Skypeople Fruit Juice (NASDAQ:SPU)

First Quarter 2012 Summary:

• Total revenue was $15.0 million, a decrease of 23% year-over-year
• Sales revenue of concentrated kiwi juice and kiwi puree increased 26% to $3.8 million
• Sales revenue of concentrated pear juice increased 19% to $4.8 million
• Cash generated from operations was $14.8 million
• Cash and cash equivalents were $76.7 million as of March 31, 2012

Yongke Xue, Chief Executive Officer of SkyPeople, commented, "We continue to be challenged by unpredictable market conditions and rising raw material costs due to the volatile pricing of fresh fruits. We understand that these factors are beyond our control, and have been working to further diversify our segment mix to offset, to the extent possible, the effect of seasonality. Nonetheless, we were able to generate healthy margins in two key product lines. We are also pleased to report solid cash flows generated from operating activities, further strengthening our cash position which enables us to execute our comprehensive growth strategy."

"During the quarter we achieved the following important developments which I would like to highlight. First of all, our cash balances had been independently verified, which substantiated our integrity and reassured investors as to our credibility. Secondly, we had commenced operation of a new fruit juice beverage production line in our Huludao Wonder subsidiary, which was expected to help us take advantage of economies of scale and focus on producing high margin fruit juice beverages. Thirdly, we appointed Mr. Xin Ma as our new Chief Financial Officer with confidence that his experience with U.S. publicly traded Chinese companies is an excellent fit to our needs. These developments reflected our management's commitment to focus on enhanced financial transparency, sound investor communications and an operational focus on high margin products. Our top priority continues to be generating solid returns on our investment so as to create long-term value for our shareholders," CEO Xue stated.

XI'AN, China, May 2, 2012 /PRNewswire-Asia-FirstCall/ -- SkyPeople Fruit Juice, Inc. (NASDAQ: SPU) ("SkyPeople" or "the Company"), a producer of fruit juice concentrates, fruit beverages and other fruit-related products, today announced that its Board of Directors has approved the appointment of Mr. Xin Ma as the Company's new Chief Financial Officer, effective April 30, 2012, replacing Ms. Cunxia Xie, who resigned from the Chief Financial Officer position for personal reasons, effective April 30, 2012 as well.

"We are pleased to add Mr. Ma to our leadership team. We believe his experience with the U.S. publicly traded Chinese companies is a great fit to our needs," said Mr. Yongke Xue, SkyPeople's CEO. "Mr. Ma brings a very strong skill set and extensive experiences in U.S. GAAP accounting, finance, capital markets, as well as managerial experience. We look forward to Mr. Ma playing an important role in helping us drive sustainable business results and create long-term value for our shareholders."

Mr. Ma, 35, joined SkyPeople in December 2011 and had previously served as the Company's Vice President, Finance, responsible for the financial and accounting management of the Company. From March 2011 to December 2011, Mr. Ma served as the Chief Financial Officer of Universal Solar Technology, Inc., a U.S. reporting company based in China. From January 2006 to March 2011, Mr. Ma served as the Vice President of Kiwa Bio-Tech Products Group Corporation, a U.S. reporting company based in China. Mr. Ma received a MSc. in Management in 2005 and a MSc. in Finance in 2006 from the University of Leicester in England. There is no family relationship between Mr. Ma and any of the Company's directors and officers.

Ms. Cunxia Xie's resignation is not in connection with any disagreement with the Company regarding financial, accounting, or other practices.

XI'AN, China, April 20, 2012 /PRNewswire-Asia-FirstCall/ -- SkyPeople Fruit Juice, Inc. (NASDAQ: SPU) ("SkyPeople" or "the Company"), a producer of fruit juice concentrates, fruit beverages and other fruit-related products, today provided supplementary information regarding the Company's cash balances as of its 2011 fiscal year end .

In response to a Nasdaq cash verification request, the Company's independent registered public accounting firm (the "Audit Firm"), Paritz & Company, P.A. ("Paritz"), from January 5 to January 9, 2012, independently verified the Company's cash balances held in financial institutions in China in which the Company and its subsidiaries maintain bank accounts (the "Accounts"). "Independently verified" means that an audit firm visited in person each of the institutions and physically observed bank employees printing or otherwise preparing or completing documentation which substantiated the cash balance for the Accounts. It does not mean that an audit firm relied solely on documentation completed and returned by bank personnel by mail or facsimile.

Based on the Audit Firm's independent verification, the verified cash balances of the Accounts in aggregate represent substantially all of the cash, cash equivalents and restricted cash amounts as stated in the Company's 2011 financial statements as reported in the Company's recent 10-K filing.

Paritz had reported its findings and the procedures it employed to the Nasdaq on January 25, 2012. On April 19, 2012, the Company was informed that Nasdaq has reviewed the cash balance submitted and has no further comments.

"At a time when there is speculation as to the credibility of certain Chinese companies, SkyPeople investors can be reassured that our cash balances have been independently verified and that we employ of a high degree of financial integrity in terms of our financial management systems," said Mr. Yongke Xue, SkyPeople's CEO. "Investors can have confidence in the strength of our balance sheet that enables us to take advantage of the growth opportunities available to us in our sector."

Full Year 2011 Results

• otal revenue was $84.0 million, a decrease of 10% year-over-year
• Concentrated apple juice and apple aroma segment sales revenue increased 6% to $24.8 million 
• Concentrated pear juice segment sales revenue increased 6% to $13.4 million 
• Cash inflow generated from operations was $26.0 million 
• Cash and cash equivalents of $61.2 million as of December 31, 2011 
• Added another concentrated pear juice production line in the Company's Jingyang factory in Shaanxi province
• A new beverage production line that will produce a variety of fruit juice beverages has been substantially completed and the trial operation has commenced in the fourth quarter of 2011

Yongke Xue, Chief Executive Officer of SkyPeople, commented, "Despite the unexpected weather conditions that prevailed throughout the harvest season of the year, we were able to generate year-to-year increases in two important product lines for the year as well as a reasonable level of revenue and strong cash flow from all of our business segments. We experienced an increase in our raw material costs due to the highly volatile pricing of fresh fruit. However, we are confident in our ability to manage the business during difficult times, and to develop new products with higher margins that may offset some of these operating concerns in the future."

"We continue to be optimistic about the long-term future of our Company. We are implementing a strategy to cut the prices of our fruit juice beverages in order to expand our market share. We remain confident about the sector given relatively low current domestic consumption and potentially escalating consumer adoption as rising incomes lead to healthier lifestyles. A new production line for concentrated pear juice and a new fruit juice production line were both implemented in the fourth quarter of 2011. Our strategic growth plan for additional storage, processing and production capacity is in motion that we believe augurs a promising future for the Company," CEO Xue stated.

XI'AN, China, December 28, 2011 /PRNewswire-Asia-FirstCall/ -- SkyPeople Fruit Juice, Inc. (NASDAQ: SPU -News) ("SkyPeople" or "the Company"), a processor and manufacturer of kiwifruit, apple, pear and other concentrated specialty fruit juices and manufacturer of Hedetang- and Qian Mei Duo-branded fruit beverages in the People's Republic of China ("PRC" or "China"), today announced that it added another concentrated pear juice line in the Company's Jingyang factory in Shaanxi province.

The new line, which was put into production on December 26, 2011, can process 20 tons of pears per hour. With its ISO9001, HACCP and KOSHER certified quality control system, the new production line meets the standards of exporting to major fruit juice consuming countries including the U.S., Canada and European Union. The capital expenditures associated with this project was approximately $7.4 million. The new line augments SkyPeople's existing capacity of processing 20 tons of pears per hour.

"We believe that the new line production will provide us with additional capacity to meet our expectation for growth in demand for this juice product and further strengthen our leading position in the concentrated pear juice segment," commented Yongke Xue , Chief Executive Officer of SkyPeople Fruit Juice.

Third Quarter 2011 Results

Second Quarter 2011 summary:

• Total revenue decreased 9% to $12.2 million year-over-year
• Apple concentrate sales increased 110% to $2.4 million due to higher pricing
• Fresh juice beverage sales increased 12% to $5.4 million 
• Cash flows from operations increased was $27.5 million in first half of 2011; $76.1 million cash and cash equivalents at June 30, 2011

Yongke Xue, Chief Executive Officer of SkyPeople Fruit Juice explained, "Sales of our Hedetang and Qian Mei Duo beverages grew significantly in the quarter and were the single largest revenue stream for the Company. Our branded beverages are now sold in over 100 retail stores in approximately 13 cities including Xi'an, Beijing and now, Tianjin. During our seasonally slowest quarter, we improved apple juice and pear concentrate sales despite weather effects on the harvest seasons over the last six months. This was offset by a measured decrease in kiwifruit sales as the second quarter in 2010 had abnormally strong harvests. We remain committed to capitalizing on the growth potential for our branded beverages and the continued growth of our concentrate business in China and international markets."

XI'AN, China, July 21, 2011 /PRNewswire-Asia-FirstCall/ -- SkyPeople Fruit Juice, Inc. (NASDAQ:SPU - News) (together with is direct and indirect subsidiaries, "SkyPeople" or the "Company"), a processor and manufacturer of kiwifruit, apple, pear and other concentrated specialty fruit juices and manufacturer of Hedetang and Qin Mei Duo-branded fruit beverages in the People's Republic of China ("PRC" or "China"), today announced that it signed a Letter of Intent with the People's Government of Suizhong County, Liaoning Province, to establish a fruit and vegetable industry chain and further processing demonstration zone in Suizhong County, Liaoning Province (the "Suizhong project"). The Suizhong project is one of the projects promoted by Liaoning government in its efforts to further develop the agricultural product processing industry in Liaoning.

XI'AN, China, July 8, 2011 /PRNewswire-Asia-FirstCall/ -- SkyPeople Fruit Juice, Inc. (NASDAQ: SPU) (together with is direct and indirect subsidiaries, "SkyPeople" or the "Company"), a processor and manufacturer of kiwifruit, apple, pear and other concentrated specialty fruit juices and manufacturer of Hedetang and Qin Mei Duo-branded fruit beverages in the People's Republic of China ("PRC" or "China"), today announced the filing of a defamation lawsuit against Absaroka Capital Management LLC ("Absaroka Capital") and its analyst, Kevin Barnes.

On June 1, 2011, an entity identifying itself as "Absaroka Capital Management LLC", a short seller of the Company's securities, published an article containing several false allegations and accusations against the Company (the "Article").

On June 10, 2011, the Company requested that Absaroka Capital and Kevin Barnes retract the inaccurate statements contained in the Article. Absaroka Capital did not comply with the Company's request, and, subsequently, the Company filed a civil action against Absaroka Capital and Kevin Barns for libel and tortuous interference with existing and prospective economic advantages in the United States District Court for the District of Wyoming, where Absaroka Capital is based.

Complete details of the lawsuit were attached as exhibits to a Current Report on Form 8-K filed with the Securities and Exchange Commission on the date hereof.

Originally available on June 6, 2011 to Premium Members

Skypeople Fruit Juice (SPU) is yet another ChinaHybrid that has been caught in the cross hairs of fraud allegations. A notable observation we have made is that SPU originates from the same geographic area in China as CBEH, CHNG and SCEI, companies that are currently dealing with varying levels of controversy.

As the GeoTeam continues to make its own inspections into the ChinaHybrid financial information, the following update comes on the heels of a research report written by another firm questioning the legitimacy of SPU's SAIC filings.

On June 1, 2011, Absaroka Capital Management, LLC published an article outlining why it believed,

Part of Absaroka's thesis centered on SPU's SAIC filings that it claims to possess - filings which portrayed 2009 revenues and net income that were much less than figures contained in SEC filings.

SPU management swiftly offered a rebuttal to Absaroka's SAIC claims:

Fortunately, the GeoTeam had recently obtained its own set of SPU's SAIC filings. We currently only possess the filings of two out of four SPU�s subsidiaries. Although we have not confirmed that we pulled these filings from a different source than Absaroka's , it turns out that the data contained within them match the SAIC information disclosed by Absaroka right down to the auditor CHOP.

Specifically, we obtained the exactly the same SAIC financial information of Skypeople Juice Group Co., Ltd. for the financial year of 2009 with the same CPA firm's chop. Furthermore, we also obtained the SAIC financial year information of 2008. The SAIC file of Skypeople Juice Group Co., Ltd. we obtained is enclosed.

We found the following SPU comments particularly revealing:

Why should SPU use the word "appear" if they are trying to convey a level of confidence in arguing their case? Rendering an opinion of 'YES' should be fairly easy for a company that is 100% confident about its position. Is it safe to assume that SPU does not want to make a definitive statement, possibly to protect itself from future self-incriminating comments?

Investors need to know that some ChinaHybrids are beginning to amend SAIC filings without disclosing such moves to the financial markets. We also believe that savvy investor relations firms know about such actions. Furthermore, amended SAIC filings are often not audited by the same local PRC accounting firm and in the case of FIE's there are likely no joint inspections by the SAT agency regarding the amended SAIC filings.

In fact, this morning SPU released its English version of 2009 SAIC filings that are materially similar to SEC documents (they have not released any Chinese version so far). The company also provided an unaudited list of corporate deposit accounts identifying each corporate cash account and the balance and location of such account as of the end of fiscal years 2009 and 2010, respectively.

SPU is now asking investors to "believe their paper." We ask why is the company providing unaudited information for years that have already been audited? Are they telling us that certain 2009 and 2010 corporate accounts were not audited? Why didn't SPU provide their official SPU SAIC document with relevant CHOPS? Are they in the process of amending SAIC filings?

Plea to the SEC: ChinaHybrids companies should be required to submit an 8K informing investors that they have amended SAIC filings, just as is the case when dealing with amendments to 10Q and 10K filings.

SPU would be better served to explain to investors why it appears that SAIC filings obtained by Absaroka are divergent from SEC documents. Is it possible that SPU may have fabricated margins or engaged in tax avoidance practices? Can differences be tied to differences between U.S. and PRC GAAP accounting standards? In order to gain investor trust, companies need to just start coming clean. The charade is over

Furthermore, our investigator recently visited two facilities of SPU at Jingyang County, Shaanxi province (Skypeople facility) and Zhouzhi county, Shaanxi province (Qiyiwangguo facility). So far, our investigator did not visit Huludao Wonder facility and Yingkou Trust facility.

Our visitation of Skypeople facility and Qiyiwangguo facility has essential similar findings of Absaroka. Our key findings are as follows:

1. SPU may not have the largest kiwifruit plantation in Asia and its factory (Skypeople facility in Zhouzhi County) may need to purchase kiwifruit from local farmers. Zhouzhi County has several hundred thousand mu (Chinese acre/666 square meter) kiwifruit farms which may provide enough kiwifruit for SPU's production.
2. Qiyiwangguo facility in Zhouzhi county may have produced around 800 ton kiwifruit concentrate in 2010 and some kiwifruit juice from the concentrate (we do not know the quantity of the kiwifruit juice).
3. Skypeople facility in Jingyang County may have produced around 2,500 ton pear concentrate in 2010.
4. The pictures of Skypeople facility in Zhouzhi county and Qiyiwangguo facility in Jingyang county taken by our investigator are enclosed with this letter.

Disclosure: We intend to establish a short position in SPU shares, realizing that support may be found at $1.43, which is the cash per share value taking into account the $38.0 million the company received from U.S. equity investors through three equity offerings since 2009. Of course, this price assumes that U.S. investors have a claim to this cash.

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XI'AN, China, June 6, 2011 /PRNewswire-Asia/ -- SkyPeople Fruit Juice Inc today provided supplementary financial information regarding the Company's operating subsidiaries in China for fiscal year 2009.  The Company also provided an unaudited list of corporate deposit accounts identifying each corporate cash account and the balance and location of such account as of the end of fiscal years 2009 and 2010, respectively.

The GeoTeam will have more on this story later.

XI'AN, China, June 3, 2011 /PRNewswire-Asia/ -- SkyPeople Fruit Juice, Inc. (NASDAQ: SPU) (together with is direct and indirect subsidiaries, "SkyPeople" or the "Company"), a processor and manufacturer of kiwifruit, apple, pear and other concentrated specialty fruit juices and manufacturer of Hedetang-branded fruit beverages in the People's Republic of China ("PRC" or "China"), today released the following statements:

SkyPeople has learned that, on June 1, 2011, an entity identified itself as "Absaroka Capital Management" (the "Author") and a short seller of the Company's securities, published an article on an investor website making various allegations and accusations against the Company (the "Article"). The Company believes that the Article contains many materially false and inaccurate claims, including without limitation, claims relating to the Company's operations, retail and sales channels, production, financials, and industry performance.

In particular, it appears that the author based much of its assumptions, analysis and conclusions in the Article on information and reports allegedly to have been filed by the Company with the PRC State Administration of Industry and Commerce ("SAIC"). However, upon review of the reports contained in the Article that the Author alleges to have been filed by the Company with SAIC, it appears that such so-called SAIC reports are entirely fabricated reports which contain materially false information about the Company's financial conditions and results of operations. The "auditor" of the so-called SAIC reports contained in the Article as shown on its company stamp did not appear to be the same auditor that actually audited the financial statements of the Company's PRC subsidiaries.

The Company believes that it is important to alert its shareholders and the general public that material false information contained in the Article which has been widely disseminated has caused material and irreparable harm to Sky People Fruit Juice, Inc. and its investors.

The Company is currently weighing appropriate legal remedies against the Author and the individuals that the Company believes to be behind this malicious attack.

Yonkue Xue, Chief Executive Officer of SkyPeople Fruit Juice explained, "Our diversified product portfolio produced respectable growth in the first quarter despite weather effects on the harvest seasons for apple and pear over the last six months. Sales of our Hedetang and Qian Mei Duo beverages grew significantly in the quarter and were the single largest revenue stream for the Company. Our branded beverages are now sold in over 100 retail stores in approximately 13 cities including Xi'an, Beijing and now, Tianjin. We are excited about the growth potential for this market and the continued growth of our concentrate business in China and international markets."

2010 Year End Conference Call Q&A:

Operator:    Thank you, ma’am.  Ladies and gentlemen, at this time we will now begin the question and answer session.  As a reminder, if you have a question, please press the star followed by the one on your touchtone phone.  If you’d like to withdraw your question, press the star followed by the two.  If you’re on a speakerphone, you’ll need to pick up the handset before making your selection.  One moment, please.

Our first question comes from the line of Howard Jhou with Ralph Ross Partners.  Please go ahead.

Howard Zhou:    Hello, good evening everyone.  Good quarter, and just a couple questions.  First on the margin, gross margin for your apple concentrate juice, things improved significantly from 22% in the third quarter to 30% in the fourth quarter.  So just wondering if you think this product margin will sustain going forward into 2011?

Spring Liu:    Yes, they do—this year the increase in gross margin of concentrated apple juice is mainly due to an increase in price of concentrated apple juice in international markets, which we believe is because of the shortage in concentrated apple juice supply in the international market.  At the same time, we also see an increase in price of fresh apples in the Chinese domestic market, so that actually partially offset that increase in gross margin which is driven by the increase in price of concentrated apple juice.  And basically, the higher margin will continue in 2011 because we believe the high price of concentrated apple juice will continue in 2011 compared with the price of 2009 or 2008.  So that will help us to improve our margin of concentrated apple juice.

Howard Zhou:    Okay.  And actually I understand your beverage product will be a major growth engine going forward of [audio interference].  So could you provide some insight in terms of your advertising and marketing plans in 2011, and how much you think you will spend on the promotions and advertising, those kinds of events?  
 
Spring Liu:        Currently our products are mainly sold in Xi’an and cities around it, and also Beijing and Tianjin.  So we don’t plan to do national advertising at the current stage.  And our future marketing and advertising expenses will be based on the percentage to our revenues.  In 2011, our beverages line in the Huludao Wonder factory will start operation.  That will help us to focus more on the east coast of China, which includes new markets such as Shanghai, Shenyang.  So we do have plans to get into this market.  At the same time, we may also incur some marketing and advertising expenses, but as I mentioned that will be based on the percentage of the revenue increase.  So far, we don’t have an expected number forecast on the marketing and sales expenses because we are also reviewing several advertising or special projects companies from Hong Kong and other companies in China; so once we finish these market research and interviews, we can provide a better picture on expenses of marketing or advertising.
 
Howard Jhou:    Okay.  That’s helpful.  Thank you for answering my questions.

Spring Liu:    You’re welcome.  Thank you.

Operator:    Thank you, and our next question comes from the line of Jerry Melrose with King Capital.  Please go ahead.

Jerry Melrose:    Hey guys, good morning.  (Audio interference)—overall gross margins, EBITDA margins move lower?

Spring Liu:    Oh, I’m sorry, because your phone line is cut off and I did not hear you clearly.  I’m sorry, did operator hear him clearly, or can you repeat?

Jerry Melrose:    I can go ahead and repeat.

Spring Liu:    Okay.

Jerry Melrose:    Considering the change in business mix, the increased focus on apple juice concentrate, you know, that being a lower margin business, I was wondering if you were expecting to increase apple juice production capacity to result in lower overall gross margins over EBITDA margins moving forward.

Spring Liu:    Okay, I got you.  For us actually, just as you mentioned, we will increase our capacity of apple and pear juice in 2011 which have a lower margin compared with concentrated kiwi fruit juice, so that will decrease our gross margin forecast for 2011.  But simultaneously, we expect to see a great increase in revenue from our own beverages; and you know, our beverages also enjoy a higher margin compared with our concentrated fruit juice. So we believe an increase in sales from our beverages will balance the decrease in margin because of the increase in revenue from apple or pear concentrates.  So we forecast that the margin of 2011 will still be in the range of our gross margin in the past three years.

Jerry Melrose:    Okay.  And then also looking at the competition—your competition, the Chinese apple juice concentrate market, the margins are slightly—your gross margins, EBITDA margins are significantly higher, so basically trying to figure out—how is that?  What is your edge, or what do you see your advantage as being over your competitors as you do—what that margin (unintelligible)?

Spring Liu:    Of our higher margin—overall gross margin compared with our competitors is mainly because we are focusing on specialty fruit juice, which provides us a higher margin.  We do think a lot of competition in concentrated apple juice area, that’s a reason our apple juice margin ranges widely from 20% to 28% in the past, but we do have a competitive advantage in concentrated apple juice.  Our two factories which produce concentrated apple juice are all located in Liaoning Province, and Lioaning Province is famous for highly acidic apple.  And apple juice made from acidic apples provides a higher margin compared with other concentrated apple juice producers.  In addition, we think apple juice is a very important factor for us because apple juice is the second most popular fruit juice in international markets, and we think with the increase in capacity of apple juice it can help us to increase our revenue and also expand our customer base.

Jerry Melrose:    Okay.  And another question, if that’s okay – in terms of, I guess, future capital expenditures, are you anticipating any issue share offerings or increased debt load, or what’s the story there?

Spring Liu:    Our capital expenditure plan for 2011 is roughly about $20 million to $21 million, so the money we just raised in August 2010 and operating cash flow will be enough for our production needs or capacity needs for 2011.  In addition, we have short-term loans from China Construction Bank and China Commerce Bank and some other big banks in China.  That could provide us the cash needed for working capital, so we don’t expect to do any equity  financing in the near future.

Jerry Melrose:    Okay.  And one more question for me, please.  There’s been some discussion in the investment community regarding the SEC filings of Chinese-based U.S. listed companies in comparison to the filings you file in China, the SAIC filings.

Spring Liu:    I’m sorry, I could not hear you.

Jerry Melrose:    Okay, there’s been discussion in the investment community regarding discrepancies between numbers reported in SEC filings versus numbers reported in SAIC filings.  And could you sort of speak to that, or what the issue is there?  I’m sure it’s something you’ve heard of.

Spring Liu:    I do hear that some Chinese companies have such issues from articles published on the Internet, but our auditor, BDO Hong Kong, they actually have visited the local SAIC in Shaanxi Province and they did not see much discrepancy of the financial results we reported to SEC and compared with the financial results we reported to Chinese government.  So our company does not have such issues.

Jerry Melrose:    Okay, so basically,  BDO Limited verified the numbers (unintelligible) filed and (unintelligible) SEC filings?

Spring Liu:    Oh, I’m sorry. I did not hear that.

Jerry Melrose:    I’m sorry.  Your response was that BDO Limited visited the SAIC office and couldn’t find any large discrepancies between your SAIC filings and the SEC filings.  Correct?

Spring Liu:    Yes, exactly.

Jerry Melrose:    Okay.  Right, that’s about it for me.  Thanks very much.

Spring Liu:    You’re welcome.

Operator:    Thank you, and our next comes from the line of Robert Dyas with RHD Capital Management.  Please go ahead.

Robert Dyas :  Hi, thank you for taking my call.  Back to dilution in share offerings, you just said that you don’t see any financings or share offerings in the near future.  Could you be a little bit more clear on that?  So, no financings, no additional dilution in 2011?  And also to include 2012, or are you leaving that open for future dilution?

Spring Liu:    So far according to our current conditions and current market opportunity, we don’t see any need to do equity financing.  So we have clearly communicated to our investors that we don’t have any plans to do equity financing in the near future.  But marketing conditions may change or opportunities may appear in the next two years, so according to the current conditions we don’t have such plans at all.

Robert Dyas:    Would there be any chance of going in the opposite direction – buybacks, or is that something that’s been contemplated as the share price is down?  Any time in the next—I know you just did an offering, but any views towards reversing that and going into the direction with a buyback over the next year or two, or three?

Spring Liu:    I’m sorry, I did not catch your question very well.

Robert Dyas:    Even though you just did a recent offering, do you foresee doing any buybacks over the next couple of years if your share price remains depressed?

Spring Liu:    Yes, we are considering that.  That is a part of our plan, so we are still seriously considering that and discuss with our attorneys on that.  We believe our shares are seriously undervalued.

Robert Dyas:    Okay.  But no announcement now or in the foreseeable future regarding that?

Spring Liu:    Once we confirm that with the company’s legal counsel, we will reevaluate the cash need for the next one or two years. Once that is confirmed and approved by the Board, we will keep our investors posted.

Robert Dyas:    Okay.  If I could briefly with another question – on your branded fruit juice, were you supply constrained or demand constrained in 2010?  Could you have sold more if you had produced more, or is it just a matter of you had the production capacity for additional branded juice but you could not sell it into the market?

Spring Liu:    It’s demand constrained.  Actually, as many of you know, China is a country with a large population.  But per capita juice consumption in China is only one-tenth of the world average, 1/40th of developed nations’ average.  So with the expansion of the Chinese middle class, the increase in consumption of fruit juice beverages has increased in China in the past 10 years.  So we see a huge market demand for fruit juice beverages, so that’s the reason we want to focus more on this market.  And also, currently we still focus on our kiwi flavor, mulberry flavor.  We recently added pear flavor, apple flavor and pomegranate flavor, some of them are still in the category of specialty fruit juice.  And because of its high nutrition value, it’s welcomed by Chinese consumers.  We just recently began the sale of our Qian Mei Duo product, which contains high fiber in the beverages.  We received a lot of positive market feedback and we are very confident in growing our market from our beverages.

Robert Dyas:    Okay.  And you’re not providing any guidance yet for 2011?

Spring Liu:    Not yet, because we have so many projects going on and also as I mentioned, we plan to get into different markets in the eastern part of China, so all these can seriously impact our revenue for 2011.  So when we have a better picture of 2011, we will for sure keep our investors posted.

Robert Dyas:    Okay, thank you.  That’s it for me.

Spring Liu:    Thank you.

Operator:    Thank you, and the next question comes from the line of Kevin Wood with Barron Partners.  Please go ahead.

Kevin Wood:    Hi.  I think many of my questions have been answered, but I just wanted to go back to the guidance idea.  Can you give us any sort of general flavor for your growth expectations?  With all the plans for expansion, new products, new production and so forth, are you anticipating an acceleration of growth rates over what we’ve seen over the last year or two?

Spring Liu:    Actually our growth rate is roughly 30% in the past few years; and for 2011, because Yingkou factory commenced operation in November 2010, it will contribute to the full year squeezing season for 2011.  So we believe once capacity of apple juice doubled, it can greatly improve our revenue in 2011.  In addition, our capacity for pear juice will also double in 2011, so that also contributes to the increase in revenue of 2011.  And as mentioned previously, we see very good feedback of our new beverages from Chinese consumers and actually we just attended Rodman conference in Shanghai.  A lot of our U.S. investors also like the flavor of our beverages.  So we do have a lot of confidence in our beverages sales as well, so although we cannot forecast the exact number or exact increase in revenue in 2011, management is very optimistic for the revenue and the net income of 2011.

Kevin Wood:    Okay, well that’s helpful.  That sounds pretty exciting all the way around.  Just to touch back to what you’d previously said about margins, is it fair to say that—I know there’s a lot of moving parts and changes, but overall the increase in lower margin products like the apple concentrate, you do expect to be offset at least by the beverages, particularly so that it’d be reasonable to expect for the full year you’ll probably be in the same range as last year?  Would that be fair to say?

Spring Liu:    Yes, we believe that our margin will still be around at least 35%.  It will still be within that range, which is our historical gross margin range.

Kevin Wood:    I see.  Okay, that’s good.  That’s very helpful.  Okay.  Then—just again to circle back to another topic that’s already been touched on, with respect to shareholder value, you know, we all see a lot more value than what the market reflects.  Certainly the more you can continue to do to increase transparency and credibility will help over time.  Are you also considering besides the potential buyback the idea of paying a dividend, or are you—do you anticipate perhaps seeing any of the management insiders doing any purchases on their own?

Spring Liu:    Actually, we do discuss these plans with our attorneys.  We do have our insider trading policy, so if management can really purchase our stock during what is called non-quiet period, and—but we are discussing that with our attorneys, trying to make these procedures more detailed. Once we finalize this policy, management does have plans to buy our shares personally.  And also, the Company also has discussed the buyback plan with our attorneys and we are seriously considering it as we believe our shares are really undervalued.  But we believe it’s temporary stuff.  We believe with our continued effort in communicating with our shareholders, with more transparency to our shareholders, and with the strong growth performance in the next few years, we believe finally our shares will be given a higher price.
 
Kevin Wood:    I see, okay.  Well that’s helpful.  So just to make sure I heard correctly, once you complete a review of the policies with your attorneys, the management group does intend to do—be buyers of the stock, assuming the price doesn’t double or something before then?

Spring Liu:    Yes, we do have such intention.

Kevin Wood:    Okay, great.

Spring Liu:    And we have already discussed with our attorney about this plan.

Kevin Wood:    Okay.  Okay, well I think that covers everything for me.  It sounds like everything is exciting there and going well.  We appreciate all your comments and extensive answers to the questions.  Thanks.

Spring Liu:    You’re welcome.

Operator:    Thank you, and our next question comes from the line of Jeff Roney with Roney Capital Partners.  Please go ahead.

Jeff Roney:    Congratulations on a good quarter.  I’d like to circle back and talk about the kiwi stockpiling that occurred in the fourth quarter in preparation for the Spring Festival.  Given that and the impact that it had negatively on 2010 sales, do you expect to—once the Spring Festival, that you can see some increase in kiwi sales in the first quarter of 2011 to recoup some of those—the missed opportunities?

Spring Liu:    Yes, you are right because this year, the price of kiwi fruit increased a lot during the fourth quarter, and a lot of farmers they stock up their fresh fruit in they want to sell at a higher price during Spring Festival.  So our capacity decreased in the fourth quarter of 2010 compared with 2009.  That is the main reason for the decrease in sales of kiwi concentrates.  But in the first quarter, we were able to purchase more fresh foods from farmers, so we are confident in increase in our capacity of kiwi juice in the first quarter of 2011.

Jeff Roney:    Okay, very well.  Second question – in regard to your capex commitment in expanding your bottling line that you’ve outlined in great detail, I understand the advertising given the concentration in Tianjin, Beijing of not doing national advertising.  But I think what U.S. investors would like to see is a commitment from management to bring on a credible beverage individual that can really give you the strategic marketing issue to really roll out your bottling line—you know, your bottling units into the retail establishments.  And I wonder if you have any plans to bring in a bottling executive that understands retail distribution in China?

Spring Liu:    Actually, in the fourth quarter of 2010, we changed our strategy in distribution of our beverages.  Previously, in Xi’an we mainly sell directly to retail stores in Xi’an and some cities around it.  In Beijing, we sell our beverages through a distributor.  But in the fourth quarter of 2010, there is a very experienced sales manager joined our team who has been in this beverages business for about 10 years.  So he actually suggested us to change that strategy.  He increased our indirect sales to supermarkets through distributors in Xi’an and some cities around it.  That’s the reason in the 10-K report that you can see we are selling to a lot of national supermarket chains that include Wal-Mart, Lotus, and these are top-level supermarkets in China.  So we see a positive feedback from market and we see an increase in revenue for beverages in the first quarter as well, so we do think this strategy works well.  But as I mentioned previously, we are still in interviews with different strategy groups which can give better advertising—better advise on distribution of our beverages and also on the marketing of our beverages.  That’s the reason we cannot forecast the advertising or marketing cost for now.  But once we finish this interviewing, then maybe we can have a better picture of that.

But national advertising in China is really very expensive, so we don’t want to be too risky and we don’t think it works to do a national advertising now because the geographic coverage is not much at the current state.  But in the next three years once we have national coverage, we will think about the national advertising; and as I mentioned previously, our advertising and marketing expenses will be based on the percentage of revenue from beverages.

Jeff Roney:    Do you have any strategic plan to move into Shanghai market, maybe selling into Lianhua Supermarket Holdings or Bailian, or the Fulian Supermarket?

Spring Liu:    Yes, we do have such plans, because before we only have one beverage line in Xi’an, so it means we have to ship our beverages from long distance to Beijing or Shanghai.  But in 2011, once our beverage line in Huludao Wonder operates, it can help us to focus more on eastern coast of China.  And also, you know, northeastern part of China is quite cold during winter time, so fruit juice beverages are quite popular there.  So our Huludao Wonder beverages line will help us to get into some big cities in northeastern part of China, including Shenyang, so the Company—we do have such plans to expand our geographic coverage, especially around east coast of China.

Jeff Roney:    Okay. Another question – given the U.S. investors’ view of Chinese stocks that’s been sort of—that people have alluded to on this call, does management—or do you have a plan to move to a top four auditor like a Coopers or a Price Waterhouse to alleviate investor concern and add credibility to your operations, since you have significant working capital, sales and obviously a great net income line.  You know, moving to a top four auditor would obviously increase your credibility in the investment community.

Spring Liu:    We do understand the concerns from our investors and we are working very hard to increase our transparency and make our financial statement or our SEC reports more credible.  In the past, we’ve hired internationally recognized consultant to help us to comply with SOX 404.  That’s one of our projects on that.  And I do think BDO Hong Kong did a very good job this year; and as I mentioned, this year they even go to different local SAIC and they checked the documents and the financial results we reported to the local government.  They compared with our SEC reporting and when they see even a small discrepancy, they ask us to explain for that.  And they did about almost four weeks field work and they checked all the records for the whole year, so I believe they did a very good job.  But I do understand the concern of investors, so we will consider that; but just as I mentioned, we think BDO Hong Kong did a good job as well.

Jeff Roney:    Well, they did.  One final question – you mentioned spending more time in the United States.  Do you have any dates—preliminary dates that we can expect to see you here in the United States?

Spring Liu:    Yes, yearly Mr. Xue and I do some—at least about one road show, Mr. Xue and I plan to go to the U.S. maybe this May or June, and once we have made our trip plan we will notice our IR firm, and then they will notify the investor groups in advance.

Jeff Roney:    Okay.  Well congratulations again on a good quarter and a great fiscal year.

Spring Liu:    Thank you.  Thank you.

Operator:    Thank you.  Ladies and gentlemen, if there are any additional questions, please press the star followed by the one on your touchtone phone.  If you’re on a speakerphone, you will need to pick up the handset before making your selection.

And our next question comes from the line of Chang Qui with Sansar Capital.  Please go ahead.

Chang Qui:    Yes, good evening and congratulations on a very good result.

Spring Liu:    Thank you.

Chang Qui:    Yes, my question is regarding the kiwi juice and kiwi fresh fruit sales.  Can you give us a full-year outlook—it looks like last year had some impact, and my understanding is the local government actually is encouraging the growth for the whole—you know, farmers to grow more of this kiwi fruit.

Spring Liu:    Yes, kiwi fruit is a very important economic crop in Shaanxi Province, and there are two companies in Shaanxi Province produce kiwi.  One of them is Zhouzhi county. Zhouzhi actually is called hometown of kiwi.  And the output of kiwi in Shaanxi Province accounts approximately 70% of China’s total output and 30% of the world output.  And it helped improve life standard of the local farmers.  So the Chinese government actually announced about one year ago that they will support the increase in growth of kiwi and they give subsidy to farmers to increase their plantation of kiwi area, and this subsidy will continue until 2015.  And at same time, we also received subsidy related with our kiwi production, so we believe once there is an increase in output of kiwi fruit, we will be able to increase our capacity of kiwi and that will help us to increase our production and revenue in kiwi fruits.

Chang Qui:    But for year 2011, I mean for this year, can we have, I believe, the flattish sales in terms to the kiwi concentrate and the fresh fruit?\

Spring Liu:    Actually we already reached almost full capacity during the squeezing season of kiwi fruits, and the price of kiwi fruits was quite stable in the past.  You know, the price of apple or pear juice fluctuating in international markets, but because of our leading position in kiwi fruits, you can see the price of kiwi was quite stable.  So we don’t expect a big increase in sales of kiwi fruits in 2011, but we do see an increase—there is a potential for increase in sales of fresh kiwi because recently we have already expand our wholesale of kiwi fruits in some cities along eastern coast, so we expect to see an increase in revenue from fresh kiwi sales.

Chang Qui:    Okay, and by the fruit—the juice side is more flattish?

Spring Liu:    It will fluctuate based on the price of concentrated kiwi in the market.

Chang Qui:    Okay.  All right, thanks.

Spring Liu:    You’re welcome.

Operator:    Thank you.  Ladies and gentlemen, at this time I’d like to give participants a final opportunity to ask any final questions.  If you do have a question, please press the star followed by the one on your touchtone phone.  To withdraw that question, press the star followed by the two.  One moment, please.

And I’m showing there’s no further questions in the queue.  I’ll turn the call back over to management for closing comments.

Spring Liu:    Thank you for everyone, and once again we welcome you to visit our facility, and we hope to see you again in U.S.  Thank you.

Operator:    Thank you.  Ladies and gentlemen, that does conclude today’s SkyPeople Fruit Juice Inc. Fourth Quarter and Fiscal Year 2010 conference call.  Thank you for your participation.  You may now disconnect.

Fourth Quarter Results:

• A record with revenue of $43.9 million, up 22.6% from 4Q 2009
• Apple concentrates and Hedetang fruit beverages increased 359% and 417%, respectively
•  Net income was $11.2 million, up 9.8% year-over-year, also a record
•  Diluted EPS showed a decrease to $0.47 for 4Q 2010 based on 23.1 million shares versus $0.56 per share in 4Q 2009 based on 18.6 million shares

"The fourth quarter is traditionally our strongest and was an appropriate ending to a successful year in which we demonstrated the significant growth in both apple concentrates and our branded Hedetang fruit beverages," started Yonkue Xue, Chief Executive Officer of SkyPeople Fruit Juice. "Due to seasonality, we normally witness kiwifruit concentrates and fresh fruits as the dominant contributor to revenues in the quarter. This year, however, we witnessed triple digit growth from our apple concentrates and production. I am especially proud of the 4 fold increase in fruit beverage sales, which was driven by a broader distribution footprint, the addition of new retail locations, and reorders from existing customers. Our Hedetang-branded beverages are currently sold through over 84 distributors and over 100 retail stores in approximately 17 cities. As the market continues to embrace these unique flavors, we are pursuing a significant growth opportunity in this segment and commercialized a new fruit juice line, Qian Mei Duo in January 2011 to target one of the fastest growing markets in China, the active, health-conscious female 18-29 years old."

As of December 31, 2010, we have completed the infrastructure construction work for the fruit juice beverage production line and have ordered the machinery for this new beverage production line. We expect to install and test the new beverage production line in the second quarter and start operating the production line in the third quarter of 2011. The environmental project mainly consists of a wastewater processing facility that is required in our production of fruit juice concentrates. Our increasing need for an additional wastewater processing facility is a result of our expansion in the production of concentrated apple juice. We expect to complete this project in the third quarter of 2011.

In the first quarter of 2011, we halted all construction work because of the cold weather in Huludao, which had regularly suffered sub-zero daytime temperatures. We expect to recommence the infrastructure construction work in April 2011 when the weather becomes more suitable for construction. We currently expect to complete all such infrastructure construction work by the end of the second quarter of 2011 and thereafter start installation and testing of the machinery. We expect to complete the installation of the concentrated apple production line in the fourth quarter of 2011 or early 2012. We plan 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 second quarter of 2011. We expect to complete this project in the fourth quarter of 2011 or early 2012. As of December 31, 2010, we have spent $1.0 million of the net proceeds from the offering on the construction work of Huludao Wonder. We have not signed any contracts for the purchase of the machinery or the equipment for the refrigeration storage unit and concentrated apple juice production line yet. We are in the process of negotiating with different suppliers and we expect to order this machinery and equipment in the third and fourth quarters of 2011.

Rodman and Renshaw on SPU                02/07/2011

"The strong financial performance we delivered in the third quarter reflects the underlying demand for our concentrates globally and domestic demand for our juices and beverages in China," began Yongke Xue, CEO of SkyPeople Fruit Juice. "With plans underway to expand our capacity by 100% in concentrated apple juice in 2010, we are optimistic in our ability to meet the growing demand, which continues to expand in China. In fruit beverages, we will continue to increase distribution at a measured pace. The new, branded beverages we are introducing in the fourth quarter are the first step of our multi-year plan to make our Hedetang juice beverages a category leader. Based on the strong momentum through the first nine months of 2010, we remain confident in meeting our full year revenue, adjusted net income and adjusted EPS guidance as we enter our strongest quarters during the harvest seasons. We are also pleased that our fructose line is now up and running and we anticipate fructose revenues contributing to revenues for the year." Xue concluded.

GeoTeam® Note:  SPU has finally joined the growing number of ChinaHybrid compnies that are willing to issue guidance, helping to subdue fears of near-term dilutive equity raises.  although comments in the 2010 third quarter filing does not rule out a potential raise. 

We believe that projected cash flows from operations, anticipated cash receipts, cash on hand, and trade credit will provide the necessary capital to meet our projected operating cash requirements for at least the next 12 months, which does not take into account any potential expenditures related to the potential expansion of our current production capacity.

2010 Guidance:

As of June 30, 2010, we had cash and cash equivalents of $26.6 million, an increase of $12.2 million, or 84.7%, from $14.4 million as of December 31, 2009. We believe that projected cash flows from operations, anticipated cash receipts, cash on hand, and trade credit will provide the necessary capital to meet our projected operating cash requirements for at least the next 12 months, which does not take into account any potential expenditures related to the potential expansion of our current production capacity.

GeoTeam® September 2010 Rodman & Renshaw notes:

Skypeople Fruit Juice (NASDAQ:SPU)

• New pear fructose production line began operating in September. Will produce up to 10,000 tons @ $800 or $8 million revenue potential with 35%-45% margins.
• Will double apple processing capacity from 10,000 to 20,000 tons @ $1,000 or $10 million incremental revenue with 20%-28% margins.
• Growth strategy also focused on beverages, with a longer term target for beverages to account for 50% of revenues. Beverage revenues will make the overall business less seasonal.
• Five new series of beverage products to hit market in 4^th quarter.
• Pear fructose should double in revenue in 2011, adding about $6 million in revenue. Apple products could add $10 million to revenue this year and possibly $25 million next year.
• Only company in China that can produce concentrated kiwi juice at large scale to meet production needs. 45% to 55% margin on kiwi products.
• Have enough working capital for next two years.

When discussing SAIC, SAT and SEC filings, CFO said SPU's chairman observed that you can tell a good Chinese company by official government certifications, government financial support and the ability to get bank loans. "We have all of these."

GeoTeam Observations:

• Investors should exclude income from government subsidies when applying valuation models.
• We are still perplexed that SPU completed an offering after essentially implying that they wanted to wait for market conditions to improve and believed that the stock was undervalued. They offered stock near where they did about year ago. Balance sheet and cash position are strong. Why not do a combo of equity and internal cash or some debt to put forth a respectable growth plan?

Company Response:

SPU is in a highly competitive business. SPU needs to have an aggressive growth strategy to keep its position in the industry. The loans from banks are only for working purposes, and it is difficult to obtain loans for capital purpose. SPU's total capital expenditures are expected to be in the range of $60 million for 2010 and 2011, and it plans to get its expansion projects ready for the squeezing season of 2011, so that they can contribute to the revenue and net income of 2011. The timing of the offering is very crucial for the Company. The Company has postponed its offering twice due to the market conditions. If the Company postponed the offering a third time, it may miss the good opportunities that the Company currently has.

SkyPeople Fruit Juice, Inc 2010 third quarter Conference Call Notes

• New pear fructose production line began operating in September. Will produce up to 10,000 tons @ $800 or $8 million revenue potential with 35%-45% margins.
• Will double apple processing capacity from 10,000 to 20,000 tons @ $1,000 or $10 million incremental revenue with 20%-28% margins.
• Growth strategy also focused on beverages, with a longer term target for beverages to account for 50% of revenues. Beverage revenues will make the overall business less seasonal.
• Five new series of beverage products to hit market in 4^th quarter.
• Pear fructose should double in revenue in 2011, adding about $6 million in revenue. Apple products could add $10 million to revenue this year and possibly $25 million next year.
• Only company in China that can produce concentrated kiwi juice at large scale to meet production needs. 45% to 55% margin on kiwi products.
• Have enough working capital for next two years.

When discussing SAIC, SAT and SEC filings, CFO said SPU�s chairman observed that the way to tell who the good Chinese companies are is to look for official government certifications, government financial support and companies that are able to get bank loans. SPU has all of these.

GeoTeam Notes:

• Investors should exclude income from government subsidies when applying valuation models.
• We are still perplexed that SPU completed an offering after essentially implying that they wanted to wait for market conditions to improve and believed that the stock was undervalued. They offered stock near where they did about year ago. Balance sheet and cash position are strong. Why not do a combo of equity and internal cash or some debt to put forth a respectable growth plan?

SPU is in a highly competitive business. SPU needs to have an aggressive growth strategy to keep its position in the industry. The loans from banks are only for working purposes, and it is difficult to obtain loans for capital purpose. SPU�s total capital expenditures are expected to be in the range of $60 million for 2010 and 2011, and it plans to get its expansion projects ready for the squeezing season of 2011, so that they can contribute to the revenue and net income of 2011. The timing of the offering is very crucial for the Company. The Company has postponed its offering twice due to the market conditions. If the Company postponed the offering a third time, it may miss the good opportunities that the Company currently has.

Skypeople Fruit Juice may have surprised investors the morning with the announcement of a public offering of stock of about five million shares, priced at $5.00.  The offering will result in about 25.0% dilution. Those who follow this story knew this event was coming at some point. But commentary in its 2010 second quarter 10Q implied that the company would use internally generated funds until markets stabilized.

You be the judge.  Have markets stabilized?

While the company certainly needs to begin construction of new product lines now in order to stay on schedule to meet anticipated demand before the next squeezing season, a greater portrayal of confidence would have been instilled to the street if management could have at least:

• Used some of its cash on hand or
• Embarked on a smaller scale expansion strategy

On the positive side, it important to note that SPU has been able to deliver EPS growth since the last offering of stock they completed in 2009.

Excerpt from 2010 Second Quarter filing:

In the second quarter of 2010, we filed a registration statement to register for the sale of 5,300,000 shares of our Common Stock. We intend to use the net proceeds from the offering primarily for capital expenditure purposes.

Our capital expenditures for 2010 and 2011 are expected to be approximately $62 million, which includes a

• Beverage production line.
• 50 ton/hour concentrated apple juice production line.
• Refrigeration storage with a capacity of 15,000 tons.
• Concentrated fruit juice mixing center with a capacity of 10,000 tons.
• Related construction and an environmental project in Huludao Wonder factory
• PET bottle blowing machine system.
• 24,000 PET bottle/hour fruit juice beverage aseptic cold-filling line.
• 10 ton/hour concentrated pomegranate production line.
• Fructose production line.
• One refrigeration storage.
• Kiwifruit Quality and Safety Testing Center in Shaanxi Qiyiwangguo factory.
• 20 tons/hour concentrated pear juice production line in the Jingyang facility. 
•  20 tons/hour concentrated apple juice production line in the Yingkou facility.

To the extent our proceeds from the offering cannot adequately cover the total capital expenditures of the above projects, we plan to finance the rest of the capital expenditures primarily through operating cash flows income from government subsidies and bank loans. We currently consider the foregoing projects our priority projects and intend to use the proceeds from the offering first and primarily for such projects. However, depending on the changing needs of our business and market opportunities, we may instead use a portion of the net proceeds from the offering to acquire or license products, technologies or businesses we believe to be complementary to our business, should we determine that our business will benefit more from such expenditures. We currently have no agreements, commitments or understandings relating to any material acquisitions or licenses.

We plan to postpone some of our capital expenditure plans if we cannot complete the offering that we planned due to the unstable stock market condition. We plan to continue to invest in our business though our operating cash flow and short term loans from banks in order to continue growing our business.

GeoTeam note:

We found it interesting that SPU would not take questions on its 2010 second quarter conference call.   Companies sometimes follow this procedure when they are in a quiet period.

   Second Quarter 2010 Results:

                             2Q 2010           2Q 2009           CHANGE

    Net Sales            $ 13.4 million  $ 6.2 million      + 116.1%
    Gross Profit         $ 6.4 million    $1.9 million       + 236.8%
    Net Income         $ 4.8 million    $ 1.7 million      + 182.4%
    EPS (Diluted)       $0.22             $0.09                + 144.4%

"In the second quarter of 2010, sales of our concentrates and Hedetang juices experienced double digit growth exceeding management's expectations for the quarter," began Yongke Xue, CEO of SkyPeople Fruit Juice. "Continued growth in our domestic sales is a testament to our strategy to increase market share for our core concentrates of kiwifruit and pear in China while expanding our geographic footprint for our proprietary brand of juices. In the second quarter, we were also pleased to see continued orders from our international customer base, which we believe will support overall growth for the balance of the year. Our new product turnjujube concentrate, also contributed to the second quarter and we expect incremental growth going forward. " Xue concluded.

2010 Guidance

For the calendar year ended December 31, 2010, SkyPeople has provided $92.0-$100.0 million in revenue guidance and $19.0 to $21.0 in net income. The Company expects revenue and earnings growth to continue through the second half of the year, as it enters its most profitable selling period during the third and fourth quarter harvest and squeezing seasons.

GeoTeam note: We subtracted subsidy income from the financial results to attain a more accurate EPS picture. Doing this yields:

2010 second quarter EPS: $0.14
2009 second quarter EPS: $0.04

Our intent over the short-term is to build a check list to assess the risk position of firms in the ChinaHybrid space. For the time being this will consist of the following: (this list is likely to grow substantially)

Today, Skypeople Fruit Juice confirmed our suspicion that it would need to offer shares before July. Reference the S1/A filing.

The good news is that the funds will likely be put to use for growth initiatives:

"Use of proceeds We intend to use the net proceeds to us from this offering for capital expenditures, working capital and other general corporate purposes. We expect our capital expenditures to primarily include improvements to the Huludao Wonder and Qiyiwangguo facilities . We may also use a portion of the net proceeds to us from this offering to acquire or license products, technologies or businesses we believe to be complementary, but we currently have no agreements, commitments or understandings relating to any material acquisitions or licenses." 

We will reach out to the company to determine how fast funds will be deployed.   

"In the first quarter of 2010, we built upon the growth we reported during 2009 and significantly increased all key financial metrics compared to the year ago period," began Yongke Xue, CEO of SkyPeople Fruit Juice. "Sales of our concentrates represented a majority of our revenues as we witnessed a number of our export markets rebound this year. Domestic sales of concentrates and our Hedetang(TM) branded juice also showed strong growth during the first quarter. Each of our core segments produced revenue and profit growth which is evidence of execution on both our product and customer strategies in 2010," Xue concluded.

SPU reported strong first quarter financial results for its 2010 first quarter:

EPS increased 157% to $0.18 and exceeded analyst estimates of $0.11. Investors should recall our references from our initial article on December 28, 2009, where we discussed the possibility that SPU would have to raise funds before before the next 2010 squeezing season (July 2010) to maintain growth. Thus, we may have to mindful of dilution depending on how fast the company would implement funds. Also, the next two quarters are the company's seasonality weakest quarters. Thus, short term investors may look elsewhere.

We are listening the conference call this morning for further input into the 2010 outlook

On January 19th, SkyPeople supported is sales and marketing strategies for the Hedetang(R) fruit juice and cider product lines by providing 2010 revenue guidance of $92.0 to $102.0 million, and net income guidance of $19.0 to $21.0 million. Growth is expected to be driven by enhanced distribution of its high- margin Hedetang(R) juices, leveraging its capacity expansion during is 2010 harvest seasons and increased orders from domestic and international customers of concentrates in China and from international markets as they continue to rebound.

Source: PR Newswire (March 31, 2010)

On December 16, 2009 we coded Skypeople Fruit Juice (NYSE AMEX:SPU) as a GeoSpecial. We subsequently conducted an interview with Spring Liu, CFO of Skypeople, to gain an understanding of the company’s growth path. The SPU growth formula is similar to many China firms we have followed; gain a leading market position, increase manufacturing capacity to meet demand, expand product offering, obtain better province coverage. Skypeople is hopeful that these factors will lead to an increase in earnings per share and the maximization of shareholder value.

The simplicity of company’s business plan of marketing and manufacturing juice products was the trigger for us to look further into its story.

The impetus for its branded line arose from a crafty management decision in 2008 which was made in response to declining concentrate sales during the global crisis. Normally, Skypeople would sell the majority of its raw material supply to its customers, but the global recession softened this demand. In an effort to maximize its concentrate production capacity, the company embarked on a strategic move to process excess supply into its own branded products. The move has paid off, paving the way for product diversification, new customer channels and fresh market opportunity.

There is an aspect to the company that we are not particularly enthused about. Historically, the company experience seasonality in its first and fourth quarters which tend to be dramatically stronger than the others. This stems from the limited ability of the company to build its supply inventory only during the months of July through April, referred to as the squeezing season. Due to capacity constraints and strong demand for its concentrate line during this period, Skypeople has less inventory to carry over into non-peak periods, essentially limiting its ability to generate additional concentrate or branded product sales.

We addressed this topic with Ms. Lui by expressing our opinion that smoothing out seasonality may result in increased stock valuation multiples. She understood our sentiment and briefly outlined several points to the company’s growth strategy.

“The main thrust of our growth strategy is to increase our concentrate capacity, enabling us to accomplish several things. First, increasing our raw material supply will enable us to more fully satisfy current customers’ demands as well as solicit new customers.”

Secondly, we can increase branded beverage production, where we experience higher margins, especially in our new cider beverages lines, which was introduced to Chinese market in the first quarter of 2009. Our goal is to expand this line domestically, which is currently only available in one province and consists of two categories (kiwi & mulberry). The opportunity to achieve substantial gains exists if the company can penetrate more provinces.

Third, Increasing capacity will help smooth out seasonality by allowing us to build up inventory to sell past the squeezing season (concentrate has a two year shelf life). ”

We also asked Ms. Liu if Skypeople would emphasize any particular product line. She indicated that the company will increase the production of kiwi products domestically and internationally, due to a competitive advantage it has with respect to its production technique, access to the largest kiwi plantation in Asia and its high profit margins. Skypeople holds two patents in the kiwi processing technique. Lui continued,

“In conjunction with this goal we recently doubled our apple juice capacity to 20,000 tons. Globally, apple juice is the second largest demanded juice product. We are planning to attract more customers, through our apple juice offerings, who we can eventually introduce to our KIWI product line. Additionally, as the Chinese standard of living rises we will increase our focus on higher quality branded juice products.”

Overall, we are intrigued by the SPU story especially since the stock has a trailing P/E of just 9.37 and book value of $2.30. The reason we have not coded the stock as GeoBargain is largely due the seasonality issue. We would like Skypeople to address seasonality as well as grow earnings 30% consistently. In order to increase capacity we anticipate that the company may have to tap the capital markets before the next 2010 squeezing season, which the company hopes will be accretive to EPS.

Below is a brief Q&A conducted by the GeoTeam with Skypeople.

Q: As demand for pear juice is lower than many other juices why did you also choose to recently expand your pear juice capacity?

A: Pear juice is a one kind of specialty fruit juice. Specialty fruit juices are squeezed from fruits that are grown in a relatively low quantity.

Pear is easy to get oxidized. To keep the nutrition value of the pear juice, special manufacturing techniques are employed to keep the nutrition value of the pear juice and prevent it from oxidizing. We are one of the few companies which can produce high quality pear juice. Our special manufacturing techniques not only keep the clear color of the pear juice, but also keep the nutrition value of it. As the competition in pear juice is mild, we enjoy a higher margin on pear juice. That is the main reason for the expansion of pear juice capacity.

Q: Please give us some history on your Mulberry product line?

A: We are one of the first companies to initiate large-scale production of concentrated mulberry juice in China. As the concentrated mulberry juice are processed from dried mulberry, it does not meet the requirement from the international customers, who require it be processed from fresh mulberry. All the concentrated mulberry juice made by us is further processed to our own branded beverages.

Mulberries are widely regarded as one of the most nutritionally substantive fruits available to consumers. They possess rich active proteins, vitamins, amino acids, carotenes, and a variety of essential minerals. Compared with other fruits, the concentration of nutrients in mulberries is six times greater than that of apples and over four times greater than that of grapes.

As the harvest season for mulberries is only between April and May, and the quantity of mulberry produced in Shaanxi Province is not sufficient for our production needs, we produce mulberry juice from dried mulberries. Skypeople is capable of storing mulberries for at least 12 months, allowing for year round manufacturing.

Mulberries are mainly produced in the south part of Shaanxi Province and Sichuan Province. We are planning to transport our processing machines to these areas during its squeezing season and increase our production of concentrated mulberry juice and also meet the requirement of international customers.

'Our sales in the second quarter were largely impacted by a drop in consumer spending in the international market based on the current global economic climate,' Mr. Yongke Xue, CEO of SkyPeople. 'Despite the decline in total revenue, we saw a 72% year-over-year increase in sales for our fruit juice beverages to $3.0 million, as well as achieved a $690,000 sequential-quarter increase for sales of our fruit vinegar beverages, which we introduced to the Chinese market in the 2009 first quarter. We plan to continue to grow our business and focus on introducing new and higher margin products to capture additional fruit juice market share.

Source: PR Newswire (August 14, 2009)

Mr. Yongke Xue, Chief Executive Officer of SkyPeople, stated, 'Our strong gains in gross profit margin, operating income and net income for the first quarter demonstrate our ability to successfully develop and bring to market high quality, healthy and nutritious fruit juice products that satisfy accelerating consumer demand and preference for healthier fruit-based juice drinks. Interest in small breed fruit products such as our specialty kiwifruit and mulberry products continues to escalate worldwide due to the nutritional advantages and unique taste of these specialty fruits, which are not as widely available as more traditional juice flavors. We also began sales of high margin kiwifruit and mulberry vinegar products during the first quarter. Sales in each of these product categories offset part of our planned decrease in apple and pear juice product sales as we seek to build a larger volume of higher margin product sales into our mix.

Mr. Xue continued, 'One of our goals is to increase our production capacity of kiwifruit juice and kiwifruit puree from 10,000 tons to 22,500 tons by the third quarter of 2009. We will also continue to invest in upgrading our existing facilities to improve our operational efficiency and productivity. As the fruit juice market continues to evolve, we are confident in our ability to meet growing consumer demand both domestically and internationally for unique and high quality juice products.'

Source: See Release

As of March 31, 2010, we had cash and cash equivalents of $30.0 million, an increase of $15.6 million or 108.3%, from $14.4 million as of December 31, 2009. We believe that projected cash flows from operations, anticipated cash receipts, cash on hand, and trade credit will provide the necessary capital to meet our projected operating cash requirements for at least the next 12 months, which does not take into account any potential expenditures related to the potential expansion of our current production capacity.

Our working capital has historically been generated from our operating cash flow, advances from our customers and loans from bank facilities.  Our working capital was $39.5 million as of March 31, 2010, an increase of $10.8 million or 37.2%, compared to working capital of $29.0 million as of December 31, 2009, mainly due to an increase in cash and a decrease in income tax payables. The most significant sources of increase in working capital for the three months ended March 31, 2010 were $6.1 million from operating activities, proceeds of $3.0 million from the issue of 1,160,451 shares of our Common Stock from the exercise of warrants and $6.9 million from new short term loans. The most significant use of working capital during the three months ended March 31, 2010 was the payment of income tax of $2.6 million.

For our long term planned expenditures for equipment and land, we will likely need to seek additional debt or equity financing.  We believe that any such financing could come in the form of debt or the issuance of our common stock in a private placement or public offering.   However, there are no assurances that such financing will be available on terms acceptable to us, if at all.  To the extent that we require additional financing in the future and are unable to obtain such additional financing, we may not be able to fully implement our growth strategy.

The majority of our capital expenditures are for the expansion of our production capacity.  In the past two years, our annual capital expenditures ranged from $3.9 million to $4.9 million.  We financed our capital expenditures and other operating expenses through operating cash flows and bank loans.  As of March 31, 2010, the balance of short term loans totaled RMB 83.8 million, or $12.3 million based on the exchange rate of March 31, 2010, with interest rates ranging from 4.86% to 9.03% per annum. These loans were collateralized by land usage rights and buildings and will be due from June 2010 to February 2011.

We expect to expend approximately $60 million on capital improvements and the acquisition or license of technology or other companies in 2010 and 2011.  We plan to improve and expand our Huludao and Qiyiwangguo facilities. We currently expect such improvements to include the set up of a 50-ton/hour concentrated apple juice production line, a 10-ton/hour concentrated pomegranate production line, one fructose production line and two fruit beverage production lines

Mr. Xue stated, "We enter 2009 with a growing product line, increasing market share, and strong momentum overall. We will continue to upgrade our existing facilities to improve our operational efficiency and productivity, as well as look for targeted acquisition candidates to expand our position in the domestic and international fruit juice market."

Source: PR Newswire (March 31, 2009) 

*In 2007 the company satisfied it's target as it reported pre-tax income of RMB 68,939,855 ($9,066,064)

**The GeoTeam®  used current exchange rates. The make good targets do not apply to Dollars.  The dollar conversion is only shown for informational purposes.

Source: SEC Form 424B3 (February 6, 2009)

GeoTeam® Adjustment: