Skypeople Fruit Juice (NASDAQ:SPU)

On March 27, 2011, the National Development and Reform Commission and the relevant departments of the State Council of the PRC amended the Catalogue of Industry Structure Adjustment issued in 2005 and released the Catalogue of Industry Structure Adjustment for 2011 (the "New Catalogue"), which was effective on June 1, 2011. In the New Catalogue, concentrated apple juice business is classified in the category of Restricted Industry, which means that the government may restrict 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. The Company expects that the restrictions under the New Catalogue will reduce government financial support of concentrated apple juice businesses and have a negative impact on the future expansion and development of our concentrated apple juice segment. Considering the government potential restriction on the approval of increase in the production capacity of concentrated apple juice, the Company decided to cancel our original plan for the construction of a 50 ton/hour concentrated apple juice line, which we previously estimated to use up to $10.7 million of the proceeds generated from our public financing consummated in August 2010.

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,

"Public shareholders should question the current $2.55/share valuation of SPU."

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:

"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."

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:

"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."

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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