Skypeople Fruit Juice (NASDAQ:SPU)

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Wednesday, August 25, 2010

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.

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Tuesday, July 20, 2010

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)

-Is the company's auditor ranked in the top 100?
-Is the auditor located in the U.S.A? If located in China the PCAOB (Public Company Oversight Board) may be denied access to investigate the practices of the auditing firm. Short sellers have been using this information as a tool to validate their opinions.
-Are the company's internal controls satisfactory?
-Are their any outstanding legal issues?
-Do the company's top ten customers represent less than 10% of revenues?
- Operating cash flow divided by current liabilities is greater than one. The higher the better.

- Cash divided by current liabilities. This is an the most conservative liquidity ratio. The higher the better

- Is the company buying back stock?
- Chinese filings match respective SEC filings.(In process)

Criteria	Meets Criteria	Notes
Top 100 Auditor	No	BDO Limited
Auditor Located U.S.A	No	Honk Kong
Satisfactory Internal Controls	Yes	Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2010, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective in providing reasonable assurance of achieving their objectives for the three months ended March 31, 2010.
No Legal issues	YES	None Found
Customer Concentration	No	For the 2009 year two customers accounted for 22.2% of revenues.
Cash Flow Ratio is Greater than 1	Yes	1.13
Cash Ratio is Greater than 1	Yes	1.41
Buying Back Stock/Insider Buying	No	n/a

Short term and risk adverse investors should be aware of the quality issues currently present in the ChinaHybrid Space, questioning the validity of what seem like solid fundamental stories. It is beginning to get ugly so be cautious and understand that more pain may have to be endured, as ChinaHybrids are easy prey for short investors. The broad brush that is being applied to theses stocks appears unfair, but we can’t ignore the psychological impact this can have on investors’ portfolio decisions. If history is our guide, fear will eventually create an immense opportunity to invest in the companies that prove they can meet quality litmus tests enact shareholder friendly moves. Credibility can also be restored if independent legal/SEC opinions validate accounting practices currently in question.

We have yet to verify if the Chinese filings for ChinaHybrid stocks we monitor match respective SEC filings. We are in the process of completing this task. Conservative investors may want to limit exposure or buy put options on stocks, that have this availability, as insurance against long positions, until we publish our findings. Odds are we will identify some promising companies that will fail this litmus test.

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