UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2015
OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period
from ___ to ___
Commission File Number
001-34502
SKYPEOPLE FRUIT JUICE,
INC.
(Exact name of
registrant as specified in its charter)
Florida
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98-0222013
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification Number)
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16F, National Development Bank Tower,
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No.
2, Gaoxin 1st. Road, Xi’an, PRC
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710075
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(Address of principal executive offices)
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(Zip Code)
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Registrant's Telephone
Number:
86-29-88377161
Securities registered
pursuant to Section 12(b) of the Act:
Title of each class
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Name of each exchange on which registered
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Common Stock, $0.001 par value
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Nasdaq Global Market
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Securities registered
pursuant to Section 12(g) of the Act:
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes
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No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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No ☒
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No
¨
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s
knowledge, in definitive proxy statement or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition
of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes
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No
☒
The aggregate market value of voting and nonvoting
stock held by non-affiliates of the registrant, based upon the closing price of $2.19 per share for shares of the registrant’s
Common Stock on June 30, 2016 the last business day of the registrant’s most recently completed second fiscal quarter as
reported by the NASDAQ Global Market, was approximately $8.9 million. In calculating such aggregate market value, shares of Common
Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock (including outstanding shares with
respect to which a holder has the right to acquire beneficial ownership within 60 days) were excluded because such persons may
be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for
other purposes.
The number of shares of Common Stock
outstanding as of November 22, 2016 was 4,061,090.
SKYPEOPLE FRUIT JUICE, INC.
Annual
Report on Form 10-K for Fiscal Year Ended December 31, 2015
PART I
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2
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ITEM 1 – BUSINESS
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2
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ITEM 1A – RISK FACTORS
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15
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ITEM 1B – UNRESOLVED STAFF COMMENTS
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34
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ITEM 2 – PROPERTIES
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34
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ITEM 3 – LEGAL PROCEEDINGS
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36
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ITEM 4 – RESERVED
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36
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PART II
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37
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ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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37
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ITEM 6 – SELECTED FINANCIAL DATA
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38
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ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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39
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ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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56
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ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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56
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ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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56
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ITEM 9A – CONTROLS AND PROCEDURES
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57
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ITEM 9B – OTHER INFORMATION
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59
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PART III
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59
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ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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59
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ITEM 11 – EXECUTIVE COMPENSATION
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63
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ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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67
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ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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69
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ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
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69
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PART IV
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70
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ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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70
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Signature
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73
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NOTE
CONCERNING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (“Annual Report”) of SkyPeople Fruit Juice,
Inc. (together with our direct or indirect subsidiaries, “we,” “us,” “our” or “the Company”)
includes forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation
Reform Act of 1995. Other than statements of historical fact, all statements made in this Annual Report are forward-looking, including,
but not limited to (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in
our industry, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable
by use of the words “may,” “will,” “should,” “anticipate,” “estimate,”
“plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,”
“management believes,” “we believe,” “we intend” or the negative of these words or other variations
on these words or comparable terminology. Forward-looking statements involve risks and uncertainties that are inherently difficult
to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.
The following important factors, among others, could affect our future results and could cause those results to differ materially
from those expressed in such forward-looking statements:
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fluctuations
in the supply of raw material;
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general
economic conditions and conditions which affect the market for our products;
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changes
in U.S. and global financial and equity markets, including market disruptions and significant
interest rate fluctuations, which may impede our access to, or increase the cost of,
external financing for our operations and investments;
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our
success in implementing our business strategy or introducing new products;
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our
ability to attract and retain customers;
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changes
in tastes and preferences for, or the consumption of, our products;
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impact
of competitive activities on our business;
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risks
associated with conducting business internationally and especially in the People’s
Republic of China (“PRC”, or “China”), including currency fluctuations
and devaluation, currency restrictions, local laws and restrictions and possible social,
political and economic instability; and
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other
economic, financial and regulatory factors beyond the Company’s control.
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Any
or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions
we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially as a result of various factors, including, without limitation, the risks outlined under “Item
1A. Risk Factors” in this Annual Report. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these
forward-looking statements.
We
undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances or the occurrence
of unanticipated events.
PART
I
ITEM
1 – BUSINESS
Overview
We
are a holding company incorporated under the laws of the State of Florida. We have two direct wholly owned subsidiaries: Pacific
Industry Holding Group Co., Ltd., (“Pacific”), a company incorporated under the laws of the Republic of Vanuatu, and
Harmony MN Inc., (“Harmony”), a company organized under the laws of the State of Delaware. Pacific holds 100% equity
interest of SkyPeople Juice International Holding (HK) Ltd. (“SkyPeople International”), a company organized under
the laws of Hong Kong Special Administrative Region of the People’s Republic of China (“Hong Kong”). SkyPeople
International holds 99.78% of the equity interest of SkyPeople Juice Group Co., Ltd., (“SkyPeople (China)”), a company
incorporated under the laws of the PRC. SkyPeople (China) has twelve direct subsidiaries, all limited liability companies organized
under the laws of the PRC: (i) Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd., (“Shaanxi Qiyiwangguo”),
(ii) Huludao Wonder Fruit Co., Ltd., (“Huludao Wonder”), (iii) Yingkou Trusty Fruits Co., Ltd., (“Yingkou”),
(iv) SkyPeople Juice Group Yidu Orange Products Co. Ltd., (“Orange Products”), (v) “Hedetang Fruit Juice Beverage
(Yidu) Co., Ltd., (“Hedetang Juice Beverages”), (vi) SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd.,
(“SkyPeople Suizhong”), (vii) SkyPeople Juice Group (Mei County) Kiwi Fruit and Farm Products Trading Market Co.,
Ltd. (“Kiwi Fruit & Farm Products”), (viii) Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. (“Guo Wei
Mei”), (ix) Hedetang Holding Co., Ltd., (x) Xi’an Hedetang Fruit Juice Beverages Co., Ltd., (xi) Xi’an Cornucopia
International Co., Ltd. and (xii) Shaanxi Fruitee Fun Co., Ltd.
Products
and Market
Through
our indirect subsidiaries in the PRC, we are engaged in the production and sale of (1) fruit juice concentrates (including fruit
purees, concentrated fruit purees and concentrated fruit juices); (2) fruit beverages (including fruit juice beverages and fruit
cider beverages); and (3) other fruit-related products (including primarily organic and non-organic fresh fruits, dried fruit,
preserved fruit, fructose) in and from the PRC.
We
were recognized and certified as a Hi-Tech Enterprise jointly by the Shaanxi Department of Science and Technology,
Department of Finance, Bureau of National Taxation and Bureau of Local Taxation in August 2009. This certificate was valid
for three years, and was not renewed after it expired on October 22, 2015. The Company is also certified as the Leading
Enterprise of the China Food Industry by the China National Food Industry Association from 2005 to 2008, the Leading
Agricultural Commercialization Enterprise of Shaanxi Province by Shaanxi Agricultural Bureau in 2012, and the Enterprise with
Essential Technology Innovation by the Department of Science and Technology of Shaanxi Province in 2010. Our Company was
granted an AA level Certificate of the Standard and Good Conduct Enterprise by the Standardization Administration of China
(“SAC”) in April 2015, and a Best Small and Middle Enterprises by Forbes China in 2011. Our concentrated pear
juice and concentrated kiwi juice were awarded the Most Famous Products in Shaanxi Province by the People’s Government
of Shaanxi in February 2012. The certificate was renewed in 2014; the period of validity of new certificate is from December
2015 to December 2017. Our fruit juice concentrates, which primarily include apple, pear and kiwi, are sold to domestic
customers and exported directly or via distributors to customers in Asia, North America, Europe, Russia and the Middle East.
Our Hedetang branded fruit juice concentrates were awarded the Famous Brand in Shaanxi Province by the Shaanxi Government in
February 2015. This award will expire in December 2017. We sell our Hedetang branded bottled fruit beverages domestically,
primarily to supermarkets in the PRC. Our brand name “Hedetang” was awarded the Most Famous Brand in Shaanxi
Province by the Shaanxi Administration Bureau for Industry and Commerce, and this award will expire in December 2018. In
March 2013, SkyPeople (China) was awarded the Creative Enterprise of the Year at the 88
th
China Food
& Drinks Fair (CFDF).
In
2015, sales of our fruit concentrates, fruit beverages, fresh fruits and other fruit related products represented 49%, 51%, 0%
and 0% of our revenue, respectively, compared to 44%, 48%, 4% and 4% respectively, in 2014.
Specialty
fruit juices, or “small breed” fruit juices, are juices squeezed from fruits that are grown in relatively small quantities
such as kiwi juice, mulberry juice, turnjujube juice and pomegranate juice. Currently, our specialty juice beverage offerings
include pear juice, kiwi juice and mulberry juice. By the end of 2015, we possessed 22 patents and proprietary technologies in
the processing technology of specialty fruit juice and gained a number of honors and qualifications in the fruit juice industry.
We
intend to complete our current construction in progress, which will help to further diversify our business to reduce market risk,
and also expand our distribution channel of fruit juice beverages to meet increasing customer demand.
Organizational
Structure
Our
current organizational structure is set forth in the diagram below:
(1)
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Xi’an Qinmei Food Co., Ltd., an entity not affiliated with the Company, owns the other 8.85% of the equity interest in Shaanxi Qiyiwangguo.
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(2)
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Formerly known as Shaanxi Tianren Organic Food Co. Ltd.
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(3)
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SkyPeople Juice Group Yidu Orange Products Co., Ltd. was established on March 13, 2012. Its scope of business includes deep processing and sales of oranges.
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(4)
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Hedetang Fruit Juice Beverages (Yidu) Co., Ltd. was established on March 13, 2012. Its scope of business includes production and sales of fruit juice beverages.
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(5)
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SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd. was established on April 26, 2012. Its scope of business includes initial processing, quick-frozen and sales of agricultural products and related by-products.
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(6)
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SkyPeople Juice Group (Mei County) Kiwi Fruit and Farm Products Trading Market Co., Ltd. (“Kiwi Fruit & Farm Products”) was established on April 19, 2013. Its scope of business includes preliminary processing of agricultural and subsidiary products; establishment of trading market, etc.
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(
7)
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Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. was established on April 19, 2013. Its scope of business includes producing kiwi fruit juice, kiwi puree and cider beverages, and similar products.
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(8)
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Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an Hedetang”) was established on March 31, 2014. Its scope of business includes production and sales of fruit juice beverages.
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(9)
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Xi’an Cornucopia International Co., Ltd. (“Cornucopia”) was established on July 2, 2014. Its scope of business includes retail and wholesale of pre-packaged food.
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(10)
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Shaanxi Fruitee Fun Co., Ltd. (“Fruitee Fun”) was established on July 3, 2014. Its scope of business includes retail and wholesale of pre-packaged food.
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(11)
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Hedetang Holding Co., Ltd. (“Hedetang Holding”) was established on July 21, 2014. Its scope of business includes corporate investment consulting, corporate management consulting, corporate imagine design and corporative marketing planning.
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(12)
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The Company acquired Huludao Wonder Co. Ltd. (“Huludao”) on June 10, 2008. Its scope of business mainly includes the manufacture and sale of concentrated fruit juice and fruit juice beverages.
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(13)
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The Company acquired Yingkou Trusty Fruits Co., Ltd. (“Yingkou”) on November 25, 2009. Its scope of business mainly includes the manufacture of concentrated fruit juice.
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Competitive
Advantages
We
believe our competitive advantages include the modern equipment and technology employed at our production factories in Shaanxi
and Liaoning Provinces and the strategic locations of our manufacturing facilities. Our equipment and technology help us to ensure
product quality, control costs and allow us to meet international fruit juice production standards such as ISO9001, HACCP, and
Kosher certifications, and those imposed by the United States Food and Drug Administration. In addition, our manufacturing facilities
are strategically located near regional fruit production centers. For example, Shaanxi Province, where two of our manufacturing
facilities are located, is known in the PRC for pear and kiwi production. Our proximity to regional fruit production centers enables
us to purchase fresh fruits directly from farmers, avoid the need of transporting fresh fruit over long distances to processing
facilities, reduce our transportation expenses and damage to fresh fruit during transportation and helps us maintain high quality
of finished products by preserving freshness.
We
own and operate four manufacturing facilities in the PRC. To take advantage of economies of scale and to enhance our production
efficiency, each of our manufacturing facilities focuses on juice products centering around one particular fruit based on the
proximity of each facility to the supply center of that fruit. All concentrated juice products are manufactured using the same
type of production line with slight variations in processing methods. We operate our pear juice products business out of our Jingyang
Branch Office of SkyPeople (China). Our business involving apple juice products is operated out of Huludao Wonder and Yingkou,
and our business involving kiwi products is operated out of Shaanxi Qiyiwangguo, in which we have held a 91.15% ownership interest
since June 2006.
Corporate
History
We
were initially incorporated in 1998 in Florida as Cyber Public Relations, Inc. for the purpose of providing internet electronic
commerce consulting services to small and medium sized businesses and did not have any material operations or revenue. On January
21, 2004, we purchased all of the outstanding share capital of Environmental Technologies, Inc., (“Environmental Technologies”),
a Nevada corporation, in exchange for approximately 29,051 shares of the Company’s common stock (“Common Stock”).
As a result, Environmental Technologies became our wholly-owned subsidiary and the Environmental Technologies shareholders acquired
approximately 97% of our issued and outstanding Common Stock. We changed our name to Entech Environmental Technologies, Inc.
After
our acquisition of Environmental Technologies, we operated through our wholly-owned subsidiary, H.B. Covey, Inc., (“H.B.
Covey”), a business providing construction and maintenance services to petroleum service stations in the southwestern part
of the United States and installation services for consumer home products in Southern California. In July 2007, we entered into
and consummated a Stock Sale and Purchase Agreement pursuant to which we sold H.B. Covey.
We
were a shell company with no significant business operations after we sold H.B. Covey. As a result of the consummation of a reverse
merger transaction, on February 26, 2008 we ceased being a shell company and became an indirect holding company for SkyPeople
(China) through Pacific.
On
June 10, 2008, we acquired Huludao Wonder from Shaanxi Hede Investment Management Co., Ltd., (“Hede”), for a total
purchase price of RMB 48,250,000, or approximately $6,308,591 based on the exchange rate on June 1, 2007. The payment was made
through the offset of related party receivables. Prior to that, we operated our apple concentrate business out of the facilities
of Huludao Wonder under a one-year lease agreement with Hede.
On
June 17, 2009, we incorporated a new Delaware corporation called Harmony MN Inc., (“HMN”), to be a wholly owned subsidiary
of the Company with offices initially in California to act as a sales company for the Company. The total number of shares of capital
stock that HMN has authority to issue is 3,000 shares, all of which are Common Stock with a par value of $1.00 per share. On June
20, 2009, HMN was registered in the State of California to transact business in such state. HMN has not yet commenced operations
and the Company plans to close down this dormant subsidiary.
On
November 25, 2009, we acquired Yingkou for a purchase price of RMB 22,700,000 (or $3,325,569 based on the exchange rate of December
31, 2009), pursuant to the Stock Purchase Agreement that SkyPeople (China) entered into with Shaanxi Boai Pharmaceutical &
Scientific Development Co., Ltd. (“Shaanxi Boai”, formerly known as “Xi’an Dehao Investment & Consultation
Co., Ltd.”), on November 18, 2009. Yingkou commenced operating activities in the fourth quarter of 2010.
On
March 13, 2012, we established SkyPeople Juice Group Yidu Orange Products Co., Ltd. (“Orange Products”) to engage
in the business of deep processing and sales of oranges.
On
March 13, 2012, we established Hedetang Fruit Juice Beverages (Yidu) Co., Ltd. (“Hedetang Juice Beverages”) to engage
the business of production and sales of fruit juice beverages.
On
April 26, 2012 we established SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd. (“SkyPeople Suizhong”) to
engage in the business of initial processing, quick-frozen and sales of agricultural products and related by-products.
On
April 19, 2013, we established SkyPeople Juice Group (Mei County) Kiwi Fruit and Farm Products Trading Market Co., Ltd. (“Kiwi
Fruit & Farm Products”) to engage in preliminary processing of agricultural and subsidiary products, the establishment
of trading market and similar activities.
On
April 19, 2013, we established Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. (“Guo Wei Mei”) to engage in the
business of producing kiwi fruit juice, kiwi puree and cider beverages, and similar products.
On
March 31, 2014, we established Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an Hedetang”) to engage
in the business of production and sales of fruit juice beverages.
On July 2, 2014, we established Xi’an
Cornucopia International Co., Ltd. (“Cornucopia”) to engage in the business of the retail and wholesale of pre-packaged
food.
On
July 3, 2014, we established Shaanxi Fruitee Fun Co., Ltd. (“Fruitee Fun”) to engage in the business of the retail
and wholesale of pre-packaged food.
On
July 21, 2014, we established Hedetang Holding Co., Ltd. (“Hedetang Holding”) to engage in the business of the retail
and wholesale of pre-packaged food, research and development regarding pre-packaged food, bio-tech, machinery and packages, export
of manufactured products and technology, business consulting and marketing planning.
On October 16, 2015, Skypeople Fruit Juice
Inc. signed a Share Purchase Agreement with Skypeople International Holdings Group Limited to sell 5,321,600 shares of its common
stock at $1.50 per share to Skypeople International Holdings Group Limited. The purchase price of $7,928,400 was paid by the cancellation
of the loan from Skypeople International Holdings Group Limited to Skypeople International Holdings Group Limited under the loan
agreement dated February 18, 2013, and renewed on February 18, 2014, in its principle amount. The remaining loan amount and interest
owed was paid in cash.
On November 16, 2015, Hedetang Juice Beverages
signed a construction agreement with China Yi Ye Group Co. Ltd. to engage China Yi Zhi Group Co. Ltd. to establish an orange comprehensive
deep processing zone in Yidu. On November 23, 2015, construction began on the agricultural products trading market. The Company
plans to finish the construction of the office building, R&D center, fruit juice production facility, cold storage and other
areas in the second quarter of 2017, and construction on the distribution center is planned to be completed by the last quarter
of 2017.
The
Yidu project includes the establishment of:
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1.
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one
modern orange distribution and sales center (the “distribution center”);
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2.
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one
orange comprehensive utilization deep processing zone (the “deep processing zone”),
including:
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a) one 45 ton/hour
concentrated orange juice and byproduct deep processing production line;
b)
one bottled juice drink production line with a capacity to produce 6,000 glass bottles per hour;
c)
one storage freezer facility with a capacity to store 20,000 tons of concentrated orange juice; and
d)
general purpose facilities within the zone, office space, general research and development facilities, service area, living quarters
and other ancillary support areas.
Principal
Products
There
are two general categories of fruit and vegetable juices available in the market. One is fresh juice that is canned directly upon
filtering and sterilization after being squeezed out of fresh fruits or vegetables. The other general category is juice drinks
made out of concentrated fruit and vegetable juices. Concentrated fruit and vegetable juices are produced through the pressing,
filtering, sterilization and evaporation of fresh fruits or vegetables. Concentrated juices are not drinkable. Instead, they are
used as a basic ingredient for manufacturing juice drinks and as an additive to fruit wine and fruit jam, cosmetics and medicines.
Our
core products are (1) fruit juice concentrates, mainly including concentrated apple, pear, and kiwi juices; (2) fruit beverages,
including pure fruit beverages and fruit cider beverages; and (3) other fruit-related products, including, for example, fresh
fruits, vegetables and fructose.
Fruit
Juice Concentrate
Our
family of fruit juice concentrate products mainly includes concentrated apple, pear, and kiwi juices. Fruit juice concentrates
can only be produced during the “squeezing season” of a year, when fresh fruits are available in the market. Generally,
the squeezing season for apples is from August through January or February of the following year, the squeezing season for pears
is from July or August through April of the following year, and the squeezing season for kiwifruits is from September through
December or January of the following year.
Fruit
juice concentrates are manufactured through a multi-stage process, which includes pressing, filtering, sterilizing and evaporating
fresh fruits and fruit juices.
Fruit
juice concentrates are used as the base ingredient in fruit juice beverages and are also used in other products such as ice cream,
fruit wine and, to a lesser extent, cosmetics and medicine.
We
currently sell apple, pear, and kiwifruit concentrates. Our fruit juice concentrate products include concentrated apple and pear
juice. Our concentrated kiwifruits are made of three different categories: kiwifruit puree, concentrated kiwifruit puree and concentrated
kiwifruit juice.
Kiwifruit
puree is prepared from clean, sound kiwifruits that have been washed and sorted prior to processing. The kiwifruits are crushed
and pressed and the pulp of the kiwifruit is kept. All of the water and some of the pulp are then removed from the kiwifruit puree
and the sugar level is increased in order to produce concentrated kiwifruit puree. We use advanced technologies to maintain the
natural flavors and nutrients of the kiwifruit puree. Kiwifruit puree and concentrated kiwifruit puree are ideal raw materials
used in the production of concentrated kiwifruit juices, kiwifruit beverages, kiwifruit flavored ice creams, smoothies and health
care products. Concentrated kiwifruit juice is made from concentrated kiwifruit puree by removing all of the remaining pulp.
Our
production line at the Shaanxi Qiyiwangguo factory can only produce puree and concentrated puree. We use the production line that
produces concentrated apple and pear juice in the facility of the Jingyang branch of SkyPeople (China) to produce concentrated
clear kiwifruit juice.
Concentrated
apple juice and concentrated pear juice are prepared from fresh fruits. Fruit juice concentrates can also be combined with other
fruit juices for the production of blended fruit juices, canned foods, confectionaries, fruit cider beverages and other beverage
products.
Fruit
Juice Beverages
As
compared to our fruit juice concentrate products, which experience seasonality, fruit juice beverages can be produced and sold
year round. We plan to focus on developing new beverages with higher margins.
The
manufacturing process for fruit juice beverages involves further processing of fruit juice concentrates.
Our fruit
juice beverages are divided into two categories: pure fruit juice and fruit cider beverages. The gross margins for our fruit
beverages were 41% and 36% in fiscal years 2015 and 2014, respectively.
Currently
we produce six flavors of fruit beverages in 280 ml glass bottles, 418 ml glass bottles and 500 ml glass bottles as well as BIB
(“Bag in Box”) packages, including apple juice, pear juice, kiwifruit juice, mulberry juice, peach juice and pomegranate
juice. We currently sell our fruit beverages to over 100 distributors and more than 20,000 retail stores in approximately 20 provinces.
Our products are sold through distributors in stores such as Yonghui Supermarket in Beijing, RT-Mart in Shenyang, Carrefour in
Chongqing and Shenyang and GMS Supermarket in Shanghai.
Other
Fruit-Related Products
We also generally sell fresh fruits and vegetables,
fructose and other products.
The
fruit processing capacity of our fructose production line is 10 tons of fresh apples or pears per hour. Fructose is often used
as an ingredient to make beverages and other food products. Although we currently plan to use the new fructose production line
to produce pear fructose, this production may also be used to produce apple fructose from apple juice concentrates.
The
gross margin for our other fruit-related products was 29% in the 2014 fiscal year. We did not have revenue from the sale of fruit-related
products during the 2015 fiscal year.
Production
Capacity
The
following table sets forth our current production capacity.
Subsidiary/branch
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Location
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Products
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Production
capacity
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Notes
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Shaanxi
Qiyiwangguo
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Zhouzhi
county, Shaanxi province
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Kiwi
puree, concentrated kiwi puree and fruit beverages
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(1)
(2)
(3)
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Sorting
fresh fruits: 10 tons fresh fruits per hour;
Puree/concentrated
puree: processing 20 tons of fresh fruits per hour;
Fruit
beverages: producing 6,000 bottles per hour
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Approximately
1.5 tons of fresh fruits are used to produce 1 ton of puree; 4 to 4.5 tons of fresh fruits are used to produce 1 ton
of concentrated puree
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Jingyang
branch of SkyPeople (China)
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Jingyang
County, Xianyang City, Shaanxi Province
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Concentrated
apple and pear juice, concentrated kiwifruit juice and fruit-related products
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(1)
(2)
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Concentrated
apple/kiwi/pear juice: processing 40 tons of fresh fruits per hour;
Fructose:
processing 10 tons of fresh fruits per hour
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All
concentrated juice products are manufactured using the same type of production line with slight variations in processing methods
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Huludao
Wonder
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Suizhong
County, Huludao, Liaoning Province
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Concentrated
apple/pear juice Fruit juice beverages
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(1)
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Concentrated
fruit juice:
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All
concentrated juice products are manufactured using the same type of production line with slight variations in processing methods
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(2)
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processing
30 tons of fresh fruits per hour Fruit juice beverages: producing 6,000 bottles/hour
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On
April 25, 2012, “China Food Production License” for production of Beverage (including fruit juice and vegetable
juice) has been granted to Huludao Wonder by Liaoning Bureau of Quality and Technical Supervision. Huludao Wonder commenced
operation of fruit juice beverages production line on April 28, 2012.
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Yingkou
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Gaotai
Town, Gaizhou, Liaoning Province
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Concentrated
apple juice
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(1)
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Processing
20 tons of fresh fruits per hour
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All
concentrated juice products are manufactured using the same type of production line with slight variations in processing methods.
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Research
and Development
We
believe that continuous investment in research and development is a key component to being a leader in fruit juice concentrate
and fruit beverages. Our Research and Development Center of SkyPeople (China) was certified as the Provincial Industrial Research
& Development Center jointly by six provincial institutions of Shaanxi Provincial People’s Government, including the
Department of Communications, the Department of Science and Technology, the Department of Finance, the Bureau of National Taxation,
the Bureau of Local Taxation and Xi’an Customs in December 2009. Our research and development effort emphasizes the design
and development of our processing technology with the goal of decreasing processing costs, optimizing our production capabilities
and maintaining product quality. During 2015 and 2014, the Company did not incur any research and development expenses. In 2015
and 2014, the Company suspended four research and development agreements with research institutions. No penalties were imposed
on the suspension of agreements. We currently intend to concentrate on further building up our internal research and development
team.
Industry
and Principal Markets
Global
Market
The fruit juice processing
industry is an emerging industry. Consumption of fruit juice beverages has grown and sales have increased rapidly in recent years
due to the increasing health consciousness of consumers and the natural and healthy qualities of fruit juice beverages. According
to a new report from specialist food and drink consultancy Zenith International, global fruit juice and drink consumption exceeded
80 billion litres in 2015, representing 10% of overall soft drink volume, and the market is forecast to rise by an annual 5% over
the next 5 years to 105 billion litres in 2020.
According
to the Fruit Juice Section of the PRC Food and Agriculture Export Association, www.Chinajuice.org, the PRC exported approximately
$1 billion in concentrated fruit juice to foreign countries every year in the past few years, which accounted for around 60% of
the global output of concentrated fruit juice.
The
PRC Market
The
PRC has the world’s largest population, but the consumption of fruit juice beverages is relatively low. According to the
report “China Fruit Juice Beverages Business and Market Analysis” published by the PRC Food and Agriculture Export
Association, www.Chinajuice.org, the annual per capita consumption of fruit beverages in the PRC in 2009 was approximately 1 kilogram,
which accounted for only 13% of the average world per capita consumption and 4% of the average per capita consumption in industrialized
countries. In 2010, Chinese fruit juice production reached 17 million tons, an increase of 20.6% compared to 2009. In 2014, fruit
juice consumption was RMB8.2 billion, an increase of 3% compared to the previous year. The growth rate of the revenue from fruit
juice and fruit juice drink has ranked first compared with other food related industries. We believe that the increasing health
consciousness of consumers and the quality of living powered by the PRC’s economic growth will continue to fuel the demand
for our fruit juice products.
Marketing,
Sales and Distribution
We
market our products through three primary methods: direct contact with foreign businesses, attendance at international exhibitions
and sales made through trade websites. Our marketing and sales teams work closely together to maintain a consistent message to
our customers.
The
sales team is divided into three subdivisions, focusing on the sales of fruit juice concentrates, fruit beverage products
and derivative products, respectively.
We
sell our fruit juice concentrates both domestically and internationally, while we have only sold our fruit beverages domestically.
We sell our products either indirectly through distributors with good credit history or directly to end-users.
Our
export business is primarily comprised of fruit juice concentrates. The export of our fruit juice concentrates is handled internally
by our international trade department, which has 20 employees.
The
North American and European markets represent a large portion of apple and pear concentrate consumption. The U.S. market is a
highly mature market with stable growth for apple concentrate. Although we sell to distributors in the PRC, and therefore cannot
be certain of where our exported fruit juice concentrate products are ultimately sold, we believe that the volume of exports to
the United States of our fruit juice concentrate products has increased annually since 2004. The European market, which we believe
has a generally stable consumer base, has been a target market since our inception. Apple concentrate is used to produce many
beverages and wines consumed by Europeans. The Middle East is also a target market for our apple juice concentrate.
The
Chinese market drives our fruit beverage sales most beverages are sold through provincial, city and county-level agents. We also
sell directly to hotels, supermarkets and similar outlets in smaller quantities. The fruit beverage sales are carried out by a
team of 45 employees. Historically, we have only sold our fruit beverages regionally in Shaanxi Province and some neighboring
cities in the PRC. One of our strategies is to broaden the geographic presence of our brand-named fruit beverages and expand production
and sales of higher margin fruit beverages in the PRC.
Our
kiwifruit products are targeted at the European, Southeast Asian, South Korean, Japanese, Middle Eastern, Mainland Chinese and
Taiwanese markets. The growth of our kiwifruit concentrate and kiwifruit beverages has exceeded the growth rate of any other product
we offer.
Competition
The
markets in which we operate are competitive, rapidly evolving and subject to shifting customer demands and expectations. We believe
that a number of companies are producing products that compete directly with our product offerings and some of our competitors
have significantly more financial resources than we possess.
Our
apple juice concentrate competitors include Sdic Zhounglu Fruit Juice Co., Ltd., Yantai North Andre (Group) Juice Co., Ltd., Shaanxi
Hengxing Fruit Juice and Shaanxi Haisheng Juice Holdings Co., Ltd. We also compete with fruit juice companies such as Wahaha,
Huiyuan, Nongfu Guoyuan, Tongyi and Meizhiyuan.
We
believe our competitive advantages include our modern equipment and our proprietary processes for the production of specialty
fruit juices or small breed fruit juices. We currently possess thirteen patents technologies in fruit juice production. Among
these thirteen proprietary technologies, we have obtained nine patents and are in the process of applying for another six patents
for other technologies. Our current specialty fruit juice offering includes kiwifruit and mulberry related juice products. We
also have technologies to produce concentrated persimmon, turnjujube, apricot, cherry, cherry tomato, sea-buckthorn, strawberry
and wolfberry juices. Our technology allows us to develop and produce beverages, such as our new mulberry and kiwifruit cider
beverages, which we introduced in the Chinese market in the first quarter of 2009. Our research indicates that these new beverages
have higher gross margins than that of the industry average.
We
believe the proximity of our manufacturing facilities to fruit farms is also one of our competitive advantages. It allows us to
purchase fruit directly from fruit farmers, avoid the need for long distance transportation, minimize damages to the fruits and
maximize the freshness of the fruits.
We
produce fruit beverages from our fruit juice concentrates, which allows us to better control the quality of our beverages.
Raw
Materials and Other Supplies
Fresh
fruits, including apples, pears and kiwifruits are the primary raw materials for our products. The continuous supply of high quality
fresh fruit is necessary for our current operations and our future business growth.
The
PRC has the largest planting area of kiwifruit and apples in the world. Shaanxi Province, the location of two of our factories,
has the largest planting area of kiwifruit and apples in the PRC. According to “Statistical Bulletin of Development of Fruit
Industry in Shaanxi Province 2010,” in 2010, the kiwifruit planting area in Shaanxi Province was over 114,226 acres.
In 2015, the kiwifruit planting area in Shaanxi Province was about 164,737 acres, with an output of 12.3 million tons, which
is 20% of the world output and 33% of China’s total output. Pomegranate, strawberry, peach and cherry yields are also high
in Shaanxi Province. Liaoning Province in the PRC, the location of our Huludao Wonder and Yingkou factories, abounds with high
acidity apples. Other raw materials used in our business include pectic enzyme, amylase, auxiliary power fuels and other power
sources such as coal, electricity and water.
We
purchase raw materials from local markets and fruit growers that deliver directly to our plants. We have implemented a fruit purchasing
program in areas surrounding our factories. In addition, we organize purchasing centers in rich fruit production areas, helping
farmers deliver fruit to our purchasing agents easily and in a timely manner. We are then able to deliver the fruit directly to
our factory for production.
We have assisted local farmers in their development of kiwifruit fields to help ensure
a high quality product throughout the production channel. Our raw material supply chain is highly fragmented and raw fruit prices
are highly volatile.
Shaanxi
Province is a large agricultural and fruit producing province with sufficient resources to satisfy our raw material needs. Shaanxi
Province is also the main pear-producing province in the PRC and its pear supply can generally meet our production requirements.
Liaoning Province, the PRC’s center for high acidity apples, can generally supply enough apples to meet our Liaoning Province
factory’s production needs.
In
addition to raw materials, we purchase various ingredients and packaging materials such as sweeteners, glass and plastic bottles,
cans and packing barrels. We generally purchase our materials or supplies from multiple suppliers. We are not dependent on any
one supplier or group of suppliers.
Seasonality
We
can only produce fruit juice concentrates during the squeezing season generally from July or August through April of the following
year, while our fruit juice beverages can be produced year round. Annual capacity of our production lines varies based on the
availability of the fresh fruit and is ultimately contingent on weather and other climatic conditions leading up to and through
the harvest seasons. As a result, our business is highly seasonal as sales of our products are generally higher during the squeezing
season. Sales of our products during the months from March through July, or the non-squeezing season, generally tend to be lower
due to a shortage of fresh fruit and a lower level of production activity. As a result, our results of operations for the first
and fourth quarters are generally stronger than those for our second and third quarters. We can produce fruit juice beverages
year round.
We
plan to broaden our fruit product offerings to expand into fruits with harvesting seasons complementary to our current fruits.
This will enable us to lengthen our squeezing season, thus increasing our annual production of fruit concentrate and fruit juice
beverages. In the first quarter of 2009, we introduced mulberry and kiwifruit cider beverages in the Chinese market. We intend
to diversify our product mix and increase our revenues.
Government
Regulation
Our
products are subject to central government regulation as well as provincial government regulation in Shaanxi and Liaoning Provinces.
Business and product licenses must be obtained through application to the central, provincial and local governments. We have obtained
our business licenses to operate domestically and export products under the laws and regulations of the PRC. We obtained business
licenses to conduct businesses, including an operating license to sell packaged foods such as concentrated fruit and vegetable
juices, fruit sugar, fruit pectin, frozen and freeze dried fruits and vegetables, dehydrated fruits and vegetables, fruit and
vegetable juice drinks, fruit cider and organic food. Business, company and product registrations are certified on a regular basis
and we must comply with the laws and regulations of the PRC, provincial and local governments and industry agencies.
In
accordance with PRC laws and regulations, we are required to comply with applicable hygiene and food safety standards in relation
to our production processes. Failure to pass these inspections, or the loss of or failure to renew our licenses and permits, could
require us to temporarily or permanently suspend some or all of our production activities, which could disrupt our operations
and adversely affect our business.
Currently Chinese environment laws and regulations do not negatively impact our business and our cost to comply
with such laws and regulations is immaterial.
Intellectual
Property
SkyPeople
(China) currently possesses six proprietary technologies, including the technologies to:
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Produce
concentrated clear kiwifruit juice;
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Produce
a mulberry cider beverage;
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Produce
apricot juice concentrates;
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Produce
cherry tomato juice concentrates;
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Produce
sea-buckthorn juice concentrates; and
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Produce
wolfberry juice concentrates
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We
hold twenty-two active patents granted by the State Intellectual Property Office of the PRC, (“SIPO”).
A
crushing and peeling device (Patent No. ZL 2011204456246)
A
peeling and dirt removal device (Patent No. ZL 2011204456212)
A
kiwifruit cider beverage and its production method (Patent No. ZL 2009 1 0022739.1)
A
production technology for strawberry juice concentrates (Patent No. ZL 2010 1 0209900.9)
A
production technology for turnjujube juice concentrates (Patent No. ZL 2010 1 0108318.3)
A
production technology for cherry juice concentrates (Patent No. ZL 2010 1 0209899.X)
A
production technology for persimmon juice concentrates (Patent No. ZL 2010 1 0013613.0) (granted to SkyPeople (China) on January 16, 2013)
A
production technology for medlar juice concentrates (Patent No. ZL 2010 1 0227315.1) (granted to SkyPeople (China) on April 24,
2013)
A
production technology for sea-buckthorn juice concentrates (Patent No. ZL 2010 1 0227303.9) (granted to SkyPeople (China) on April 24, 2013)
A
production technology for tomato cherry juice concentrates (Patent No. ZL 2010 1 0207254.2) (granted to SkyPeople (China) on March 6, 2013)
A
production technology for apricot juice concentrates (Patent No. ZL 2010 1 0207253.8) (granted to SkyPeople (China) on April 9,
2014)
500
ml Hedetang-branded fruit juice beverages in glass bottle label (Patent No. ZL 2012302099757) (granted to SkyPeople
(China) on May 30, 2012)
418
ml Hedetang-branded fruit juice beverages in glass bottle label (Patent No. ZL 2012302099935) (granted to SkyPeople (China)
on May 30, 2012)
280
ml Hedetang-branded fruit juice beverages in glass bottle label (Patent No. ZL 2012 3 0557344.4) (granted to SkyPeople (China)
on April 24, 2013)
418
ml Hedetang-branded fruit juice beverages in glass bottle label (Patent No. ZL 2012 3 0557424.X) (granted to SkyPeople (China)
on April 3, 2013)
500
ml Hedetang-branded fruit juice beverages in glass bottle label (Patent No. ZL 2012 3 0557301.6) (granted to SkyPeople (China)
on March 20, 2013)
236
ml Hedetang-branded fruit juice beverages in glass bottle label (Patent No. ZL 2014302060578) (granted to SkyPeople (China)
on December 17, 2014)
888
ml fruit juice beverages in glass bottle label (Patent No. ZL 2014 3 0206022.4) (granted to SkyPeople (China) on February 18, 2015)
Kiwifruits
box package (Patent No. ZL 2012 3 0561124.9) (granted to SkyPeople (China) on April 24, 2013)
418
ml fruits juice beverage packing box (Patent No. ZL 2012 3 0557226.3) (granted to SkyPeople (China) on April 3, 2013)
500
ml fruits juice beverage packing box (Patent No. ZL 2012 3 0557346.3) (granted to SkyPeople (China) on April 24, 2013)
500
ml fruits juice beverage packing box (Patent No. ZL 2012 3 0557346.3) (granted to SkyPeople (China) on April 24, 2013)
We
believe that these technologies are leading technologies in our industry.
In
addition, using our proprietary technologies, we have developed flow-through capacitor membrane, reverse osmosis concentration
and composite biological enzymolysis technology to clarify and remove murkiness from fruit juice. We believe that such are leading
technologies in our industry.
We
believe that our continued success and competitive status depend largely on our proprietary technology and ability to innovate.
We have taken the required measures to protect the confidentiality of our proprietary technologies and processes. We rely on a
combination of know-how, patent and trade secret laws, as well as confidentiality agreements to protect our proprietary rights.
We will take the necessary action to seek remuneration if we believe our intellectual property rights have been infringed upon.
As of December 31, 2015, we held twenty-one active patents granted by SIPO related to breaking up and separating fruit peel; removing
fruit peel and fruit hair; production of various concentrated fruit juice; and bottle tags, respectively. These patents have a
duration of 10 years. In addition to these nine active patents, we are applying for another six scientific patents. However, we
do not have patents on certain other items of intellectual property that we possess.
We
also hold registered trademarks for our “Hedetang” brand with the Trademark Bureau of the State Administration for
Industry and Commerce (“SAIC”) granted on September 14, 2008 in Category 29, Category 30, Category 31 and Category
32, and on April 21, 2009 in Category 5. The trademarks expire on September 13, 2018 and April 20, 2019, respectively, and can
be extended upon expiration.
We
hold registered trademarks for our “SkyPeople” brand with the Trademark Bureau of the SAIC in Category 30 and Category
32 with period of validity from May 14, 2011 to May 13, 2021, and in Category 31 with period of validity from September 7, 2011
to September 6, 2021. The registration of such trademarks can be extended upon expiration.
Employees
As
of December 31, 2015, we had approximately 250 full-time employees and approximately 95 part-time employees, all of whom are located
in the PRC. None of our employees are covered by a collective bargaining agreement.
ITEM
1A – RISK FACTORS
An
investment in the Company’s common stock involves a high degree of risk. In addition to the following risk factors, you
should carefully consider the risks, uncertainties and assumptions discussed herein, and in other documents that the Company subsequently
files with the Securities and Exchange Commission, (the “Commission” or the “SEC”), that update,
supplement or supersede such information for which documents are incorporated by reference into this Report. Additional risks
not presently known to the Company, or which the Company considers immaterial based on information currently available, may also
materially adversely affect the Company’s business. If any of the events anticipated by the risks described herein occur,
the Company’s business, cash flow, results of operations and financial condition could be adversely affected, which could
result in a decline in the market price of the Company’s common stock, causing you to lose all or part of your investment.
Risks
Related to Our Business
We
may not be able to effectively control and manage our growth, and a failure to do so could adversely affect our operations and
financial condition.
Our
revenue increased significantly from 2006 to 2010 with revenue of approximately $17.4 million in 2006, approximately $29.4 million
in 2007, approximately $41.7 million in 2008, approximately $59.2 million in 2009, approximately $93.2 million in 2010. In 2011,
our revenue decreased by 9.9% to $84.0 million as compared to the prior year. In 2012, our revenue increased by 22% to $102 million.
In 2013, our revenue decreased 23% to $79.0 million. In 2014, our revenue increased to $99 million. In 2015, our revenue decreased
to $86 million. If our business and markets continue to experience significant growth, we will need to expand our business to
maintain our competitive position. We may face challenges in managing and financing expansion of our business, facilities and
product offerings, including challenges relating to integration of acquired businesses and increased demands on our management
team, employees and facilities. Failure to effectively deal with increased demands on us could interrupt or adversely affect our
operations and cause production backlogs, longer product development time frames and administrative inefficiencies. Other challenges
involved with expansion, acquisitions and operation include:
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unanticipated
costs;
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the
diversion of management’s attention from other business concerns;
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potential
adverse effects on existing business relationships with suppliers and customers;
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obtaining
sufficient working capital to support expansion;
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expanding
our product offerings and maintaining the high quality of our products;
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continuing
to fill customers’ orders on time;
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maintaining
adequate control of our expenses and accounting systems;
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successfully
integrating any future acquisitions; and
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anticipating
and adapting to changing conditions in the fruit juice and beverage industry, whether from changes in government regulations,
mergers and acquisitions involving our competitors, technological developments or other economic, competitive or market dynamics.
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Even
if we obtain benefits of expansion in the form of increased sales, there may be delay between the time when the expenses associated
with an expansion or acquisition are incurred and the time when we recognize such benefits, which could negatively affect our
earnings.
Our
revenue and profitability are heavily dependent on prevailing prices for our products and raw materials, and if we are unable
to effectively offset cost increases by adjusting the pricing of our products, our margins and operating income may decrease.
As
a producer of commodities, our revenue, gross margins and cash flows from operations are substantially dependent on the prevailing
prices we receive for our products and the cost of our raw materials, neither of which we control. The factors influencing the
sales price of concentrated fruit juice include the supply price of fresh fruit, supply and demand of our products in international
and domestic markets and competition in the fruit juice industry.
The
price of our principal raw materials, fresh fruit, is subject to market volatility as a result of numerous factors including,
but not limited to, general economic conditions, governmental regulations, weather, transportation delays and other uncertainties
that are beyond our control. Due to such market volatility, we generally do not, nor do we expect to, have long-term contracts
with our fresh fruit suppliers. Other significant raw materials used in our business include packing barrels, pectic enzyme, amylase
and auxiliary materials such as coal, electricity and water. Prices for these items may be volatile as well and we may experience
shortages in these items from time to time. As a result, we cannot guarantee that the necessary raw materials to produce our products
will continue to be available to us at prices currently in effect or acceptable to us. In the event raw material prices increase
materially, we may not be able to adjust our product prices, especially in the short term, to recover such cost increases. If
we are not able to effectively offset these cost increases by adjusting the price of our products, our margins will decrease and
earnings will suffer accordingly.
Weather
and other environmental factors affect our raw material supply and a reduction in the quality or quantity of our fresh fruit supplies
may have material adverse consequences on our financial results.
Our
business may be adversely affected by weather and environmental factors beyond our control, such as adverse weather conditions
during the growing or squeezing seasons. A significant reduction in the quantity or quality of fresh fruit harvested resulting
from adverse weather conditions, disease or other factors could result in increased per unit processing costs and decreased production,
with adverse financial consequences to us.
We
sell our products
primarily through distributors and delays in delivery or poor handling by distributors may
affect our sales and damage our reputation.
We
primarily sell our products through our distributors and rely on these distributors for the distribution of our products. These
distributors are not obligated to continue to sell our products. Any disruptions in our relationships with our distributors could
cause interruption to the supply of our products to retailers, which would harm our revenue and results of operations. In addition,
delivery disruptions may occur for various reasons beyond our control, including poor handling by distributors or third party
transport operators, transportation bottlenecks, natural disasters and labor strikes, and could lead to delayed or lost deliveries.
Some of our products are perishable and poor handling by distributors and third party transport operators could also result in
damage to our products that would make them unfit for sale. If our products are not delivered to retailers on time, or are delivered
damaged, we may have to pay compensation, we could lose business and our reputation could be harmed.
Because
we experience seasonal fluctuations in our sales, our quarterly results will fluctuate and our annual performance will depend
largely on results from our first and fourth quarters.
Our
business is highly seasonal, reflecting the harvest season of our primary source fruits from July or August of a year to April
the following year. Typically, a substantial portion of our revenue is earned during our first and fourth quarters. We generally
experience lower revenue during our second and third quarters. Generally, sales in the first and fourth quarters accounted for
approximately 65% to 72% of our revenue of the whole year. If sales in our first and fourth quarters are lower than expected,
our operating results would be adversely affected and it would have a disproportionately large impact on our annual operating
results.
If
we are unable to gain market acceptance or significant market share for the new products we introduce, our results of operations
and profitability could be adversely impacted.
Our
future business and financial performance depends, in part, on our ability to successfully respond to consumer preferences by
introducing new products and improving existing products. We cannot guarantee that we will be able to gain market acceptance or
significant market share for our new products. Consumer preferences change, and any new products that we introduce may fail to
meet the particular tastes or requirements of consumers, or may be unable to replace their existing preferences. Our failure to
anticipate, identify or react to these particular tastes or changes could result in reduced demand for our products, which could
in turn cause us to be unable to recover our development, production and marketing costs, thereby leading to a decline in our
profitability.
The
development and introduction of new products is key to our expansion strategy. We incur significant development and marketing
costs in connection with the introduction of new products. Successfully launching and selling new products puts pressure on our
sales and marketing resources, and we may fail to invest sufficient funds in order to market and sell a new product effectively.
If we are not successful in marketing and selling new products, our results of operations could be materially adversely affected.
Economic
conditions have had and may continue to have an adverse effect on consumer spending on our products.
The
worldwide economy has not yet fully recovered from a recession, which has reduced discretionary income of consumers. The adverse
effect of a sustained international economic downturn, including sustained periods of decreased consumer spending, high unemployment
levels, declining consumer or business confidence and continued volatility and disruption in the credit and capital markets, will
likely result in reduced demand for our products as consumers turn to less expensive substitute goods or forego certain purchases
altogether. To the extent the international economic downturn continues or worsens, we could experience a reduction in sales volume.
If we are unable to reduce our operating costs and expenses proportionately, many of which are fixed, our results of operations
would be adversely affected.
Concerns
over food safety and public health may affect our operations by increasing our costs and negatively impacting demand for our products.
We
could be adversely affected by diminishing confidence in the safety and quality of certain food products or ingredients. As a
result, we may elect or be required to incur additional costs aimed at increasing consumer confidence in the safety of our products.
For example, a crisis in the PRC over melamine contaminated milk in 2008 has adversely impacted Chinese food exports since October
2008, as reported by the Chinese General Administration of Customs, although most foods exported from the PRC were not significantly
affected by the melamine contamination. In addition, our concentrated fruit juices exported to foreign countries must comply with
quality standards in those countries. Our success depends on our ability to maintain the quality of our existing and new products.
Product quality issues, real or imagined, or allegations of product contamination, even if false or unfounded, could tarnish the
image of our brands and may cause consumers to choose other products.
We
face increasing competition from both domestic and foreign companies, and any failure by us to compete effectively could adversely
affect our results of operations.
The
juice beverage industry is highly competitive, and we expect it to continue to become even more competitive. Our ability to compete
in the industry depends, to a significant extent, on our ability to distinguish our products from those of our competitors by
providing high quality products at reasonable prices that appeal to consumers’ tastes and preferences. There are currently
a number of well-established companies producing products that compete directly with ours. Some of our competitors may have been
in business longer than we have, may have substantially greater financial and other resources than we have and may be better established
in their markets. We anticipate that our competitors will continue to improve their products and introduce new products with competitive
price and performance characteristics.
We
cannot guarantee that our current or potential competitors will not provide products comparable or superior to those we provide
or adapt more quickly than we do to evolving industry trends or changing market requirements. It is also possible that there will
be significant consolidation in the juice beverage industry among our competitors, and alliances may develop among competitors.
These alliances may rapidly acquire significant market share, and some of our distributors may commence production of products
similar to those we sell to them. Increased competition may result in price reductions, reduced margins and loss of market share,
any of which could materially adversely affect our profit margins. We cannot guarantee that we will be able to compete effectively
against current and future competitors. Aggressive marketing or pricing by our competitors or the entrance of new competitors
into our markets could have a material adverse effect on our business, results of operations and financial condition.
We
may engage in future acquisitions involving significant expenditures of cash, the incurrence of debt or the issuance of stock,
all of which could have a materially adverse effect on our operating results.
As
part of our business strategy, we review acquisition and strategic investment prospects that we believe would complement our current
product offerings, augment our market coverage, enhance our technological capabilities or otherwise offer growth opportunities.
From time to time, we review investments in new businesses and we expect to make investments in, and to acquire, businesses, products
or technologies in the future. In the event of any future acquisitions, we may expend significant cash, incur substantial debt
and/or issue equity securities and dilute the percentage ownership of current shareholders, all of which could have a material
adverse effect on our operating results and the price of our Common Stock. We cannot guarantee that we will be able to successfully
integrate any businesses, products, technologies or personnel that we may acquire in the future, and our failure to do so could
have a material adverse effect on our business, operating results and financial condition.
We
require various licenses and permits to operate our business, and the loss of or failure to renew any or all of these licenses
and permits could materially adversely affect our business.
In
accordance with PRC laws and regulations, we have been required to maintain various licenses and permits in order to operate our
business at the relevant manufacturing facilities including, without limitation, industrial product production permits. We are
required to comply with applicable hygiene and food safety standards in relation to our production processes. Our premises and
transportation vehicles are subject to regular inspections by the regulatory authorities for compliance with the Detailed Rules
for Administration and Supervision of Quality and Safety in Food Producing and Processing Enterprises. Failure to pass these inspections,
or the loss of or failure to renew our licenses and permits, could require us to temporarily or permanently suspend some or all
of our production activities, which could disrupt our operations and adversely affect our business.
Governmental
regulations affecting the import or export of products could negatively affect our revenue.
The
United States and various other governments have imposed controls, export license requirements and restrictions on the export
of some of our products. Governmental regulation of exports, or our failure to obtain required export approval for our products,
could harm our international sales and adversely affect our revenue and profits. In addition, failure to comply with such regulations
could result in penalties, costs and restrictions on export privileges.
We
do not presently maintain product liability insurance, and our property and equipment insurance does not cover the full value
of our property and equipment, which leaves us with exposure in the event of loss or damage to our properties or claims filed
against us.
We
currently do not carry any product liability or other similar insurance. Product liability claims and lawsuits in the PRC generally
are still rare, unlike in some other countries. Product liability exposures and litigation, however, could become more commonplace
in the PRC. Moreover, we have product liability exposure in countries in which we sell our products, such as the United States,
where product liability claims are more prevalent. As we expand our international sales, our liability exposure will increase.
We
may be required from time to time to recall products entirely or from specific copackers, markets or batches. Although historically
we have not had any recall of our products, we cannot guarantee that circumstances or incidents will not occur that will require
us to recall our products. We do not maintain recall insurance. In the event we experience product liability claims or a product
recall, our business operations and financial condition could be materially adversely affected.
Our
business and operations may be subject to disruption from work stoppages, terrorism or natural disasters.
Our
operations may be subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, pandemics,
fire, earthquake, flooding or other natural disasters. If a major incident were to occur in either of the regions where our facilities
or main offices are located, our facilities or offices or those of critical suppliers could be damaged or destroyed. Such a disruption
could result in a reduction in available raw materials, the temporary or permanent loss of critical data, suspension of operations,
delays in shipment of products and disruption of business generally, which would adversely affect our revenue and results of operations.
Our
success depends substantially on the continued retention of certain key personnel and our ability to hire and retain qualified
personnel in the future to support our growth.
If
one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, our
business may be disrupted and our financial condition and results of operations may be materially and adversely affected. While
we depend on the abilities and participation of our current management team generally, we rely particularly upon Mr. Yongke Xue,
a member of the Company’s Board of Directors (the “Board”); and Mr. Hanjun Zheng, our interim chief financial
officer (“CFO”). The loss of the services of Mr. Yongke Xue or Mr. Hanjun Zheng for any reason could significantly
adversely impact our business and results of operations. Competition for senior management and senior technology personnel in
the PRC is intense and the pool of qualified candidates is very limited. Accordingly, we cannot guarantee that the services of
our senior executives and other key personnel will continue to be available to us, or that we will be able to find a suitable
replacement for them if they were to leave.
The
relative lack of public company experience of our management team may put us at a competitive disadvantage.
Our
management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements
such as those imposed by the Sarbanes-Oxley Act of 2002, (“Sarbanes-Oxley”). Our senior management does not have experience
managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures
on a timely basis. Our senior management may be unable to implement programs and policies in an effective and timely manner or
that adequately respond to the increased legal, regulatory and reporting requirements associated with being a publicly traded
company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties, distract
our management from attending to the management and growth of our business, result in a loss of investor confidence in our financial
reports and have an adverse effect on our business and stock price.
As
a public company, we are obligated to maintain effective internal controls over financial reporting. Our internal controls may
be determined not to be effective, which may adversely affect investor confidence in us and, as a result, decrease the value of
our Common Stock.
The
PRC has not adopted management and financial reporting concepts and practices similar to those in the United States. We may have
difficulty in hiring and retaining a sufficient number of qualified finance and management employees to work in the PRC. As a
result of these factors, we may experience difficulty in establishing and maintaining accounting and financial controls, collecting
financial data, budgeting, managing our funds and preparing financial statements, books of account and corporate records and instituting
business practices that meet investors’ expectations in the United States.
Rules
adopted by the SEC, or the Commission, pursuant to Sarbanes-Oxley Section 404 require annual assessment of our internal
controls over financial reporting. This requirement first applied to our annual report on Form 10-K for the fiscal year ended
December 31, 2008. The standards that must be met for management to assess the internal controls over financial reporting
as effective are relatively new and complex, and they require significant documentation, testing and possible remediation to meet
the detailed standards. This assessment will need to include disclosure of any material weaknesses identified by our management
in our internal control over financial reporting. During the evaluation and testing process, if we identify one or more material
weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.
If we are unable to conclude that our internal control over financial reporting is effective, we could lose investor confidence
in the accuracy and completeness of our financial reports, which could harm our business and cause the price of our Common Stock
to decline.
We
may have inadvertently violated Sarbanes-Oxley Section 402 and Section 13(k) of the Securities Exchange Act and may be subject
to sanctions for such violations.
Section
13(k) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) provides that it is unlawful for a company
such as ours, which has a class of securities registered under Section 12(b) of the Exchange Act to, directly or indirectly, including
through any subsidiary, extend or maintain credit in the form of a personal loan to or for any director or executive officer of
the company. Issuers violating Section 13(k) of the Exchange Act may be subject to civil sanctions, including injunctive remedies
and monetary penalties, as well as criminal sanctions. The imposition of any of such sanctions on the Company may have a material
adverse effect on our business, financial position, results of operations or cash flows.
In
February 2008, we purchased Pacific, which is the holding company for our operating subsidiary, SkyPeople (China). At the time,
Hede, a PRC company owned by Yongke Xue, a member of the Board and our former chief executive officer, and Xiaoqin Yan, a former
director on the Board, was indebted to SkyPeople (China) on account of previous loans and advances made by SkyPeople (China) to
Hede. Such loans and advances totaled RMB 31,544,043 in the aggregate (or $4,318,281 based on the exchange rate as of December
31, 2007) and were made during the period from June 6, 2007 to December 29, 2007 that were used by Hede to pay a portion of the
purchase price for Hede’s acquisition of Huludao Wonder Fruit Co., Ltd., or Huludao Wonder. In May 2008, SkyPeople (China)
also assumed Hede’s obligation of RMB 18,000,000 (or $2,638,329 based on the exchange rate December 31, 2008) for the balance
of the purchase price for Huludao Wonder.
On
June 10, 2008, Hede sold Huludao Wonder to SkyPeople (China) for a total price of RMB 48,250,000 (or $6,308,591 based on the exchange
rate on June 1, 2007) the same price that Hede paid for Huludao Wonder. As of May 31, 2008, SkyPeople (China) had a related party
receivable of RMB 48,929,272 (or $7,171,751 based on the exchange rate December 31, 2008) from Hede, which was credited against
the purchase price, so that SkyPeople (China) did not pay any cash to Hede for the purchase, and the remaining balance of the
loans and advances of RMB 679,272 (or $99,564 based on the exchange rate as of December 31, 2008) to Hede was repaid to us on
June 11, 2008. Hede paid no interest or other consideration to us on account of the time value of money with respect to the loans
and advances made by SkyPeople (China) to Hede.
Notwithstanding
Hede’s repayment in full of loans made by SkyPeople (China) to Hede, the existence of indebtedness of Hede to SkyPeople
(China) at the time we acquired Pacific and the continuation of such indebtedness thereafter until it was fully repaid in June
2008 may constitute a violation of Section 13(k) of the Exchange Act and Section 402(a) of Sarbanes-Oxley.
In
addition, in May 2008, Pacific erroneously paid $4,916,617 to its former shareholders, including Xiaoqing Yan and Yongke Xue,
as the result of a dividend declared by Pacific in February 2008 prior to our acquisition of Pacific. Because the recipients of
these funds were no longer shareholders of Pacific, the transaction was treated for accounting purposes as an interest free loan.
In June 2008, the directors and other related parties returned the funds they received, without interest. Although the erroneously
paid funds associated with Pacific’s dividend declaration have been repaid to us in full, Xiaoqing Yan and Yongke Xue’s
receipt of the erroneous dividend may also be deemed to be a violation of the Exchange Act and Section 13(k) and Section 402(a)
of Sarbanes-Oxley. See the section entitled “Certain Relationships and Related Transactions—Transactions with Related
Persons, Promoters and Certain Control Persons.”
Partially
in response to the matters set forth above, in September 2008, the Board adopted a policy regarding approval of related party
transactions. Under the policy, the Board’s audit committee must approve any related party transaction involving an aggregate
amount that is expected to exceed $50,000, and no director may participate in any discussion or approval of a transaction that
would be considered to be a related party transaction in which such person is interested. See the section entitled “Certain
Relationships and Related Transactions—Review, Approval or Ratification of Transactions with Related Persons.”
We
may need additional capital to fund our future operations and, if it is not available when needed, we may need to reduce our planned
development and marketing efforts, which may reduce our sales revenue.
We
believe that our existing working capital and cash available from operations will enable us to meet our working capital requirements
for at least the next 12 months. However, if cash from future operations is insufficient, or if cash is used for acquisitions
or other currently unanticipated uses, we may need additional capital. The development and marketing of new products and the expansion
of distribution channels and associated support personnel require a significant commitment of resources. In addition, if the markets
for our products develop more slowly than anticipated, or if we fail to establish significant market share and achieve sufficient
net revenues, we may continue to consume significant amounts of capital. As a result, we could be required to raise additional
capital. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance
of such securities could result in dilution of the shares held by existing stockholders. If additional funds are raised through
the issuance of debt securities, such securities may provide the holders certain rights, preferences, and privileges senior to
those of common stockholders, and the terms of such debt could impose restrictions on our operations. We cannot guarantee that
additional capital, if required, will be available on acceptable terms, or at all. If we are unable to obtain sufficient amounts
of additional capital, we may be required to reduce the scope of our planned product development and marketing efforts, which
could harm our business, financial condition and operating results.
We
may not be able to prevent others from unauthorized use of our patents, which could harm our business and competitive position.
Our
success depends, in part, on our ability to protect our proprietary technologies. We hold two patents in the PRC covering our
fruit processing technology. The process of seeking patent protection can be lengthy and expensive and we cannot guarantee that
our existing or future issued patents will be sufficient to provide us with meaningful protection or commercial advantages. We
also cannot guarantee that our current or potential competitors do not have, and will not obtain, patents that will prevent, limit
or interfere with our ability to make or sell our products in the PRC or other countries.
The
implementation and enforcement of PRC intellectual property laws historically have not been vigorous or consistent. Accordingly,
intellectual property rights and confidentiality protections in the PRC are not as effective as those in the United States and
other countries. We may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability,
scope and validity of our proprietary rights or those of others. Such litigation will require significant expenditures of cash
and management efforts and could harm our business, financial condition and results of operations. An adverse determination in
any such litigation will impair our intellectual property rights and may harm our business, competitive position, business prospects
and reputation.
Intellectual
property infringement claims may adversely impact our results of operations.
As
we develop and introduce new products, we may be increasingly subject to claims of infringement of another party’s intellectual
property. If a claim for infringement is brought against us, such claim may require us to modify our products, cease selling certain
products or engage in litigation to determine the validity and scope of such claims. Any of these events may harm our business
and results of operations.
If
our costs and demands upon management increase disproportionately to the growth of our business and revenue as a result of complying
with the laws and regulations affecting public companies, our operating results could be harmed.
As
a public company, we do and will continue to incur significant legal, accounting, investor relations and other expenses, including
costs associated with public company reporting requirements. We also have incurred and will incur costs associated with current
corporate governance requirements, including requirements under Section 404 and other provisions of Sarbanes-Oxley, as well
as rules implemented by the SEC and the stock exchange on which our Common Stock is traded. The expenses incurred by public companies
for reporting and corporate governance purposes have increased dramatically over the past several years. These rules and regulations
have increased our legal and financial compliance costs substantially and make some activities more time consuming and costly.
If our costs and demands upon management increase disproportionately to the growth of our business and revenue, our operating
results could be harmed.
There
are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in
accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Any changes in estimates, judgments
and assumptions could have a material adverse effect on our business, financial condition and operating results.
The
preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”)
involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities
and related reserves, revenue, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the
future, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenue, expenses and
income. Any such changes could have a material adverse effect on our business, financial condition and operating results.
We
are subject to the risk of increased income taxes, which could harm our business, financial condition and operating results.
We
base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the
various countries in which we have assets or conduct activities. However, our tax position is subject to review and possible challenge
by tax authorities and to possible changes in law, which may have retroactive effect. We currently operate through Pacific, a
wholly-owned subsidiary organized under the laws of Vanuatu and SkyPeople (China), a 99.78% owned subsidiary of Pacific organized
under the laws of the PRC, and we maintain manufacturing operations in the PRC. Any of these jurisdictions could assert tax claims
against us. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments
in lieu of taxes. If we become subject to additional taxes in any jurisdiction, such tax treatment could materially and adversely
affect our business, financial condition and operating results.
Risks
Related to Doing Business in the PRC
Inflation
in the PRC could negatively affect our profitability and growth.
The
rapid growth of China’s economy has been uneven among economic sectors and geographic regions of the country. China’s
economy grew at an annual rate of 6.9% in 2015, as measured by the year-over-year change in gross domestic product, or GDP, according
to the National Bureau of Statistics of China. Rapid economic growth can lead to growth in the money supply and rising inflation.
The inflation rate in China was approximately 1.5% in 2015, as reported by National Bureau of Statistics, and is expected to increase.
If prices for our products and services fail to rise at a rate sufficient to compensate for the increased costs of supplies, such
as raw materials, due to inflation, it may have an adverse effect on our profitability.
Furthermore,
in order to control inflation in the past, the PRC government has imposed controls on bank credits, limits on loans for property,
plant and equipment and restrictions on state bank lending. The implementation of such policies may impede future economic growth.
The People’s Bank of China has effected increases in interest rates in response to inflationary concerns in the China’s
economy. If the central bank again raises interest rates from current levels, economic activity in China could further slow and,
in turn, materially increase our costs and reduce demand for our products and services.
We
face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able
to conduct in the PRC and the profitability of such business.
We
conduct substantially all of our operations and generate most of our revenue in the PRC. Accordingly, economic, political and
legal developments in the PRC will significantly affect our business, financial condition, results of operations and prospects.
The PRC economy is in transition from a planned economy to a market oriented economy subject to plans adopted by the government
that set national economic development goals. Policies of the PRC government can have significant effects on economic conditions
in the PRC. While we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries
and that business development in the PRC will continue to follow market forces, we cannot guarantee that this will be the case.
Our interests may be adversely affected by changes in policies by the PRC government, including:
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Although
the PRC government has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise
significant control over economic growth in the PRC through the allocation of resources, controlling payments of foreign currency,
setting monetary policy and imposing policies that impact particular industries in different ways. We cannot guarantee that the
PRC government will continue to pursue policies favoring a market oriented economy or that existing policies will not be significantly
altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political,
economic and social life in the PRC.
The
original incorporation of SkyPeople (China) as a joint stock company in 2001 did not obtain all required approvals from the PRC
government authorities pursuant to the relevant PRC law effective at the time, and we may be subject to various penalties under
the law retroactively.
The
original incorporation of SkyPeople (China) (under the original name of Xi’an Zhonglv Ecology Science and Technology Industry
Co., Ltd.) as a joint stock company in 2001 was approved by the Xi’an Municipal People’s Government. However, according
to the applicable PRC Company Law that was in force in 2001, the incorporation of SkyPeople (China) as a joint stock company shall
be subject to the approval by the government authority of Shaanxi Province. Pursuant to the PRC Company Law which was in force
in 2001, if company stocks is arbitrarily issued without obtaining the approval of the relevant competent authorities stipulated
under the law, the parties concerned may be ordered to cease the issuance of the stock, refund the raised capital and the interests
accrued therefrom, and may be subject to a fine of no less than one percent but no more than five percent of the amount of the
raised capital. As such, SkyPeople (China) may be subject to any or all of the foregoing penalties as provided under the PRC Company
Law effective in 2001 should the relevant government authorities choose to enforce the law retroactively.
However,
we believe that the regulatory authorities may consider the following factors as mitigating factors if such authorities choose
to enforce the applicable laws:
(i)
the incorporation of SkyPeople (China) obtained the approval by the Xi’an local government. As general practice
in approval procedures, the applicants may only be able to first approach the Xi’an local government authority in order
to acquire the approval by a higher level government authority, and would generally rely on the Xi’an local government to
then submit the application to a higher level authority for its final approval; and
(ii)
the trend of the PRC Company Law is to deregulate the approvals on the incorporation of joint stock companies in China. In particular,
the current PRC Company Law, effective since January 1, 2006, has eliminated the relevant approval requirement relating to the
incorporation of joint stock companies. Instead, the current PRC Company Law merely requires a registration with the competent
Administration for Industry and Commerce in connection with the incorporation of joint stock companies in the PRC as long as the
stock is not issued to the public.
In
addition, if needed in the future, we may make efforts to seek a written confirmation from the Shaanxi Provencal People’s
Government regarding its ratification of the original incorporation of SkyPeople (China) as a joint stock company.
Our
current manufacturing operations are subject to various environmental protection laws and regulations issued by the central and
local governmental authorities, and we cannot guarantee that we have fully complied with all such laws and regulations. In addition,
changes in the existing laws and regulations or additional or stricter laws and regulations on environmental protection in the
PRC may cause us to incur significant capital expenditures, and we cannot guarantee that we will be able to comply with any such
laws and regulations.
We
carry out our business in an industry that is subject to PRC environmental protection laws and regulations. These laws and regulations
require enterprises engaged in manufacturing and construction that may cause environmental waste to adopt effective measures to
control and properly dispose of waste gases, waste water, industrial waste, dust and other environmental waste materials, as well
as fee payments from producers discharging waste substances. Fines may be levied against producers causing pollution. Although
we have made efforts to comply with such laws and regulations, we cannot guarantee that we have fully complied with all such laws
and regulations. Except for Yingkou, all of our operating facilities hold a Pollution Emission Permit. The failure of complying
with such laws or regulations may subject us to various administrative penalties such as fines. If the circumstances of the breach
are serious, the central government of the PRC, including all governmental subdivisions, has the discretion to cease or close
any operations failing to comply with such laws or regulations. There can also be no assurance that the PRC government will not
change the existing laws or regulations or impose additional or stricter laws or regulations, compliance with which may cause
us to incur significant capital expenditure, which we may be unable to pass on to our customers through higher prices for our
products. In addition, we cannot guarantee that we will be able to comply with any such laws and regulations.
Changes
in existing PRC food hygiene and safety laws may cause us to incur additional costs to comply with the more stringent laws and
regulations, which could have an adverse impact on our financial position.
Manufacturers
within the PRC beverage industry are subject to compliance with PRC food hygiene laws and regulations. These food hygiene and
safety laws require all enterprises engaged in the production of juice and other beverages to obtain a food production license
for each of their production facilities. They also set out hygiene and safety standards with respect to food and food additives,
packaging and containers, information to be disclosed on packaging as well as hygiene requirements for food production and sites,
facilities and equipment used for the transportation and sale of food. Failure to comply with PRC food hygiene and safety laws
may result in fines, suspension of operations, loss of business licenses and, in more extreme cases, criminal proceedings against
an enterprise and its management. Although we comply with current food hygiene laws, in the event that the PRC government increases
the stringency of such laws, our production and distribution costs may increase, which could adversely impact our financial position.
We
benefit from various forms of government subsidies and grants, the withdrawal of which could affect our operations.
Certain
of our subsidiaries have received government subsidies from local governments. We recognized $1.2 million and $0.7 million in
government subsidies for fiscal years 2015 and 2014, respectively. Past government grants or subsidies are not indicative of what
we will obtain in the future. We cannot guarantee that we will continue to be eligible for government grants or other forms of
government support. In the event that we are no longer eligible for grants, subsidies or other government support, our business
and financial condition could be adversely affected.
PRC
laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws
and regulations may harm our business.
There
are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited
to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in
certain circumstances. We are considered foreign persons or foreign funded enterprises under PRC laws and, as a result, we are
required to comply with PRC laws and regulations related to foreign persons and foreign funded enterprises. These laws and regulations
are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance.
New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict
what effect the interpretation of existing or new PRC laws or regulations may have on our business.
We
could be restricted from paying dividends to shareholders due to PRC laws and other contractual requirements.
We
are a holding company incorporated in the State of Florida and do not have any assets or conduct any business operations other
than our investments in our subsidiaries and affiliates. As a result of our holding company structure, we rely entirely
on dividend payments from SkyPeople (China). PRC accounting standards and regulations currently permit payment of dividends
only out of accumulated profits, a portion of which is required to be set aside for certain reserve funds. Furthermore,
if SkyPeople (China) incurs debt on its own in the future, the instruments governing the debt may restrict its ability to pay
dividends or make other payments. Although we do not intend to pay dividends in the future, our inability to receive
all of the revenue from SkyPeople (China)’s operations may provide an additional obstacle to our ability to pay dividends
if we so decide in the future.
Governmental
control of currency conversion may affect the value of shareholder investments.
The
PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of
currency out of the PRC. RMB is currently not a freely convertible currency. Shortages in the availability
of foreign currency may restrict our ability to remit sufficient foreign currency to satisfy foreign currency obligations. Under
existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments
and expenditures from the transaction, can be made in foreign currencies without prior approval by complying with certain procedural
requirements. Approval from appropriate governmental authorities, however, is required where RMB is to be converted
into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of bank loans denominated in foreign
currencies. In addition, the PRC government could restrict access to foreign currencies for current account transactions
in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy
our currency demands, we may not be able to pay certain of our expenses as they come due.
The
fluctuation of the RMB may harm shareholder investments.
The
value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in
the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially and adversely
affect our cash flows, revenue and financial condition. For example, to the extent that we need to convert U.S. dollars
we receive from an offering of our securities into RMB for our operations, appreciation of the RMB against the U.S. dollar would
diminish the value of the proceeds of the offering and could harm our business, financial condition and results of operations. Conversely,
if we decide to convert our RMB into U.S. dollars for business purposes and the U.S. dollar appreciates against the RMB, the U.S.
dollar equivalent of the RMB we convert would be reduced. In addition, the depreciation of significant U.S. dollar
denominated assets could result in a charge to our income statement and a reduction in the value of these assets.
PRC
regulations relating to mergers and the establishment of offshore special purpose companies by PRC residents, if applied to us,
may limit our ability to operate our business as we see fit.
On
August 8, 2006, six Chinese regulatory agencies, namely, MOFCOM, the State Assets Supervision and Administration Commission, the
State Administration for Taxation (“SAT”), SAIC, the Securities Regulatory Commission (“CSRC”) and the
State Administration of Foreign Exchange (“SAFE”), jointly promulgated the Regulation on Mergers and Acquisitions
of Domestic Companies by Foreign Investors, generally referred to as the 2006 M&A Rules, which became effective on September
8, 2006. The 2006 M&A Rules, among other things, govern the approval process by which an offshore investor may participate
in an acquisition of assets or equity interests of a Chinese domestic company. Depending on the structure of the transaction,
the 2006 M&A Rules require the transaction parties to make a series of applications to the government agencies. In some instances,
the application process may require the presentation of economic data concerning a transaction, including appraisals of the target
business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Under certain
circumstances, government approvals will have expiration dates by which a transaction must be completed and reported to the government
agencies. Compliance with the 2006 M&A Rules will be more time consuming and expensive than in the past, and the government
can exert more control over the combination of two businesses under the 2006 M&A Rules. As a result of any potential application
of the 2006 M&A Rules, our ability to engage in business combination transactions in the PRC has become significantly more
complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to us or sufficiently
protective of our interests in a transaction.
In
October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through
Special Purpose Companies by Residents Inside the PRC, generally referred to as Circular 75. Circular 75 requires Chinese residents
to register with an applicable branch of SAFE before establishing or acquiring control over an offshore special purpose company
for the purpose of engaging in an equity financing outside of the PRC that is supported by domestic Chinese assets originally
held by those residents. Following the issuance of Circular 75, SAFE issued internal implementing guidelines for Circular 75 in
June 2007. These implementing guidelines, known as Notice 106, effectively expanded the reach of Circular 75 by:
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purporting
to regulate the establishment or acquisition of control by Chinese residents of offshore entities which merely acquire “control”
over domestic companies or assets, even in the absence of legal ownership;
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adding
requirements relating to the source of the Chinese resident’s funds used to establish or acquire the offshore entity;
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regulating
the use of existing offshore entities for offshore financings;
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purporting
to regulate situations in which an offshore entity establishes a new subsidiary in the PRC or acquires an unrelated company
or unrelated assets in the PRC;
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making
the domestic affiliate of the offshore entity responsible for the accuracy of certain documents which must be filed in connection
with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds; and
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requiring
that the registrant establish that all foreign exchange transactions undertaken by the offshore entity and its affiliates
were in compliance with applicable laws and regulations.
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No
assurance can be given that our shareholders who are the residents as defined in Circular 75 and who own or owned our shares have
fully complied with, and will continue to comply with, all applicable registration and approval requirements of Circular 75 in
connection with their equity interests in us and our acquisition of equity interests in our PRC based subsidiaries by virtue of
our acquisition of Pacific. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how
or whether SAFE will apply it to us following the Pacific acquisition, we cannot predict how it will affect our business operations
or future strategies. For example, the ability of our present and prospective PRC subsidiaries to conduct foreign exchange activities,
such as the remittance of dividends and foreign currency denominated borrowings, may be subject to compliance with Circular 75
by our Chinese resident beneficial holders. In addition, such Chinese residents may not always be able to complete the necessary
registration procedures required by Circular 75. We have little control over our present or prospective direct or indirect shareholders
/beneficial owners or the outcome of such registration procedures. If our Chinese shareholders/beneficial owners or the Chinese
shareholders/beneficial owners of the target companies we acquired in the past or will acquire in the future fail to comply with
Circular 75 and related regulations, and if SAFE requires it, they may be subject to fines or legal sanctions, and Chinese authorities
could restrict our investment activities in the PRC, limit our subsidiaries’ ability to make distributions or pay dividends,
or affect the ownership structure, which could adversely affect business and prospects.
Our
acquisition of SkyPeople (China) could constitute a Round-trip Investment under the 2006 M&A Rules.
Prior
to obtaining the MOFCOM approval on September 3, 2007 and Xi’an AIC approval on October 18, 2007, and prior to the full
payment of the purchase price by Pacific for 99% of SkyPeople (China)’s capital stock, SkyPeople (China) was a PRC business
some of whose shareholders were PRC individuals including Hongke Xue, chairman of SkyPeople (China). When Pacific was incorporated
on November 30, 2006 and when the SkyPeople (China) acquisition was approved, none of the shareholders of Pacific were PRC citizens.
Immediately after the consummation of the share exchange, shareholders of Pacific became our shareholders, including Fancylight,
our controlling shareholder. To incentivize Mr. Hongke Xue in connection with the continuous development of SkyPeople (China)’s
business, a call option agreement was entered into between Fancylight and Mr. Hongke Xue on February 25, 2008 pursuant to which
Mr. Xue had the opportunity to acquire a majority of our Common Stock held by Fancylight. Mr. Xue and Fancylight also entered
into a voting trust agreement pursuant to which Mr. Xue has the right to vote such shares on Fancylight’s behalf.
The
PRC regulatory authorities may take the view that the SkyPeople (China) acquisition, the share exchange transaction and the call
option and voting trust arrangements are part of an overall series of arrangements which constitute a round-trip investment regulated
by the 2006 M&A Rules, because at the end of these transactions the same PRC individual who controlled SkyPeople (China) became
the effective controlling party of a foreign entity that acquired ownership of SkyPeople (China). The PRC regulatory authorities
may also take the view that the approval of the SkyPeople (China) acquisition by the MOFCOM and the registration of such acquisition
with the AIC in Xi’an AIC may not be evidence that the SkyPeople (China) acquisition has been properly approved because
the relevant parties did not fully disclose to the MOFCOM or AIC the overall restructuring arrangements. If the PRC regulatory
authorities take the view that the SkyPeople (China) acquisition constitutes a round-trip investment under the 2006 M&A Rules,
we cannot guarantee that we will be able to obtain the required MOFCOM approval.
If
the PRC regulatory authorities take the view that the SkyPeople (China) acquisition constitutes a round-trip investment without
MOFCOM approval on such round-trip investment, they could invalidate our acquisition and ownership of SkyPeople (China).
Additionally,
the 2006 M&A Rules also purport to require that an offshore special purpose vehicle (“ SPV”) formed for listing
purposes and controlled directly or indirectly by PRC companies or individuals shall obtain the approval of the CSRC prior to
the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published
on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval
of their overseas listings. However, the application of this PRC regulation remains unclear, with no consensus currently existing
regarding the scope and applicability of the CSRC approval requirement. Given that we established our PRC subsidiaries by means
of direct investments, we believe that these regulations do not require an application to be submitted to the CSRC for the approval
of the listing and trading of our stock on the NASDQ Global Equities, unless we are clearly required to do so by subsequently
promulgated rules of the CSRC. If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required
for the offerings, we may need to apply for a remedial approval from the CSRC and may be subject to certain administrative punishments
or other sanctions from these regulatory agencies. The regulatory agencies may take actions that could have a material adverse
effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of
our stock.
We
believe that if this takes place, we may be able to find a way to reestablish control of SkyPeople (China)’s business operations
through a series of contractual arrangements rather than an outright purchase of SkyPeople (China). But we cannot guarantee that
such contractual arrangements will be protected by PRC law or that we can receive as complete or effective economic benefit and
overall control of SkyPeople (China)’s business than if we had direct ownership of SkyPeople (China). In addition, we cannot
guarantee that such contractual arrangements can be successfully implemented under PRC law. If we cannot obtain approval from
MOFCOM and/or CSRC if required by the PRC regulatory authorities to do so, and if we cannot put in place or enforce relevant contractual
arrangements as an alternative and equivalent means of control of SkyPeople (China), our business and financial performance will
be materially adversely affected.
Because
our principal assets are located outside of the United States, it may be difficult for investors to use U.S. securities laws
to enforce their rights against us, our officers and some of our directors in the United States or to enforce judgments of United
States courts against us or them in the PRC.
All
of our present officers and directors reside outside of the United States. In addition, SkyPeople (China) is located in the PRC
and substantially all of its assets are located outside of the United States. Therefore, it may be difficult for investors in
the United States to enforce their legal rights based on the civil liability provisions of the U.S. securities laws against us
in the courts of either the United States or the PRC and, even if civil judgments are obtained in courts of the United States,
to enforce such judgments in the PRC courts. Further, it is unclear if extradition treaties now in effect between the United States
and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties under the U.S. Federal
securities laws or otherwise.
Risks
Related to Our Common Stock
We
are authorized to issue blank check preferred stock, which may be issued without shareholder approval and which may adversely
affect the rights of holders of our Common Stock.
We
are authorized to issue 10,000,000 shares of preferred stock. The Board is authorized under our articles of incorporation, as
amended, to provide for the issuance of shares of preferred stock by resolution and by filing a certificate of designations under
Florida law, to fix the designation, powers, preferences and rights of the shares of each such series of preferred stock and the
qualifications, limitations or restrictions thereof without any further vote or action by the shareholders. The Board previously
designated and issued 1,000,000 shares of Series A preferred stock which were automatically converted into our Common Stock upon
the effective date of our two-for-three reverse split and returned to the status of authorized and unissued shares of preferred
stock following the reverse split. As of November 22, 2016 there were no shares of Series A preferred stock issued and outstanding.
Any shares of preferred stock that are issued are likely to have priority over our Common Stock with respect to dividend or liquidation
rights. In the event of issuance, the preferred stock could be utilized under certain circumstances as a method of discouraging,
delaying or preventing a change in control, which could have the effect of discouraging bids to acquire us and thereby prevent
shareholders from receiving the maximum value for their shares. We have no present intention to issue any additional shares of
preferred stock in order to discourage or delay a change of control or for any other reason. However, there can be no assurance
that preferred stock will not be issued at some time in the future.
Yongke
Xue has control over key decision making as a result of his control of a majority of our voting stock.
Yongke
Xue, a member of the Board of Directors, indirectly and beneficially owns 80% equity interest in SkyPeople International Holdings
Group Limited (“SP International”), and also serves as the sole director of SP International. In turn, SP International
indirectly owns 13,375,639 shares, or 50.2%, of our outstanding common stock. Mr. Yongke Xue will be able to exercise voting rights
with respect to these shares of common stock, and has the ability to control the outcome of matters submitted to our stockholders
for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets.
This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially
all of our assets that our other stockholders support, or conversely this concentrated control could result in the consummation
of such a transaction that our other stockholders do not support. This concentrated control could also discourage a potential
investor from acquiring our common stock due to the limited voting power of such stock. As a board member, Mr. Yongke Xue owes
a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests
of our stockholders. As a stockholder, even a controlling stockholder, Mr. Yongke Xue is entitled to vote his shares, and shares
over which he has voting control, in his own interests, which may not always be in the interests of our stockholders generally.
Anti-takeover
provisions in our charter documents and under Florida law could discourage, delay or prevent a change in control of our Company
and may affect the trading price of our Common Stock.
We
are a Florida corporation and the anti-takeover provisions of the Florida Business Corporation Act may discourage, delay or prevent
certain changes in control unless such change in control is approved by a majority of our disinterested shareholders. In addition,
the terms of our articles of incorporation and bylaws may discourage, delay or prevent a change in our management or control over
us that shareholders may consider favorable. Our articles of incorporation and bylaws:
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authorize
the issuance of “blank check” preferred stock that could be issued by the Board to thwart a takeover attempt;
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require
that directors only be removed from office upon a majority shareholder vote;
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provide
that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of
directors then in office;
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limit
who may call special meetings of shareholders; and
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prohibit
shareholder action by written consent, requiring all actions to be taken at a meeting of the shareholders.
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For
more information regarding these and other provisions, see the section titled “Description of Our Securities — Anti-Takeover
Effects of Florida Law and Provisions of Our Articles of Incorporation and Bylaws.”
Our
Common Stock is currently subject to delisting from the NASDAQ Stock Market (“NASDAQ”) as we not in compliance with
NASDAQ’s continued listing requirements
On
each of April 20, 2016, May 24, 2016 and August 17, 2016, the Company received a notification letter from the staff of the Listing
Qualifications Department of NASDAQ (the “Staff”) indicating that the Company was not in compliance with NASDAQ’s
continued listing requirements because the Company was not in compliance with the NASDAQ Listing Rule 5250(c)(1) (the “Rule”)
with respect to certain of its annual and current reports.
On
October 12, 2016, the Company received a delisting determination letter (the “Determination Letter”) from the Staff
notifying the Company that because the Company had not filed its Annual Report on Form 10-K for the fiscal year ended December
31, 2015 (the “Form 10-K”) and its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2016 and
June 30, 2016, (together, the “Reports”) by October 11, 2016, the deadline by which the Company was to file all Reports
in order to regain compliance with the Rule, the Company’s common stock is subject to delisting from the NASDAQ Global Market.
The Determination Letter further noted that unless the Company requested an appeal of the Staff’s determination no later
than 4:00 pm Eastern Time on October 19, 2016, trading of the Company’s common stock on the NASDAQ Global Market would be
suspended at the opening of business on October 21, 2016, and a Form 25-NSE would be filed with the Securities and Exchange Commission
(the “SEC”) removing the Company’s securities from listing and registration on the NASDAQ Global Market.
On
October 19, 2016, the Company requested a hearing before the NASDAQ Hearings Panel (the “Panel”) under Listing Rule
5815(a) to appeal the delisting determination from the Staff. On November 2, 2016, the Company was granted an extended stay as
to the suspension of the Company's shares from trading by the Panel until the Company's scheduled hearing before the Panel on
December 15, 2016 and issuance of a final Panel decision. There can be no assurance that the Panel will not uphold the Staff’s
decision, resulting in the delisting of our common stock.
ITEM
1B – UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2 – PROPERTIES
Our
principal executive offices are located at 16/F, China Development Bank Tower, No. 2 Gaoxin 1st Road, Hi-Tech Industrial
Zone, Xi’an, Shaanxi Province, PRC 710065, and our telephone number is 86-29-88377161. The area of our office is approximately
1,400 square meters.
We
operate four factories through a branch office of SkyPeople (China) and three subsidiaries of SkyPeople (China). In each of these
factories, we own all the factory facilities except for land with regard to which we own land use rights. There is no private
ownership of land in the PRC. All land ownership is held by the government of the PRC. Land use rights can be transferred upon
approval by the land administrative authorities of the PRC (State Land Administration Bureau) upon payment of the required land
transfer fee. The chart summarizes the information of the facilities and the four factories that we operate:
Location
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Products
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Operator
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Size
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Land Use Rights Expiration Date
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16th Floor, China Development Bank Tower, No. 2 Gaoxin 1st Road, Hi-Tech Industrial Zone, Xi’an, Shaanxi Province
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Headquarters
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N/A
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1,425.96 square meters
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*
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Sanqu Town, Jingyang County, Xianyang City, Shaanxi Province
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Concentrated apple and pear juice and concentrated kiwifruit juice
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SkyPeople (China)
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34,476.04 square meters
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December 27, 2056
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Siqun Village, Mazhao Town, Zhouzhi County, Xi’an City, Shaanxi Province
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Kiwifruit puree, concentrated kiwifruit puree, and fruit beverages
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Shaanxi Qiyiwangguo
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23,599.78 square meters and 34,335.05 square meters
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December 5, 2048 November 14, 2048
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Hujia Village, Gaotai Town, Suizhong County, Huludao, Liaoning Province
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Concentrated apple and pear juice and apple aroma, fruit juice beverages
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Huludao Wonder
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86,325
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April 20, 2054
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Yuton Village, Shizijie Town, Gaizhou, Liaoning Province
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Concentrated apple juice and apple aroma
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Yingkou
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20,732
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April 5, 2055
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*
Our certificate of this facility does not indicate any expiration date, although the usage of this property shall not exceed 50
years under the PRC law.
We
believe that our current offices and facilities are adequate to meet our needs, and that additional facilities will be available
for lease, if necessary, to meet our future needs.
ITEM
3 – LEGAL PROCEEDINGS
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi'an Intermediate People's Court against the Company for alleged defaults pursuant to guarantees by the Company to its suppliers
for an total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially the loans from
Cinda Shaanxi Branch to the two suppliers, and because Cinda Shaanxi Branch does not have permits to make loans in China, the
agreements shall be invalid, void and have no legal forces from the beginning. Therefore, the Company has no obligations to repayment
the debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending for the verdict of the judge.
From
time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which,
in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
ITEM
4 – RESERVED
PART
II
ITEM
5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
Common Stock has been listed on the Nasdaq Global market since April 20, 2010. Immediately prior to that, our Common Stock was
traded on the NYSE Amex. The following table sets forth the high and low inter-dealer prices, without mark-up, mark-down or commission,
involving our Common Stock during each calendar quarter, and may not represent actual transactions.
2015
|
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High
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Low
|
|
First quarter
|
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$
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1.30
|
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$
|
0.98
|
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Second quarter
|
|
$
|
1.53
|
|
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$
|
1.14
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Third quarter
|
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$
|
1.36
|
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$
|
0.83
|
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Fourth quarter
|
|
$
|
1.09
|
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$
|
0.51
|
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2014
|
|
High
|
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|
Low
|
|
First quarter
|
|
$
|
2.07
|
|
|
$
|
1.76
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Second quarter
|
|
$
|
1.85
|
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$
|
1.23
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Third quarter
|
|
$
|
1.39
|
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$
|
1.02
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Fourth quarter
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$
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1.25
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$
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0.85
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Reports
to Stockholders
We
plan on furnishing stockholders with an annual report for each fiscal year ending December 31 containing financial statements
audited by its independent certified public accountants. The Company intends to maintain compliance with the periodic reporting
requirements of the Exchange Act.
Stockholders
As
of November 22, 2016, there were 4,061,090 shares of our Common Stock issued and outstanding, and we had approximately 66 record
holders of our Common Stock, not including holders who hold their shares under street name.
Dividend
Policy
We
have not declared or paid any cash dividends on our Common Stock during our last four fiscal years. The payment of dividends is
at the discretion of the Board and is contingent on our revenues and earnings, capital requirements, financial condition and the
ability of our operating subsidiary, SkyPeople (China), to obtain governmental approval to send funds out of the PRC. We currently
intend to retain all earnings, if any, for use in business operations. Accordingly, we do not anticipate declaring any dividends
in the near future.
The
PRC’s national currency, the RMB or yuan, is not a freely-convertible currency. Please refer to the risk factors “Governmental
control of currency conversion may affect the value of shareholder investment,” “The fluctuation of the RMB may harm
shareholder investments” and “PRC regulations relating to mergers and the establishment of offshore special purpose
companies by PRC residents, if applied to us, may limit our ability to operate our business as we see fit.”
Recent
Sales of Unregistered Securities and Use of Proceeds
The
Company did not make any sales of unregistered securities during the fiscal year ended December 31, 2015 that were not previously
disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K.
On
August 30, 2010, we closed the public offering of 5,181,285 shares of our Common Stock at a price of $5.00 per share for approximately
$25.9 million. We received an aggregate of approximately $24 million as net proceeds after deducting underwriting discounts and
commissions and offering expenses. As of December 31, 2015, we had spent approximately $18.6 million on various capital projects
in Huludao Wonder and $24 million on various capital projects in SkyPeople Suizhong. For more details related to the use of proceeds
in 2015 from the public offering in 2010, please see the section entitled “Capital Projects” under “Item 7,
Management Discussion and Analysis of Financial Conditions and Results of Operations”.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table sets forth information as of December 31, 2015, with respect to our equity compensation plans previously approved
by stockholders and equity compensation plans not previously approved by stockholders.
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Equity Compensation Plan Information
|
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
Weighted average exercise price of outstanding options, warrants and rights
|
|
Number of
securities
remaining
available for
future
issuance
under equity
compensation plans
(excluding
securities
reflected
in column
(a))
|
|
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|
(a)
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(b)
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(c)
|
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Equity compensation plans approved by stockholders (1)
|
|
|
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$
|
N/A
|
(2)
|
1,000,000
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
$
|
N/A
|
|
1,000,000
|
|
Total
|
|
|
|
$
|
N/A
|
|
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(1)
|
Consists
of Stock Incentive Plan, which was approved by the Company’s shareholders at its
annual meeting on August 18, 2011.
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(2)
|
The
exercise price of options granted and stock appreciation rights under the Plan may be
no less than the fair market value of the Company’s Stock on the date of grant.
Because no options have been granted under the plan, the weighted-average exercise price
is not available.
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Item
6 – SELECTED FINANCIAL DATA
Not
Applicable.
ITEM
7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction
with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis
contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially
from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed
below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.”
Overview
We
are engaged in the production and sales of fruit juice concentrates (including fruit purees, concentrated fruit purees and concentrated
fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages), and other fruit related products (including
organic and non-organic fresh fruits) in and from the PRC. Our fruit juice concentrates, which include apple, pear and kiwifruit
concentrates, are sold to domestic customers and exported directly or via distributors. We sell our Hedetang branded bottled fruit
beverages domestically primarily to supermarkets in the PRC. In 2015, sales of our fruit concentrates, fruit beverages, fresh
fruits and other fruit-related products represented 49%, 51%, 0% and 0% of our revenue, respectively, compared to sales of 44%,
48%, 4% and 4%, respectively, in 2014. We did not sell any fresh fruits in 2015 as the cost to buy fresh fruits was high and sales
price was low, which could result in lower margin and higher risk. Management decided not to procure any fresh fruits for fresh
fruit sales in 2015.
We
export our products as well as sell them domestically. We sell our products either through distributors with good credit or to
end-users directly. Our main export markets are Asia, North America, Europe, Russia and the Middle East. We sell our Hedetang
brand bottled fruit beverages domestically, primarily to supermarkets in the PRC. We also sell our other fruit-related products
to domestic customers.
We
currently market our Hedetang brand fruit beverages in only certain regions of the PRC. We plan to expand the market presence
of Hedetang over a broader geographic area in the PRC. In particular, we plan to expand our glass bottle production line to produce
higher margin portable fruit juice beverages targeting consumers in more populated Chinese cities. Currently we produce six flavors
of fruit beverages in 280 ml glass bottles, 418 ml glass and 500 ml glass bottles and BIB packages, including apple juice, pear
juice, kiwifruit juice, mulberry juice, peach juice and pomegranate juice. We currently sell our fruit beverages to over 100 distributors
and more than 20,000 retail stores in approximately 20 provinces. Our products are sold through distributors in stores such as
Hualian Supermarket in Beijing, RT-Mart in Shenyang, WOWO in Chengdu, Quanjia convenient store chain, Vanguard in Xi’an,
Carrefour in Chongqing and Shenyang and Lianhua Supermarket in Shanghai.
We
plan to continue to focus on creating new products with high margins to supplement our current product offering.
Our
business is highly seasonal and can be greatly affected by weather because of the seasonal nature of growing and harvesting of
fruits and vegetables. Our core products are apple, pear and kiwifruit juice concentrates, which are produced from July or August
to April of the following year. The squeezing season for (i) apples is from August to January or February; (ii) pears is from
July or August until April of next year; and (iii) kiwifruit is from September through December. Typically, a substantial portion
of our revenues is earned during our first and fourth quarters. To minimize the seasonality of our business, we make continued
efforts in identifying new products with harvesting seasons complementary to our current product mix. Our goal is to lengthen
our squeezing season, thus increasing our annual production of fruit juice concentrates and fruit beverages. In the first quarter
of 2009, we introduced mulberry and kiwifruit cider beverages in the Chinese market. Unlike fruit juice concentrates, which can
only be produced during the squeezing season, such fruit beverages are made out of fruit juice concentrates and can be produced
and sold in all seasons. With continuous efforts in marketing of our beverages in domestic market, we believe that our seasonality
will be reduced.
Fresh
fruits are the primary raw materials needed for the production of our products. Our raw materials mainly consist of apples, pears
and kiwifruits. Other raw materials used in our business include pectic enzyme, amylase, auxiliary power fuels and other power
sources such as coal, electricity and water.
We
purchase raw materials from local markets and fruit growers that deliver directly to our plants. We have implemented a fruit-purchasing
program in areas surrounding our factories. In addition, we organize purchasing centers in rich fruit production areas, helping
farmers deliver fruit to our purchasing agents easily and in a timely manner. We are then able to deliver the fruit directly to
our factory for production. We have assisted local farmers in their development of kiwifruit fields to help ensure a high quality
product throughout the production channel. Our raw material supply chain is highly fragmented and raw fruit prices are highly
volatile in China. Fruit concentrate and fruit juice beverage companies generally do not enter into purchasing agreements.
In
addition to raw materials, we purchase various ingredients and packaging materials such as sweeteners, glass and plastic bottles,
cans and packing barrels. We generally purchase our materials or supplies from multiple suppliers. We are not dependent on any
one supplier or group of suppliers.
Shaanxi
and Liaoning Provinces, where our manufacturing facilities are located, are large fruit producing provinces. We own and operate
four manufacturing facilities in the PRC, all of which are strategically located near fruit growing centers so that we can better
preserve the freshness of the fruits and lower our transportation costs. To take advantage of economies of scale and to enhance
our production efficiency, generally, each of our manufacturing facilities has a focus on products made from one particular fruit
according to the proximity of such manufacturing to the sources of supply for that fruit. Our kiwifruit processing
facilities are located in Zhouzhi County of Shaanxi Province, which has the largest planting area of apples and kiwifruit in the
PRC. Our pear processing facilities are located in Shaanxi Province, which is the main pear-producing province in the PRC. Our
apple processing facilities are located in Liaoning Province, a region that abounds with high acidity apples. As we use the same
production line for concentrated apple juice and concentrated pear juice and both Shaanxi Province and Liaoning Province are rich
in fresh apple and pear production, our Liaoning facilities also produced concentrated apple juice and our Shaanxi Province facilities
also produced concentrated apple juice based on customer need. We believe that these regions provide adequate supply of raw materials
for our production needs in the foreseeable future.
On
August 30, 2010, we closed the public offering of 5,181,285 shares of our Common Stock at a price of $5.00 per share for approximately
$25.9 million. We received an aggregate of approximately $24 million as net proceeds after deducting underwriting discounts and
commissions and offering expenses. As of December 31, 2015, we had spent approximately $18.6 million on various capital projects
in Huludao Wonder and $5.4 million on projects in SkyPeople Suizhong, as described in project (1) below using the proceeds from
our public offering. The following table presents the capital projects on which we currently plan to use the proceeds from this
offering. We review these projects and capital expenditures on a quarterly basis based on the market conditions and associated
costs of these projects.
Capital
Projects
Subsidiary
|
|
No.
|
|
Priority Projects
|
|
Progress
|
|
Estimated capital expenditure
(in Millions)
|
|
SkyPeople Suizhong
|
|
(1)
|
|
Construction of a refrigeration storage unit for the storage of concentrated fruit juices and fresh fruits and vegetables
|
|
Construction started during the third quarter of 2012. The Company has made partial payment to acquire land use right from the local government, purchase equipment and build facilities. The Company is in the process of building up facilities and purchasing equipment. As of date of this report, the Company has finished construction of an office building, dormitory, refrigeration storage facility and warehouse. Due to heavy competition in the concentrated fruit juice business in China, construction work on this project is currently suspended. The land certificate has not been issued as the Company has not yet fully paid for the land use right.
|
|
$
|
185
|
|
(1)
|
Our initial plan was to construct both the refrigeration
storage and fruit juice mixing center in Huludao, Liaoning Province. However, the construction of the refrigeration storage unit
has been delayed due to a change of plans. Management concluded that it is in the best interest of the Company to build the refrigeration
storage unit in Suizhong, Liaoning Province, which is in close geographic proximity to Huludao Wonder in Liaoning Province. The
total estimated capital expenditure for SkyPeople Suizhong is $185 million. The Company is in the process of building up facilities
and purchasing equipment. As of date of this report, the Company has finished construction of an office building, dormitory, refrigeration
storage facility and warehouse. Due to heavy competition in the concentrated fruit juice business in China, construction work
on this project is currently suspended. The land certificate has not been issued as the Company has not yet fully paid for the
land use right. The Company has spent approximately $26 million in this project.
|
Shaanxi
Qiyiwangguo Projects
We
previously identified several projects for our Shaanxi Qiyiwangguo factory, which we expect to finance using our operating cash
flow. These projects including a 24,000 PET bottle/hour fruit juice beverage aseptic cold-filling line, and a PET bottle blowing
machine system. Based on the current market conditions and other potential opportunities, management has decided to delay these
projects to a future date when appropriate.
Other
Projects
Investment/Service
Agreement with Yidu Municipal People’s Government
On
October 29, 2012, SkyPeople (China) entered into an investment/service agreement (the “Investment Agreement”) with
Yidu Municipal People’s Government in Hubei Province of China.
Under
the Investment Agreement, the parties agreed to invest and establish an orange comprehensive deep processing zone in Yidu.
The
Company is responsible for the establishment, construction and financing of the project with a total investment of RMB 300 million
(approximately $48 million), in fixed assets and the purchase of land use rights, while the Yidu government agreed to provide
a parcel of land for the project that is approximately 280 mu in size located at Gaobazhou Town of Yidu for a fee payable by the
Company. The consideration for transferring the land use right for the project land shall be RMB 0.3 million per mu.
The
main scope of the Yidu project includes the establishment of:
1.
|
one
modern orange distribution and sales center (the “distribution center”);
|
|
|
2.
|
one
orange comprehensive utilization deep processing zone (the “deep processing zone”), including:
|
|
a)
|
one
45 ton/hour concentrated orange juice and byproduct deep processing production line;
|
|
b)
|
one
bottled juice drink production line with a capacity to produce 6,000 glass bottles per hour;
|
|
c)
|
one
storage freezer facility with a capacity to store 20,000 tons of concentrated orange juice; and
|
|
d)
|
general
purpose facilities within the zone, office space, general research and development facilities, service area, living quarters
and other ancillary support areas
|
3.
|
one
research and development center for orange varietal improvement and engineering technology (the “R&D center”)
and
|
|
|
4.
|
one
standardized orange plantation (the “orange plantation”).
|
The
total amount of RMB 300 million (approximately $48 million) will mainly be used to establish the distribution center and the deep
processing zone on the project land of approximately 280 mu. The Company and Yidu Municipal People’s Government agreed to
discuss the investment amount and location for establishing the R&D center and the orange plantation in the future.
On
November 23, 2015, the Company started the construction of the Yidu project. The Company plan to finish the construction of the
infrastructure of office building, R&D center, fruit juice production facility and cold storage, and other areas in the second
quarter of 2017.
The
distribution center is planned to be completed by the last quarter of 2017, and the orange plantation is planned to be operational
in the second quarter of 2017.
Investment/Service
Agreement with Mei County National Kiwi Fruit Wholesale Trading Center
On
April 3, 2013, SkyPeople (China) entered into an Investment Agreement (the "Agreement") with the Managing Committee
of Mei County National Kiwi Fruit Wholesale Trading Center (the "Committee"). The Committee has been authorized by the
People’s Government of Mei County to be in charge of the construction and administration of the Mei County National Kiwi
Fruit Wholesale Trading Center (the “Trading Center”).
Under
the Agreement, the parties agreed to invest and establish a kiwi fruit comprehensive deep processing zone and kiwi fruit and fruit-related
materials trading zone in Yangjia Village, Changxing Town of Mei County with a total planned area of total planned area of 286
mu (approximately 47 acres) (the “Project”).
Pursuant
to the Agreement, the Company will be responsible for the construction and financing of the Project with a total investment of
RMB 445.6 million (approximately $71.9 million) in buildings and equipment. In addition, the Company agreed to pay for the land
use rights for the Project land a fee of RMB 0.3 million per mu. The Committee is responsible for financing and constructing the
basic infrastructure surrounding the Project, such as the main water supply, main water drainage, natural gas, electricity, sewage,
access roads to the Project, natural gas and communications networks.
Mei
County National Kiwi Fruit Wholesale Trading Center has started normal operation. There are 25 enterprises operate in the trading
center, which includes 12 express delivery companies, 12 logistic companies, 4 on-line sales companies, 2 packing companies, and
3 agriculture companies. In addition, all related government departments of National Kiwi Fruit Wholesale Trading Center has moved
in. The trading center is expected to complete the investment operations in the second quarter of 2017. The Company is expected
to generate income from this trading center in various operations and maximize the Company’s profit in agriculture trading
area.
On
April 19, 2013, we established Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. (“Guo Wei Mei”) to engage in the
business of producing kiwi fruit juice, kiwi puree and cider beverages, etc. The total estimated investment was 294 million. We
are now building fruit juice production lines, vegetable and fruit flash freeze facility, R&D center and office building.
We plan to compete the construction in the second quarter of 2017.
Suizhong
Project
On
July 15, 2011, SkyPeople entered into a Letter of Intent with the People’s Government of Suizhong County, Liaoning Province,
to establish a fruit and vegetable industry chain and further processing demonstration zone in Suizhong County, Liaoning Province
(the “Suizhong project”).
The
Suizhong project may include one or more of the following: the construction and operation of fruit juice production lines, vegetable
and fruit flash freeze facility, refrigeration storage facility and warehouse, a world class food safety testing center, fruit
and vegetable modern supply chain and e-commerce platform, fruit and vegetable finished products processing center and exhibition
center.
The
Company has made partial payment to acquire land use rights from the local government, purchase equipment and build facilities.
The Company is currently in the process of building up facilities and purchasing equipment. As of date of this report, the Company
has finished construction of an office building, dormitory, refrigeration storage facility and warehouse. Due to heavy competition
in the concentrated fruit juice business in China, the construction work on this project is currently suspended.
Key
Components of Operating Results
Sources
of Revenue
We
derive our revenue primarily from the sales of fruit juice concentrates, fruit beverages and other fruit related products in and
from the PRC.
Our
fruit juice concentrates, which include apple, pear and kiwifruit, are sold directly or indirectly to domestic juice manufacturers
and exported primarily via distributors to Asia, North America, Europe and the Middle East. Our general sales agreement with distributors
requires that the distributors pay us after we deliver our products to them, which is not contingent on resale to end users. Our
credit terms for distributors with good credit history are from 30 days to 90 days. Distributors have no contractual right to
return our products and we are not required to rebate or credit any amounts paid if we subsequently reduce the price of our products.
We
sell our Hedetang branded bottled fruit juice beverages and fruit cider beverages domestically primarily to supermarkets in the
PRC through distributors, and we also export our Hedetang branded bottled fruit juice beverages outside of China directly or indirectly
through distributors.
In
addition to concentrated juice products and juice beverages, we generate other revenue from sales of apple spice, kiwifruit seeds
and fresh kiwifruit. These products are mainly sold to Chinese customers.
Cost
of Sales
Our
cost of sales consists primarily of the cost for raw materials, including various fresh fruit, packing barrels, pectic enzyme,
amylase, auxiliary power fuels and other power sources such as coal, electricity and water, bottles, packaging materials, and
expenses associated with the operations of our manufacturing facilities.
We
determine cost of sales on the basis of the average cost of inventory methods. For purposes of determining our cost of sales of
kiwifruit seeds, we apply
the relative sales value costing method. In calculating the gross margin of kiwifruit seeds,
we applied the weighted average method to simplify the calculation. In applying this method, we first calculated the average revenue
of kiwifruit seeds and kiwifruit juice that can be produced from one ton of kiwifruit,
based on our estimate in a
normal production situation in the applicable period. This percentage is then applied to actual cost for the production of kiwifruit
juice to calculate the actual cost of sales for kiwifruit seeds and concentrated kiwifruit juice in the period covered by the
financial statements.
The
shipping and handling expenses of $4,400,044 and $1,883,201 for fiscal years 2015 and 2014, respectively, are reported in the
Consolidated Statement of Comprehensive Income as a component of selling expenses. In 2015, to promote sales, the Company paid
most of the shipping and handling expenses that were previously charged to customers, resulting in an increase in shipping and
handling expenses in 2015 as compared to 2014.
The
largest component of our cost of sales is the cost for fresh fruit. We purchase fresh fruit and other raw materials from local
markets and fruit growers that deliver directly to our plants. Our raw material supply chain is highly fragmented and raw fruit
prices are highly volatile. We generally do not enter into long-term purchase agreements for fresh fruit.
Operating
Expenses
We
classify our operating expenses into three categories: general and administrative, selling and research and development. Our operating
expenses consist primarily of personnel costs, which include salaries, bonuses, payroll taxes and employee benefit costs. Other
expenses include advertising and promotional costs, shipping and handling costs not billed to customers, facilities costs and
legal, audit, tax, consulting and other professional service fees.
The
government owns all of the land in the PRC. Companies or individuals are authorized to possess and use the land only
through land use rights granted by the PRC government. Accordingly, we paid for land use rights in advance and such
prepayments are being amortized and recorded as expenses using the straight-line method over the use terms of the lease, which
are 40 to 50 years. The amortization expenses were $1,672,100 and $186,687 for 2015 and 2014, respectively.
General
and Administrative
General
and administrative expenses consist primarily of personnel costs for our executive, finance, human resources and administrative
personnel, legal, audit, tax and other professional fees, depreciation expenses, insurance and other corporate expenses.
Selling
Expenses
Selling
expenses consist primarily of freight and transportation expenses, advertising and promotional costs and personnel costs for our
sales team.
Research
and Development
In
2015 and 2014, the Company suspended four research and development agreements with research institutions. Our research and development
costs were $0 in fiscal 2015 and 2014 respectively. We are now conducting our research and development in house and related expenses
are recorded in the general and administrative expenses.
Other
Income (Expense)
Other
income (expense) consists of interest we earn on our cash and cash equivalents, interest expenses on our short-term bank loans
from Chinese local banks, government subsidies and other miscellaneous income or expenses.
Provision
for Income Taxes
Our
provision for income taxes primarily consists of corporate income taxes related to profits earned in the PRC from sales of our
products. All our Chinese subsidiaries were subject to a tax rate of 25%. Our consolidated income tax rate was effectively 54%
and 33% in 2015 and 2014, respectively. The increase in consolidated income tax rate was mainly due to an increase in non-cash
expenditures in 2015 compared to 2014, which are not tax deductible expenses.
Our
income tax expenses are comprised of U.S. and China tax accrual as computed using the tax rules and regulations for such jurisdictions.
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”),
Topic 740, we evaluate material tax positions asserted on every income tax return for the technical merits as to the tax supportability
under examination or tax litigation. When we determine that a tax position is uncertain, our policy is to record a liability
based on whether the tax position’s facts and circumstances on a “more likely than not” basis are supportable
under tax laws and regulations. We have had no material adjustments to the unrecognized income tax benefits since our adoption
of FASB ASC 740.
Critical
Accounting Policies
Management’s
discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. Our financial statements reflect the selection and application of accounting
policies, which require management to make significant estimates and judgments. Management bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. We believe that the following reflects the more critical accounting policies
that currently affect our financial condition and results of operations.
Use
of Estimates
The
Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP and this requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure at contingent assets
and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during
the reporting period. The significant areas requiring the use of management estimates include the allowance for doubtful accounts
receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation
of change in fair value of warrant liability, recognition and measurement of deferred income taxes and valuation allowance for
deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management
may undertake in the future, actual results may ultimately differ from those estimates.
Principles
of Consolidation
Our
consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
The
consolidated financial statements are prepared in accordance with U.S. GAAP. This basis differs from that used in the statutory
accounts of SkyPeople (China), Shaanxi Qiyiwangguo, Huludao Wonder, Yingkou, Hedetang Juice Beverages, Orange Products, SkyPeople
Suizhong, Kiwi Fruit & Farm Products, Guo Wei Mei, Xi’an Hedetang, Cornucopia, Fruitee Fun and Hedetang Holding, which
were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the
PRC. All necessary adjustments have been made to present the financial statements in accordance with U.S. GAAP.
Fair
Value of Financial Instruments
On
January 1, 2009, the Company adopted FASB Accounting Standard Codification Topic on Fair Value Measurements and Disclosures (“ASC
820”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about
fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure fair
value by providing a fair value hierarchy used to classify the source of the information. In February 2008, FASB deferred the
effective date of ASC 820 by one year for certain non-financial assets and non-financial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted the provisions
of ASC 820, except as it applies to those non-financial assets and non-financial liabilities for which the effective date has
been delayed by one year.
ASC
820 establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable input, which may
be used to measure fair value and include the following:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Input other than Level 1 that is observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other input that is observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
Level
3 - Unobservable input that is supported by little or no market activity and that is significant to the fair value of the assets
or liabilities.
Classification
within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.
Revenue Recognition
The
Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenue from sales of products is recognized upon
shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss have
been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably assured.
Customers have no contractual right to return products. Historically, the Company has not had any returned products. Accordingly,
no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the original fee
if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.
Foreign
Currency and Other Comprehensive Income
The
financial statements of the Company's foreign subsidiaries are measured using the local currency as the functional currency; however,
the reporting currency of the Company is the United States dollar ("USD"). Assets and liabilities of the Company’s
foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date, while equity accounts are
translated using historical exchange rate. The average exchange rate for the period has been used to translate revenues and expenses.
Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation adjustment).
Other
comprehensive income for the year ended December 31, 2015 and 2014 represented foreign currency translation adjustments and were
included in the consolidated statements of comprehensive income.
There
is no guarantee the RMB amounts could have been, or could be, converted into USD at rates used in translation.
Income
Taxes
Income
taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Any tax paid by
subsidiaries during the year is recorded. Current tax is based on the profit or loss from ordinary activities adjusted for items
that are non-assessable or disallowable for income tax purpose and is calculated using tax rates that have been enacted at the
balance sheet date. Deferred income tax liabilities or assets are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and the financial reporting amounts at each period end. A valuation
allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized.
ASC
740 provides guidance for recognizing and measuring uncertain tax positions, and it prescribes a threshold condition that a tax
position must meet for any of the benefits of the uncertain tax position to be recognized in the financial statements. ASC 740
also provides accounting guidance on derecognizing, classification and disclosure of these uncertain tax positions. The adoption
of ASC 740 did not have a material impact on the Company’s consolidated financial statements.
Impairment
of Long-Lived Assets
In
accordance with the FASB ASC 360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
, long-lived assets,
such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may not be recoverable. It is reasonably possible that
these assets could become impaired as a result of technological or other industrial changes. Determination of recoverability of
assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated
by the assets.
If
such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.
During
the fiscal year 2015, the Company’s subsidiary Yinkou had no production activities due to a market demand decline for
concentrated apple juice, and Yinkou also had no production in year 2016 since it had difficulty in remaining competitive in
apple juice market. The Company decided to recognize an impairment loss of $2.38 million with respect to the concentrated
fruit juice production equipment in Yingkou, which has not operated in the past two years.
Accounts
Receivable
Accounts
receivable are recognized and carried at the original invoice amount less an allowance for any uncollectible amount. We have a
policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing
accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors.
We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations
of our customers and maintain an allowance for potential bad debts if required.
We
determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the
customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best
available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable
to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received.
The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as
necessary.
Direct
write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate
other circumstances that indicate that we should abandon such efforts.
The Company has not experienced any significant
difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties being experienced
by its major customers. Bad debt expense was $2,326,194 and $676,784 during the years ended December 31, 2015 and 2014, respectively.
Our credit term for distributors with good credit history is from 30 days to 120 days. As of December 31, 2015 and 2014, accounts
receivables of $2,801,211 and $6,001,247 have been outstanding for over 120 days.
Government
Subsidies
A
government subsidy is recognized only when the Company complies with any conditions attached to the grant and there is reasonable
assurance that the grant will be received.
The
government subsidies recognized were $1,204,649 and $661,655 for the years ended December 31, 2015 and 2014 respectively, and
are included in other income.
Recent
Accounting Pronouncements
In
February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2015-02,
Consolidation (Topic 810) Amendments to the Consolidation Analysis
, which amends the analysis required to
determine whether to consolidate certain types of legal entities such as limited partnerships, limited liability corporations,
and certain securitization structures. The new guidance was effective for us beginning in the first quarter of 2016. Application
of the new guidance did not impact our financial statements or related disclosures.
In
September 2015, the FASB issued ASU 2015-16,
Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period
Adjustments,
which requires the acquirer in a business combination to recognize measurement-period adjustments in the
period in which it determines the amount of the adjustment. The new guidance was effective for us in the first quarter of 2016.
Application of the new guidance did not impact our financial statements or related disclosures.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Comparison
of Operation Results of years ended December 31, 2015 and 2014
Revenue
The
following table presents our consolidated revenues for our main products for the fiscal years 2015 and 2014, respectively, (in
thousands):
|
|
Year ended December 31,
|
|
|
% of
|
|
|
|
2015
|
|
|
2014
|
|
|
change
|
|
Concentrated apple juice and apple aroma
|
|
$
|
19,807
|
|
|
$
|
15,209
|
|
|
|
30
|
%
|
Concentrated kiwifruit juice and kiwifruit puree
|
|
|
9,203
|
|
|
|
7,459
|
|
|
|
23
|
%
|
Concentrated pear juice
|
|
|
13,426
|
|
|
|
20,627
|
|
|
|
(35
|
)%
|
Fruit juice beverages
|
|
|
44,004
|
|
|
|
47,802
|
|
|
|
(8
|
)%
|
Fresh fruits and vegetables
|
|
|
-
|
|
|
|
3,862
|
|
|
|
(100
|
)%
|
Other
|
|
|
1
|
|
|
|
4,101
|
|
|
|
(100
|
)%
|
Total
|
|
$
|
86,441
|
|
|
$
|
99,060
|
|
|
|
(13
|
)%
|
Revenue
decreased from $99.6 million in 2014 to $86.4 million in 2015, representing a decrease of 13% or $12.6 million. This decrease
was primarily due to a decrease in sales in fruit beverages, fresh fruits and vegetables and other products, which was partially
offset by an increase in sales in concentrated apple juice and apple aroma and concentrated kiwifruit juice and kiwifruit
puree.
Sales
generated from apple related products increased from $15.2 million in 2014 to $19.8 million in 2015, representing an increase
of 30%. During 2015 and 2014, we sold 16,537 and 12,222 tons of concentrated apple juice and apple aroma, representing an increase
of 35.3% in the amount of apple-related products sold. The primary reason for the increase in revenue generated from apple-related
products was the 33% increase in amount of products sold, which was partially offset by the decrease in selling price for apple-related
products in 2015 as compare to 2014. In 2014 and 2015, the purchasing price of fresh apple went up, but the sales price of concentrated
apple related products was low, so our YingKou factory did not operate its concentrated apple juice production facilities. In
2015, we recorded impairment expenses of $2.4 million of machinery of Yingkou factory.
Sales
from concentrated kiwifruit juice and kiwifruit puree increased by 23%, from $7.5 million in 2014 to $9.2 million in 2015. During
2015 and 2014, we sold 6,598 and 7,226 tons of concentrated kiwifruit juice and kiwifruit puree. The increase of revenue generated
from kiwi-related products was mainly due to an increase in the selling price of kiwi-related products in 2015 as compared to
2014 as the demand of kiwi related products increased in the international market while the supply of the fresh fruits was lower.
Sales
of concentrated pear juice decreased by 35%, from $20.6 million in 2015 to $13.4 million in 2014. During 2015 and 2014, we sold
12,409 and 16,459 tons of concentrated pear juice, respectively, representing a decrease of 24.6%. The decrease of revenue generated
from concentrated pear juice was mainly due to the decreased amount of concentrated pear juice sold. During the third quarter
of 2015, unexpected weather conditions caused a lower amount of available raw material supplies. As a result, the squeezing season
started later than usual, and the production amount was lower.
Sales
from our fruit juice beverages decreased from $47.8 million in 2014 to $44.0 million for 2015, representing a decrease of 8%.
The decline in revenues during 2015 was mainly due to a decrease in the in-store retail prices of our products as a result of
heavy competition in China market, as consumers increased their fruit juice beverage purchases through on-line home delivery of
groceries.
Sales
from our fresh fruits and vegetables was $3.9 million in 2014, and we did not have sales from fresh fruits and vegetables in 2015.
As the supply purchase price of fresh fruits and vegetables was higher and sales price was lower in 2015, the Company did not
operate this segment to avoid the high risk and low margin.
Sales
from our other products were $4.1 million in 2014, and we did not have sales from other products in 2015. The amount of sales
of other products is expected to be unstable and is generally not indicative of our future sales of other products.
Gross
Margin
|
|
2015
|
|
|
2014
|
|
|
|
Gross profit
|
|
|
Gross margin
|
|
|
Gross profit
|
|
|
Gross margin
|
|
Concentrated apple juice and apple aroma
|
|
$
|
1,635
|
|
|
|
8
|
%
|
|
$
|
2,256
|
|
|
|
15
|
%
|
Concentrated kiwifruit juice and kiwifruit puree
|
|
|
1,544
|
|
|
|
17
|
%
|
|
|
2,311
|
|
|
|
31
|
%
|
Concentrated pear juice
|
|
|
4,764
|
|
|
|
35
|
%
|
|
|
5,148
|
|
|
|
25
|
%
|
Fruit juice beverages
|
|
|
18,181
|
|
|
|
41
|
%
|
|
|
17,241
|
|
|
|
36
|
%
|
Fresh fruits and vegetables
|
|
|
-
|
|
|
|
-
|
%
|
|
|
1,121
|
|
|
|
29
|
%
|
Others
|
|
|
1
|
|
|
|
100
|
%
|
|
|
1,200
|
|
|
|
29
|
%
|
Total
|
|
$
|
26,125
|
|
|
|
30
|
%
|
|
$
|
29,277
|
|
|
|
30
|
%
|
Gross
profit decreased from $29.3 million in 2014 to $26.1 million 2015 due to a decrease in revenue. The gross profit margin was 30%
for 2015 and 2014, respectively.
Gross
margin for concentrated apple juice and apple aroma were 8% for 2014 and 15% for 2014, primarily due to lower selling price of
concentrated apple juice as a result of heavy competition and lower market demand.
Gross
margin for concentrated kiwifruit juice and kiwifruit puree were 17% for 2015 and 31% for 2014, primarily due to higher cost of
fresh kiwi purchased in 2015 as compared to 2014.
Gross
margin for concentrated pear juice increased from 25% for 2014 to 35% for 2015 primarily due to an increase in selling price in
2015 as compared to 2014.
Gross
margin of fruit juice beverages increased from 36% in 2014 to 41% in 2015 primarily due to a decrease in the purchase prices of
raw materials.
Gross
margin for fruits and vegetables was 29% in 2014. We did not sell fresh fruits and vegetables in 2015.
Gross
margin for other products was 29% in 2014. Given the relatively low amount of production and sales of other products, their gross
margin is expected to be unstable. We did not sell other products in 2015.
Operating
Expenses
The
following table presents consolidated operating expenses and operating expenses as a percentage of revenue for 2015 and 2014,
respectively:
|
|
2015
|
|
|
2014
|
|
|
|
Amount
|
|
|
% of revenue
|
|
|
Amount
|
|
|
% of revenue
|
|
General and administrative
|
|
$
|
10,684,077
|
|
|
|
12
|
%
|
|
$
|
6,134,623
|
|
|
|
6
|
%
|
Selling expenses
|
|
|
5,196,657
|
|
|
|
6
|
%
|
|
|
5,699,475
|
|
|
|
6
|
%
|
Research and development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Total operating expenses
|
|
$
|
15,880,734
|
|
|
|
8
|
%
|
|
$
|
11,834,098
|
|
|
|
12
|
%
|
General
and administrative expenses increased by $4.5 million or 74% to $10,684,077 in 2015 from $6,134,623 in 2014. The increase
in general and administrative expenses was mainly due to an increase in salary expenses resulting from an increase in the headcount
of our management staff. In addition, the Company recorded $2.4 million impairment expenses mainly related to the equipment
in Yongkou factory, which ceased operations in 2014 and 2015 due to lower market demand for concentrated apple juice and higher
raw material purchase prices.
Selling
expenses decreased to $5,196,657 in 2015 as compared to $5,699,475 for 2014, a decrease of 9% or $502,818, mainly due to
reduced amount of sales generated during 2015.
During
2015 and 2014, the Company incurred $0 research and development expense. In 2014 and 2015, the Company suspended four research
and development agreements with research institutions and currently concentrating on continuing to build up our internal research
and development team, of which related expenses are recorded in general and administrative expenses.
Income
from Operations
Income
from operations decreased to $10,244,067 for 2015 from $17,442,410 in 2014, representing a decrease of $7,198,343, or 41%. The
decrease of income from operations was mainly due to a 13% decrease in revenue and an 18% increase in total operating expenses.
Other
Expense, Net
Other
expense, net was $2,329,867 for 2015, compared to $4,480,043 for 2014. As we have been recognized as a High and New Technology
Enterprise in Shaanxi Province for the past four years, the local government has granted us various subsidies, such as tax reimbursement
for export. Subsidy income increased from $661,655 in 2014 to $1,204,649 in 2015. Subsidy income represents the value-added
tax rebates provided on our exports. The decrease of interest expenses from $4,547,914 in 2014 to $3,885,018 in 2015, representing
a decrease of 662,896 or 15% was primarily due to lower interest rate on our bank loans in 2015 as compared to 2014. Consulting
fees related to a capital lease was $1,413 in 2015 as compared to $1,260,255 in 2014, as the capital lease was started in 2014
and related fee was higher in the first year.
Income
Taxes
Our
provision for income taxes decreased from $4,331,551 in 2014 to $4,267,350 in 2015. The decrease in income tax provision was mainly
due to the reduced amount of income before tax generated in 2015 as compared to that in 2014. Our consolidated income tax rate
was 54% and 33% for the twelve months ended December 31, 2015 and 2014, respectively. The increase in our consolidated income
tax rate was mainly due to an increase in non-cash expenditures in 2015 as compared to 2014, which are not tax deductible expenses.
Net
Income
Net
income for fiscal year 2015 and 2014 were $3,646,850 and $8,630,816, respectively, representing a $4,983,966, or 58%, decrease.
The reasons for the decrease are described elsewhere in this report.
Non-controlling
Interests
As
of December 31, 2014, SkyPeople (China) held a 91.15% interest in Shaanxi Qiyiwangguo and Pacific held a 99.78% interest in SkyPeople
(China). Net income attributable to non-controlling interests, which is deducted from our net income, was $698,115 and $759,368
for 2015 and 2014, respectively.
Net
Income Attributable to SkyPeople Fruit Juice, Inc. Stockholders
Net
income attributable to SkyPeople Fruit Juice, Inc. Stockholders was $2,948,735 and $7,871,448 in 2015 and 2014, respectively,
representing a 63% or $4,922,713 decrease for the reasons described above.
Liquidity
and Capital Resources
As
of December 31, 2015, we had cash, cash equivalents and restricted cash of $53,086,870, an increase of $21,419,552, or 68%, from
$31,667,318, as of December 31, 2014. 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 restricted cash of $3,079,956 and $6,537,016 as of December 31, 2015 and 2014, respectively, was used as collateral
to obtain a short-term note payable.
Our
working capital has historically been generated from our operating cash flows, advances from our customers and loans from bank
facilities. Our working capital was $42,276,546 as of December 31, 2015, a decrease of $7,426,745 or 21% as compared to $34,849,801
as of December 31, 2014, mainly due to an increase in cash and inventories, which was partially offset by an increased amount
short-term bank loans and accrued expenses.
During
2015, our operating activities incurred net cash inflow of $104,262,788, an increase of $100,086,363, as compared to cash net
inflow of $4,176,425 in 2014. Although our net income decreased by $4,983,966 in 2015 as compared to 2014, our non-cash expenses
and depreciation, amortization and impairment loss increased by $4,306,410 in 2015 as compared to 2014. In addition, there was
cash inflow increase of $14,373,205 from a decrease in accounts receivable in 2015 as compared to $33,012,853 in net cash outflow
during 2014. During 2015, the increase of accounts payable generated net cash inflow of $55,414,623 as compared to cash inflow
of $14,820,249 in 2014.
Net
cash used in investing activities was $20,810,162 and $40,607,798 for fiscal year 2015 and 2014, respectively. Historically, we
financed our capital expenditures and other operating expenses through operating cash flows and bank loans. The decrease in net
cash used in investing activities was mainly due to a reduced amount of cash spent on the purchase of fixed assets and prepayments
for equipment. As of December 31, 2015 and 2014, the balance of short-term bank loans totaled $33,506,838 and $28,243,373, respectively.
As of December 31, 2015, interest rates of short-term bank loans ranged from 2.2% to 9.6% per annum. Of this amount, approximately
$40 million was secured by the building, machinery and land usage rights of Huludao Wonder, and approximately $30 million was
secured by the building, machinery and land usage rights of Yingkou factory.
During
2015, financing activities incurred net cash outflow of $60,411,274 as compared to $5,164,679 in 2014. The increase in cash used
in financing activities is mainly due to an increase in repayment of $61,601,527 for a related party loan in 2015.
Off-Balance
Sheet Arrangements
On
March 10, 2016, the Company filed with the Florida Secretary of State's office an amendment to its Articles of Incorporation.
As a result of the Articles of Amendment, the Company authorized and approved an 1-for-8 reverse stock split of the Company’s
authorized shares of common stock from 66,666,666 shares to 8,333,333 shares, accompanied by a corresponding decrease in the Company’s
issued and outstanding shares of common stock (the "Reverse Stock Split"). The common stock continues have a par value
of $0.001. No changes were made to the number of authorized preferred shares of the Company, which remains as 10,000,000, none
of which have been issued. The amendment to the Articles of Incorporation of the Company took effect on March 16, 2016.
On March 11, 2016, Skypeople Juice International Holding (HK) Limited (the “Skypeople HK”), a wholly owned subsidiary
of SkyPeople Fruit Juice, Inc. (the "Company") and a 99.78% owner of SkyPeople Juice Group Co., Ltd. (“Skypeople
China”) entered into a Share Transfer Agreement and a Capital Contribution (the “Agreements”) with Shenzhen
TianShunDa Equity Investment Fund Management Co., Ltd. (the “TSD”), a limited liability corporation registered in
China.
Skypeople HK incorporated Skypeople China in
Shaanxi Province, China on March 13, 2012 and pursuant to the approval certificate and business license of Skypeople China, SkyPeople
HK was required to contribute RMB 427,000,000 (approximately $65,698,308) and Hongke Xue, a director of the Company (“Xue”)
was required to contribute RMB 1,000,000 (approximately $153,846) to Skypeople China, and Skypeople HK. As a result, upon the consummation
of the transaction, Hongke Xue would own 427,000,000 shares (99.78%) and 1,000,000 shares (0.22%) of Skypeople China, respectively.
As of March 10, 2016, Skypeople HK had contributed RMB 314,190,900 (approximately $48,337,062) to Skypeople China but had not contributed
the remaining RMB 112,809,100 (approximately $17,355,246) as the payment for 112,809,100 shares of Skypeople China.
Pursuant to the Agreements, TSD shall acquire
112,809,100 shares of Skypeople China from Skypeople HK and shall make a total capital contribution RMB 131,761,028.80 (approximately
$20,270,928) to Skypeople China, which is calculated based upon 8 times Skypeople China’s net profit per share for 2014 (about
RMB 0.146 per share), then multiplied by 112,809,100 shares. RMB 112,809,100 out of the RMB 131,761,028.80 (the "Capital Contributions")
shall be used as payment for outstanding capital contribution due to Skypeople China by Skypeople HK and the remaining RMB 18,951,928.80
(approximately $2,915,681) shall be used as additional capital contribution to Skypeople China and shall be deposited into Skypeople
China’s capital surplus account. TSD paid the full Capital Contributions to Skypeople China upon the effectiveness of the
Agreements and the shares were transferred upon payment being completed, resulting in TSD shall owning 112,809,100 shares, or 26.36%,
of Skypeople China.
On June 15, 2016, Hedetang Holdings Co., Ltd.
(the “Hedetang”), a wholly owned subsidiary of SkyPeople Fruit Juice, Inc. (the "Company") entered into a
Share Transfer Agreement (the “Agreement”) with Shaanxi New Silk Road Kiwifruit Group Inc. ( the “NSR”),
a limited liability corporation registered in China. Pursuant to the Agreement, NSR will acquire 51% of the equity shares of Shaanxi
Guoweiduomei Beverage Co. Limited, a wholly owned subsidiary of Hedetang (the "Shares"). The tentative total transfer
price for the Shares is 300 million RMB (approximately $46 million) and is subject to and will be settled according to the final
price in the valuation report to be issued by an appraisal firm jointly engaged by both parties. NSR shall pay the total transfer
price to Hedetang within six months of the effective date of the Agreement. If NSR fails to pay the total transfer price within
6 months due to the delay of the approval process from the local authority, NSR can receive a payment extension for up to twelve
months from the effective date of the Agreement upon the negotiation and agreement by the parties. Because NSR is a state-owned
enterprise in China and its investment needs to be approved by a higher level administrative authority in China, NSR has the right
to terminate the Agreement unilaterally if it fails to receive the approval from such administrative authority within one year
from the date of this Agreement. As of the date of this report, we have not yet received payment from NSR.
ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information called for by this item is included in the Company's consolidated financial statements beginning on page F-1 of this
Annual Report on Form 10-K.
ITEM
9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Changes
in Registrant’s Certifying Accountant
On
December 30, 2014, SkyPeople Fruit Juice, Inc. (the “Company”) dismissed its independent registered public accounting
firm, Paritz & Company, P.A. (“Paritz”), from its engagement with the Company with immediate effect. The decision
to dismiss Paritz as the Company’s independent registered public accounting firm was recommended by the audit committee
of the board of directors of the Company (the “Audit Committee”), and approved by the board of directors of the Company
(the “Board of Directors”) on December 30, 2014. During the Company's fiscal years ended December 31, 2013, 2012 and
2011 and the subsequent periods through the effective date of the dismissal of Paritz, there were no disagreements on any matter
of accounting principles or practices, financial statement disclosure or auditing scope of procedure, which disagreement, if not
resolved to the satisfaction of Paritz, would have caused Paritz to make reference thereto in its reports on the Company’s
consolidated financial statements for such periods. There have been no reportable events as provided in Item 304(a)(1)(v) of Regulation
S-K during the Company’s fiscal years ended December 31, 2013, 2012 and 2011 and any subsequent interim period, including
the interim period up to and including the effective date of the dismissal of Paritz.
On
December 31, 2014, the Company engaged Armanino LLP (“Armanino”) to serve as its independent registered public accounting
firm with immediate effect. The decision to engage Armanino as the Company’s independent registered public accounting firm
was recommended by the Audit Committee and approved by the Board of Directors on December 30, 2014.
On
April 12, 2016, the Board of Directors of the Company dismissed Armanino as the Company's independent registered public accounting
firm for the fiscal year ended December 31, 2015, effectively immediately. During the Company's fiscal years ended December 31,
2014 and the subsequent periods through the effective date of the dismissal of Armanino, there were no disagreements on any matter
of accounting principles or practices, financial statement disclosure or auditing scope of procedure, which disagreement, if not
resolved to the satisfaction of Armanino, would have caused Armanino to make reference thereto in its reports on the Company’s
consolidated financial statements for such periods. There have been no reportable events as provided in Item 304(a)(1)(v) of Regulation
S-K during the Company’s fiscal year ended December 31, 2014 and any subsequent interim period, including the interim period
up to and including the effective date of the dismissal of Armanino.
On
April 12, 2016, the Audit Committee approved the engagement of Wei, Wei & Co., LLP (“Wei & Wei”) as the
Company's independent registered public accounting firm, effective immediately. The Audit Committee also approved Wei & Wei
to act as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2015 and December
31, 2016.
On
September 19, 2016, the Company received a letter from Wei & Wei stating that it would cease its services as the independent
registered public accounting firm of the Company, effective from September 19, 2016. During the period of Wei & Wei’s
engagement, there were no disagreements between the Company and Wei & Wei on matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to satisfaction of Wei &
Wei, would have caused Wei & Wei to make reference thereto in its reports on the Company’s consolidated financial statements
for such periods. There were no reportable events as provided in Item 304(a)(1)(v) of Regulation S-K during the term of the engagement.
On
September 22, 2016, the Audit Committee of Board of Directors of the Company approved the engagement of Jia Roger Qian Wang, CPA
(“Roger Wang”) as the Company's independent registered public accounting firm, effectively immediately. The Audit
Committee also approved Roger Wang to act as the Company’s independent registered public accounting firm for the fiscal
years ending December 31, 2015 and 2016.
ITEM
9A – CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our CEO and CFO, has evaluated the effectiveness of the Company’s disclosure controls
and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act, as of December 31, 2015.
The
term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) means controls and other procedures
of the Company that are designed to ensure that information required to be disclosed by a company in reports, such as this report,
that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
During
fiscal year 2015, we adopted various procedures to improve our disclosure controls and procedures as well as our internal controls
over financial reporting. Such procedures include procedures related to sales, purchase, inventory, fixed assets purchase, monthly
closing procedures as well as transparency enhancing procedures governing related party transactions. Pursuant to our policy and
procedures, related parties to a transaction with the Company are required to disclose and confirm any affiliation at the end
of the relevant quarter end and sign the related party transaction disclosure list.
Management,
including the participation of our CEO and CFO, took into consideration of the third party internal control consultant’s
suggestions when carrying out their evaluation of effectiveness of internal control.
Based
on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2015.
Management’s
Report on Internal Controls Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control
over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the
preparation of our consolidated financial statements in accordance with U.S. GAAP. Our accounting policies and internal controls
over financial reporting, established and maintained by management, are under the general oversight of the Board’s audit
committee.
Our
internal control over financial reporting includes those policies and procedures that:
|
●
|
pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets;
|
|
|
|
|
●
|
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and
|
|
|
|
|
●
|
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that
could have a material effect on the financial statements.
|
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
Management
assessed our internal control over financial reporting as of December 31, 2015. The standard measures adopted by management in
making its evaluation are the measures in the Internal-Control Integrated Framework published by the Committee of Sponsoring Organizations
of the Treadway Commission.
Based
on that assessment, our CEO and CFO concluded that our internal control over financial reporting as of December 31, 2015 was effective.
The
Company continues to make efforts to implementing our existing and newly adopted procedures to improve our disclosure controls
and internal controls over financing reporting.
Changes
to Internal Control over Financial Reporting
There
has been no change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
ITEM
9B – OTHER INFORMATION
None.
PART
III
ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
and Executive Officers
The
following table sets forth as of March 25, 2015 the names, positions and ages of our current executive officers and directors.
Our directors serve until the next annual meeting of shareholders or until their successors are elected and qualified. Our officers
are elected by the Board and their terms of office are, except to the extent governed by an employment contract, at the discretion
of the Board.
Name of Current Director and/or Executive Officer
|
|
Age
|
|
Position(s)
|
Hongke Xue (1)
|
|
43
|
|
Chairman of Board of Directors,
Chief Executive Officer
|
Yongke Xue (2)
|
|
48
|
|
Director
|
Hanjun Zheng
|
|
43
|
|
Interim Chief Financial Officer
|
Guolin Wang (3)
|
|
52
|
|
Director
|
Johnson Lau (3)(4)
|
|
42
|
|
Director
|
Fuyou Li (3)(5)
|
|
62
|
|
Director
|
(1)
|
On
September 2, 2016, the Board appointed Hongke Xue to serve as the Chief Executive Officer of the Company and Chairman of the
Board. Mr. Hongke Xue previously served as the Company’s Chief Executive Officer from February 18, 2013 to December
24, 2014. Mr. Hongke was reappointed as the Company’s Chief Executive Officer on September 2, 2016.
|
(2)
|
On
September 2, 2016, Mr. Yongke Xue resigned from his position as the Chief Executive Officer of the Company and Chairman of the
Board of the Directors of the Company. Mr. Yongke Xue was appointed Chief Executive Officer on December 24, 2014, and resigned
as Chief Executive Officer of the Company on September 2, 2016.
|
(3)
|
Member
of the audit committee and compensation committee.
|
(4)
|
Johnson
Lau was appointed a member of the Board of Directors of the Company on December 23, 2014.
|
(5)
|
Fuyou
Li was appointed a member of the Board of Directors of the Company on May 8, 2015.
|
Yongke
Xue, Director
Mr.
Yongke Xue served as our Chief Executive Officer from February 26, 2008 to February 18, 2013. Mr. Xue was reappointed the Chief
Executive Officer on December 24, 2014. On September 2, 2016, Mr. Yongke Xue, resigned from his position as the Chief Executive
Officer of the Company and Chairman of the Board of the Directors of the Company. Mr. Yongke Xue remains as a director of the
Board. Mr. Yongke Xue has served as the director of SkyPeople (China) since December 2005. Mr. Xue served as the general
manager of Hede from December 2005 to June 2007. Prior to that, he served as the business director of the investment banking division
of Hualong Securities Co., Ltd. from April 2001 to December 2005. He also acted as the vice general manager of Shaanxi Huaye Foods
Co., Ltd. from July 1998 to March 2001. Mr. Xue graduated from Xi’an Jiaotong University with an MBA in 2000. Mr. Xue
graduated with a Bachelor’s degree in Metal Material & Heat Treatment from National University of Defense Technology
in July 1989. The Board believes that Mr. Xue’s vision, leadership and extensive knowledge of the Company is essential to
the development of its strategic vision.
Hongke
Xue
,
Director and Chief Executive Officer
Mr.
Xue Hongke is a brother of Mr. Xue Yongke. On September 2, 2016, the Board appointed Hongke Xue to serve as the Chief Executive
Officer of the Company and Chairman of the Board. He previously served as our Chief Executive Officer of the Company from February
18, 2013 to December 24, 2014, and the chairman of the Board of Directors and the Chief Executive Officer of SkyPeople Juice Group
Co., Ltd., a 99.78% indirectly owned operating subsidiary of the Company ("SkyPeople (China)"), since 2003. Mr. Xue
Hongke has been serving as our director since February 18, 2013. The Company is a holding company and conducts its business substantially
through SkyPeople (China) and its subsidiaries and branch officers in China. Prior to that, Mr. Hongke Xue served as the Chief
Executive Officer of Tangshan Fengyuan Metal Products, a sino-foreign joint venture, from March 2002 to March 2003. Prior to that,
he served as the general manager of Baoji Industrial Products Co., Ltd., a wholly foreign owned enterprise, from April 2001 to
March 2002, and deputy general manager of Shaanxi DePu Industry and Trade Co., Ltd. from October 1997 to April 2001. H. K. Xue
received a bachelor degree in business management from Lanzhou University of Finance and Economics in July 1995. H. K. Xue's experience
in management and corporate development and his experience with fruit juice industry, the development and sale of products will
enable him to provide effective leadership to continue to grow the Company's business. The Board believes that Mr. Hongke Xue’s
experience in the Company’s business operations are crucial to the success of the Company.
Hanjun
Zheng, Interim Chief Financial Officer
Mr.
Hanjun Zheng was appointed by the Board as Chief Financial Officer on November 27, 2015. Since December, 2009, Mr. Zheng has been
serving as the Chief Financial Officer of SkyPeople Juice Group Co., Ltd. a company organized under the laws of China and a 99.78%
indirectly-owned subsidiary of the Company. Mr. Zheng was the deputy general manager at Jingyang Branch of SkyPeople Juice Group
Co., Ltd. from March, 2006 to November 2009. From May, 1994 to February, 2006, Mr. Zheng was the Financial Accounting Manager
at Shaanxi Provincial Fruit Juice Processing Factory, a state-owned enterprise in Shaanxi, China.Mr. Zheng earned his bachelor
degree in accounting by passing Chinese National Self-Examination in Financial Accounting in 1996. Mr. Zheng graduated from Shaanxi
Technical College of Finance and Economics and received his junior college degree in Financial Accounting in 1994. Mr. Zheng received
additional training in Advanced Business Management and Advanced Financial and Accounting Management at Jiaotong University in
March, 2011 and July, 2012, respectively.
There is no family relationship between Mr. Zheng
and any of the Company’s directors and officers.
The Board believes that Mr.
Zheng
’s
strong experience in accounting and financial reporting is important to the Company since the Company is listed in the United
States.
Guolin
Wang, Director
Mr. Wang
has been serving as one of our directors since April 7, 2008. Mr. Wang has served as a director of SkyPeople (China) since October
2005. Since 1996 he has been a professor in the Finance Department of the Management School and in the Economics and Finance School
of Xi’an Jiaotong University. He previously served as the director and chairman of Xi’an Changtian Environmental Protection
Engineering Co., Ltd. from February 2006 to June 2007. Mr. Wang graduated with a Bachelor of Science in Electronics &
Telecommunication from Xi’an Jiaotong University in July 1983. In July 1983, he attained a Master’s degree in Management
Science and Engineering. He graduated with a Doctorate degree in Management and Science and Engineering from Xi’an Jiaotong
University’s School of Economics & Finance in 2006. The Board believes that Mr. Wang’s strong experience
in engineering is important to the Company’s business operations.
Johnson
Lau
,
Director
On
December 23, 2014, the Board appointed Johnson Lau as a member of the Board of Directors of the Company and also the Chairman
of Audit committee. Mr. Lau is entitled for US$25,000 per annum as compensation for his service as director of SkyPeople.
Mr.
Lau is the Chief Financial Officer of China Golden Classic Group Limited (“China Golden”), a company listed in Hong
Kong Stock Exchange Limited (HKEX: 8281.HK).. Mr. Lau is a Certified Public Accountant of the Hong Kong Institute of Certified
Public Accountants and CPA Australia. Mr. Lau has over 19 years of experience in the accounting profession. Mr. Lau started his
career in Deloitte in Hong Kong and Beijing from 1997 to 2004. Prior to joining China Golden in July 2015, Mr. Lau worked in various
public companies in the United States and England as Director of Finance and CFO for over ten years. He holds a bachelor degree
in commerce from Monash University, Australia. The Board believes that Mr. Lau’s extensive knowledge and experience in accounting
and his public company experience is important to the Company’s internal controls and financial reporting and its status
as a US traded public company.
Fuyou
Li
,
Director
On
May 8, 2015, the Company’s Board of Directors appointed Mr. Fuyou Li as a member of the Company’s Board of Directors
effective as of that date. The Board of Directors also appointed Mr. Li as a member of both audit committee and compensation committee
to replace Mr. Lu. Mr. Li, age 62, graduated from Xi’an Jiaotong University with a doctor's degree in economics. He has
taught international finance as a professor in Xi’an Jiaotong University for the past 5 years. In determining that
Mr. Li should serve on the Company’s Board of Directors, the Board considered, among other qualifications, his professional
background and expertise in international finance.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Exchange Act requires that directors, certain officers of the Company and ten percent shareholders file reports of ownership
and changes in ownership with the Commission as to the Company’s securities beneficially owned by them. Such persons are
also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.
Based
solely on its review of copies of such forms received by the Company, or on written representations from certain reporting persons,
the Company believes that, other than as described above, all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent shareholders were complied with during the fiscal year ended December 31, 2015.
Code
of Ethics
We
have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those
officers responsible for financial reporting. Our code of business conduct and ethics is available on our website at www.skypeoplefruitjuice.com
and may be found by first clicking on “Investors,” then “Corporate Governance” and then “Governance
Documents.” We intend to disclose any amendments to the code, or any waivers of its requirements, on our website.
Committees
of the Company’s Board of Directors
The
Board held four regularly scheduled and special meetings during fiscal year 2015. All of the directors attended (in person or
by telephone) all of the Board meetings and any committees of the Board on which they served during the fiscal year. Directors
are expected to use their best efforts to be present at the shareholders annual meeting. All of our directors attended the
November
19, 2015 shareh
olders annual meeting.
Audit
Committee
On
April 25, 2008, the Board formed an audit committee. Messrs. Lau, Li and Wang currently serve on the audit committee, which is
chaired by Mr. Lau. Each member of the audit committee is “independent” as that term is defined in the rules of the
SEC and within the meaning of such term as defined under the rules of the NASDAQ Global Market. The Board has determined that
each audit committee member has sufficient knowledge in financial and auditing matters to serve on the audit committee. The audit
committee held four meetings during fiscal year 2015. Our Board has determined that Mr. Lau is an “audit committee financial
expert,” as defined under the applicable SEC rules.
Compensation
Committee
On
April 25, 2008, the Board formed a compensation committee. Messrs. Lau, Li and Wang currently serve on the compensation committee,
which is chaired by Mr. Lau. Each member of the compensation committee is “independent” as that term is
defined in the SEC rules and within the meaning of such term as defined under the rules of the NASDAQ Global Market, a “nonemployee
director” for purposes of Section 16 of the Exchange Act and an “outside director” for purposes of Section 162(m)
of the Internal Revenue Code of 1986, as amended. No interlocking relationship exists between the Board or the compensation committee
and the Board or compensation committee of any other company, nor has any interlocking relationship existed during the last
fiscal year. The compensation committee held one meeting during fiscal year 2015.
Other
Committees
The
Board may on occasion establish other committees, as it deems necessary or required. We do not currently have a standing nominating
committee, or a committee performing similar functions. The full Board currently serves this function. Our directors believe that
it is not necessary to have such committees, at this time, because the functions of such committees can be adequately performed
by the Board. The Board will assess all candidates, whether submitted by management or shareholders, and make recommendations
for election or appointment. There have been no material changes to the procedures by which security holders may recommend nominees
to the Board.
Compensation
Committee Interlocks and Insider Participation
None
of the Company’s executive officers has served as a member of a compensation committee, or other committee serving an equivalent
function, of any other entity whose executive officers serve as a director of the Company or member of the Company’s compensation
committee.
Family
Relationships
Mr.
Yongke Xue, a member of the Board of Directors, is the brother of Mr. Hongke Xue, the chairman of our Board and our Chief Executive
Officer.
ITEM
11 – EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
Compensation
Objectives
We
operate in a highly competitive and rapidly changing industry. The key objectives of our executive compensation programs are to:
|
●
|
attract,
motivate and retain executives who drive our success and industry leadership; and provide
each executive, from vice president to CEO, with a base salary on the market value of
that role, and
|
|
●
|
the
individual’s demonstrated ability to perform that role.
|
2011
Stock Incentive Plan
On
August 18, 2011, upon board recommendation, at the annual meeting of the shareholders, our shareholder approved a Stock Incentive
Plan (the “Plan”). The purpose of the Plan is to provide an additional inducement for selected employees, consultants
and non-employee directors who provide services to the Company, to reward such selected individuals by providing an opportunity
to acquire incentive awards, and to provide a means through which we may attract able persons to enter the employment of, or engagement,
with the Company. Up to 1,000,000 shares of Common Stock (subject to adjustment in the event of stock splits and other similar
events) may be issued pursuant to awards granted under the Plan.
The
Plan provides for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights and incentive
compensation awards paid in cash or Stock to selected employees, consultants and non-employee directors of the Company. Options
granted under the Plan may be “incentive stock options” as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”), or nonqualified options, and will be designated as such. At present, there are approximately
250 employees and consultants and three non-employee directors eligible to participate in the Plan. The Plan will be administered
by the Board of Directors or a committee of the Board. The administrator will have complete discretion to select the optionees
and to establish the terms and conditions of each option, subject to the provisions of the Plan.
We
believe that the future success of the Company depends, in large part, upon the ability of the Company to maintain a competitive
position in attracting, retaining and motivating key personnel. As of the date of this report, no decisions have been made regarding
future awards under the Plan.
What
Our Compensation Program is Designed to Reward
Our
compensation program m is designed to reward each individually named executive officer’s contribution to the advancement
of our overall performance and execution of our goals, ideas and objectives. It is designed to reward and encourage
exceptional performance at the individual level in the areas of organization, creativity and responsibility while supporting our
core values and ambitions. This in turn aligns the interest of our executive officers with the interests of our shareholders,
and thus with our interests.
Determining
Executive Compensation
The
Board’s compensation committee reviews and approves the compensation program for executive officers annually after the close
of each year. Reviewing the compensation program at such time allows the compensation committee to consider the overall performance
of the past year and the financial and operating plans for the upcoming year in determining the compensation program for the upcoming
year.
A
named executive officer’s base salary is determined by an assessment of his sustained performance against individual job
responsibilities, including, where appropriate, the impact of his performance on our business results, current salary in relation
to the salary range designated for the job, experience and mastery, and potential for advancement. The compensation
committee also annually reviews market compensation levels with comparable jobs in the industry to determine whether the total
compensation for our officers remains in the targeted median pay range.
Role
of Executive Officers in Determining Executive Compensation
The
compensation committee determines the compensation for the CEO, which is based on various factors, such as level of responsibility
and contributions to our performance. The CFO recommends the compensation for our executive officers (other than the compensation
of the CEO) to the compensation committee. The compensation committee reviews the recommendations made by the CEO and determines
the compensation of the CFO and the other executive officers.
Employment
Agreements
We
do not currently have an employment agreement with any of our executive officers.
Summary
Compensation of Named Executive Officers
Our executive officers do not receive any compensation for serving as executive officers of Pacific or us.
However, except for our former CEO, the remaining executive officers are compensated by and through SkyPeople (China). Our former
CEO, Yongke Xue, has not received any compensation from us or any of our subsidiaries for his services in the past three years.
The following table sets forth information concerning cash and non-cash compensation paid by SkyPeople (China) to our named executive
officers for 2015 and 2014, respectively.
Name
and
Principal
Position
|
|
Year
Ended
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
|
Non-Qualified
Deferred Compensation Earnings
($)
|
|
|
All
Other Compensation
($)
|
|
|
Total
($)
|
|
Yongke
Xue (1)
|
|
|
12/31/2015
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Yongke
Xue (1)
|
|
|
12/31/2014
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hongke
Xue (1)
|
|
|
12/31/2015
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Hongke
Xue (1)
|
|
|
12/31/2014
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xin
Ma
|
|
|
12/31/2015
|
|
|
$
|
43,438
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
43,438
|
|
Xin
Ma
|
|
|
12/31/2014
|
|
|
$
|
58,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
58,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanjun Zheng(2)
|
|
|
12/31/2015
|
|
|
$
|
11,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,662
|
|
|
|
|
12/31/2014
|
|
|
$
|
11,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,721
|
|
(1)
|
Mr.
Yongke Xue resigned as CEO of the Company on February 18, 2013 and Mr. Hongke Xue was appointed as the CEO of the Company
at the same time. Mr. Hongke Xue resigned as CEO on December 24, 2014, and Mr. Yongke Xue was reappointed as the CEO of the
Company at the same time. Mr. Yongke Xue resigned as CEO on September 2, 2016, and Mr. Hongke Xue was appointed to the same
position at that time.
|
|
|
(2)
|
Mr.
Hanjun Zheng was appointed by the Board as Interim Chief Financial Officer on November 27, 2015.
|
Outstanding
Equity Awards at December 31, 2015
The
following table presents certain information concerning outstanding equity awards held by each of our named executive officers
at December 31, 2015.
|
|
|
Option Awards
|
|
Name
|
|
|
Number
of securities underlying unexercised options (#) exercisable
|
|
|
|
Number
of securities underlying unexercised options (#) unexercisable
|
|
|
|
Equity
incentive plan awards: number of securities underlying unexercised unearned options (#)
|
|
|
|
Option
exercise price
($)
|
|
|
|
Option
expiration date
|
|
Yongke Xue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Hongke Xue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Hanjun Zheng
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Compensation
of Directors
Our
directors did not receive compensation for their service on the board of directors for 2006 and 2007. Starting in 2008, we began
(i) paying each of our nonemployee directors residing in the United States an annual fee of $25,000, (ii) reimbursing
our directors for actual, reasonable and customary expenses incurred in connection with the performance of their duties as board
members and (iii) paying the chairman of our audit committee a fee of $25,000 for his or her service as chairman.
There
was no change to the compensation to our directors in 2015. The following table sets forth information concerning cash and non-cash
compensation paid by us to our directors during 2015.
Name
|
|
Fees Paid in Cash
($)
|
|
|
Stock
Awards
|
|
|
Option Awards
|
|
|
Non-Equity Incentive Plan Compensation
($)
|
|
|
Non-Qualified Deferred Compensation Earnings
($)
|
|
|
All Other Compensation ($)
|
|
|
Total
($)
|
|
Yongke Xue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Hongke Xue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Guolin Wang
|
|
|
17,691
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,691
|
|
Fuyou Li(1)
|
|
$
|
17,691
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
17,691
|
|
Johnson Lau (2)
|
|
$
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
25,000
|
|
(1)
|
On
May 8, 2015, the Company’s Board of Directors appointed Mr. Fuyou Li as a member of the Board of Directors and a member of both audit committee and compensation committee. Mr. Li is entitled for US$8,850 per annum as compensation for his service as director of SkyPeople.
|
|
|
(2)
|
On
December 23, 2014, the Board appointed Johnson Lau as a member of the Board of Directors of the Company and also the Chairman
of Audit committee. Mr. Lau is entitled for US$25,000 per annum as compensation for his service as director of SkyPeople.
|
ITEM
12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Set
forth below is our equity compensation plan information:
Plan category
|
|
Number of securities to be issued upon exercise
of outstanding options, warrants and rights
|
|
|
Weighted-average exercise price of outstanding
options, warrants and rights
|
|
|
Number of securities remaining available for
future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by security holders (1)
|
|
|
-
|
|
|
|
N/A
|
(2)
|
|
|
1,000,000
|
|
Equity compensation plans not approved by security holders
|
|
|
-
|
|
|
$
|
N/A
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
(1)
|
Consists
of Stock Incentive Plan, which was approved by the Company’s shareholders at its annual meeting August 18, 2011.
|
|
|
(2)
|
The
exercise price of options granted and stock appreciation rights under the Plan may be no less than the fair market value of
the Company’s Stock on the date of grant. Since no options have been granted under the plan, the weighted-average exercise
price is not available.
|
Security
Ownership of Certain Beneficial Owners and Management
The
following table provides information concerning beneficial ownership of our capital stock as of November 22, 2016 by:
|
●
|
each
shareholder or group of affiliated shareholders who owns more than 5% of our outstanding
capital stock;
|
|
|
|
|
●
|
each
of our named executive officers;
|
|
|
|
|
●
|
each
of our directors; and all of our directors and
|
|
|
|
|
●
|
executive
officers as a group.
|
The
following table lists the number of shares and percentage of shares beneficially owned based on 4,061,090 shares of our Common
Stock outstanding as of November 22, 2016.
Beneficial
ownership is determined in accordance with the SEC rules, and generally includes voting power and/or investment power with respect
to the securities held. Shares of Common Stock subject to options and warrants currently exercisable or exercisable within 60
days of November 22, 2016 or issuable upon conversion of convertible securities which are currently convertible or convertible
within 60 days of November 22, 2016 are deemed outstanding and beneficially owned by the person holding those options, warrants
or convertible securities for purposes of computing the number of shares and percentage of shares beneficially owned by that person,
but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except
as indicated in the footnotes to this table, and subject to applicable community property laws, the persons or entities named
have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them.
Unless
otherwise indicated in the footnotes, the principal address of each of the shareholders below is c/o SkyPeople Fruit Juice, Inc.,
16/F, China Development Bank Tower, No. 2 Gaoxin 1st Road, Xi’an, Shaanxi Province, PRC 710075.
|
|
Shares Beneficially Owned
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percent
|
|
Directors, Named Executive Officers and 5% Shareholders
|
|
|
|
|
|
|
Yongke Xue (1)
|
|
|
2,337,155
|
|
|
|
57.5
|
%
|
Hongke Xue
|
|
|
—
|
|
|
|
—
|
|
Guolin Wang
|
|
|
—
|
|
|
|
—
|
|
Hanjun Zheng
|
|
|
—
|
|
|
|
—
|
|
Fuyou Li
|
|
|
—
|
|
|
|
—
|
|
Johnson Lau
|
|
|
—
|
|
|
|
—
|
|
All current directors and executive officers as a group (6 persons)
|
|
|
2,337,155
|
|
|
|
57.5
|
%
|
(1)
|
Consists of (i) 1,671,955 shares owned by directly by Golden Dawn International Limited and Everlasting Rich Limited, both wholly-owned subsidiaries of SkyPeople International Holdings Group Limited (“SP International”), a Cayman Islands company, and China Tianren Organic Food Holding, an indirect wholly-owned subsidiary of SP International; and (ii) 665,200 shares held directly by SP International. Yongke Xue is the sole indirect owner of SP International.
|
*
Less than one percent.
ITEM
13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
For
details of related party transactions, see Note 11 “Related Party Transaction” to our consolidated financial statements.
Director
Independence
We
currently have five directors. Three of our current directors, Messrs. Guolin Wang, Johnson Lau and Fuyou Li are determined by
our Board to be “independent directors” as defined under the rules of the NASDAQ Global Market, constituting a majority
of independent directors of the Board as required by the rules of the NASDAQ Global Market.
ITEM
14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following table shows the fees that we paid or accrued for audit and other services for fiscal years 2015 and 2014. All of the
services described in the following fee table were approved in conformity with the audit committee’s pre-approval process.
|
|
2015
|
|
|
2014
|
|
Audit Fees
|
|
$
|
321,113
|
|
|
$
|
144,000
|
|
Tax Fees
|
|
|
10,714
|
|
|
|
6,500
|
|
All Other Fees
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
331,827
|
|
|
$
|
150,500
|
|
Audit
Fees
The
amounts set forth opposite “Audit Fees” above reflect the aggregate fees billed or billable by Armanino LLP (“Armanino”),
Jia Roger Qian Wang CPA (“Roger”) and Wei, Wei & Co., LLP (“Wei & Wei”).
Roger
and Armanino provided professional services for the audit of our fiscal 2015 and 2014 annual financial statements, respectively.
Roger
provided professional services for the audit of our fiscal year 2015 financial statements and $100,000 was billed for the audit
of consolidated financial statements for fiscal 2015.
Armanino
provided professional services for the audit of our fiscal 2014 annual financial statements, and the company paid $144,000 for
the service fees billed for fiscal year 2014. In 2015,the company paid $60,700 to Armanino for audit services provided for fiscal
year 2015. Armanio did not issue any reports on the Company’s consolidated financial statements, and there were no disagreements
between the Company and Armanino on matters of accounting principles or practices, financial statement disclosure or auditing
scope or procedures.
The Company engaged Wei & Wei during the period from April 12, 2016 to September 19, 2016 (the “Engagement
Period”), and paid a total of $145,538. During the Engagement Period, Wei & Wei did not issue any reports on the Company’s
consolidated financial statements, and there were no disagreements between the Company and Wei & Wei on matters of accounting
principles or practices, financial statement disclosure or auditing scope or procedures.
Tax
Fees
The
amounts set forth opposite “Tax Fees” above reflect the aggregate fees billed for fiscal 2015 and 2014 for professional
services rendered for tax compliance and return preparation. The compliance and return preparation services consisted of the preparation
of original and amended tax returns and support during the income tax audit or inquiries.
The
Board audit committee’s policy is to pre-approve all audit services and all non-audit services that our independent accountants
are permitted to perform for us under applicable federal securities regulations. The audit committee’s policy utilizes an
annual review and general pre-approval of certain categories of specified services that may be provided by the independent accountant,
up to pre-determined fee levels. Any proposed services not qualifying as a pre-approved specified service, and pre-approved services
exceeding the pre-determined fee levels, require further specific pre-approval by the audit committee. The audit committee has
delegated to the Chairman of the audit committee the authority to pre-approve audit and non-audit services proposed to be performed
by the independent accountants. Our audit committee was established in April 2008. Therefore, all the services provided by our
auditors in fiscal years 2015 and 2014 were pre-approved by the audit committee.
PART
IV
ITEM
15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
(1) FINANCIAL STATEMENTS:
The
following financial statements, including notes thereto and the independent auditors’ report with respect thereto, are filed
as part of this Annual Report on Form 10-K, starting on page F-1 hereof:
1.
|
Management’s
Report on Internal Control over Financial Reporting
|
2.
|
Report
of Independent Public Registered Accounting Firm
|
3.
|
Consolidated
Balance Sheets
|
4.
|
Consolidated
Statements of Income and Comprehensive Income
|
5.
|
Consolidated
Statements of Shareholders’ Equity
|
6.
|
Consolidated
Statements of Cash Flows
|
7.
|
Notes
to Consolidated Financial Statements
|
(b) EXHIBITS:
Exhibit Index
Exhibit Number
|
|
Description
|
2.1
|
|
Share Exchange Agreement, dated as of February 22, 2008 by and among Pacific Industry Holding Group Co., Ltd., “Pacific,” Terrence Leong, SkyPeople Fruit Juice, Inc., the “Registrant,” and the shareholders of Pacific. Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed with the Commission on February 28, 2008, the “February 28, 2008 8-K”.
|
3.1
|
|
Amended and Restated Articles of Incorporation of the Registrant. Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the Commission on March 3, 2008, the “March 3, 2008 8-K.”
|
3.2
|
|
Articles of Amendment to Articles of Incorporation dated October 28, 2009. Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the Commission on October 29, 2009.
|
3.3
|
|
Certificate of Designations, Preferences and Rights of the Registrant’s Series A Convertible Preferred Stock. Incorporated by reference to Exhibit 3.1 to the February 28, 2008 8-K.
|
3.4
|
|
Certificate of Designations, Preferences, Rights and Limitations of the Registrant’s Series B Convertible Preferred Stock. Incorporated by reference to Exhibit 3.2 to the February 28, 2008 8-K.
|
3.5
|
|
Bylaws of Entech, Inc. Incorporated by reference to Exhibit 3.5 to the March 3, 2008 8-K.
|
3.6
|
|
Articles of Amendment to the Articles of Incorporation of the Registrant filed with the Department of State of Florida on May 23, 2008. Incorporated by reference to Exhibit 3.6 to our Annual Report on Form 10-K for the year ended December 31, 2008, the “2008 10-K.”
|
3.7
|
|
Amendment of Article VII of the By-law. Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the Commission on July 14, 2011.
|
3.8
|
|
Bylaws of SkyPeople Juice, Inc. Incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q filed with the Commission on August 15, 2011.
|
3.9
|
|
Articles of Amendment to the Articles of Incorporation of the Registrant filed with the Department of State of Florida on March 10, 2016. Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the Commission on March 15, 2016.
|
4.1
|
|
Warrant to purchase 5,338,236 shares of the Registrant’s Common Stock issued to Barron Partners LP, dated June 2, 2009, Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (File No. 333-159959, filed with the Commission on June 12, 2009, the “June 2009 S-1,”, as amended by Warrant to purchase 1,192,883 shares of the Registrant’s Common Stock issued to Barron Partners LP, dated June 2, 2009, Incorporated by reference to Exhibit 4.5 to our Current Report on Form 8-K filed with the Commission on January 13, 2010.
|
4.2
|
|
Warrant to purchase 970,588 shares of the Registrant’s Common Stock issued to Barron Partners LP, dated June 2, 2009, Incorporated by reference to Exhibit 4.2 to the June 2009 S-1, as amended by Warrant to purchase 1,192,883 shares of the Registrant’s Common Stock issued to Barron Partners LP, dated June 2, 2009, Incorporated by reference to Exhibit 4.5 to our Current Report on Form 8-K filed with the Commission on January 13, 2010.
|
4.3
|
|
Warrant to purchase 161,764 shares of the Registrant’s Common Stock issued to Eos Holdings, LLC, dated June 2, 2009, Incorporated by reference to Exhibit 4.3 to the June 2009 S-1, as amended by Warrant to purchase 35,451 shares of the Registrant’s Common Stock issued to Eos Holdings, LLC, dated June 2, 2009, Incorporated by reference to Exhibit 4.6 to our Current Report on Form 8-K filed with the Commission on January 13, 2010.
|
4.4
|
|
Warrant to purchase 29,412 shares of the Registrant’s Common Stock issued to Eos Holdings, LLC, dated June 2, 2009, Incorporated by reference to Exhibit 4.4 to the June 2009 S-1, as amended by Warrants to purchase 35,451 shares of the Registrant’s Common Stock issued to Eos Holdings, LLC, dated June 2, 2009, Incorporated by reference to Exhibit 4.6 to our Current Report on Form 8-K filed with the Commission on January 13, 2010.
|
9.1
|
|
Voting Trust Agreement, dated as of February 25, 2008, by and among Fancylight Limited and Hongke Xue. Incorporated by reference to Exhibit 9.1 to the March 3, 2008 8-K.
|
9.2
|
|
Voting Trust and Escrow Agreement, dated as of February 25, 2008, by and among Winsun Limited and Sixiao An. Incorporated by reference to Exhibit 9.2 to the March 3, 2008 8-K.
|
9.3
|
|
Voting Trust and Escrow Agreement, dated as of February 25, 2008, by and among China Tianren Organic Food Holding Company Limited and Lin Bai. Incorporated by reference to Exhibit 9.3 to the March 3, 2008 8-K.
|
10.1
|
|
Call Option Agreement between Hongke Xue and Fancylight Limited, dated as of February 25, 2008. Incorporated by reference to Exhibit 10.5 to the March 3, 2008 8-K.
|
10.2
|
|
Share Transfer Agreement by and among Shaanxi Hede Investment Management Co., Ltd. Niu Hongling, Wang Qifu, Wang Jianping, Zhang Wei, Cui Youming and Yuan Ye, dated as of May 31, 2007. Incorporated by reference to Exhibit 10.6 to the March 3, 2008 8-K.
|
10.3
|
|
Exchange Agreement, dated as of May 28, 2009 between the Registrant, Barron Partners LP and Eos Holdings, LLC. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 3, 2009, the “June 2009 8-K.”
|
10.4
|
|
Waiver and Release, dated as of May 28, 2009 by Barron Partners LP in favor of the Registrant. Incorporated by reference to Exhibit 10.2 to the June 2009 8-K.
|
10.5
|
|
Waiver and Release, dated as of May 28, 2009 by Eos Holdings, LLC in favor of the Registrant. Incorporated by reference to Exhibit 10.3 to the June 2009 8-K.
|
10.6
|
|
Underwriting Agreement, dated as of October 28, 2009, by and among the Registrant, Roth Capital Partners, LLC, Maxim Group LLC, Barron Partners LP and Eos Holdings, LLC. Incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the Commission on October 29, 2009.
|
10.7
|
|
English translation of the Stock Purchase Agreement dated as of November 18, 2009, by and between Shaanxi Tianren Organic Food Co., Ltd. and Xi’an Dehao Investment & Consulting Co., Ltd. Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed with the Commission on November 20, 2009 and to the Current Report on Form 8-K/A filed with the Commission on November 25, 2009.
|
10.8
|
|
Warrant to purchase 100,000 of the Registrant’s Common Stock issued to Spring Liu, dated December 9, 2009. Incorporated by reference to Exhibit 4.7 to our Current Report on Form 8-K filed with the Commission on January 13, 2010.
|
10.9
|
|
English translation of the Distribution Agreement dated as of January 8, 2010, by and between Shaanxi Qiyiwangguo Modern Organic Agriculture Co. Ltd. and Beijing Ni’aode Trading Co., Ltd. Incorporated by reference to Exhibit 10.01 to our Current Report on Form 8-K filed with the Commission on January 13, 2010.
|
10.10
|
|
English Translation of Credit Facility Agreement dated June 30, 2009 between Shaanxi Tianren Organic Food Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China Construction Bank Incorporated by reference to Exhibit 10.29 of the 2009 10-K.
|
10.11
|
|
English Translation of Credit Facility Agreement dated November 6, 2009 between Shaanxi Tianren Organic Food Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China Construction Bank. Incorporated by reference to Exhibit 10.30 of the 2009 10-K.
|
10.12
|
|
English Translation of Credit Facility Agreement dated November 24, 2009 between Shaanxi Tianren Organic Food Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China Construction Bank. Incorporated by reference to Exhibit 10.31 of the 2009 10-K.
|
10.13
|
|
English Translation of Credit Facility Agreement dated June 26, 2009 between Huludao Wonder Fruit Co., Ltd. and Suizhong Branch, Commercial Bank of Huludao. Incorporated by reference to Exhibit 10.32 of the 2009 10-K.
|
10.14
|
|
English Translation of Pledge Agreement dated June 26, 2009 between Huludao Wonder Fruit Co., Ltd. and Suizhong Branch, Commercial Bank of Huludao. Incorporated by reference to Exhibit 10.33 of the 2009 10-K.
|
10.15
|
|
English Translation of Credit Facility Agreement dated August 12, 2009 between Shaanxi Tianren Organic Food Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China Construction Bank Incorporated by reference to Exhibit 10.34 of the 2009 10-K.
|
10.16
|
|
English
Translation of Credit Facility Agreement dated July 19, 2010 between Huludao Wonder Fruit Co., Ltd. and Suizhong Branch, Huludao
Bank Co., Ltd. Incorporated by reference to Exhibit 10.16 of the 2010 10-K.
|
10.17
|
|
English
Translation of Credit Facility Agreement dated September 9, 2010 between SkyPeople Juice Group Co. Ltd. And Xi’an Kejilu
Branch of China Merchants Bank. Incorporated by reference to Exhibit 10.17 of the 2010 10-K
|
10.18
|
|
English
Translation of Credit Facility Agreement dated May 10, 2010 between SkyPeople Juice Group Co. Ltd.
and Hi-tech
Industrial Development Zone, Xi’an branch of China Construction Bank. Incorporated by reference to Exhibit 10.18
of the 2010 10-K.
|
10.19
|
|
English
Translation of Credit Facility Agreement dated February 3, 2010 between SkyPeople Juice Group Co. Ltd. and Hi-tech Industrial
Development Zone, Xi’an branch of China Construction Bank. Incorporated by reference to Exhibit 10.19 of the 2010
10-K.
|
10.20
|
|
English
Translation of Credit Facility Agreement dated December 6, 2010 between SkyPeople Juice Group Co. Ltd. and Hi-tech Industrial
Development Zone, Xi’an branch of China Construction Bank. Incorporated by reference to Exhibit 10.20 of the 2010
10-K.
|
10.21
|
|
English
Translation of Credit Facility Agreement dated December 7, 2010 between SkyPeople Juice Group Co. Ltd. and China CITIC Bank,
Xi’an Kejilu Branch. Incorporated by reference to Exhibit 10.21 of the 2010 10-K.
|
10.22
|
|
English
Translation Of Credit Facility Agreement dated December 30, 2010 Between SkyPeople Juice Group Co. Ltd. and Hi-Tech Industrial
Development Zone, Xi' A Branch Of China Construction Bank. Incorporated by reference to Exhibit 10.22 to our Quarterly Report
on Form 10-Q filed with the Commission on May 16, 2011.
|
10.23
|
|
A
copy of the complaint for the civil action against Absaroka Capital and Kevin Barns as filed by the Company with the United
States District Court for the District of Wyoming. Incorporated by reference to Exhibit 99.1 to our Current Report on Form
8-K filed with the Commission on July 8, 2011.
|
10.24
|
|
Indemnification
Agreement. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on July 14,
2011.
|
10.25
|
|
Indemnification
Agreement Between SkyPeople Juice, Inc. and Yongke Xue. Incorporated by reference to Exhibit 10.1 to our Quarterly Report
on Form 10-Q filed with the Commission on August 15, 2011
|
10.26
|
|
Indemnification
Agreement Between SkyPeople Juice, Inc. and Xiaoqin Yan. Incorporated by reference to Exhibit 10.2 to our Quarterly Report
on Form 10-Q filed with the Commission on August 15, 2011
|
10.27
|
|
Indemnification
Agreement Between SkyPeople Juice, Inc. and Guolin Wang. Incorporated by reference to Exhibit 10.3 to our Quarterly Report
on Form 10-Q filed with the Commission on August 15, 2011
|
10.28
|
|
Indemnification
Agreement Between SkyPeople Juice, Inc. and Spring Liu. Incorporated by reference to Exhibit 10.4 to our Quarterly Report
on Form 10-Q filed with the Commission on August 15, 2011
|
10.29
|
|
Indemnification
Agreement Between SkyPeople Juice, Inc. and John W. Smagula. Incorporated by reference to Exhibit 10.5 to our Quarterly Report
on Form 10-Q filed with the Commission on August 15, 2011
|
10.30
|
|
Indemnification
Agreement Between SkyPeople Juice, Inc. and Norman Ko. Incorporated by reference to Exhibit 10.6 to our Quarterly Report on
Form 10-Q filed with the Commission on August 15, 2011
|
10.31
|
|
English
translation of Investment/Service Agreement The Yidu Orange Comprehensive Deep Processing Zone (the “Zone”) between
Yidu Municipal People’s Government and SkyPeople Juice Group Company Limited dated October 29, 2012. Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on October 29, 2012
|
10.32
|
|
English
translation of Loan Agreement between SkyPeople Juice Group Co., Ltd. and SkyPeople International Holdings Group Limited dated
February 18, 2013. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on
February 19, 2013
|
10.33
|
|
Share
Exchange Agreement among SkyPeople International Holdings Group Limited, Golden Dawn International Limited, Hongke Xue, Yongke
Xue, V.X. Fortune Capital Limited and Kingline International Limited dated September 14, 2012. Incorporated by reference to
Exhibit 99.3 to our Current Report on Form 8-K filed with the Commission on January 4, 2013.
|
10.34
|
|
Share
Charge between China Tianren Organic Food Holding Company Limited, Golden Dawn International Limited and Vandi Investments
Limited dated December 28, 2012. Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K filed with the
Commission on January 4, 2013.
|
10.35
|
|
Share
Charge between China Tianren Organic Food Holding Company Limited, Golden Dawn International Limited and COFCO (Beijing) Agricultural
Industrial Equity Investment Fund dated December 28, 2012. Incorporated by reference to Exhibit 99.4 to our Current Report
on Form 8-K filed with the Commission on January 4, 2013.
|
16.1
|
|
Letter
from Tavarsan Askelson & Registrant LLP dated March 6, 2008. Incorporated by reference to Exhibit 16.1
to our Current Report on Form 8-K filed with the Commission on March 6, 2008.
|
16.2
|
|
Letter
from Child, Van Wagoner & Bradshaw, PLLC dated December 14, 2009. Incorporated by reference to Exhibit 16.1
to our Current Report on Form 8-K filed with the Commission on December 14, 2009.
|
16.3
|
|
Letter
from BDO Limited to dated December 23, 2011. Incorporated by reference to Exhibit 16.1 to our Current Report on Form 8-K
filed with the Commission on December 30, 2011.
|
16.4
|
|
Letter
from Paritz & Company to dated December 31, 2014. Incorporated by reference to Exhibit 16.1 to our Current Report on Form
8-K filed with the Commission on December 31, 2014
|
21.1
|
|
Description
of Subsidiaries of the Registrant*
|
23.1
|
|
Consent
of Independent Registered Public Accounting Firm.*
|
23.2
|
|
Consent
of Independent Registered Public Accounting Firm*
|
31.1
|
|
Rule
13a-14(a) Certification of Principal Executive Officer of Registrant*
|
31.2
|
|
Rule
13a-14(a) Certification of Principal Financial Officer of Registrant*
|
32.1
|
|
Section
1350 Certification of Principal Executive Officer of Registrant. *
|
32.2
|
|
Section
1350 Certification of Principal Financial Officer of Registrant.*
|
*Filed
herewith
(c)
Other Financial Statement Schedules - None.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
SkyPeople Fruit Juice, Inc.
|
|
|
|
|
By:
|
/s/ Hongke Xue
|
|
|
Hongke Xue
|
|
|
Chief Executive Officer and
Chairman of the Board Directors
|
|
|
(principal executive officer)
|
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Hongke Xue and Hanjun Zheng,
and each of them, their attorneys-in-fact and agents, each with the power of substitution, for them in any and all capacities,
to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact,
or substitutes, may do or cause to be done by virtue hereof.
Pursuant
to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacity and on the dates indicated.
Signature
Name
and Title
|
|
Date
|
|
|
|
/s/
Yongke Xue
|
|
|
Yongke
Xue
|
|
November
25, 2016
|
Director
|
|
|
|
|
|
/s/
Hanjun Zheng
|
|
|
Hanjun
Zheng
|
|
November
25, 2016
|
Interim
Chief Financial Officer
|
|
|
(principal
financial officer and accounting officer)
|
|
|
|
|
|
/s/
Hongke Xue
|
|
|
Hongke
Xue,
Chairman
of the Board of Directors and
Chief
Executive Officer (principal executive officer)
|
|
November
25, 2016
|
|
|
|
/s/
Guolin Wang
|
|
|
Guolin
Wang, Director
|
|
November
25, 2016
|
|
|
|
/s/
Johnson Lau
|
|
|
Johnson
Lau, Director
|
|
November
25, 2016
|
|
|
|
/s/
Fuyou Li
|
|
|
Fuyou
Li, Director
|
|
November
25, 2016
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of SkyPeople Fruit Juice, Inc.:
We have audited the accompanying consolidated
balance sheets of SkyPeople Fruit Juice, Inc. as of December 31, 2015, and the related consolidated statement of income and comprehensive
income, changes in stockholders’ equity, and cash flows for the year then ended. The consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2015, including the results of their operations and their cash flows for the year then ended,
in conformity with accounting principles generally accepted in the United States of America.
/s/
Jia Roger Qian Wang, CPA
Flushing, New York
November 5, 2016
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
SkyPeople
Fruit Juice, Inc.
We
have audited the accompanying consolidated balance sheets of SkyPeople Fruit Juice, Inc. as of December 31, 2014 and the related
consolidated statement of comprehensive income, changes in equity and cash flows for the year then ended. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of SkyPeople Fruit Juice, Inc. as of December 31, 2014 and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United States of America.
/s/
Armanino LLP
San
Ramon, CA
March
31, 2015, except for footnote 17, as to which the date is November 25, 2016.
SKYPEOPLE
FRUIT JUICE, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,006,914
|
|
|
$
|
25,130,302
|
|
Restricted cash
|
|
|
3,079,956
|
|
|
|
6,537,016
|
|
Accounts receivable, net of allowance of $2,407,160 and $837,200 as of December 31, 2015 and 2014, respectively
|
|
|
50,062,300
|
|
|
|
66,570,314
|
|
Other receivables
|
|
|
265,079
|
|
|
|
371,995
|
|
Inventories
|
|
|
3,444,740
|
|
|
|
4,118,630
|
|
Deferred tax assets
|
|
|
2,326,194
|
|
|
|
1,410,690
|
|
Advances to suppliers and other current assets
|
|
|
3,809,970
|
|
|
|
472,578
|
|
TOTAL CURRENT ASSETS
|
|
|
112,995,153
|
|
|
|
104,611,525
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
82,947,233
|
|
|
|
96,279,068
|
|
LAND USE RIGHT, NET
|
|
|
25,867,932
|
|
|
|
6,502,420
|
|
LONG TERM ASSETS
|
|
|
2,979,857
|
|
|
|
3,162,281
|
|
DEPOSITS
|
|
|
45,321,919
|
|
|
|
68,878,798
|
|
Related party receivables
|
|
|
290,976
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
270,403,070
|
|
|
$
|
279,434,092
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
18,332,502
|
|
|
$
|
18,381,263
|
|
Accrued expenses
|
|
|
17,356,081
|
|
|
|
10,085,152
|
|
Income tax payable
|
|
|
1,153,194
|
|
|
|
1,457,258
|
|
Advances from customers
|
|
|
369,992
|
|
|
|
469,007
|
|
Notes payable -bank
|
|
|
-
|
|
|
|
8,171,270
|
|
Short-term bank loans
|
|
|
33,506,838
|
|
|
|
28,243,373
|
|
Obligations under capital leases
|
|
|
-
|
|
|
|
2,954,401
|
|
TOTAL CURRENT LIABILITIES
|
|
|
70,718,607
|
|
|
|
69,761,724
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Related party payables
|
|
|
-
|
|
|
|
7,959,143
|
|
Obligations under capital leases
|
|
|
16,720,307
|
|
|
|
15,625,435
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
16,720,307
|
|
|
|
23,584,578
|
|
TOTAL LIABILITIES
|
|
|
87,443,786
|
|
|
|
93,346,302
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyPeople Fruit Juice, Inc, Stockholders' equity
|
|
|
|
|
|
|
|
|
Series B Preferred stock, $0.001 par value; 10,000,000 shares authorized; None issued and outstanding as of December 31, 2015 and 2014, respectively
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.001 par value; 66,666,666 shares authorized; 27,161,499* shares issued and outstanding as of December 31, 2015 and 2014, respectively
|
|
|
27,161
|
|
|
|
26,661
|
|
Additional paid-in capital
|
|
|
59,189,860
|
|
|
|
59,189,860
|
|
Retained earnings
|
|
|
105,782,482
|
|
|
|
102,833,747
|
|
Accumulated other comprehensive income
|
|
|
13,069,031
|
|
|
|
19,351,703
|
|
Total SkyPeople Fruit Juice, Inc. stockholders' equity
|
|
|
178,068,534
|
|
|
|
181,401,971
|
|
Non-controlling interests
|
|
|
4,895,622
|
|
|
|
4,685,819
|
|
TOTAL EQUITY
|
|
|
182,964,156
|
|
|
|
186,087,790
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
270,403,070
|
|
|
$
|
279,434,092
|
|
* The amount of shares
is given prior to the Company’s 1-for-8 reverse stock split on March 10, 2016.
The
accompanying notes are an integral part of these consolidated financial statements.
SKYPEOPLE
FRUIT JUICE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
|
|
For the Year Ended
December 31,
|
|
|
|
2015
|
|
|
2014
(Corrected)
|
|
Revenue
|
|
$
|
86,440,402
|
|
|
$
|
99,060,202
|
|
Cost of goods sold
|
|
|
60,315,601
|
|
|
|
69,783,694
|
|
Gross profit
|
|
|
26,124,801
|
|
|
|
29,276,508
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
10,684,077
|
|
|
|
6,134,623
|
|
Selling expenses
|
|
|
5,196,657
|
|
|
|
5,699,475
|
|
Total operating expenses
|
|
|
15,880,734
|
|
|
|
11,834,098
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10,244,067
|
|
|
|
17,442,410
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
351,915
|
|
|
|
666,471
|
|
Subsidy income
|
|
|
1,204,649
|
|
|
|
661,655
|
|
Interest expenses
|
|
|
(3,885,018
|
)
|
|
|
(4,547,914
|
)
|
Consulting fee related to capital lease
|
|
|
(1,413
|
)
|
|
|
(1,260,255
|
)
|
Total other expenses
|
|
|
(2,329,867
|
)
|
|
|
(4,480,043
|
)
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
|
7,914,200
|
|
|
|
12,962,367
|
|
Income tax provision
|
|
|
4,267,350
|
|
|
|
4,331,551
|
|
Net income
|
|
|
3,646,850
|
|
|
|
8,630,816
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(698,115
|
)
|
|
|
(759,368
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
2,948,735
|
|
|
$
|
7,871,448
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
(4,401,140
|
)
|
|
$
|
(84,138
|
)
|
Comprehensive income (loss)
|
|
|
(754,290
|
)
|
|
|
7,787,310
|
|
Comprehensive expense attributable to non-controlling interests
|
|
|
(136,372
|
)
|
|
|
(678,126
|
)
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
(890,662
|
)
|
|
$
|
7,109,184
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
$
|
0.11
|
|
|
$
|
0.30
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted*
|
|
|
26,828,166
|
|
|
|
26,661,499
|
|
*
The amount of shares is given prior to the Company’s 1-for-8 reverse stock split on March 10, 2016.
The
accompanying notes are an integral part of these consolidated financial statements.
SKYPEOPLE
FRUIT JUICE, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
|
Common
Stock
Shares*
|
|
|
Common
Stock
|
|
|
Additional
Paid in
Capital
|
|
|
Retained
Earnings
|
|
|
Other
Comprehensive
Income
|
|
|
Non-Controlling Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
26,661,499
|
|
|
$
|
26,661
|
|
|
$
|
59,189,860
|
|
|
$
|
94,962,299
|
|
|
$
|
19,354,599
|
|
|
$
|
8,422,513
|
|
|
$
|
181,955,932
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,871,448
|
|
|
|
—
|
|
|
|
759,368
|
|
|
|
8,630,816
|
|
Dividend distribution
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,414,820
|
)
|
|
|
(4,414,820
|
)
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(2,896
|
)
|
|
$
|
(81,242
|
)
|
|
$
|
(84,138
|
)
|
Balance at December 31, 2014
|
|
|
26,661,499
|
|
|
$
|
26,661
|
|
|
$
|
59,189,860
|
|
|
$
|
102,833,747
|
|
|
$
|
19,351,703
|
|
|
$
|
4,685,819
|
|
|
$
|
186,087,790
|
|
Common Stocks issued during 2015
|
|
|
500,000
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,948,735
|
|
|
|
—
|
|
|
|
698,115
|
|
|
|
3,646,850
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(6,282,672
|
)
|
|
$
|
(488,312
|
)
|
|
$
|
(6,770,984
|
)
|
Balance at December 31, 2015
|
|
|
27,161,499
|
|
|
|
27,161
|
|
|
|
59,189,860
|
|
|
|
105,782,482
|
|
|
|
13,069,031
|
|
|
|
4,895,622
|
|
|
|
182,964,156
|
|
*
The amount of shares is given prior to the Company’s 1-for-8 reverse stock split on March 10, 2016.
The
accompanying notes are an integral part of these consolidated financial statements.
SKYPEOPLE
FRUIT JUICE, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the fiscal year
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
$
|
3,646,850
|
|
|
$
|
8,630,816
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,617,752
|
|
|
|
5,597,009
|
|
Deferred income tax assets
|
|
|
(915,504
|
)
|
|
|
(874,977
|
)
|
Bad debt provision
|
|
|
2,326,194
|
|
|
|
676,784
|
|
Inventory markdown
|
|
|
32,440
|
|
|
|
32,604
|
|
Impairment loss
|
|
|
2,383,991
|
|
|
|
-
|
|
Gain on sale of assets
|
|
|
(126,752
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
11,841,355
|
|
|
|
(33,012,853
|
)
|
Other receivable
|
|
|
20,687,724
|
|
|
|
201,066
|
|
Advances to suppliers and other current assets
|
|
|
(3,537,529
|
)
|
|
|
2,077,215
|
|
Inventories
|
|
|
426,456
|
|
|
|
213,880
|
|
Accounts payable
|
|
|
55,414,623
|
|
|
|
14,820,249
|
|
Accrued expenses
|
|
|
(85,776
|
)
|
|
|
5,985,207
|
|
Income tax payable
|
|
|
2,094,800
|
|
|
|
(284,456
|
)
|
Advances from customers
|
|
|
(75,686
|
)
|
|
|
113,881
|
|
Net cash provided by operating activities
|
|
|
104,262,788
|
|
|
|
4,176,425
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(279,691
|
)
|
|
|
(15,383,337
|
)
|
Prepayment for other assets
|
|
|
(20,530,471
|
)
|
|
|
(2,116
|
)
|
Prepayments for deposit on equipment
|
|
|
-
|
|
|
|
(25,222,345
|
)
|
Net cash used in investing activities
|
|
|
(20,810,162
|
)
|
|
|
(40,607,798
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Dividend paid to non-controlling interest
|
|
|
-
|
|
|
|
(4,411,801
|
)
|
Decrease (Increased) in restricted cash
|
|
|
3,239,496
|
|
|
|
651,169
|
|
(Repayment) Proceeds from short-term notes
|
|
|
(8,098,740
|
)
|
|
|
(2,604,675
|
)
|
Proceeds from related party loan
|
|
|
(306,049
|
)
|
|
|
-
|
|
Proceeds from short-term bank loans
|
|
|
(828,505
|
)
|
|
|
17,319,362
|
|
Repayment of short-term bank loans
|
|
|
7,249,797
|
|
|
|
(11,643,025
|
)
|
Payment for security deposit of capital lease
|
|
|
-
|
|
|
|
-
|
|
Payment for capital lease
|
|
|
(78
|
)
|
|
|
(4,410,041
|
)
|
Repayment of related party loans
|
|
|
(61,667,195
|
)
|
|
|
(65,668
|
)
|
Net cash used in financing activities
|
|
|
(60,411,274
|
)
|
|
|
(5,164,679
|
)
|
|
|
|
|
|
|
|
|
|
Effect of change in exchange rate
|
|
|
1,835,260
|
|
|
|
(162,600
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
24,876,612
|
|
|
|
(41,758,652
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
25,130,302
|
|
|
|
66,888,954
|
|
Cash and cash equivalents, end of year
|
|
$
|
50,006,914
|
|
|
$
|
25,130,302
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,885,018
|
|
|
$
|
4,547,914
|
|
Cash paid for income taxes
|
|
$
|
4,267,350
|
|
|
$
|
4,621,981
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION
|
|
|
|
|
|
|
|
|
Transferred from other assets to property, plant and equipment and construction in process
|
|
$
|
-
|
|
|
$
|
5,933,755
|
|
Equipment acquired by capital lease
|
|
$
|
-
|
|
|
$
|
21,000,195
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
SKYPEOPLE
FRUIT JUICE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
YEARS ENDED DECEMBER 31, 2015 AND 2014
SkyPeople
Fruit Juice, Inc. (“SkyPeople” or the “Company”), formerly known as Entech Environmental Technologies,
Inc. (“Entech”) and Cyber Public Relations, Inc. (“Cyber Public Relations”), was initially incorporated
on June 29, 1998 under the laws of the State of Florida.
The
Company, through its wholly owned subsidiary Pacific Industry Holding Group Co., Ltd. (“Pacific”) and SkyPeople Juice
International Holding (HK) Ltd. (“SkyPeople International”) is a holding company for SkyPeople Juice Group Co., Ltd.
(“SkyPeople (China)”), a company organized under the laws of the People’s Republic of China (“PRC”),
in which SkyPeople International holds a 99.78% ownership interest (which was increased from 99% on December 7, 2010), SkyPeople
(China) is engaged in the business of producing and selling a wide variety of fruit products, including fruit juice concentrates,
fruit juice beverages, and fruit-related products in the PRC and overseas market.
All
activities of the Company are principally conducted by subsidiaries operating in the PRC.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Preparation
These
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America,
or US GAAP.
The
Company’s functional currency is the Chinese Renminbi (RMB); however, the accompanying consolidated financial statements
have been translated and presented in United States Dollars (USD).
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts
and transactions have been eliminated.
Certain
amounts of prior year were reclassified to conform with current year presentation.
Use
of Estimates
The
Company’s consolidated financial statements have been prepared in accordance with US GAAP and this requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting
period. The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful
accounts receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation
of change in fair value of warrant liability, recognition and measurement of deferred income taxes and valuation allowance for
deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management
may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to
our consolidated financial statements.
Impairment
of Long-Lived Assets
In
accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
, long-lived assets, such as property, plant
and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become
impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and
used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.
If
such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less cost to sell.
During
the fiscal year 2015, the Company’s subsidiary Yinkou had no production activities due to a market demand decline for
concentrated apple juice, and Yinkou also had no production in year 2016 since it had difficulty in remaining competitive in
apple juice market. The Company decided to recognize an impairment loss of $2.38 million with respect to the concentrated
fruit juice production equipment in Yingkou, which has not operated in the past two years.
Fair
Value of Financial Instruments
The
Company has adopted FASB Accounting Standard Codification Topic on Fair Value Measurements and Disclosures (“ASC 820”),
which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.
ASC 820 establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable input, which
may be used to measure fair value and include the following:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Input other than Level 1 that is observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other input that is observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
Level
3 - Unobservable input that is supported by little or no market activity and that is significant to the fair value of the assets
or liabilities.
Our
cash and cash equivalents and restricted cash are classified within level 1of the fair value hierarchy because they are value
using quoted market price.
Earnings
Per Share
Under
ASC 260-10,
Earnings Per Share
, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing
net income available to common stockholders by the weighted-average number of Common Stock outstanding for the period. Our Series
B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in
determining net income available to common stockholders.
Diluted
EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock
options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares
of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the
average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed
issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation. The numerators
and denominators used in the computations of basic and diluted EPS are presented in the following table.
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
NUMERATOR
FOR BASIC AND DILUTED EPS
|
|
|
|
|
|
|
Net
income (numerator for Diluted EPS)
|
|
$
|
2,948,735
|
|
|
$
|
7,871,448
|
|
Net
income allocated to Preferred Stock holders
|
|
|
-
|
|
|
|
-
|
|
Net
income allocated to Common Stock holders
|
|
$
|
2,948,735
|
|
|
$
|
7,871,448
|
|
|
|
|
|
|
|
|
|
|
DENOMINATORS
FOR BASIC AND DILUTED EPS
|
|
|
|
|
|
|
|
|
Weighted
average Common Stock outstanding*
|
|
|
26,828,166
|
|
|
|
26,661,499
|
|
DENOMINATOR
FOR BASIC AND DILUTIVED EPS
|
|
|
26,828,166
|
|
|
|
26,661,499
|
|
|
|
|
|
|
|
|
|
|
EPS
- Basic
|
|
$
|
0.11
|
|
|
$
|
0.30
|
|
EPS
- Diluted
|
|
$
|
0.11
|
|
|
$
|
0.30
|
|
*
The amount of shares is given prior to the Company’s 1-for-8 reverse stock split on March 10, 2016.
The
diluted earnings per share calculation for the year ended December 31, 2015 and 2014 did not include the warrants to purchase
up to 175,000 shares of common stock, because their effect was anti-dilutive.
Cash
and Cash Equivalents
Cash
and cash equivalents included cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted
as to withdrawal and use and with an original maturity of three months or less.
Deposits
in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. The Company
believes the probability of a bank failure, causing loss to the Company, is remote.
Restricted
Cash
Restricted
cash consists of cash equivalents used as collateral to secure short-term notes payable.
Accounts
Receivable and Allowances
Accounts
receivable are recognized and carried at the original invoice amounts less an allowance for any uncollectible amount. We have
a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing
accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors.
We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations
of our customers and maintain an allowance for potential bad debts if required.
We
determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the
customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best
available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable
to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received.
The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as
necessary.
Direct
write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate
other circumstances that indicate that we should abandon such efforts.
The Company has not experienced any significant
difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties being experienced
by its major customers. Bad debt expense was $2,326,194 and $624,494 during the years ended December 31, 2015 and 2014, respectively.
Our credit term for distributors with good credit history is from 30 days to 120 days. As of December 31, 2015 and 2014 accounts
receivables of $18,189,947 and $6,001,247 have been outstanding for over 120 days, the increase is due to the growth of sales
in concentrated apply juice which had longer credit period to distributors.
Inventories
Inventories consist of raw materials, packaging materials (which include ingredients and supplies) and finished
goods (which include finished juice in the bottling and canning operations). Inventories are valued at the lower of cost or market.
We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and
any inventories identified as obsolete are reserved or written off. Although we believe that the assumptions we use in estimate
inventory write downs are reasonable, future changes in these assumptions could provide a significantly different result. The Company
recorded inventory markdown allowance of $64,065 and $32,604 for the year ended December 31, 2015 and 2014, respectively.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 605,
Revenue Recognition
. Revenue from sales of products is recognized
upon shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss
have been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably
assured. Customers have no contractual right to return products. Historically, the Company has not had any returned products.
Accordingly, no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the
original fee if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.
Shipping
and Handling Costs
Shipping and handling amounts billed to customers in sales transactions are included in sales revenues and
shipping expenses incurred by the Company are reported as a component of selling expenses. The shipping and handling expenses of
$4,400,044 and $1,883,201 for 2015 and 2014, respectively, are reported in the Consolidated Statements of Income and Comprehensive
Income as a component of selling expenses. In 2015, to promote the sales, the Company paid most of the shipping and handling
expenses that were previously charged to customers, resulting an increase in shipping and handling expenses in 2015 as compared
to 2014.
Government
Subsidies
A
government subsidy is recognized only when the Company complies with any conditions attached to the grant and there is reasonable
assurance that the grant will be received.
The government subsidies recognized were $1,204,649 and $661,655 for the years ended December 31, 2015 and
2014, respectively, and are included in other income of the consolidated statements of comprehensive income.
Advertising
and Promotional Expense
Advertising
and promotional costs are expensed as incurred and are included in selling expenses. The Company incurred $128,204 and $182,976
in advertising and promotional costs for the years ended December 31, 2015 and 2014, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is computed using
the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated;
maintenance and repairs that do not extend the life of the respective assets are expensed as incurred. Upon disposal of assets,
the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in the consolidated
statements of income and comprehensive income.
Construction
in progress primarily represents the construction or the renovation costs of plant, machinery and equipment stated at cost less
any accumulated impairment loss, which is not depreciated. Costs and interest on borrowings incurred are capitalized
and transferred to property and equipment upon completion, at which time depreciation commences. Cost of repairs and
maintenance is expensed as incurred.
Depreciation
related to property, plant and equipment used in production is reported in cost of sales, and includes amortized amounts
related to capital leases. We estimated that the residual value of the Company’s property and equipment ranges from 3% to
5%. Property, plant and equipment are depreciated over their estimated useful lives as follows:
Buildings
|
|
20-30
years
|
Machinery
and equipment
|
|
5-10
years
|
Furniture
and office equipment
|
|
3-5
years
|
Motor
vehicles
|
|
5
years
|
Foreign
Currency and Other Comprehensive Income
The
financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency;
however, the reporting currency of the Company is the United States dollar (“USD”). Assets and liabilities of the
Company’s foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date, while equity
accounts are translated using historical exchange rate. The average exchange rate for the period has been used to translate revenues
and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation
adjustment).
Other
comprehensive income for the year ended December 31, 2015 and 2014 represented foreign currency translation adjustments loss of
$4,401,140 and 84,138, respectively, and were included in the consolidated statements of comprehensive income.
Income
Taxes
We
use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and
(ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
Leases
Leases
are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases.
For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due
in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged
to deferred rent account.
Land
Use Right
The
Company paid in advance for land use rights according to Chinese law. Prepaid land use rights are being amortized and recorded
as lease expenses using the straight-line method over the use terms of the lease, which are 40 to 50 years.
Reportable
Segments
We
have six operating segments for financial reporting purposes for all periods presented in our consolidated financial statements
in accordance with FASB ASC 280 “Segment Reporting.”
Research
and Development
Research
and development costs are expensed when incurred and are included in operating expenses.
New
Accounting Pronouncements
In
February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2015-02,
Consolidation (Topic 810) Amendments to the Consolidation Analysis
, which amends the analysis required to
determine whether to consolidate certain types of legal entities such as limited partnerships, limited liability corporations,
and certain securitization structures. The new guidance was effective for us beginning in the first quarter of 2016. Application
of the new guidance did not impact our financial statements or related disclosures.
In
September 2015, the FASB issued ASU 2015-16,
Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period
Adjustments,
which requires the acquirer in a business combination to recognize measurement-period adjustments in the
period in which it determines the amount of the adjustment. The new guidance was effective for us in the first quarter of 2016.
Application of the new guidance did not impact our financial statements or related disclosures.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Inventories
by major categories are summarized as follows:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Raw materials and packaging
|
|
$
|
944,812
|
|
|
$
|
1,249,599
|
|
Finished goods
|
|
|
2,499,928
|
|
|
|
2,869,031
|
|
Inventories
|
|
$
|
3,444,740
|
|
|
$
|
4,118,630
|
|
|
4.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant and equipment consist of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Machinery and equipment
|
|
$
|
33,238,470
|
|
|
$
|
36,760,341
|
|
Furniture and office equipment
|
|
|
577,399
|
|
|
|
897,167
|
|
Motor vehicles
|
|
|
530,962
|
|
|
|
562,390
|
|
Buildings
|
|
|
53,841,614
|
|
|
|
36,371,566
|
|
Leased property under capital leases
|
|
|
|
|
|
|
21,081,876
|
|
Construction in progress
|
|
|
27,364,494
|
|
|
|
28,955,181
|
|
Subtotal
|
|
|
115,552,939
|
|
|
|
124,628,521
|
|
Less: accumulated depreciation
|
|
|
(32,605,706
|
)
|
|
|
(28,349,453
|
)
|
Net property and equipment
|
|
$
|
82,947,233
|
|
|
$
|
96,279,068
|
|
In 2015, the Company recognized impairment
loss of $2.38 million, mainly related to the concentrated fruit juice production equipment in Yingkou, which has not operated
in the past two years due to unfavorable market conditions. There were no impairment provisions made for the fiscal year ended
December 31, 2014.
Depreciation expense included in general and administration expenses for the year ended December 31, 2015
and 2014 was $3,125,778 and $1,478,229, respectively. Depreciation expense included in cost of sales for the year ended December
31, 2015 and 2014 was $2,819,874 and $3,932,092 respectively.
Long
term assets represent $2,979,857 of capital lease risk deposits made by the Company to Cinda Financial Leasing Co., LTD in terms
of capital lease agreement.
According to the laws of the PRC, the government owns all of the land in the PRC. The government of the PRC,
its agencies and collectives hold all land ownership. Companies or individuals are authorized to use the land only through
land usage rights granted by the PRC government. Land usage rights can be transferred upon approval by the land administrative
authorities of the PRC (State Land Administration Bureau) upon payment of the required land transfer fee. Accordingly, the Company
paid in advance for land usage rights. Prepaid land usage rights are being amortized and recorded as lease expenses using the straight-line
method over the terms of the leases, which range from 40 to 50 years. The amortization expense was $177,311 and $186,687 for fiscal
years 2015 and 2014, respectively. The following table sets forth land usage rights of the Company as of December 31, 2015 and
2014, respectively.
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Cost
|
|
$
|
28,251,859
|
|
|
$
|
8,011,269
|
|
Less: Accumulated amortization
|
|
|
(2,383,927
|
)
|
|
|
(1,508,849
|
)
|
|
|
$
|
25,867,932
|
|
|
$
|
6,502,420
|
|
Deposits
mainly include payments made to acquire land use right and purchase property, plant and equipment. Payments for acquiring land
use right are recorded as long term deposits before the land use right certificate is received. The amount is transferred to Land
Use Right once the official certificate received from the government. Payments to purchase property, plant and equipment are recorded
as long-term deposits. The amounts are transferred to property, plant and equipment once the equipment is delivered or installed.
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Deposits for land use rights
|
|
$
|
16,232,136
|
|
|
$
|
40,763,046
|
|
Deposits to purchase property, plant and equipment
|
|
|
29,089,783
|
|
|
|
28,115,752
|
|
|
|
$
|
45,321,919
|
|
|
$
|
68,878,798
|
|
Short-term
bank loans consist of the following loans collateralized by assets of the Company:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Loan payable to Huludao Bank, Suizhong branch due on December 9, 2016, bearing interest at 9.6% per annum, collateralized by the buildings, machinery and land use rights of Huludao Wonder
|
|
|
6,159,911
|
|
|
|
5,442,063
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on May 12, 2016 bearing interest at 5.6% per annum, collateralized by the buildings of SkyPeople (China)
|
|
|
3,526,549
|
|
|
|
2,140,873
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on January 10, 2018, bearing interest at 5.84% per annum, collateralized by the buildings and land use rights of Yingkou.
|
|
|
2,140,569
|
|
|
|
2,287,956
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Bank of Xi'an due on November 16, 2016, bearing interest at 7.8% per annum, guaranteed by a third party Shaanxi Bo Ai Medical Science & Technology Development Co., Ltd
|
|
|
-
|
|
|
|
2,451,381
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Shanghai Pudong Development Bank due on May 3, 2018, bearing interest at 6.16% per annum, collateralized by the buildings of SkyPeople (China)
|
|
|
4,142,540
|
|
|
|
4,902,762
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Bank of Beijing due on June 30, 2018, bearing interest at 7.28% per annum, collateralized by the buildings of a third party, Shaanxi Jiu Chang Medical Science & Technology Development Co., Ltd.
|
|
|
4,619,933
|
|
|
|
4,902,763
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Jiefang Road branch of China Merchants Bank due on Feb 27, 2015, bearing interest at 5.6% per annum, collateralized by the buildings of SkyPeople (China)
|
|
|
-
|
|
|
|
1,634,254
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on May 13, 2018, bearing interest at 5.6% per annum, collateralized by the buildings and land use rights of Yingkou.
|
|
|
4,619,933
|
|
|
|
3,268,508
|
|
|
|
|
|
|
|
|
|
|
Loan payable to the rural credit cooperative union of Mei County due on Feb 4, 2016 and Feb 3, 2017, each with half the loan paid back and bearing an annual interest at 8.3412% in 2015 and the rate will be floated once a year, collateralized by the buildings and land use rights of a third party, Kiwi investment and development of Mei County Co., Ltd.
|
|
|
1,539,978
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia Xi'an branch due on Jan 4, 2016, bearing interest at 7.28% per annum, collateralized by the fixed assets and brand name of SkyPeople (China).
|
|
|
3,849,945
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia Xi'an branch due on Jan 6, 2016, bearing interest at 5.6% per annum, collateralized by the deposits of SkyPeople (China).
|
|
|
2,907,478
|
|
|
|
-
|
|
Loan payable to Branch of China Co truction Bank Corp Xi'an high tech Industrial Development Zone due on Jan 18, 2015, bearing interest at 2.4% per annum, purchased credit insurance in China Export & Credit Insurance Corporation
|
|
|
-
|
|
|
|
270,002
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia Xi'an branch due on Jan 12, 2015, bearing interest at 4.76% per annum, the SkyPeople (China) purchased credit insurance in China Export & Credit Insurance Corporation
|
|
|
-
|
|
|
|
119,948
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia Xi'an branch due on Jan 23, 2015, bearing interest at 4.76% per annum, the SkyPeople (China) purchased credit insurance in China Export & Credit Insurance Corporation
|
|
|
-
|
|
|
|
152,324
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The China Construction Bank due on Mar 24, 2015, bearing interest at 2.2% per annum, the SkyPeople (China) purchased credit insurance in China Export & Credit Insurance Corporation
|
|
|
-
|
|
|
|
240,843
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The China Construction Bank due on Apr 4, 2015, bearing interest at 2.2% per annum, the SkyPeople (China) purchased credit insurance in China Export & Credit Insurance Corporation
|
|
|
-
|
|
|
|
76,170
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia due on Mar 5, 2015, bearing interest at 4.755% per annum,the SkyPeople (China) purchased credit insurance in China Export & Credit Insurance Corporation
|
|
|
-
|
|
|
|
589,085
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia due on Mar 23, 2015, bearing interest at 4.755% per annum,the SkyPeople (China) purchased credit insurance in China Export & Credit Insurance Corporation
|
|
|
-
|
|
|
|
1,574,141
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,506,838
|
|
|
$
|
28,243,373
|
|
During
the year ended December 31, 2014, the Company obtained a series of bank notes. Bank notes are collaterized by restricted
cash and assets of the Company. There was no notes payable as of December 31 2015. The following table sets forth the outstanding
bank notes as of December 31, 2014:
|
|
Amount
|
|
|
Restricted
|
|
|
Payment
|
|
|
Owed
|
|
|
Cash
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
Shanghai
Pudong Development Bank
|
|
$
|
4,902,762
|
|
|
$
|
4,902,762
|
|
|
April
28, 2015
|
Shanghai
Pudong Development Bank
|
|
|
3,268,508
|
|
|
|
1,634,254
|
|
|
April
28, 2015
|
|
|
$
|
8,171,270
|
|
|
$
|
6,537,016
|
|
|
|
|
10.
|
LEASE
OBLIGATION PAYABLE
|
The
schedule below represents the commitments for the Company’s capital equipment under the lease contract with Cinda Financial
Leasing Co., Ltd, entered into in April of 2014. The Company’s obligations under the finance lease are secured by the lessors’
title to the leased assets. The lease has an interest rate as 7.36%.
Minimum lease payments for the years ending December 31, are as follows;
|
|
|
|
|
|
|
|
2017
|
|
$
|
2,496,899.33
|
|
2018
|
|
|
4,993,798.67
|
|
2019
|
|
|
4,993,798.67
|
|
2020
|
|
|
4,235,811.00
|
|
|
|
|
16,720,307.00
|
|
Less: amount representing interest
|
|
|
-
|
|
Present value of minimum lease payments
|
|
$
|
16,720,307.00
|
|
|
|
|
|
|
Due within one year
|
|
$
|
-
|
|
Due after one year
|
|
|
16,720,307.00
|
|
Present value of minimum lease payments
|
|
$
|
16,720,307.00
|
|
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi'an Intermediate People's Court against the Company for alleged defaults pursuant to guarantees by the Company to its suppliers
for an total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially the loans from
Cinda Shaanxi Branch to the two suppliers, and because Cinda Shaanxi Branch does not have permits to make loans in China, the
agreements shall be invalid, void and have no legal forces from the beginning. Therefore, the Company has no obligations to repayment
the debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending for the verdict of the judge.
During year 2015, the company wrote off the lease payable full balance as they stopped lease payments to Cinda Shananxi Branch.
|
11.
|
RELATED
PARTY TRANSACTION
|
Sales
The
company’s subsidiary sold fruit beverages to a related entity, Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. ("Fullmart")
for approximately $1,255,393 and $2,900,000 for the year ended December 31, 2015 and 2014, respectively. The sales to this related
party were consistent with pricing and terms offered to third parties. The remained accounts receivable balances were $441,253
and $1,546,000 as of December 31, 2015 and 2014, respectively. Fullmart is a company indirectly owned by a member of our Board
of Directors, Mr. Yongke Xue.
Short-term
loan – related party
As
of December 31, 2014, the Company borrowed $24,970 from SkyPeople International Holdings Group Limited. The loan is non-interest
bearing and due on demand. There was no short-term loan to related party as of December 31, 2015.
Long-term
loan
On
February 18, 2013, SkyPeople (China) entered into a loan agreement with SkyPeople International Holdings Group Limited (the "Lender").
The Lender indirectly holds 50.2% interest in the Company. Mr. Yongke Xue ("Y. K. Xue"), a member of the Board of Directors
of the Company (the "Board") as of December 31, 2014, and Mr. Hongke Xue, the Chief Executive Officer of the Company
and Chairman of the Company’s Board of Directors as of September 2, 2016, indirectly and beneficially own 80.0% and 9.4%
of equity interest in the Lender, respectively. Pursuant to the Agreement, the Lender agreed to extend to the Company a one-year
unsecured term loan with a principal amount of $8.0 million at an interest rate of 6% per annum. During 2013, the Company received
$8.0 million from the Lender. In February 2014, both parties extended this loan for another two years under the original terms
of the agreement. The loan was fully paid in 2015, and there was no long-term loan to related party as of December 31, 2015.
The
Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income
taxes have been made, as the Company had no U.S. taxable income for the year ended December 31, 2015 and 2014. The effective income
tax rate for the Company for both of the years ended December 31, 2015 and 2014 were 54% and 33%, respectively. The amount of
unrecognized deferred tax liabilities for temporary differences related to the dividend from foreign subsidiaries is not determined
because such determination is not practical.
The
Company has not provided deferred taxes on undistributed earnings attributable to its PRC subsidiaries as they are to be
permanently reinvested. On February 22, 2008, MOFCOM, and SAT, jointly issued Cai Shui 2008 Circular 1, “Circular
1.” According to Article 4 of Circular 1, distributions of accumulated profits earned by foreign investment
enterprises, (“FIE”) prior to January 1, 2008 to their foreign investors will be exempt from withholding tax,
(“WHT”) while distribution of the profits earned by a FIE after January 1, 2008 to its foreign investors shall be
subject to WHT.
Dividend
payments by PRC subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by PRC subsidiaries
without first receiving prior approval from SAFE. Dividend payments are restricted to 90% of after tax profits.
The
Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC
Topic 740,
Income Taxes
. Since SkyPeople (China) intends to reinvest its earnings to further expand its businesses
in mainland China, its PRC subsidiaries do not intend to declare dividends to their immediate foreign holding companies in the
foreseeable future. Accordingly, the Company has not recorded any deferred taxes in relation to US tax on the cumulative amount
of undistributed retained earnings since January 1, 2008.
Effective
on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules imposed a unified enterprise income tax
rate of 25% on all domestic-invested enterprises and foreign-invested enterprises in the PRC, unless they qualify under certain
limited exceptions. All of the Companies’ Chinese subsidiaries were subject to an enterprise income tax rate of 25%.
The
reconciliation of income tax expense at the U.S. statutory rate of 35% in 2015 and 2014, to the Company's effective tax
rate is as follows:
|
|
Year
ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Expected
income tax expenses at U.S. statutory rate
|
|
$
|
2,769,970
|
|
|
$
|
4,515,532
|
|
Tax
rate difference between China and U.S.
|
|
|
(791,420
|
)
|
|
|
(1,322,839
|
)
|
Change
in Valuation Allowance
|
|
|
373,587
|
|
|
|
650,440
|
|
Permanent
difference
|
|
|
1,915,213
|
|
|
|
488,418
|
|
Income
tax expense at effective tax rate
|
|
$
|
4,267,350
|
|
|
$
|
4,331,551
|
|
The
provisions for income taxes are summarized as follows:
|
|
Year
ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Current
|
|
$
|
5,182,854
|
|
|
$
|
5,206,528
|
|
Deferred
|
|
|
(915,504
|
)
|
|
|
(874,977
|
)
|
Total
|
|
$
|
4,267,350
|
|
|
$
|
4,331,551
|
|
The
tax effects of temporary differences that give rise to the Company's net deferred tax asset as of December 31, 2015 and 2014 are
as follows:
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Net operating loss carry forward
|
|
$
|
2,810,336
|
|
|
$
|
1,577,079
|
|
Inventory markdown
|
|
|
14,468
|
|
|
|
8,183
|
|
Bad debt provision
|
|
|
-
|
|
|
|
209,300
|
|
Accrued expenses
|
|
|
209,332
|
|
|
|
381,699
|
|
Startup costs
|
|
|
-
|
|
|
|
316,228
|
|
Others
|
|
|
-
|
|
|
|
-
|
|
|
|
|
3,034,136
|
|
|
|
2,492,489
|
|
Less: valuation allowance
|
|
|
(707,942
|
)
|
|
|
(1,081,799
|
)
|
Deferred tax assets
|
|
$
|
2,326,194
|
|
|
$
|
1,410,690
|
|
There
was one customer who accounted for 10% of the Company’s sales for the year ended December 31, 2015.
Sales
to our five largest customers accounted for approximately 36% and 36% of our net sales during the years ended December 31, 2015
and 2014, respectively.
There were one supplier accounted for 66% of our purchases for the year ended December 31, 2015 and there
was two suppliers accounted for 38% of our purchases for the year ended December 31, 2014. There was no other single supplier
representing 10% of purchases during both years.
The
Company operates in six segments: concentrated apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree,
concentrated pear juice, fruit juice beverages, fresh fruits and vegetables, and others. Our concentrated apple juice and apple
aroma is primarily produced by the Company’s Huludao Wonder factory; concentrated pear juice is primarily produced by the
Company’s Jiangyang factory. However, as the Company use the same production line to manufacture concentrated apple juice
and concentrated pear juice. In addition, both Shaanxi Province, where the factory of Jianyang factory is located, and Liaoning
Province, where the factory of Huludao Wonder is located, are rich in fresh apple and pear supplies. Jinagyang factory also produces
concentrated apple juice and Huludao Wonder factory also produces concentrated pear juice when necessary. Concentrated kiwifruit
juice and kiwifruit puree is primarily produced by the Company’s Qiyiwangguo factory, and fruit juice beverages is primarily
produced by the Company’s Qiyiwangguo factory. The Company’s other products include fructose, concentrated turnjujube
juice, and other by products, such as kiwifruit seeds.
Concentrated
fruit juice is used as a basic ingredient for manufacturing juice drinks and as an additive to fruit wine and fruit jam, cosmetics
and medicines. The Company sells its concentrated fruit juice to domestic customers and exported directly or via distributors.
The Company believes that its main export markets are the United States, the European Union, South Korea, Russia and the Middle
East to North America, Europe, Russia, South Korea and the Middle East. The Company sells its Hedetang branded bottled
fruit beverages domestically primarily to supermarkets in the PRC. The Company sells its fresh fruit and vegetables to supermarkets
and whole sellers in the PRC.
Some
of these product segments might never individually meet the quantitative thresholds for determining reportable segments and we
determine the reportable segments based on the discrete financial information provided to the chief operating decision maker.
The chief operating decision maker evaluates the results of each segment in assessing performance and allocating resources among
the segments. Since there is an overlap of services provided and products manufactured between different subsidiaries of the Company,
the Company does not allocate operating expenses and assets based on the product segments. Therefore, operating expenses and assets
information by segment are not presented. Segment profit represents the gross profit of each reportable segment.
(In Thousand)
For the Year Ended
December 31, 2015
|
|
Concentrated
apple juice
and apple
aroma
|
|
|
Concentrated
kiwifruit
juice and
kiwifruit
puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Fresh
fruits and
vegetables
|
|
|
Others
|
|
|
Total
|
|
Reportable segment
Revenue
|
|
$
|
19,807
|
|
|
$
|
9,203
|
|
|
$
|
13,426
|
|
|
$
|
44,004
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
86,440
|
|
Inter-segment revenue
|
|
|
(29
|
)
|
|
|
(8,594
|
)
|
|
|
(199
|
)
|
|
|
(30,801
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(39,623
|
)
|
Revenue from external
Customers
|
|
|
19,778
|
|
|
|
609
|
|
|
|
13,227
|
|
|
|
13,202
|
|
|
|
|
|
|
|
1
|
|
|
|
46,817
|
|
Segment gross profit
|
|
$
|
1,635
|
|
|
$
|
1,544
|
|
|
$
|
4,764
|
|
|
$
|
18,181
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
26,125
|
|
(In Thousand)
For the Year Ended
December 31, 2014
|
|
Concentrated
apple juice
and apple
aroma
|
|
|
Concentrated
kiwifruit
juice and kiwifruit
puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Fresh
fruits and
vegetables
|
|
|
Others
|
|
|
Total
|
|
Reportable segment
Revenue
|
|
$
|
19,165
|
|
|
$
|
11,922
|
|
|
$
|
20,705
|
|
|
$
|
87,315
|
|
|
$
|
3,862
|
|
|
$
|
4,107
|
|
|
$
|
147,076
|
|
Inter-segment revenue
|
|
|
(3,956
|
)
|
|
|
(4,463
|
)
|
|
|
(78
|
)
|
|
|
(39,513
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
(48,016
|
)
|
Revenue from external
Customers
|
|
|
15,209
|
|
|
|
7,459
|
|
|
|
20,627
|
|
|
|
47,802
|
|
|
|
3,862
|
|
|
|
4,101
|
|
|
|
99,060
|
|
Segment gross profit
|
|
$
|
2,256
|
|
|
$
|
2,311
|
|
|
$
|
5,148
|
|
|
$
|
17,241
|
|
|
$
|
1,121
|
|
|
$
|
1,200
|
|
|
$
|
29,277
|
|
The
following table reconciles reportable segment profit to the Company’s consolidated income before income tax provision for
the years ended December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Segment profit
|
|
$
|
26,124,801
|
|
|
$
|
29,276,508
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(15,880,734
|
)
|
|
|
(11,834,098
|
)
|
Other expenses
|
|
|
(2,329,867
|
|
|
|
(4,480,043
|
)
|
Income before tax provision
|
|
$
|
7,914,200
|
|
|
$
|
12,962,367
|
|
The
Company’s export business is primarily comprised of fruit juice concentrates. As most of the export sales are through distributors
and therefore we are not certain exactly where the Company’s products are ultimately sold, revenue by geographical location
is not presented. However, the Company estimates that our main export markets are the United States, the European Union, South
Korea, Russia and the Middle East.
|
15.
|
COMMITMENTS
AND CONTINGENCIES
|
Litigation
On
April 20, 2011, plaintiff Paul Kubala (on behalf of his minor child N.K.) filed a securities fraud class action lawsuit in the
United States District Court, Southern District of New York against the Company, certain of its individual officers and/or directors,
and Rodman & Renshaw, LLC, the underwriter of the Company’s follow-on public offering consummated in August 2010, alleging
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5
promulgated thereunder. On June 20, 2011, plaintiff Benjamin Padnos filed a securities fraud class action lawsuit in the United
States District Court, Southern District of New York against the Company, certain of its current and former officers and/or directors,
the Company’s former independent auditors Child Van Wagner & Bradshaw, PLLC and BDO Limited, and Rodman & Renshaw,
LLC, the underwriter of the Company’s follow-on public offering consummated in August 2010, alleging violations of Sections10(b)
and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. On August 30, 2011, the Court consolidated the foregoing
two actions and appointed Zachary Lewy as lead plaintiff. On September 30, 2011, pursuant to the Court’s order, Lead Plaintiff
filed a consolidated complaint, which names the Company, Rodman & Renshaw, LLC, BDO Limited, Child Van Wagoner & Bradshaw
PLLC and certain of the Company’s current and former directors and/or officers and majority shareholders as defendants,
and alleges violations of Sections 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act,
and the rules promulgated thereunder. The Consolidated Complaint seeks, among other things, compensatory damages, and reasonable
costs and expenses incurred in the action. On December 21, 2011, the Company and certain of the individual defendants filed a
motion to dismiss the Consolidated Complaint. On May 3, 2012, Lead Plaintiff voluntarily dismissed the claims against BDO Limited
and Child Van Wagoner & Bradshaw PLLC. On September 10, 2012, the Court granted in part and denied in part the Company’s
motion to dismiss the Consolidated Complaint. On January 11, 2013, defendant Rodman & Renshaw LLC filed for Chapter 11 bankruptcy
protection, and, on January 18, 2013 the court imposed an automatic stay on Plaintiffs claims against Rodman pursuant to Section
326(a) of the Bankruptcy Code. The parties settled this matter by the Company agreeing to contribute $2,200,000 into a settlement
fund to pay class members (the “Settlement”). On October 4, 2013, the Company’s insurance company, Navigators
Insurance Company, wired a total of $2,200,000 into the settlement escrow account, which was confirmed by the plaintiff counsel.
On January 27, 2014, the Court entered an order approving the Settlement, certifying the class for settlement purposes and dismissing
the suit with prejudice.
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi'an Intermediate People's Court against the Company for alleged defaults pursuant to guarantees by the Company to its suppliers
for an total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially the loans from
Cinda Shaanxi Branch to the two suppliers, and because Cinda Shaanxi Branch does not have permits to make loans in China, the
agreements shall be invalid, void and have no legal forces from the beginning. Therefore, the Company has no obligations to repayment
the debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending for the verdict of the judge.
From
time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which,
in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
On
December 9, 2009, the Company issued to its former Chief Financial Officer, Spring Liu, a warrant to purchase an aggregate of
100,000 shares of the Common Stock at an exercise of $4.50 per share, as a bonus for the year of 2009. This warrant was unexercised
and expired on December 9, 2014.
On
July 25, 2011, the Company issued to Hayden Communications International, Inc. (“HCI”) a warrant to purchase an aggregate
of 75,000 shares of Common Stock at an exercise price of $4.50 per share, as partial compensation to HCI, pursuant to Investor
Relations Consulting Agreement with HCI dated December 1, 2009. This warrant was unexercised and expired on July 25, 2014.
|
17.
|
IMMATERIAL CORRECTION OF ERRORS IN PRIOR PERIOD
|
During the 2015 fiscal year audit,
the company identified calculation errors in the other comprehensive income portion of 2014 audited consolidated statements of
comprehensive income. In accordance with ASC Topic 250, Accounting Changes and Error Corrections, the Company evaluated the materiality
of the errors from quantitative and qualitative perspectives, and concluded that the errors were immaterial to the Company’s
prior period interim and annual consolidated financial statements. Since the revisions were not material to any prior period interim
or annual consolidated financial statements, no amendments to previously filed interim or annual periodic reports were required.
The Company has revised the historical consolidated financial information presented herein to reflect the correction of these errors.
In
accordance with ASC 855, “Subsequent Events,” the Company has evaluated subsequent events that have occurred through
the date of issuance of these financial statements and has determined that there was no material event that occurred after the
date of the balance sheets included in this report.
On March 10, 2016, the Company filed with the Florida Secretary of State's office an amendment to its Articles
of Incorporation. As a result of the Articles of Amendment, the Company has authorized and approved an 1-for-8 reverse stock split
of the Company’s authorized shares of common stock from 66,666,666 shares to 8,333,333 shares, accompanied by a corresponding
decrease in the Company’s issued and outstanding shares of common stock (the "Reverse Stock Split"). The common
stock continues to be $0.001 par value. No changes are being made to the number of preferred shares of the Company which remain
as 10,000,000 preferred shares as authorized but not issued. The amendment to the Articles of Incorporation of the Company took
effect on March 16, 2016.
On March 11, 2016, Skypeople Juice International Holding
(HK) Limited (the “Skypeople HK”), a wholly owned subsidiary of SkyPeople Fruit Juice, Inc. (the "Company")
and a 99.78% owner of SkyPeople Juice Group Co., Ltd. (“Skypeople China”) entered into a Share Transfer Agreement
and a Capital Contribution (the “Agreements”) with Shenzhen TianShunDa Equity Investment Fund Management Co., Ltd.
(the “TSD”), a limited liability corporation registered in China.
Skypeople
HK incorporated Skypeople China in Shaanxi Province, China on March 13, 2012 and pursuant to the approval certificate and business
license of Skypeople China, SkyPeople HK was required to contribute RMB 427,000,000 (approximately $65,698,308) and Hongke Xue,
a director of the Company (“Xue”) was required to contribute RMB 1,000,000 (approximately $153,846) to Skypeople China,
and Skypeople HK and Xue as a result would own 427,000,000 shares (99.78%) and 1,000,000 shares (0.22%) of Skypeople China, respectively.
As of March 10, 2016, Skypeople HK had contributed RMB 314,190,900 (approximately $48,337,062) to Skypeople China but had not
contributed the remaining RMB 112,809,100 (approximately $17,355,246) as the payment for 112,809,100 shares of Skypeople China.
Pursuant
to the Agreements, TSD shall acquire 112,809,100 shares of Skypeople China from Skypeople HK and shall make a total capital contribution
RMB 131,761,028.80 (approximately $20,270,928) to Skypeople China, which is calculated based upon 8 times Skypeople China’s
net profit per share for 2014 (about RMB 0.146 per share) then times 112,809,100 shares. RMB 112,809,100 out of the RMB 131,761,028.80
(the "Capital Contributions") shall be used as payment for outstanding capital contribution due to Skypeople China by
Skypeople HK and the remaining RMB 18,951,928.80 (approximately $2,915,681) shall be used as additional capital contribution to
Skypeople China and shall be deposited into Skypeople China’s capital surplus account. TSD paid the full Capital Contributions
to Skypeople China upon the effectiveness of the Agreements and the shares weree transferred, resulting in TSD owning 112,809,100
shares, or 26.36%, of Skypeople China.
On
June 15, 2016, Hedetang Holdings Co., Ltd. (the “Hedetang”), a wholly owned subsidiary of SkyPeople Fruit Juice, Inc.
(the "Company") entered into a Share Transfer Agreement (the “Agreement”) with Shaanxi New Silk Road Kiwifruit
Group Inc. ( the “NSR”), a limited liability corporation registered in China.
Pursuant
to the Agreement, NSR will acquire 51% of the equity shares of Shaanxi Guoweiduomei Beverage Co,. Limited, a wholly owned subsidiary
of Hedetang (the "Shares"). The tentative total transfer price for the Shares is 300 million RMB (approximately $46
million) and is subject to and will be settled according to the final price in the valuation report to be issued by an appraisal
firm jointly engaged by both parties. NSR shall pay the total transfer price to Hedetang within six months of the effective date
of the Agreement. If NSR fails to pay the total transfer price within 6 months due to the delay of the approval process from the
local authority, NSR can receive a payment extension for up to twelve months from the effective date of the Agreement upon the
negotiation and agreement by the parties. Because NSR is a state-owned enterprise in China and its investment needs to be approved
by a higher level administrative authority in China, NSR has the right to terminate the Agreement unilaterally if it fails to
receive the approval from such administrative authority within one year from the date of this Agreement. As of the date of this
report, we have not yet received payment from NSR.
F-23
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