (for gross margin)
  $ 4,221       33 %   $ 4,167       34 %
 
The consolidated gross profit for the three months ended June 30, 2012 was $4.22 million, an increase of $0.05 million, or 1%, from $4.17 million for the same period of 2011.
 
The consolidated gross profit margin for the three months ended June 30, 2012 was 33%, a decrease of 1%, from 34% for the same period of 2011. The decrease was primarily due to decreases in gross margins of the concentrated apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree and other products, which was slightly offset by the slight increase in gross profit margin of the concentrated pear juice and fruit juice beverages.
 
The gross margin of the concentrated apple juice and apple aroma decreased to 13% for the three months ended June 30, 2012 from 25% for the same period of 2011, as the Company did not produce any apple juice during the first half of 2012 and incurred cost of goods sold as a result of the sales of the inventories of the previous year. Cost of production of concentrated apple juice and apple aroma of 2011 was relatively high due to high purchasing price of fresh apple in 2011.
 
The gross profit margin of the concentrated kiwifruit juice and kiwifruit puree decreased from 55% for the three months ended June 30, 2011 to 46% for the same period of 2012. During the second quarter of 2012, the Company did not produce any concentrated kiwifruit juice and kiwifruit puree due to shortage of raw materials, and all the sales of the concentrated kiwifruit juice and kiwifruit puree have been generated from the sales of the inventories of the previous quarter. The decrease in gross profit margin was primarily due to the higher costs of inventory in three months ended June 30, 2012.


The gross profit margin of the concentrated pear juice increased slightly from 43% to 46%, mainly due to price decrease for the fresh pear in the second quarter of 2012 from that in the same period of 2011.
 
The gross profit margin of our fruit juice beverages slightly increased from 31% for the three months ended June 30, 2011 to 33% for the same period of 2012 as a result of the increase in amount of production, which in turn led to decrease in cost of production and cost of sales.
 
The gross profit margin for other products was 19% for the three months ended June 30, 2011 and 5% for the same period of 2012. 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, 2012 and 2011, respectively:
 
 
Three Months Ended June 30,
       
 
2012
 
2011
 
Change
 
Amount
 
% of revenue
 
Amount
 
% of revenue
 
Amount
 
%
General and administrative expenses
$
653,771
 
5%
 
$
1,008,734
 
8%
 
(354,963)
 
(35)%
Selling expenses
 
521,782
 
4%
   
648,929
 
5%
 
(127,147)
 
(20)%
Research and development expenses
 
142,685
 
1%
   
138,241
 
1%
 
4,444
 
3%
Total operating expenses
$
1,318,238
 
10%
 
$
1,795,904
 
14%
 
(477,666)
 
(27)%
 
Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses decreased by 27% to $1,318,238 for the three months ended June 30, 2012, from $1,795,904 for the corresponding period in 2011.
 
General and administrative expenses decreased by $354,963, or 35%, to $653,771 for the three months ended June 30, 2012, from $1,008,734 for the same period of 2011. The decrease in general and administrative expenses was attributable to the insurance refund of our legal fees that we incurred related to our pending litigations.
 
Selling expenses decreased by $127,147, or 20%, to $521,782 for the three months ended June 30, 2012 from $648,929 for the same period of 2011. The decrease was mainly due to an one-time sales rebate incurred during the same period of 2011, which was charged into selling expenses.


Research and development expenses increased slightly by $4,444, or 3%, to $142,685 for the three months ended June 30, 2012 from $138,241 for the same period of fiscal 2011.
 
Income from Operations
 
Income from operations increased to $2,903,153, an increase of 22% or $531,911, for the three months ended June 30, 2012 from $2,371,242 for the same period of 2011. The increase in the income from operations was mainly due to an increase in the gross profit, coupled by a decrease in operating expenses as discussed above.
 
Other Income (Expense), Net
 
Other income, net was $488,259 for the three months ended June 30, 2012, an increase of $467,576 or 2261% from other income of $20,683 in the same period of 2011. The increase was primarily due to an increase in the subsidy income from $88,697 in the second quarter of 2011 to $649,607 for the same period of 2012. We received the subsidy income as a result of the value-added tax rebates provided on our exports, which increased in the second quarter of 2012 as compared to the corresponding period of 2011.
 
Income Tax
 
Our provision for income taxes increased by $100,715, or 13%, to $864,293 for the three months ended June 30, 2012 from $763,578 for the three months ended June 30, 2011. The increase in the tax provision was due to increased income before taxes generated in the second quarter of 2012 as compared to the second quarter of 2011. Our consolidated income tax rate was 25% and 32% for the three months ended June 30, 2012 and 2011, respectively.
 
Net Income
 
Net income was $2,527,119 for the three months ended June 30, 2012, an increase of $898,772 or 55%, from $1,628,347 for the same period of 2011, primarily due to the factors previously discussed.
 
Noncontrolling Interests
 
As of June 30, 2012, 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 $126,468 and $140,398 for the three months ended June 30, 2012 and 2011, respectively. The decrease in the net income attributable to noncontrolling interests was mainly due to the decrease in the net income generated from SkyPeople (China).
 
Net Income Attributable to SkyPeople Fruit Juice, Inc.
 
Net income attributable to the Company was $2,400,651 for the three months ended June 30, 2012, and increase of $912,702 or 61%, from $1,487,949 for the same period of 2011 for the reasons described above.


Comparison of Six Months ended June 30, 2012 and 2011:
 
Revenue
 
The following table presents our consolidated revenues for each of our main products for the six months ended June 30, 2012 and 2011, respectively (in thousands):
 
   
Six month ended June 30,
   
Change
 
   
2012
   
2011
   
Amount
   
%
 
Concentrated apple juice and apple aroma
  $ 3,259     $ 6,060     $ (2,801 )     (46 )%
Concentrated kiwifruit juice and kiwifruit puree
    4,250       4,696       (446 )     (9 )%
Concentrated pear juice
    8,501       5,913       2,588       44 %
Fruit juice beverages
    9,736       12,710       (2,974 )     (23 )%
Fresh fruits and vegetables
    588       1,458       (870 )     (60 )%
Other
    1,497       789       708       90 %
Total
  $ 27,831     $ 31,626     $ (3,795 )     (12 )%
 
Our gross revenue for the six months ended June 30, 2012 was $27.8 million, a decrease of $3.8 million, or 12%, from $31.6 million for the same period of 2011, primarily due to the decreases in the sales of concentrated apple juice and apple aroma, concentrated kiwifruit juice, kiwifruit puree, fruit juice beverage, fresh fruits and vegetables, which was partially offset by the increases in the sales of the concentrated pear juice and other products.
 
Sales from apple related products decreased by $2.8 million, or 46%, to $3.3 million for the six months ended June 30, 2012 from $6.1 million for the same period of 2011. During the first half of 2012, the Company sold approximately 1,686 tons of the concentrated apple juice, a 54% decrease from 3,637 tons of the concentrated apple juice sold in the same period of 2011. Such decrease was partially offset by a slight increase in the unit price of the concentrated apple juice.
 
Sales from concentrated kiwifruit juice and kiwifruit puree were $4.3 million for the first half of 2012, a decrease of $0.4 million, or 9%, from $4.7 million in the same period of 2011, primarily due to (i) a 12% decrease in sales of concentrated kiwifruit puree in the first half of 2012 from those in the same period of 2011, (ii) an increase in the unit selling price.
 


Sales of concentrated pear juice increased to $8.5 million for the first half of 2012, an increase of $2.6 million, or 44%, from $5.9 million for the same period of 2011. During the first half of 2012, price for the concentrated pear juice increased, which was coupled by by a 6% increase in the sales volume for the pear juices. The Company sold approximately 5,062 tons and 4,780 tons of the pear juice during the first half of 2012 and 2011, respectively.
 
Revenue from our fruit juice beverages in the PRC decreased to $9.7 million, a decrease of $3.0 million or 23%, from $12.7 million for the same period of 2011. From the second quarter of 2011, the Company made downward pricing adjustment to our beverage products to improve our competitiveness and gain more market shares. The downward pricing adjustment increased our sales volume and our market share during the six months ended June 30, 2012, which increase, however, was not sufficient to offset the negative impact on our revenue by the reduced prices.
 
Revenue from our fresh fruits and vegetables in the PRC decreased to $0.6 million, a decrease of $0.9 million or 60%, from $1.5 million for the same period of 2011. The decrease was primarily due to a decrease in the sales volume of the fresh fruits as well as an overall decrease in the prices of fresh fruits in the first half of 2012 as compared to those in the same period of 2011.
 
Revenue from other products increased to $1.5 million, an increase of $0.7 million or 90%, from $0.8 million for the same period of 2011. Sales of other products is expected to be unstable and is generally not indicative of any trend in future sales.
 
Gross Margin
 
The following table presents the consolidated gross profit of each of our main products and its consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the six months ended June 30, 2012 and 2011, respectively (in thousands for the gross profit):
 
   
Six Months Ended June 30,
 
   
2012
   
2011
 
   
Gross profit
   
Gross margin
   
Gross profit
   
Gross margin
 
Concentrated apple juice and apple aroma
  $ 507       16 %   $ 1,688       28 %
Concentrated kiwifruit juice and kiwifruit puree
    1,910       45 %     2,528       54 %
Concentrated pear juice
    3,240       38 %     2,026       34 %
Fruit juice beverages
    2,973       31 %     5,649       44 %
Fresh fruits and vegetables
    296       50 %     735       50 %
Other
    81       5 %     147       19 %
Total/Overall (for gross margin)
  $ 9,007       32 %   $ 12,773       40 %
 

The consolidated gross profit for the six months ended June 30, 2012 was $9.0 million, a decrease of $3.8 million, or 30%, from $12.8 million for the same period of 2011. The decrease was primarily due to the decreases in gross profits for concentrated apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, fruit juice beverages and fresh fruits and vegetables and other products, which was partially offset by increases in the gross profit in concentrated pear juice.
 
The consolidated gross profit margin for the six months ended June 30, 2012 was 32%, a decrease of 8%, from 40% for the same period of 2011. The increase was primarily due to decreases in gross margins of concentrated apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, fruit juice beverages and other products, which was partially offset by the slight increase in gross profit margin of concentrated pear juice.
 
The gross margin of concentrated apple juice and apple aroma decreased to 16% for the six months ended June 30, 2012 from 28% for the same period of 2011, primarily due to the fact that the Company did not produce any apple juice during the first half of 2012, and the cost of goods sold was incurred from selling the inventories of the previous year. Cost of production of concentrated apple juice and apple aroma of 2011 was relatively high due to high purchasing price of fresh apple in 2011.
 
The gross profit margin for concentrated kiwifruit juice and kiwifruit puree decreased from 54% for the six months ended June 30, 2011 to 45% for the same period of 2012. The decrease was primarily due to an increase in for the fresh kiwifruits price in the six months ended June 30, 2012 as compared to that in the same period of 2011.
 
The gross profit margin for the concentrated pear juice increased slightly from 34% to 38%, mainly due to a decrease in fresh pear price.
 
The gross profit margin for our fruit juice beverages decreased from 44% for the six months ended June 30, 2011 to 31% for the same period of 2012 as a result of the downward pricing adjustment for our beverage products as explained above in this report.
 
The gross profit margin for other products was 19% for the six months ended June 30, 2011 and 5% for the same period of 2012. Given the relatively low production volume and sales of other products, the gross profit margin is prone to fluctuation from time to time.
 
Operating Expenses
 
The following table presents our consolidated operating expenses and their respective percentage of revenue for the six months ended June 30, 2012 and 2011, respectively:

 
 
Six Months Ended June 30,
       
 
2012
 
2011
 
Change
 
Amount
 
% of revenue
 
Amount
 
% of revenue
 
Amount
 
%
General and administrative expenses
$
2,131,375
 
8%
 
$
1,824,894
 
6%
 
306,481
 
17%
Selling expenses
 
1,047,116
 
4%
   
1,103,603
 
3%
 
(56,487)
 
(5)%
Research and development expenses
 
285,370
 
1%
   
274,708
 
1%
 
10,662
 
4%
Total operating expenses
$
3,463,861
 
13%
 
$
3,203,205
 
10%
 
260,656
 
8%
 
Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Total operating expenses increased by 8% to $3,463,861 for the six months ended June 30, 2012 from $3,203,205 for the corresponding period in 2011.
 
General and administrative expenses increased by $306,481, or 17%, to $2,131,375 for the six months ended June 30, 2012 from $1,824,894 for the same period of 2011. The increase was mainly due to an increase in legal fees related to our current pending litigations, payroll and related expenses.
 
Selling expenses decreased by $56,487, or 5%, to $1,047,116 for the six months ended June 30, 2012 from $1,103,603 for the same period of 2011. The decrease was mainly due to an one-time sales rebate incurred during the six months ended June 30, 2011, which was charged into selling expenses, offset by the increase of advertising and shipping related costs in the six months ended June 30, 2012.
 
Research and development expenses increased by $10,662, or 4%, to $285,370 for the six months ended June 30, 2012 from $274,708 for the same periods of fiscal 2011.
 
Income from Operations
 
Income from operations decreased to $5,543,529 for the six months ended June 30, 2012, a decrease of 42% or $4,025,970, from $9,569,499 for the same period of 2011. The decrease in the income from operations was mainly due to an increase in the operating expenses, coupled by a decrease in revenue.
 
Other Income (Expense), Net
 
Other income, net was $835,672 for the six months ended June 30, 2012, an increase of $422,438 or 102%, from $413,234 for the same period of 2011. The increase was primarily due to an increase of $511,347, or 89%, in subsidy income as a result of the value-added tax rebates provided on our exports.


Income Tax
 
Our provision for income taxes decreased by $900,713, or 33%, to $1,792,673 for the six months ended June 30, 2012 from $2,693,386 for the six months ended June 30, 2011. The decrease resulted from in income before taxes generated in the first half of 2012 as compared to that in the corresponding period in 2011. Our consolidated income tax rate was 28% and 27% for the six months ended June 30, 2012 and 2011, respectively.
 
Net Income
 
Net income was $4,586,528 for the six months ended June 30, 2012, a decrease of $2,702,819 or 37%, from $7,289,347 for same period of 2011, primarily due to a decrease in revenue and an increase in operating expenses.
 
Noncontrolling Interests
 
As of June 30, 2012, 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 $266,719 and $509,222 for the six months ended June 30, 2012 and 2011, respectively. The decrease in 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.
 
Our net income was $4,319,809 for the six months ended June 30, 2012, a decrease of $2,460,316 or 36%, from $6,780,125 for the same period of 2011 for the reasons described above.
 
Liquidity and Capital Resources
 
As of June 30, 2012, we had cash and cash equivalents of $87,712,871, an increase of $26,558,864, or 43%, from $61,154,007 as of December 31, 2011. 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 do not take into account any potential expenditures related to the potential expansion of our current production capacity. Our restricted cash of $31,621 is used as collateral to obtain a short-term note payable.
 
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 $90,635,291 as of June 30, 2012, an increase of $3,079,782 or 4%, from $87,555,509 as of December 31, 2011, mainly due to an increase in cash. During the first half of 2012, our operating activities generated net cash inflow of $25,054,159 a decrease of $2,485,251 or 9%from $27,539,410, net cash inflow from our operating activities of the same period of 2011, mainly due to $3,414,805, or 14%, decrease in cash inflow generated from collection of accounts receivable. During the six months ended June 30, 2012 and 2011, cash inflow generated from collection was $20,855,020 and $24,269,825.


During the six months ended June 30, 2012, our investing activities used net cash of $3,392,073, a decrease of $1,456,767 or 30% compared to $4,848,840 for the same period of 2011.
 
During the six months ended June 30, 2012, our financing activities generated net cash inflow of $5,202,179, as compared to $2,502,977 for the same period of 2011. During the first half of 2012, $1,139,578 was paid for our short-term bank loans and $6,341,757 was generated through short-term bank loans, while in the same period of 2011, $5,082,262 was paid for our short-term bank loans and $7,585,239 was generated through short-term bank loans.
 
Off-balance sheet arrangements
 
As of June 30, 2012, we did not have any off-balance sheet arrangements.
 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
 
Not applicable.
 
Item 4.  Controls and Procedures
 
Disclosure Controls and Procedures
 
An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2012, the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2012, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures were completed, our disclosure controls and procedures were effective in providing reasonable assurance of achieving their objectives for the three months ended June 30, 2012.
 
Changes in Internal Controls Over Financial Reporting
 
There have been no changes to the Company’s internal control over financial reporting during the three months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 


PART II. OTHER INFORMATION
 
Item 1.  Legal Proceedings
 
On April 20, 2011, plaintiff Paul Kubala (on behalf of his minor child N.K.) filed a securities fraud class action lawsuit in the United States District Court, Southern District of New York against the Company, certain of its individual officers and/or directors, Yongke Xue and Xiaoqin Yan, and Rodman & Renshaw, LLC, the underwriter of the Company’s follow-on public offering consummated in August 2010, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. On June 20, 2011, plaintiff Benjamin Padnos filed a securities fraud class action lawsuit in the United States District Court, Southern District of New York against the Company, all of its individual officers and/or directors, Yongke Xue, Xiaoqin Yan, Norman Ko, John W. Smagula, Spring Liu, Child Van Wagner & Bradshaw, PLLC, BDO Limited and Rodman & Renshaw, LLC, the underwriter of the Company’s follow-on public offering consummated in August 2010, alleging violations of Sections10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. On August 30, 2011, the court consolidated the foregoing two actions and appointed Zachary Lewy as lead plaintiff. On September 30, 2011, pursuant to the Court’s order, Lead Plaintiff filed a consolidated complaint, which names the Company, Rodman & Renshaw, LLC, BDO Limited, Child Van Wagoner & Bradshaw PLLC and certain of the Company’s current and former directors and majority shareholders as defendants and alleges violations of Section 11 and 12 of the Securities Act of 1933 and Section 10(b) and 20(a) of the Exchange Act, and the rules promulgated thereunder. In the consolidated complaint, the plaintiffs are seeking to be awarded, among other things, compensatory damages, reasonable costs and expenses incurred in the action. On May 3, 2012, Lead Plaintiff voluntarily dismissed the claims against BDO Limited and Child Van Wagoner & Bradshaw PLLC. We believe the allegations against the Company are baseless and are contesting the case vigorously. In this regard, the Company has filed a motion to dismiss the consolidated complaint, which is currently under submission. The company believes the suit is without merit and is vigorously defending its position and has made no accrual for any potential contingencies.
 
On August 5, 2011, we received a shareholder demand letter from counsel for a purported shareholder. The letter was addressed to the Company’s Board of Directors and requested the Board of Directors to take a number of actions in order to repair the alleged “harm” caused to the Company by certain of its directors and officers, as well as its current and former auditors. The Board of Directors has been reviewing this shareholder demand letter and considering appropriate action that the Company should undertake. On November 7, 2011, Baosheng Lu and Tao Wang were appointed to serve as directors of the board and the independent directors of the board appointed them to serve as the members of the evaluation committee. The evaluation committee is in the process of evaluating the actions demanded by the shareholder and retaining counsel to respond to the shareholder inquiry. No formal shareholder derivative complaint has been filed to date on behalf of us. The Company believes the suit is without merit and is vigorously defending its position and has made no accrual for any potential contingencies.
 


On July 8, 2011, we brought suit against Absaroka Capital Management, LLC (“Absaroka”) and its principal Kevin Barnes in the U.S. District Court of Wyoming under the caption SkyPeople, Inc. v. Absaroka Capital Management, LLC, et al., No. 11-cv-238. Absaroka is a purported independent investment analyst who, while holding a short position in our stock, issued a so-called research report (the “Report”) asserting, inter alia, that we had inflated revenues. We brought suit alleging three causes of action for libel per se, libel per quod and intentional interference with a prospective business relationship. In or around November, 2011, Absaroka and Barnes brought counter claims against us for defamation per se, defamation per quod and abuse of process. On June 22, 2012, the Company and Absaroka reached an out-of-court settlement of litigation in the U.S. District Court for the District of Wyoming. The settlement includes a dismissal of all claims and counterclaims filed by the Parties, with neither party admitting any wrongdoing or liability. As part of the settlement agreement, Absaroka has agreed to remove the Report from its website, undertake best efforts to remove the Report from third-party sites, and refrain from issuing any further articles, public statements, or research reports concerning the Company.
 
Other than the above, from time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which, in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
 
Item 1A.    Risk Factors
 
Not applicable.
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3.    Defaults upon Senior Securities
 
None.
 
Item 4.    Mine Safety Disclosures
 
Not applicable.
 
Item 5.    Other Information
 
None.
 


Item 6.    Exhibits
 
Exhibit No.
Description
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule15d-14(a) of the Securities Exchange Act of 1934, as amended*
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
32.1
Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2
Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS
XBRL Instance Document*+
101.SCH
XBRL Schema Document*+
101.CAL
XBRL Calculation Linkbase Document*+
101.DEF
XBRL Definition Linkbase Document*+
101.LAB
XBRL Label Linkbase Document*+
101.PRE
XBRL Presentation Linkbase Document*+
 
*           filed herewith
+
As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
 

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

 
SKYPEOPLE FRUIT JUICE, INC.

 
By:
/s/Yongke Xue
 
Yongke Xue
Chief Executive Officer
 
(Principal Executive Officer)
 
August 13, 2012
   
By:
/s/ Xin Ma
 
Xin Ma
Chief Financial Officer
 
(Principal Financial and Accounting Officer)
 
August 13, 2012