UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





RQUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the
Quarterly Period Ended September 30, 2008





OR





£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 000-32249





SKYPEOPLE
FRUIT JUICE, INC.


(Exact
name of registrant as specified in its charter)








Florida
                    98-0222013(State
      or other jurisdiction of incorporation
      or organization)
                    (I.R.S.
      Employer Identification
      Number)16F, National
      Development Bank Tower
                      No.
      2,  Gaoxin 1st Road
                      Hi-Tech Industrial Zone, Xi’an,Shaanxi
      Province, PRC
                    710075(Address
      of principle executive offices)
                    (Zip
      Code)





Registrant's
Telephone Number, Including Area
Code:  011-86-29-88386415





N/A


(Former
Name, Former Address and Former Fiscal Year if Changed Since Last
Report)





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




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


Large accelerated filer
            
             ̈
            
            Accelerated filer
            
             ̈Non-accelerated
      filer
            
             ̈  (Do
      not check if a smaller reporting company)
            
            Smaller reporting company
            
            þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈No þ





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes [   ] No[   ]





APPLICABLE
ONLY TO CORPORATE ISSUERS




Indicate
the number of shares outstanding of each of the issuer's classes of Common
Stock, as of the latest practicable date: the number of shares of Common Stock
of the Company outstanding as of November 13, 2008 was
22,271,684.







SKYPEOPLE
FRUIT JUICE, INC.





TABLE OF CONTENTS
                        
                        Forward Looking Statements
                      PagePart I.
                      Financial Information
                      2Item 1.
                      Financial Statements
                      2(a) Condensed Consolidated Balance Sheets as of September 30,
      2008 (Unaudited) and December 31, 2007
                      2(b) Condensed Consolidated Statements of Operations and
      Comprehensive Income for the Three and Nine Months Ended September 30,
      2008 (Unaudited) and September 30, 2007 (Unaudited)
                      3(c) Condensed Consolidated Statements of Cash Flows for the
      Nine Months Ended September 30, 2008 (Unaudited) and September 30, 2007
      (Unaudited)
                      4(d) Notes to Condensed Financial Statements
      (Unaudited)
                      5Item 2.
                      Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                      24Item 3.
                      Quantitative and Qualitative Disclosures About Market Risk
                      35Item 4.
                      Controls and Procedures
                      35Exhibits
                      
                      36Signatures
                      
                      37Certifications


-i-
 Table of Contents


FORWARD-LOOKING STATEMENTS





The
discussions of the business and activities of SkyPeople Fruit Juice, Inc. (“we,”
“us,” “our” or “the Company”) set forth in this Form 10-Q and in other past and
future reports and announcements by the Company may contain forward-looking
statements and assumptions regarding future activities and results of operations
of the Company.  You can identify these statements by the fact that
they do not relate strictly to historical or current facts. Forward-looking
statements involve risks and uncertainties. Forward-looking statements include
statements regarding, among other things, (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. These statements may be found under "Management's
Discussion and Analysis of Financial Condition and Results of Operations” as
well as in this Form 10-Q generally. In particular, these include statements
relating to future actions, prospective products or product approvals, future
performance or results of current and anticipated products, sales efforts,
expenses, the outcome of contingencies such as legal proceedings, and financial
results.




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 "Risk Factors" and matters described in the Form S-1 recently filed by the
Company. 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.


-1-
 Table of Contents


PART
I. FINANCIAL INFORMATION




ITEM
1. FINANCIAL STATEMENTS





SKYPEOPLE
FRUIT JUICE, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED BALANCE SHEETS, UNAUDITED





September
      30,2008
                            
                            
                            December
      31,ASSETS
                            
                            (Unaudited)
                            
                            
                            2007CURRENT
      ASSETSCash
      and equivalents
                            
                            $
                            12,796,559
                            
                            
                            $
                            4,094,238Accounts
      receivable
                            
                            
                            3,625,601
                            
                            
                            
                            9,153,687Other
      receivables
                            
                            
                            45,075
                            
                            
                            
                            55,737Inventories
                            
                            
                            1,860,384
                            
                            
                            
                            4,460,149Prepaid
      expenses and other current assets
                            
                            
                            1,267,956
                            
                            
                            
                            101,628Total
      current assets
                            
                            
                            19,595,575
                            
                            
                            
                            17,865,439RELATED
      PARTY RECEIVABLES
                            
                            
                            -
                            
                            
                            
                            4,970,427PROPERTY,
      PLANT AND EQUIPMENT, Net
                            
                            
                            20,487,126
                            
                            
                            
                            17,564,147LAND
      USAGE RIGHTS (Note 10)
                            
                            
                            6,490,906
                            
                            
                            
                            6,138,297OTHER
      ASSETS
                            
                            
                            2,749,985
                            
                            
                            
                            71,818TOTAL
      ASSETS
                            
                            $
                            49,323,592
                            
                            
                            $
                            46,610,128LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts payable
                            
                            $
                            1,525,893
                            
                            
                            $
                            2,997,740Accrued expenses
                            
                            
                            716,656
                            
                            
                            
                            557,577Accrued liquidated damages
                            
                            
                            208,658
                            
                            
                            
                            -Related party payables
                            
                            
                            -
                            
                            
                            
                            143,366Income taxes payable
                            
                            
                            217,426
                            
                            
                            
                            114,909Advances from customers
                            
                            
                            779,961
                            
                            
                            
                            708,291Short-term notes payable
                            
                            
                            9,573,042
                            
                            
                            
                            6,406,922Total
      current liabilities
                            
                            
                            13,021,636
                            
                            
                            
                            10,
      928,805NOTE
      PAYABLE, net of current portion
                            
                            
                            -
                            
                            
                            
                            2,053,501-TOTAL
      LIABILITIES
                            
                            $
                            13,021,636
                            
                            
                            $
                            12,982,306MINORITY
      INTEREST
                            
                            
                            1,019,710
                            
                            
                            
                            1,073,364MINORITY
      INTEREST-Variable interest entity (Note 7)
                            
                            
                            -
                            
                            
                            
                            6,308,591STOCKHOLDERS'
      EQUITYPreferred Stock, $0.001 par value; 10,000,000 shares authorized 3,448,480
      Series B Preferred Stock issued and outstanding
                            
                            
                            3,448
                            
                            
                            
                            -Common Stock, $0.01 par value; 100,000,000 shares
      authorized 22,271,684 and 22,006,173 shares issued and outstanding
      as of September 30, 2008 and December 31, 2007,
      respectively
                            
                            
                            222,717
                            
                            
                            
                            220,062Additional paid-in capital
                            
                            
                            13,791,724
                            
                            
                            
                            10,682,755Accumulated retained earnings
                            
                            
                            16,358,755
                            
                            
                            
                            12,458,632Accumulated other comprehensive income
                            
                            
                            4,905,602
                            
                            
                            
                            2,884,418Total
      stockholders' equity
                            
                            
                            35,282,768
                            
                            
                            
                            26,245,867TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                            
                            $
                            49,323,592
                            
                            
                            $
                            46,610,128





See
accompanying notes to condensed consolidated financial statements.


-2-
 Table of Contents





SKYPEOPLE
FRUIT JUICE, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME, UNAUDITED





Three
      Months Ended
                                                                                          
                                                                                          Nine
      Months EndedSeptember
      30,
                                                                                          
                                                                                          
                                                                                          September
      30,
                                                                                          
                                                                                          
                                                                                          September
      30,
                                                                                          
                                                                                          
                                                                                          September
      30,2008
                                                                                          
                                                                                          
                                                                                          2007
                                                                                          
                                                                                          
                                                                                          2008
                                                                                          
                                                                                          
                                                                                          2007(Unaudited)
                                                                                          
                                                                                          
                                                                                          (Unaudited)
                                                                                          
                                                                                          
                                                                                          (Unaudited)
                                                                                          
                                                                                          
                                                                                          (Unaudited)Revenue
                                                                                          
                                                                                          $
                                                                                          6,345,778
                                                                                          
                                                                                          
                                                                                          $
                                                                                          3,770,890
                                                                                          
                                                                                          
                                                                                          $
                                                                                          22,442,329
                                                                                          
                                                                                          
                                                                                          $
                                                                                          12,493,802Cost of
      Sales
                                                                                          
                                                                                          
                                                                                          3,315,431
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,459,919
                                                                                          
                                                                                          
                                                                                          
                                                                                          14,635,767
                                                                                          
                                                                                          
                                                                                          
                                                                                          7,730,604Gross
      Profit
                                                                                          
                                                                                          
                                                                                          3,030,347
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,310,971
                                                                                          
                                                                                          
                                                                                          
                                                                                          7,806,562
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,763,198Operating
      ExpensesGeneral
      and administrative
                                                                                          
                                                                                          
                                                                                          702,385
                                                                                          
                                                                                          
                                                                                          
                                                                                          414,929
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,409,895
                                                                                          
                                                                                          
                                                                                          
                                                                                          632,399Selling
      expenses
                                                                                          
                                                                                          
                                                                                          311,931
                                                                                          
                                                                                          
                                                                                          
                                                                                          62,120
                                                                                          
                                                                                          
                                                                                          
                                                                                          808,576
                                                                                          
                                                                                          
                                                                                          
                                                                                          301,331Research
      and development
                                                                                          
                                                                                          
                                                                                          175,431
                                                                                          
                                                                                          
                                                                                          
                                                                                          14,094
                                                                                          
                                                                                          
                                                                                          
                                                                                          199,056
                                                                                          
                                                                                          
                                                                                          
                                                                                          49,040Accrued
      liquidated damages
                                                                                          
                                                                                          
                                                                                          208,658
                                                                                          
                                                                                          
                                                                                          
                                                                                          -
                                                                                          
                                                                                          
                                                                                          
                                                                                          208,658
                                                                                          
                                                                                          
                                                                                          
                                                                                          -Total
      operating expenses
                                                                                          
                                                                                          
                                                                                          1,398,405
                                                                                          
                                                                                          
                                                                                          
                                                                                          491,143
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,626,185
                                                                                          
                                                                                          
                                                                                          
                                                                                          982,770Income
      from Operations
                                                                                          
                                                                                          
                                                                                          1,631,942
                                                                                          
                                                                                          
                                                                                          
                                                                                          819,828
                                                                                          
                                                                                          
                                                                                          
                                                                                          5,180,377
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,780,428Other
      Income (Expense)Interest
      expense
                                                                                          
                                                                                          
                                                                                          (179,699
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (19,761
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (624,802
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (19,761
                                                                                          )Interest
      income
                                                                                          
                                                                                          
                                                                                          18,377
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,356
                                                                                          
                                                                                          
                                                                                          
                                                                                          41,342
                                                                                          
                                                                                          
                                                                                          
                                                                                          11,855Subsidy
      income
                                                                                          
                                                                                          
                                                                                          3,428
                                                                                          
                                                                                          
                                                                                          
                                                                                          -
                                                                                          
                                                                                          
                                                                                          
                                                                                          52,206
                                                                                          
                                                                                          
                                                                                          
                                                                                          -Other
      income (expense)
                                                                                          
                                                                                          
                                                                                          (1,119
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (677
                                                                                          )
                                                                                          
                                                                                          
                                                                                          32,827
                                                                                          
                                                                                          
                                                                                          
                                                                                          (42,954
                                                                                          )Total
      other income (expense)
                                                                                          
                                                                                          
                                                                                          (159,013
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (16,082
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (498,427
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (50,680
                                                                                          )Income
      Before Income Taxes
                                                                                          
                                                                                          
                                                                                          1,472,929
                                                                                          
                                                                                          
                                                                                          
                                                                                          803,746
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,681,950
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,729,568Income
      Tax Provision
                                                                                          
                                                                                          
                                                                                          214,387
                                                                                          
                                                                                          
                                                                                          
                                                                                          127,406
                                                                                          
                                                                                          
                                                                                          
                                                                                          525,585
                                                                                          
                                                                                          
                                                                                          
                                                                                          584,389Income
      Before Minority Interest
                                                                                          
                                                                                          
                                                                                          1,258,542
                                                                                          
                                                                                          
                                                                                          
                                                                                          676,340
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,156,365
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,145,179Minority
      interest
                                                                                          
                                                                                          
                                                                                          73,459
                                                                                          
                                                                                          
                                                                                          
                                                                                          47,123
                                                                                          
                                                                                          
                                                                                          
                                                                                          256,242
                                                                                          
                                                                                          
                                                                                          
                                                                                          136,847Net
      Income
                                                                                          
                                                                                          $
                                                                                          1,185,083
                                                                                          
                                                                                          
                                                                                          $
                                                                                          629,217
                                                                                          
                                                                                          
                                                                                          $
                                                                                          3,900,123
                                                                                          
                                                                                          
                                                                                          $
                                                                                          3,008,332Earnings
      Per Share:Basic
      earnings per share
                                                                                          
                                                                                          $
                                                                                          0.04
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.03
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.15
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.14Diluted
      earnings per share
                                                                                          
                                                                                          $
                                                                                          0.04
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.03
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.14
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.14Weighted
      Average Shares Outstanding:Basic
                                                                                          
                                                                                          
                                                                                          22,271,684
                                                                                          
                                                                                          
                                                                                          
                                                                                          22,006,173
                                                                                          
                                                                                          
                                                                                          
                                                                                          22,216,450
                                                                                          
                                                                                          
                                                                                          
                                                                                          22,006,173Diluted
                                                                                          
                                                                                          
                                                                                          27,720,164
                                                                                          
                                                                                          
                                                                                          
                                                                                          22,006,173
                                                                                          
                                                                                          
                                                                                          
                                                                                          22,217,043
                                                                                          
                                                                                          
                                                                                          
                                                                                          22,006,173Comprehensive
      Income:Net
      income
                                                                                          
                                                                                          $
                                                                                          1,185,083
                                                                                          
                                                                                          
                                                                                          $
                                                                                          629,217
                                                                                          
                                                                                          
                                                                                          $
                                                                                          3,900,123
                                                                                          
                                                                                          
                                                                                          $
                                                                                          3,008,332Foreign
      currency translation adjustment
                                                                                          
                                                                                          
                                                                                          418,071
                                                                                          
                                                                                          
                                                                                          
                                                                                          306,810
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,021,184
                                                                                          
                                                                                          
                                                                                          
                                                                                          709,104Comprehensive
      Income
                                                                                          
                                                                                          $
                                                                                          1,603,154
                                                                                          
                                                                                          
                                                                                          $
                                                                                          936,027
                                                                                          
                                                                                          
                                                                                          $
                                                                                          5,921,307
                                                                                          
                                                                                          
                                                                                          $
                                                                                          3,717,436





See
accompanying notes to condensed consolidated financial statements.


-3-
 Table of Contents


SKYPEOPLE
FRUIT JUICE, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS, UNAUDITED





September
      30,
                        
                        
                        September
      30,2008
                        
                        
                        2007(Unaudited)
                        
                        
                        (Unaudited)Cash
      Flow from Operating ActivitiesNet
      income
                        
                        $
                        3,900,123
                        
                        
                        $
                        3,008,332Adjustments
      to reconcile net income to net cash flow provided by operating
      activitiesDepreciation
      and amortization
                        
                        
                        1,409,907
                        
                        
                        
                        827,945Loss
      on sale of property, plant and equipment
                        
                        
                        1,274
                        
                        
                        
                        -Minority
      interest
                        
                        
                        256,242
                        
                        
                        
                        136,847Changes
      in operating assets and liabilities, net of acquisition
      effectsAccounts
      receivable
                        
                        
                        6,030,436
                        
                        
                        
                        1,968,356Other
      receivables
                        
                        
                        13,759
                        
                        
                        
                        (15,854
                        )Prepaid
      expenses and other current assets
                        
                        
                        (1,224,295
                        )
                        
                        
                        (257,043
                        )Inventories
                        
                        
                        2,847,423
                        
                        
                        
                        (2,460,482
                        )Accounts
      payable
                        
                        
                        (1,662,730
                        )
                        
                        
                        44,602Accrued
      expenses and other current liabilities
                        
                        
                        114,013
                        
                        
                        
                        46,629Accrued
      liquidated damages
                        
                        
                        208,658
                        
                        
                        
                        -Advances
      from customers
                        
                        
                        17,425
                        
                        
                        
                        3,076,827Taxes  payable
                        
                        
                        90,920
                        
                        
                        
                        (1,956,009
                        )Net
      cash provided by operating activities
                        
                        
                        12,003,155
                        
                        
                        
                        4,420,150Cash
      Flow from Investing ActivitiesPrepayment
      for lease improvement
                        
                        
                        (356,860
                        )
                        
                        
                        -Deposits
      to purchase target company
                        
                        
                        (2,141,158
                        )
                        
                        
                        -Loan
      repayment from related parties
                        
                        
                        5,475,092
                        
                        
                        
                        -Loan
      advanced to related parties
                        
                        
                        (7,179,883
                        )
                        
                        
                        (3,322,667
                        )Additions
      to property, plant and equipment
                        
                        
                        (2,826,179
                        )
                        
                        
                        (110,602
                        )Proceeds
      from sale of property, plant and equipment
                        
                        
                        4,996
                        
                        
                        
                        -Net
      cash used in investing activities
                        
                        
                        (7,023,992
                        )
                        
                        
                        (3,433,269
                        )Cash
      Flow from Financing ActivitiesProceeds
      from stock issuance
                        
                        
                        3,115,072
                        
                        
                        
                        -Proceeds
      from bank loans
                        
                        
                        14,988,105
                        
                        
                        
                        1,305,074Repayment
      of bank loans
                        
                        
                        (14,531,324
                        )
                        
                        
                        -Dividend
      paid to minority interest
                        
                        
                        (309,896
                        )
                        
                        
                        -Repayments
      of related party loan
                        
                        
                        (149,486
                        )
                        
                        
                        (1,923,969
                        )Net
      cash provided by (used in) financing activities
                        
                        
                        3,112,471
                        
                        
                        
                        (618,895
                        )Effect
      of Changes in Exchange Rate
                        
                        
                        610,687
                        
                        
                        
                        92,115NET
      INCREASE IN CASH
                        
                        
                        8,702,321
                        
                        
                        
                        460,101CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                        
                        
                        4,094,238
                        
                        
                        
                        2,135,173CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                        
                        $
                        12,796,559
                        
                        
                        $
                        2,595,274Supplementary
      Information of Cash FlowsCash
      paid for interest
                        
                        $
                        649,327
                        
                        
                        $
                        23,611Cash
      paid for taxes
                        
                        $
                        1,049,534
                        
                        
                        $
                        1,855,950Purchase
      of Huludao, offset by related party receivables
                        
                        $
                        6,887,391
                        
                        
                        $
                        -





See
accompanying notes to condensed consolidated financial
statements.


-4-
 Table of Contents


SKYPEOPLE
FRUIT JUICE, INC. AND SUBSIDIARIES





NOTES
TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)





1.
            CORPORATE
      INFORMATION





SkyPeople Fruit Juice,
Inc.





SkyPeople
Fruit Juice, Inc. (“SkyPeople” or the “Company”), formerly Entech Environment
Technology, Inc. (“Entech”), was formed in June 1998 under the laws of the State
of Florida. From July 2007 until February 26, 2008, our operations consisted
solely of identifying and completing a business combination with an operating
company and compliance with our reporting obligations under federal securities
laws.




Between
February 22, 2008 and February 25, 2008, we entered into a series of
transactions whereby we acquired 100% of the ownership interest in Pacific
Industry Holding Group Co., Ltd. (“Pacific”) from a share exchange transaction
and raised $3,400,000 gross proceeds from certain accredited investors in a
private placement transaction. As a result of the consummation of these
transactions, Pacific is now a wholly owned subsidiary of the
Company.




Pacific
was incorporated under the laws of the Republic of Vanuatu on November 30, 2006.
Pacific’s only business is acting as a holding company for Shaanxi Tianren
Organic Food Co., Ltd. (“Shaanxi Tianren”), a company organized under the laws
of the People’s Republic of China (“PRC”), in which Pacific holds a 99%
ownership interest.




This
share exchange transaction resulted in Pacific obtaining a majority voting and
control interest in the Company. Generally accepted accounting principles
require that the company whose stockholders retain the majority controlling
interest in a combined business be treated as the acquirer for accounting
purposes, resulting in a reverse acquisition with Pacific as the accounting
acquirer and SkyPeople as the acquired party. Accordingly, the share exchange
transaction has been accounted for as a recapitalization of Pacific. The equity
sections of the accompanying financial statements have been restated to reflect
the recapitalization due to the reverse acquisition as of the first day of the
first period presented. All references to Common Stock of Pacific Common Stock
have been restated to reflect the equivalent numbers of SkyPeople equivalent
shares.




On May
23, 2008, we amended the Company’s Articles of Incorporation and changed its
name to SkyPeople Fruit Juice, Inc. to better reflect our business. The
1-for-328.72898 reverse stock split of the outstanding shares of Common Stock
and a mandatory 1-for-22.006 conversion of Series A Preferred Stock, which had
been approved by written consent of the holders of a majority of the outstanding
voting stock, also became effective on May 23, 2008.





Shaanxi Tianren Organic Food
Co., Ltd.





Shaanxi
Tianren was formed on August 8, 2001 under PRC law. Currently, Shaanxi Tianren
is engaged in the business of research and development, production and sales of
special concentrated fruit juices, fast-frozen and freeze-dried fruits and
vegetables and fruit juice drinks.




On May
27, 2006, Shaanxi Tianren purchased 91.15% of Xi’an Tianren’s ownership interest
for a purchase price in the amount of RMB 36,460,000, or approximately U.S.
$4,573,221 based on the exchange rate at the date of acquisition. The
acquisition was accounted for using the purchase method, and the financial
statements of Shaanxi Tianren and Xi’an Tianren have been consolidated on the
purchase date and forward.


-5-
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On June
10, 2008, Shaanxi Tianren completed the acquisition of Huludao Wonder Fruit Co.,
Ltd. (“Huludao Wonder”) for a total purchase price of RMB 48,250,000, or
approximately U.S. $6,308,591 based on the exchange rate on June 1, 2007. The
payment was made through the offset of related party receivables from Shaanxi
Hede Investment Management Co., Ltd. (“Hede”). Before the acquisition, Huludao
Wonder had been a variable interest entity of Shaanxi Tianren for accounting
purposes according to FASB Interpretation No. 46: Consolidation of Variable Interest
Entities, an interpretation of ARB 51 (“FIN 46”), since June 1, 2007, and
the financial statements of Shaanxi Tianren and Huludao Wonder have been
consolidated as of June 1, 2007 and forward.





The
Company’s current structure is set forth in the diagram below:







*Xi’an Qinmei Food Co., Ltd.,
an entity which is not affiliated with the Company, owns the other 8.85% of the
equity interest in Shaanxi Tianren.





2.SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Financial
Statements





The
accompanying unaudited interim condensed consolidated financial statements for
SkyPeople have been prepared in accordance with generally accepted accounting
principles in the United States of America (“GAAP”) for interim financial
information and do not include all information and footnotes required by GAAP
for complete financial statements. All significant inter-company balances have
been eliminated in consolidation.




In the
opinion of management, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included. Due to the
seasonal nature of our business and other factors, interim results are not
necessarily indicative of the results that may be expected for the entire fiscal
year.




Certain
prior year balances on the Balance Sheet have been reclassified to conform to
the current presentation. The reclassification had no impact on net income for
the three and nine months ended September 30, 2008 and 2007.


-6-
 Table of Contents


Consolidation





The
accompanying condensed consolidated financial statements include the accounts of
SkyPeople, Pacific, Shaanxi Tianren, Xi’an Tianren and the newly acquired
Huludao Wonder. All material inter-company accounts and transactions have been
eliminated in consolidation.




The
pooling method (entity under common control) is applied to the consolidation of
Pacific with Shaanxi Tianren and Shaanxi Tianren with Huludao Wonder. The
reverse merger accounting is applied to the consolidation of SkyPeople with
Pacific.





Cash and Cash
Equivalents





For
purposes of the statements of cash flows, cash and cash equivalents include cash
on hand and demand deposits held by banks. Deposits held in financial
institutions in the PRC are not insured by any government entity or
agency.


As of
September 30, 2008, the cash balance in the financial institutions in the United
States is $10,891. Accounts at these financial institutions are insured by the
Federal Deposit Insurance Corporation (“FDIC”) up to $100,000. At September 30,
2008, the Company had no deposits which were in excess of the FDIC insurance
limit.





Accounting for the
Impairment of Long-Lived Assets





The
long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. 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 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 cost to sell. During the reporting
periods there was no impairment loss.





Earnings Per
Share





Basic
earnings per Common Stock (“EPS”) are calculated by dividing net income
available to common stockholders by the weighted average number of Common Stock
outstanding during 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:


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Three
      Months Ended
                    
                    
                    Nine
      Months EndedSep.
      30,
                    
                    
                    Sep.
      30,
                    
                    
                    Sep.
      30,
                    
                    
                    Sep.
      30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007NUMERATOR
      FOR BASIC AND DILUTED EPSNet
      income (numerator for Diluted EPS)
                    
                    $
                    1,185,083
                    
                    
                    $
                    629,217
                    
                    
                    $
                    3,900,123
                    
                    
                    $
                    3,008,332Net
      income allocated to Preferred Stock
                    
                    
                    (232,987
                    )
                    
                    
                    -
                    
                    
                    
                    (634,550
                    )
                    
                    
                    -Net
      income to common stockholders (Basic)
                    
                    $
                    952,096
                    
                    
                    $
                    629,217
                    
                    
                    $
                    3,265,573
                    
                    
                    $
                    3,008,332DENOMINATOR
      FOR BASIC AND DILUTED EPSCommon
      Stock outstanding
                    
                    
                    22,271,684
                    
                    
                    
                    22,006,173
                    
                    
                    
                    22,216,450
                    
                    
                    
                    22,006,173DENOMINATOR
      FOR BASIC EPS
                    
                    
                    22,271,684
                    
                    
                    
                    22,006,173
                    
                    
                    
                    22,216,450
                    
                    
                    
                    22,006,173Add:  Weighted average preferred as if converted
                    
                    
                    5,448,480
                    
                    
                    
                    -
                    
                    
                    
                    4,317,282
                    
                    
                    
                    -Add: Weighted average stock warrants outstanding
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    683,311
                    
                    
                    
                    -DENOMINATOR
      FOR DILUTED EPS
                    
                    
                    27,720,164
                    
                    
                    
                    22,006,173
                    
                    
                    
                    27,217,013
                    
                    
                    
                    22,006,173EPS
      – Basic
                    
                    $
                    0.04
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.15
                    
                    
                    $
                    0.14EPS
      – Diluted
                    
                    $
                    0.04
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.14
                    
                    
                    $
                    0.14





Shipping and Handling
Costs





Shipping
and handling amounts billed to customers in related sales transactions are
included in sales revenues. The shipping and handling expenses of $676,492 and
$260,337 for the nine months ended September 30, 2008 and 2007, respectively,
are reported in the Consolidated Statement of Income as a component of selling
expenses.





Accumulated Other
Comprehensive Income





Accumulated other comprehensive income
represents foreign currency translation adjustments.





Accounts
Receivable





During
the normal course of business, we extend unsecured credit to our customers.
Accounts receivable and other receivables are recognized and carried at the
original invoice amount less an allowance for any uncollectible amount.
Allowance is made when collection of the full amount is no longer probable.
Management reviews and adjusts this allowance periodically based on historical
experience, the current economic climate, as well as its evaluation of the
collectability of outstanding accounts. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance. The
Company evaluates the credit risks of its customers utilizing historical data
and estimates of future performance. Based on the information available to
management, the Company believes that its allowance for doubtful accounts was
adequate as of September 30, 2008.


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Prepaid Expense and Other
Current Assets





The
prepaid expenses and other current assets include advances to
suppliers.  Advances to suppliers as of September 30, 2008 were
$821,424. We did not have any advances to suppliers as of December 31,
2007.





Inventories





Inventories
consist primarily of raw materials and packaging (which include ingredients and
supplies) and finished goods (which include finished juice in our bottling and
canning operations). Inventories are valued at the lower of cost or market. We
determine cost on the basis of the average cost or first-in, first-out
methods.





Intangible
Assets





The
Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), effective January 1, 2002. Under SFAS 142, goodwill
and indefinite lived intangible assets are not amortized, but are reviewed
annually for impairment, or more frequently, if indications of possible
impairment exist. The Company has no indefinite lived intangible
assets.





Revenue
Recognition





We
recognize revenue upon meeting the recognition requirements of Staff Accounting
Bulletin (“SAB”) No. 104, Revenue Recognition. Revenue
from sales of the Company’s products is recognized upon shipment or delivery to
its distributors or end users, depending upon the terms of the sales order,
provided that persuasive evidence of a sales arrangement exists, title and risk
of loss have transferred to the customer, the sales amount is fixed and
determinable and collection of the revenue is reasonably assured. More than 70%
of our products are exported either through distributors with good credit or to
end-users directly. Of this amount, 80% of the revenue is exported through
distributors. Our general sales agreement requires the distributors to pay us
after we deliver the products to them, which is not contingent on resale to end
customers. Our credit terms for distributors with good credit history is from 30
days to 90 days. For new customers, we usually require 100% advance payment for
direct export sales. Advances from customers are recorded as unearned revenue,
which is a current liability. Our payment terms with distributors are not
determined by the distributor’s resale to the end customer. According to our
past collection history, the bad debt rate of our accounts receivables is less
than 0.5%. The problem of quality hardly occurred during production, storage and
transportation due to our maintenance of strict standards during the entire
process. Our customers have no contractual right of the return of products.
Historically, we have not had any returned products. Accordingly, no provision
has been made for returnable goods. We are not required to rebate or credit a
portion of the original fee if we subsequently reduce the price of our product
and the distributor still has right with respect to that product.





Advertising and Promotional
Expense





Advertising
and promotional costs are expensed as incurred. The Company incurred $164 and
$287 in advertising and promotional costs for the nine months ended September
30, 2008 and 2007, respectively.




Estimates





The
preparation of financial statements in conformity with United States Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. The significant areas requiring the use of management estimates include
the provisions for doubtful accounts receivable, useful life of fixed assets,
accrual of liquidated damages and valuation of deferred taxes. 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.


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Property, Plant and
Equipment




Property,
plant and equipment are carried at cost less accumulated depreciation.
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
charged to expense 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 income. Depreciation related to property and equipment used in
production is reported in cost of sales. Property and equipment are depreciated
over their estimated useful lives as follows:





Buildings
                  20-30
      yearsMachinery
      and equipment
                  10
      yearsFurniture
      and office equipment
                  5
      yearsMotor
      vehicles
                  5
      years





September
      30,
                
                
                December
      31,2008
                
                
                2007Machinery
      and equipment
                
                $
                14,583,542
                
                
                $
                13,672,861Furniture
      and office equipment
                
                
                228,001
                
                
                
                200,266Motor
      vehicles
                
                
                195,195
                
                
                
                193,899Buildings
                
                
                7,322,908
                
                
                
                6,489,513Construction
      in progress
                
                
                2,711,753
                
                
                
                -Subtotal
                
                
                25,041,399
                
                
                
                20,556,539Less:
      accumulated depreciation
                
                
                (4,554,273
                )
                
                
                (2,992,392
                )Net
      property and equipment
                
                $
                20,487,126
                
                
                $
                17,564,147





Depreciation
expense included in general and administration expenses for the nine months
ended September 30, 2008 and 2007 was $302,175 and $45,478, respectively.
Depreciation expense included in cost of sales for the nine months ended
September 30, 2008 and 2007 was $998,504 and $739,212,
respectively.





As of
September 30, 2008, we capitalized interest expense of $63,701 in construction
in progress in accordance with FASB Statement of Financial Accounting
Standards(“SFAS”) No.
34, Capitalization of Interest
Cost.




Long-term
assets of the Company are reviewed annually to assess whether the carrying value
has become impaired according to the guidelines established in Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. No impairment of assets was recorded in
the periods reported.





Foreign Currency and
Comprehensive Income





The
accompanying financial statements are presented in U.S. dollars. The functional
currency is the renminbi (“RMB”) of the PRC. The financial statements are
translated into U.S. dollars from RMB at year-end exchange rates for assets and
liabilities, and weighted average exchange rates for revenues and expenses.
Capital accounts are translated at their historical exchange rates when the
capital transactions occurred.




On July
21, 2005, the PRC changed its foreign currency exchange policy from a fixed
RMB/USD exchange rate into a flexible rate under the control of the PRC’s
government. We use the closing rate method in currency translation of the
financial statements of the Company. RMB is not freely convertible into the
currency of other nations. All such exchange transactions must take place
through authorized institutions. There is no guarantee the RMB amounts could
have been, or could be, converted into U.S. dollars at rates used in
translation.


-10-
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Taxes





Income
tax expense is based on reported income before income taxes. Deferred income
taxes reflect the effect of temporary differences between assets and liabilities
that are recognized for financial reporting purposes and the amounts that are
recognized for income tax purposes. In accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes,
these deferred taxes are measured by applying currently enacted tax
laws.




The
Company has implemented SFAS No. 109, Accounting for Income Taxes,
which provides for a liability approach to accounting for income taxes. Deferred
income taxes result from the effect of transactions that are recognized in
different periods for financial and tax reporting purposes. The Company had no
material adjustments to its liabilities for unrecognized income tax benefits
according to the provisions of FIN 48.





Restrictions on Transfer of
Assets out of the PRC





Dividend
payments by Shaanxi Tianren and its subsidiaries are limited by certain
statutory regulations in the PRC. No dividends may be paid by Shaanxi Tianren
without first receiving prior approval from the Foreign Currency Exchange
Management Bureau. Dividend payments are restricted to 85% of profits, after
tax.





Minority Interest in
Subsidiaries





Minority
interest represents the minority stockholders’ proportionate share of 1% of the
equity of Shaanxi Tianren and 8.85% of the equity of Xi’an Tianren.





Accounting Treatment of the
February 26, 2008 Private Placement and Liquidated Damages





The
shares held in escrow as Make Good Escrow Shares will not be accounted for on
our books until such shares are released from escrow pursuant to the terms of
the Make Good Escrow Agreement. During the time such Make Good Escrow Shares are
held in escrow, they will be accounted for as contingently issuable shares in
determining the diluted EPS denominator in accordance with SFAS
128.





Liquidated
damages potentially payable by the Company under the Stock Purchase Agreement
and the Registration Rights Agreement will be accounted for in accordance with
Financial Accounting Standard Board Staff Position EITF 00-19-2. Estimated
damages at the time of closing will be recorded as a liability and deducted from
additional paid-in capital as costs of issuance. Estimated damages determined
later pursuant to the criteria for SFAS 5 will be recorded as a liability and
deducted from operating income.





Our
failure to meet the timetables provided for in the Registration Rights Agreement
have resulted in the imposition of liquidated damages, which are payable in
cash to the Investors (pro rata based on the percentage of Series B Preferred
Stock owned by the Investors at the time such liquidated damages shall have
incurred) equal to fourteen percent (14%) of the Purchase Price per annum
payable monthly based on the number of days such failure exists, which amount of
liquidated damages, together with all liquidated damages that the Company may
incur pursuant to the Registration Rights Agreement, the Warrant and the Stock
Purchase Agreement, shall not exceed an aggregate of eighteen percent (18%) of
the amount of the Purchase Price.


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We
initially filed with the SEC the registration statement on March 26, 2008, which
date was before the filing date deadline of March 30, 2008 in the Registration
Rights Agreement, because in the opinion of the counsel to the Company, the
Company’s audited financials for the fiscal year 2007 were required to be
included in the initial registration statement based on the applicable SEC
rules. Therefore, we were required to have the registration statement declared
effective by the SEC by July 24, 2008 (within 120 days after the initial filing
date). As of September 30, 2008, the Company had accrued $208,658 for the
liquidated damages pursuant to that agreement. This amount has been included in
liquidated damage expenses on the income statement in accordance with EITF
00-19-2. Since none of the estimates is better than the other, in accordance
with FIN14, the Company has booked an expense and a liability equal to the
minimum estimated loss, assuming the registration statement is effective
December 31, 2008.




Research and
Development





Shaanxi
Tianren established a research and development institution with nearly 30
research and development personnel as of September 30, 2008. Shaanxi Tianren
also from time to time retains external experts and research institutions. The
research and development expenses were $199,056 and $49,040 for the nine months
ended September 30, 2008 and September 30, 2007, respectively.





New Accounting
Pronouncements





In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles(SFAS 162). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements that are presented in conformity with
generally accepted accounting principles in the United States. This Statement is
effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. The Company
does not expect the implementation of this statement to have an impact on its
results of operations or financial position.





In
April 2008, the FASB issued FASB Staff Position (“FSP”) No. SFAS
142-3, Determination of the
Useful Life of Intangible Assets (“FSP SFAS 142-3”). FSP SFAS 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”). The intent of FSP SFAS 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS No. 141R (revised 2007), Business Combinations and
other applicable accounting literature. FSP SFAS 142-3 is effective for
financial statements issued for fiscal years beginning after December 15,
2008 and must be applied prospectively to intangible assets acquired after the
effective date. The adoption of this statement is not expected to have a
material impact on our consolidated financial position or results of
operations.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company does not expect that the adoption of SFAS No. 161 will
have a material impact on its consolidated results of operations or financial
position.


-12-
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In
February 2008, the FASB issued Staff Position No. FAS 157-2, which provides for
a one-year deferral of the effective date of SFAS No. 157, Fair Value Measurements, for
non-financial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis.  The Company is evaluating the impact of this standard as it
relates to the Company’s financial position and results of
operations.




In
December 2007, the SEC published Staff Accounting Bulletin (“SAB”)
No. 110, which amends SAB No. 107 by extending the usage of a
“simplified” method, as discussed in SAB No. 107, in developing an estimate
of expected term of “plain vanilla” share options in accordance with SFAS
No. 123 (revised 2004), Share-Based Payment. In
particular, the SEC indicated in SAB 107 that it will accept a company’s
election to use the simplified method, regardless of whether the company has
sufficient information to make more refined estimates of expected term. The
Company does not expect that the adoption of this SAB will have a material
impact on its consolidated results of operations or financial
position.




In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations, (“SFAS
No. 141(R)”), and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS
No. 160”). These new standards are the U.S. GAAP outcome of a joint project
with the International Accounting Standards Board (“IASB”). SFAS No. 141(R)
and SFAS No. 160 introduce significant changes in the accounting for and
reporting of business acquisitions and noncontrolling interests in a subsidiary.
SFAS No. 141(R) and SFAS No. 160 continue the movement toward the
greater use of fair values in financial reporting and increased transparency
through expanded disclosures. SFAS No. 141(R) changes how business
acquisitions are accounted for and will impact financial statements at the
acquisition date and in subsequent periods. SFAS No. 160 requires
noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity, which changes the accounting for transactions
with noncontrolling interest holders. SFAS No. 141(R) and SFAS No. 160
are effective for our fiscal 2009. The Company has not completed its evaluation
of the potential impact, if any, of the adoption of SFAS No. 141(R) and
SFAS No. 160 on its consolidated financial position, results of operations
and cash flows.





3.           SHARE
EXCHANGE AND PRIVATE PLACEMENT FINANCING





Between
February 22, 2008 and February 25, 2008, we entered into a series of
transactions whereby we acquired 100% of the ownership interest in Pacific from
the shareholders of Pacific in a share exchange transaction and raised
$3,400,000 gross proceeds from certain accredited investors in a private
placement transaction. These transactions, collectively hereinafter referred to
as “Reverse Merger Transactions,” were consummated simultaneously on February
26, 2008, and as a result of the consummation of these transactions Pacific is
now a wholly owned subsidiary of the Company.




The
following sets forth the material agreements that the Company entered into in
connection with the Reverse Merger Transactions and the material terms of these
agreements:





Share
Exchange Agreement





On
February 22, 2008, the Company and Terence Leong, the Company’s then Chief
Executive Officer, entered into a Share Exchange Agreement with Pacific and all
of the shareholders of Pacific (the “Share Exchange Agreement”). Pursuant to the
Share Exchange Agreement, the shareholders of Pacific agreed to exchange 100
ordinary shares of Pacific, representing a 100% ownership interest in Pacific,
for 1,000,000 shares of a newly designated Series A Convertible Preferred Stock
of the Company, par value $0.001 per share (the “Share Exchange” or the “Share
Exchange Transaction”).


-13-
 Table of Contents


Stock
Purchase Agreement


In
connection with the Share Exchange Transaction, on February 26, 2008, the
Company entered into a Series B Convertible Preferred Stock Purchase Agreement
(the “Stock Purchase Agreement”) with certain accredited investors (the
“Investors”), pursuant to which the Company agreed to issue 2,833,333 shares of
Series B Convertible Preferred Stock of the Company, par value $0.001 per share
(“Series B Stock”) and warrants to purchase 7,000,000 shares of the Company’s
Common Stock (the “Warrants”) to the Investors, in exchange for a cash payment
in the amount of $3,400,000. Under the Stock Purchase Agreement, the Company
also deposited 2,000,000 shares of the Series B Stock into an escrow account
held by an escrow agent as Make Good Shares in the event the Company’s
consolidated pre-tax income and pre-tax income per share, on a fully-diluted
basis, for the years ended December 31, 2007, 2008 or 2009 are less than certain
pre-determined target numbers.




On May
23, 2008, we amended the Company’s Articles of Incorporation and changed its
name to SkyPeople Fruit Juice, Inc. to better reflect our business. A
1-for-328.72898 reverse stock split of the outstanding shares of Common Stock
and a mandatory 1-for-22.006 conversion of Series A Preferred Stock, which had
been approved by written consent of the holders of a majority of the outstanding
voting stock, also became effective on May 23, 2008.




4.
            CONVERTIBLE
      PREFERRED STOCK





The
Series A Convertible Preferred Stock




In
connection with the Share Exchange Transaction, we designated 1,000,000 shares
of Series A Convertible Preferred Stock out of our total authorized number of
10,000,000 shares of Preferred Stock, par value $0.001 per share. Upon
effectiveness of the 1-for-328.72898 reverse stock split of the outstanding
shares of Common Stock on May 23, 2008, all the outstanding shares of Series A
Preferred Stock were immediately and automatically converted into shares of
Common Stock without any notice or action required by us or by the holders of
Series A Preferred Stock or Common Stock (the “Mandatory Conversion”). In the
Mandatory Conversion, each holder of Series A Preferred Stock received twenty
two and 62/10,000 (22.0062) shares of fully paid and non-assessable Common Stock
for every one (1) share of Series A held (the “Conversion Rate”).




Series
B Convertible Preferred Stock




In
connection with the Share Exchange Transaction, we designated 7,000,000 shares
of Series B Convertible Preferred Stock out of our total authorized number of
10,000,000 shares of Preferred Stock, par value $0.001 per share. The Series B
Convertible Preferred Stock is a participating security. No dividends are
payable with respect to the Series B Preferred Stock and no dividends can be
paid on our Common Stock while the Series B Preferred Stock is outstanding. Upon
liquidation, the holders are entitled to receive $1.20 per share (out of
available assets) before any distribution or payment can be made to the holders
of any junior securities.





Upon
effectiveness of the Reverse Split, each share of Series B Preferred Stock is
convertible at any time into one share of Common Stock at the option of the
holder. If the conversion price (initially $1.20) is adjusted, the conversion
ratio will likewise be adjusted and the new conversion ratio will be determined
by multiplying the conversion ratio in effect by a fraction, the numerator of
which is the conversion price in effect before the adjustment and the
denominator of which is the new conversion price.


-14-
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5.
            WARRANTS





In
connection with the Share Exchange Transaction, on February 26, 2008, the
Company entered into a Series B Convertible Preferred Stock Purchase Agreement
(the “Stock Purchase Agreement”) with certain accredited investors (the
“Investors”), pursuant to which the Company agreed to issue 2,833,333 shares of
a newly designated Series B Convertible Preferred Stock of the Company, par
value $0.001 per share (“Series B Stock”) and warrants to purchase 7,000,000
shares of the Company’s Common Stock (the “Warrants”) to the Investors, in
exchange for a cash payment in the amount of $3,400,000.




The
Warrants became exercisable after the consummation of a 1-for-328.72898 reverse
split of our outstanding Common Stock, which was effective on May 23, 2008, and
the 7,000,000 shares issuable upon exercise of such Warrants were not adjusted
as a result of such reverse split.




6.
            NOTE
      PURCHASE AGREEMENT





On
February 26, 2008, the Company issued to Barron Partners an aggregate of 615,147
shares of Series B Stock in exchange for the cancellation of all principal and
accrued interest aggregating approximately $5,055,418 on certain promissory
notes of the Company held by Barron.





On
February 22, 2008, the Company issued to Grover Moss an aggregate of 59,060
shares of Common Stock (post split) in exchange for the conversion of principal
aggregating $398,000.




7.
            ACCQUISITION OF A BUSINESS





On June
10, 2008, the Company completed the acquisition of Huludao Wonder for a total
purchase price of RMB 48,250,000, or approximately U.S. $6,308,591 based on the
exchange rate of June 1, 2007.  The payment was made through the
offset of related party receivables from Shaanxi Hede Investment Management Co.,
Ltd. (“Hede”). Before the acquisition, Huludao Wonder was classified as a
variable entity of Shaanxi Tianren according to FASB Interpretation No. 46: Consolidation of Variable Interest
Entities (“V.I.E.”), an interpretation of ARB 51 (“FIN 46”), since June
2, 2007. FIN 46R requires the primary beneficiary of the variable interest
entity to consolidate its financial results with the variable interest entity.
The Company had evaluated its relationship with Huludao and had concluded that
Huludao Wonder was a variable interest entity for accounting purposes after June
2007 and prior to June 2008.





Yongke
Xue, the Chairman of the Board and Chief Executive Officer of the Company, owns
80% of the equity interest of Hede, and Xiaoqin Yan, a director of Shaanxi
Tianren, owns the remaining 20% of Hede. Hede leased to Shaanxi Tianren all of
the assets and facilities of Huludao Wonder under a Lease Agreement dated June
2, 2007 between Hede and Shaanxi Tianren. The lease was for a term of one year
from July 1, 2007 to June 30, 2008. The monthly rent under the lease was RMB
300,000 (approximately $44,183 based on the exchange rate on September 30,
2008). In 2007, Shaanxi Tianren loaned to Hede on an interest free basis an
aggregate of RMB 27 million (approximately $3,976,494 based on the exchange rate
on September 30, 2008) pursuant to a Loan Agreement entered into by the parties
on June 5, 2007. The loan was made to enable Hede to purchase Huludao Wonder.
The loan was due on August 1, 2008. On the date of the purchase, the outstanding
loan was deducted from the purchase price according to the Loan
Agreement.




-15-
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The
contractual agreement with Hede was in effect on June 1, 2007. As a result of
the contractual arrangements, Shaanxi Tianren became the primary beneficiary of
Huludao Wonder. Accordingly, Shaanxi Tianren adopted the provisions of FIN 46R
and consolidated the financial results of Huludao Wonder from June 1,
2007.




The
Company accounted for the purchase as a reorganization of entities under common
control to consolidate Huludao Wonder with the assets and liabilities recorded
at their carrying values on the books of Hede. The book value of the acquired
net assets of Huludao Wonder was RMB 48,250,000 (approximately $6,308,591 based
on the exchange rate on June 1, 2008).




The
following table summarizes the fair value of Huludao Wonder’s assets and
liabilities as of June 1, 2007 (based on the exchange rate on June 1,
2007):





ASSETSCash
              $
              7,567Accounts receivable, net
              
              2,387,711Other receivables
              
              29,244Inventory
              
              57,948Fixed assets
              
              6,934,219Intangible
      asset
              
              3,262,566Other assets
              
              27,486TOTAL
      ASSETS
              $
              12,706,741LIABILITIESAccounts payable
              $
              20,642Other payables
              
              101,603Loans
      payable
              
              6,275,905TOTAL
      LIABILITIES
              $
              6,398,150NET
      ASSETS
              $
              6,308,591




-16-
 Table of Contents




Pro
Forma Financial Information





The
unaudited pro forma financial information presented below summarizes the
combined operating results of the Company and Huludao Wonder for the nine months
ended September 30, 2007, as if the acquisition had occurred on January 1,
2007.




The pro
forma financial information is presented for informational purposes only and is
not necessarily indicative of the results of operations that would have been
achieved had the acquisition taken place on January 1, 2007. The unaudited pro
forma combined statements of operations combine the historical results of the
Company and the historical results of the acquired entity for the periods
described above.








PRO
FORMA STATEMENT OF OPERATIONS


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007





Historical
      Information of the Company (1)
                  
                  
                  Historical
      Information of the Acquired Entity (2)
                  
                  
                  Pro
      Forma Adjustments (3)
                  
                  
                  Pro
      Forma(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  
                  
                  
                  (Unaudited)Net
      sales
                  
                  $
                  12,493,802
                  
                  
                  $
                  1,763,361
                  
                  
                  $
                  --
                  
                  
                  $
                  14,257,163Net
      income (loss)
                  
                  $
                  3,100,882
                  
                  
                  $
                  (269,398
                  )
                  
                  $
                  (34,202
                  )
                  
                  $
                  2,797,282Basic
      earnings per share
                  
                  $
                  0.14
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  0.13Diluted
      earnings per share
                  
                  $
                  0.14
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  0.13Basic
      weighted average common shares outstanding
                  
                  
                  22,006,173
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  22,006,173Diluted
      weighted average common shares outstanding
                  
                  
                  22,006,173
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  22,006,173





Note:  The currency exchange rate is based on the average exchange
rate of the related period.





(1)
            The
      historical operating results of the Company were based on the Company’s
      unaudited financial statements for the nine months ended September 30,
      2007.


(2)
            The
      nine months historical information of Huludao was derived from the books
      and the records of Huludao for the five months ended May 30,
      2007.


(3)
            Pro
      forma adjustment was based on the assumption that the fair value of the
      fixed assets and intangible assets    were amortized
      over the life of the assets, assuming the acquisition took place on
      January 1, 2007.


-17-
 Table of Contents





8.           INVENTORIES





Inventories
consisted of:


September
      30,
                
                
                December
      31,2008
                
                
                2007Raw
      materials and packaging
                
                $
                536,766
                
                
                $
                255,936Finished
      goods
                
                
                1,323,618
                
                
                
                4,204,213Inventories
                
                $
                1,860,384
                
                
                $
                4,460,149





9.           INCOME
TAX




Prior to
2007, the Company was subject to a 33% income tax rate by the PRC. The Company
had no material adjustments to its liabilities for unrecognized income tax
benefits according to the provisions of FIN 48. Shaanxi Tianren was awarded the
status of a nationally recognized High and New Technology Enterprise in December
2006, which entitled Shaanxi Tianren to tax-free treatment for two years
starting from 2007 and thereafter reduced income taxes at 50% of its regular
income tax rate then effective from 2009 to 2010. In December 2007, the tax rate
of Xi’an Tianren was reduced from 33% to 25%, effective beginning January
2008.





As the
Company had no income generated in the United States, there was no tax expense
or tax liability due to the Internal Revenue Service of the United States as of
September 30, 2008.




The
Company had no material adjustments to its liabilities for unrecognized income
tax benefits according to the provisions of FIN 48. The income tax expense was
$525,585 and $584,389 for the nine months ended September 30, 2008 and September
30, 2007, respectively. The Company had recorded no deferred tax assets or
liabilities as of September 30, 2008 and 2007, since nearly all differences in
tax basis and financial statement carrying values are permanent
differences.





Three
      Months Ended September 30,
                      
                      
                      Nine
      Months Ended September 30,Income
      Tax Expenses
                      
                      2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007Current
                      
                      $
                      214,387
                      
                      
                      $
                      127,406
                      
                      
                      $
                      525,585
                      
                      
                      $
                      584,389Deferred
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      214,387
                      
                      
                      $
                      127,406
                      
                      
                      $
                      525,585
                      
                      
                      $
                      584,389




10.         LAND
USAGE RIGHTS





According
to the laws of the PRC, 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, the Company paid in
advance for land use rights. 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 was 20 to 50 years. The amortization expenses were $109,228 and
$43,255 for the nine months ended September 30, 2008 and 2007,
respectively.


-18-
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11.        AMOUNTS
DUE FROM (TO) RELATED PARTIES





As of
September 30, 2008, the Company had no outstanding loans to related entities
with common owners and directors. During the nine months ended September 30,
2008, Pacific erroneously paid RMB 34,848,000, or approximately $4,974,338 based
on the average rate of the nine months ended September 30, 2008, to its former
shareholders, the Company’s director Xiaoqing Yan and its CEO, Yongke Xue as the
result of a dividend declaration by Pacific in February 2008 (See Note 14).
Because the recipients of the money were no longer shareholders of Pacific, the
transaction has been treated for accounting purposes as an interest free loan.
As of September 30, 2008, the directors and other related parties had returned
the monies they received (along with amounts loaned to related parties prior to
January 1, 2008) in cash in the amount of $5,475,092.





During
the nine months ended September 30, 2008, the related party loan and advances to
Hede of RMB 48,929,272 were credited against the purchase price that the Company
paid for Huludao on June 10, 2008. The Company also paid off approximately
$149,486 of its loans payable to related parties in the nine months ended
September 30, 2008. The indebtedness of the Company to related entities with
common owners and directors as of December 31, 2007 totaled $4,970,427 as
follows. The loans are unsecured and bear no interest. These loans have no fixed
payment terms.





Name
      of Related Party to Whom Loans were Given
                        
                        December
      31, 2007
                        
                        RelationMr.
      Andu Liu
                        
                        $
                        22,177
                        
                        Former
      shareholder of Shaanxi TianrenMr.
      Ke Lu
                        
                        
                        7,734
                        
                        Manager
      of Shaanxi TianrenShaanxi
      Hede Investment Management Co., Ltd.
                        
                        
                        4,490,173
                        
                        Former
      shareholder of  Shaanxi TianrenXi’an
      Hede Investment Consultation Company Limited
                        
                        
                        101,286
                        
                        The
      Managing Director of  Xi’an Hede is one of the family members
      of  Shaanxi TianrenShaanxi
      Xirui Group Co., Ltd.
                        
                        
                        198,216
                        
                        Shareholder
      of Xi’an TianrenYingkou
      Trusty Fruits Co., Ltd. (“Yingkou”)
                        
                        
                        77,212
                        
                        Hede
      is a shareholder of YingkouShaanxi
      Fruits Processing Co., Ltd.
                        
                        
                        73,629
                        
                        Former
      Shaanxi TianrenTotal
                        
                        $
                        4,970,427





As of
December 31, 2007, the indebtedness of the Company to its shareholders and
related entities with common owners and directors was $143,366 as
follows:





Name of Related
      Party from
      Whom Loans were Received
                    
                    December
      31, 2007
                    
                    RelationMr.
      Guang Li
                    
                    $
                    (137
                    )
                    Director
      of  Shaanxi TianrenMr.
      Yongke Xue
                    
                    
                    (32,308
                    )
                    Former
      shareholder of Shaanxi TianrenMs.
      Yuan Cui
                    
                    
                    (62,387
                    )
                    Former
      shareholder of Shaanxi TianrenMr.
      Hongke Xue
                    
                    
                    (48,397
                    )
                    President
      of  Shaanxi TianrenMs.
      Xiaoqin Yan
                    
                    
                    (137
                    )
                    Former
      shareholder of Shaanxi TianrenTotal
                    
                    $
                    (143,366
                    )




-19-
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12.         COMMON
STOCK





As of
September 30, 2008, the Company had 22,271,684 shares of Common Stock issued and
outstanding and 3,448,480 shares of Series B Preferred Stock issued and
outstanding. (2,000,000 shares of the Series B Preferred Stock deposited in the
escrow account are not included). Assuming all five year warrants to purchase
7,000,000 shares of Common Stock with an exercise price of $3.00 per share are
exercised and all shares of Series B Preferred Stock are converted, the total
number of shares of Common Stock to be issued and outstanding will be
32,720,164.




In the
first quarter of 2008, the Company issued 31,941 shares of Common Stock as part
of the settlement with its prior Chief Executive Officer, Burr D. Northrop,
37,098 shares of Common Stock to Walker Street Associates and its prior
director, Joseph I. Emas, respectively, for the professional services that they
provided, and 59,060 shares of Common Stock to Grover Moss for the conversion of
principal under the obligation of $398,000 with the Company.




On
February 26, 2008, the Company issued to Barron Partners an aggregate of 615,147
shares of Series B Stock in exchange for the cancellation of all principal and
accrued interest aggregating approximately $5,055,418 on certain promissory
notes of the Company held by Barron. The shares issued to Barron Partners were
not affected by the 1-for-328.72898 reverse split of our outstanding Common
Stock which was effective on May 23, 2008.





In
connection with the Share Exchange Transaction in February 2008, the Company
designated 1,000,000 shares of Series A Convertible Preferred Stock out of its
total authorized number of 10,000,000 shares of Preferred Stock, par value
$0.001 per share. In the Mandatory Conversion, each holder of Series A Preferred
Stock was entitled to receive twenty two and 62/10,000 (22.0062) shares of fully
paid and non-assessable Common Stock for every one (1) share of Series A held.
The Company also agreed to issue 2,833,333 shares of a newly designated Series B
Convertible Preferred Stock of the Company, par value $0.001 per share and
warrants to purchase 7,000,000 shares of the Company’s Common Stock. Upon
effectiveness of the Reverse Split on May 23, 2008, all the outstanding shares
of Series A Preferred Stock were immediately and automatically converted into
22,006,173 shares of Common Stock. Each share of Series B Preferred Stock will
be convertible at any time into one share of Common Stock at the option of the
holder. The Warrants are exercisable after the Reverse Split. The 2,833,333
shares of Series B Convertible Preferred Stock and 7,000,000 shares issuable
upon exercise of such Warrants were not adjusted as a result of the Reverse
Split.




13.         NOTES
PAYABLE





In the
nine months ended September 30, 2008, the Company paid off RMB 86,800,000, or
approximately $12,390,167 of short-term loans payable, and transferred RMB
15,000,000, or approximately $2,141,157 based on the average exchange rate for
the nine months ended September 30, 2008 from long-term loans payable to
short-term loans payable, which will be due in September 2009. The Company also
entered into eight new short-term loan agreements with some local banks in
China. As of September 30, 2008, the balance of these short-term loans totaled
RMB 65,000,000 (U.S. $9,573,042 based on the exchange rate on September
30,2008), with an interest rate ranging from 5.28% to 9.83% per annum. These
loans are due from January 2009 to September 2009.


-20-
 Table of Contents




14.
            DIVIDEND
      PAYMENT




On
February 4, 2008, before the Share Exchange Transaction, the Board of Directors
of Xi’an Tianren declared a cash dividend of RMB 20,553,592, or $2,933,899 based
on the average rate of nine months ended September 30, 2008, to its former
shareholders. Since Shaanxi Tianren holds a 91.15% interest in Xi’an Tianren,
RMB 18,734,599, (or $2,674,249) was paid to Shaanxi Tianren and RMB 1,818,993
(or $259,650) was paid to its minority interest holders. On the same date, the
Board of Directors of Shaanxi Tianren declared a cash dividend of RMB 35,200,000
(or $5,024,584 based on the average exchange rate for the nine months ended
September 30,  2008), to its shareholders. Since Pacific holds a 99%
interest in Shaanxi Tianren, RMB 34,848,000 (or $4,974,338 based on the average
exchange rate for the nine months ended September 30, 2008) was paid to Pacific
and RMB 352,000 (or $50,246 based on the average exchange rate for the nine
months ended September 30, 2008) was paid to its minority interest holders. The
inter-company dividend was eliminated in the consolidated statement. The
dividend paid to minority interest holders was RMB 2,170,993 (or $309,896 based
on the average exchange rate for the nine months ended September 30,
2008).




In May
2008, Pacific erroneously paid RMB 34,848,000 (or $4,974,338 based on the
average exchange rate for the nine months ended September 30, 2008) to its
former shareholders as the result of a dividend declaration in February 2008.
The monies were then returned to the Company in June 2008 (See Note
11).





15.
            RELATED
      PARTY TRANSACTIONS




Yongke
Xue, the Chairman of the Board, and Chief Executive Officer of the Company, owns
80% of the equity interest of Shaanxi Hede Investment Management Co., Ltd.
(“Hede”), a PRC company. Xiaoqin Yan, a director of Shaanxi Tianren, owns the
remaining 20% of Hede.




On May
31, 2007, Huludao Wonder was acquired by Hede at the fair market price of RMB
48,250,000, which was based on a third party valuation. At the time Hede
acquired Huludao Wonder, both Hede and Shaanxi Tianren intended that Huludao
Wonder would be sold to Shaanxi Tianren after a one-year holding period. The
management of Shaanxi Tianren wanted an affiliate to run Huludao Wonder first to
make sure there were no issues before it was conveyed to Shaanxi Tianren.
Shaanxi Tianren participated significantly in the design of this purchase
transaction, and the purchase price was agreed upon by the Board of Shaanxi
Tianren. The purchase agreement under which Hede acquired Huludao Wonder
required that installments of the purchase price be paid as follows: RMB
10,000,000 on June 10, 2007; RMB 20,000,000 before September 2007; and RMB
18,250,000 before March 31, 2008. Immediately following the acquisition, Hede
leased to Shaanxi Tianren all of the assets and facilities of Huludao Wonder
under a Lease Agreement dated June 2, 2007 between Hede and Shaanxi Tianren. The
lease was for a term of one year from July 1, 2007 to June 30, 2008. The monthly
rent under the lease was RMB 300,000 (approximately $44,183 based on the
exchange rate of September 30, 2008). Upon execution of the lease, Hede was paid
RMB 1.8 million, representing the first 6 months rent, and a refundable security
deposit of RMB 1.2 million.





In
January 2008, Shaanxi Tianren paid rental expense of RMB 11,038 (approximately
$1,626 based on the exchange rate as of September 30, 2008) to the landlord of
Hede’s office space on behalf of Hede.




In May
2008, Shaanxi Tianren paid to Hede an aggregate amount of RMB 1,500,000
(approximately $220,916 based on the exchange rate as of September 30, 2008) of
rent for the period from January to May 2008 pursuant to the Huludao Wonder
Lease. In the same month, Shaanxi Tianren assumed Hede’s obligation of RMB
18,000,000 (approximately $2,650,996 based on the exchange rate as of September
30, 2008) for the balance of the purchase price for Huludao
Wonder).


-21-
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On May
31, 2008, Shaanxi Tianren entered into a Stock Transfer Agreement with Hede.
Under the terms of the Stock Transfer Agreement, Hede agreed to transfer all its
stock ownership of Huludao Wonder to Shaanxi Tianren for a total price of RMB
48,250,000 (approximately $6,308,591 based on the exchange rate as of June 1,
2007). The sale was closed on June 10, 2008. As of May 31, 2008, Shaanxi Tianren
had a related party receivable of RMB 48,928,272 from Hede, which was credited
against the purchase price (so that Shaanxi Tianren did not pay any cash to Hede
for the purchase) and the remaining balance of the loans and advances of RMB
679,272 (approximately $100,042 based on the exchange rate as of September 30,
2008) to Hede was repaid to the Company on June 11, 2008.




On
February 26, 2008, simultaneously with the consummation of the Share Exchange
Agreement and Stock Purchase Agreement described herein, pursuant to an oral
agreement with the Company and Barron Partners, the Company issued an aggregate
of 615,147 shares of Series B Preferred Stock to Barron in exchange for the
cancellation of (a) all indebtedness of the Company to Barron Partners under
certain outstanding convertible promissory notes issued to Barron Partners
during the period from September 30, 2004 to February 2008 to evidence loans
made by Barron Partners to the Company for working capital needs in the ordinary
course of business, and (b) all liquidated damages payable to Barron Partners
(including all amounts as well as any amounts which would become payable in the
future as a result of continuing failures) as a result of the failure of the
Company to have registered under the Securities Act of 1933, as amended (the
“Securities Act”) for resale by Barron Partners the Common Stock of the Company
issuable upon conversion of such convertible promissory notes under various
registration rights agreements between the Company and Barron Partners entered
into in connection with the foregoing loans.




As of
September 30, 2008, Barron Partners beneficially owned 10,159,265 shares of the
Company’s Common Stock (approximately 31.3% of the Common Stock). The oral
agreement with Barron Partners was approved by the Chief Executive Officer of
the Company.




The total
amount of principal and accrued interest under all convertible promissory notes
which were cancelled aggregated approximately $1,735,286 and the total amount of
accrued liquidated damages which were cancelled aggregated approximately
$3,320,132. All of the convertible promissory notes bore interest at the rate of
8% per annum and were convertible into shares of Common Stock at a conversion
rate of one share of Common Stock for every $8.21822 of principal converted. The
registration rights agreements provided for liquidated damages to accrue at the
rate of 36% per annum of the note principal in the event that the registration
statements to register the underlying shares were not declared effective by the
required deadline.




The
number of shares of Series B Stock that were issued to Barron Partners pursuant
to the agreement was determined by dividing the aggregate indebtedness cancelled
($5,055,418) by $8.1822 per share (which was the rate at which one share of
Common Stock was issuable for principal under the convertible promissory notes).
In lieu of issuing Common Stock, the Company and Barron Partners agreed that
Barron Partners would be issued Series B Stock (which upon consummation of the
Reverse Split became convertible into Common Stock on a share for share
basis).




The
issuance of the Series B Preferred Stock was accomplished in reliance upon
Section 4 (2) of the Securities Act.




The
Company is not obligated to register the resale of the 615,147 shares of Common
Stock that are issuable upon conversion of the Series B Preferred
Stock.




16.
            NEW
      LEASE AGREEMENT




On June
23, 2008, Shaanxi Tianren entered into a lease agreement for China office space.
The lease has a term of one year, with a commencement date of July 1, 2008 and
covers approximately 1,400 total rentable square meters. The annual rent is
approximately $107,914. Our new address is 16F, National Development Bank
Tower, No.2 Gaoxin 1st Road, Hi-Tech Industrial Zone, Xi’an, Shaanxi Province,
PRC 710075. Our phone number is 011-86-29-88377001.


-22-
 Table of Contents





17.
            OTHER
      ASSETS





Other
assets as of September 30, 2008 included RMB 15,000,000 of deposits to purchase
Yingkou Trusty Fruits Co., Ltd. (“Yingkou”). On June 1, 2008, Shaanxi Tianren
entered into a memorandum agreement with Xi’an Dehao Investment Consultation Co.
Ltd. (“Dehao”). Under the term of the agreement, Dehao agreed to transfer 100%
of the ownership interest of Yingkou to Shaanxi Tianren. Shaanxi Tianren is
required to make a refundable down payment of RMB 15,000,000, or approximately
$2,209,164 based on the exchange rate of September 30,2008, to Dehao as a
deposit for the purchase. The acquisition is in the negotiating process with
Dehao and also a third party market value evaluation is in process. The
acquisition is targeted to be complete in the first quarter of fiscal
2009.


-23-
 Table of Contents


ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS





The
following discussion and analysis of the consolidated financial conditions and
results of operations should be read in conjunction with the condensed
consolidated financial statements and notes in Item I above and with the audited
consolidated financial statements and notes, and with the information under the
headings “Risk Factors” and “Management’s Discussion and Analysis of Financial
Conditions and Results of Operations” in our most recent registration statement
on Form S-1.





Overview





We are
engaged in the business of research and development, production and sales of
special concentrated fruit juices, fast-frozen and freeze-dried fruits and
vegetables and fruit juice drinks through our indirect subsidiary, Shaanxi
Tianren, in the PRC. Shaanxi Tianren is 99% owned by Pacific. Previously, we
were a shell company with no significant business operations. As a result of the
consummation of a reverse merger transaction, on February 26, 2008 we ceased to
be a shell company and became an indirect holding company for Shaanxi Tianren
through Pacific. Pacific acquired a 99% ownership interest in Shaanxi Tianren in
September 2007 through a reorganization between entities under common control.
Because Shaanxi Tianren’s operations are the only significant operations of the
Company and its affiliates, the business and financial results of Pacific
reflect those of Shaanxi Tianren. As a result, this discussion and analysis
focuses on the business results of Shaanxi Tianren, comparing its results in the
three-months and nine-months ended September 30, 2008 with its results in the
corresponding period of 2007.





Below is
the Company’s corporate structure:











*Xi’an Qinmei Food Co., Ltd.,
an entity which is not affiliated with the Company, owns the other 8.85% of the
equity interest in Xi’an Tianren Modern Organic Co., Ltd.


-24-
 Table of Contents





There are
two general categories of fruit and vegetable juices available in the market.
One is fresh juice that is canned directly after filtering and
sterilization upon being squeezed out of fresh fruits or vegetables. The other
general category is juice drinks made out of concentrated fruit and vegetable
juice. Concentrated fruit and vegetable juices are produced through the
pressing, filtering, sterilization and evaporation of fresh fruits or
vegetables. They are used as the base material or ingredient for products such
as drinks, fruit jam and fruit wine, etc. 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.




The
period between each August through February or March is our squeeze season when
fresh fruits are available in the market and concentrated fruit juices are
produced out of fresh fruits.  In 2008 we started our squeezing season in
July with the early initiation of machine maintenance. We produce and sell both
concentrated fruit juices and juice drinks. Compared to juice drinks, our
concentrated juice products generally achieve a higher gross margin
than that of juice drinks. Therefore, our core products are concentrated
apple, pear and kiwifruit juices and our production has strategically been
focused on concentrated juice products. We also produce juice drinks and other
derivative products, especially when we are not in squeeze season. Our wide
range of product offerings and our ability to shift focus among products based
on supply and demand in the market and seasonal factors help us to diversify our
operational risks and supplement our revenue generation.





Our main
products include concentrated apple juice, concentrated pear juice, concentrated
kiwifruit puree, fruit juice drinks, fresh fruits and organic fresh fruits. Our
raw materials mainly consist of apples, pears and kiwifruits, which we procure
in the PRC market and the cost of which typically represents over 65% of our
overall production cost. We source our pear and kiwifruit supplies mainly from
our home province, Shaanxi Province, which is known for its pear and kiwifruit
production. Our kiwifruit processing facilities are located in Zhouzhi County,
Shaanxi Province, where 70% of the country’s kiwifruits are grown. We source our
apple supply mainly from Liaoning Province, where our subsidiary, Huludao Wonder
Fruit Co., Ltd. (“Huludao Wonder”) is located. The Company is committed to
continual research and development in new products and technologies. In June
2008, Shaanxi Tianren began the production of concentrated peach juice in its
Jingyang Branch Office.  It uses low-temperature pulp breaking
technology and low-temperature concentration technology to produce concentrated
white peach pulp, optimizing the production parameters. The production of peach
juice helped the diversification of our products and prolonged the squeeze
season.  Because of the seasonal nature in the growing and harvesting
of fruits and vegetables, our business is seasonal and can be greatly affected
by weather.





To take
advantage of economies of scale and to enhance our production efficiency, each
of our manufacturing facilities has a focus on juice products centering around
one particular fruit according to the proximity of such manufacturing 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. Since June 2007, after we leased the production facilities of Huludao
Wonder, we have been operating our pear juice products business out of our
Jingyang Branch Office. Our business involving apple juice products is operated
out of the facilities of Huludao Wonder, and our business involving kiwifruit
products is run out of Xi’an Tianren Modern Organic Agriculture Co., Ltd.
(“Xi’an Tianren”), in which we have held a 91.15% ownership interest since May
2006.





On June
2, 2007, Shaanxi Tianren entered into a lease agreement with Shaanxi Hede
Investment Management Co., Ltd. (“Hede”), pursuant to which Shaanxi Tianren, for
a term of one year and for a monthly lease payment of RMB 300,000, leased all
the assets and operating facilities of Huludao Wonder, which was wholly-owned by
Shaanxi Hede. On June 10, 2008, we completed the acquisition of Huludao Wonder
for a total purchase price of RMB 48,250,000 or approximately U.S. $6,308,591
based on the exchange rate of June 1, 2007. The payment was made through the
offset of related party receivables.





Besides
concentrated juice products, we generate other revenue from sales of pear juice,
apple juice, kiwifruit seeds, organic kiwifruit, fresh kiwifruit, kiwifruit
juice, mulberry juice, and apple spice.





The
supply of our raw material fruits has traditionally been fragmented as we
generally purchase directly from farmers. In addition, because the prices of raw
material fruits change from season to season based on the output of the farms,
we do not have long-term supply agreements with our suppliers. To secure our
fruit supply and lower transportation costs, our processing facilities are
strategically located near the various centers of fruit supply. -25-
 Table of Contents





Shaanxi
Tianren is permitted by the relevant governmental authorities to directly export
our products. More than 70% of our products are exported either through
distributors with good credit or to end-users directly. Our distributors are
generally domestic export companies. Although we generally renew our
distribution agreements with our distributors on a yearly basis, we maintain a
long-term relationship with our distributors. Our main export markets are the
U.S., Europe, Russia, and the Middle East.




Third Quarter Fiscal 2008
Highlights





·
            Total
      revenue increased 68.3% to $6,345,778 for the third  quarter of
      fiscal 2008, compared with revenue of $3,770,890 for the third quarter of
      fiscal 2007, as the result of an increase in  our production
      capacity and market demand for our products..·
            Gross
      profit margins increased by 37.4% to 47.8% from 34.8% for the third
      quarter of fiscal 2007 due to a decrease in the price of fresh fruits in
      the third quarter of fiscal 2008.·
            Income
      from operations increased by 99.1% to $1,631,942 for the third quarter of
      fiscal 2008 from $819,828 for the third quarter of fiscal 2007 due to a
      significant increase in total revenue, which was offset by an increase in
      operating expenses.·
            Net
      income increased $555,866, or 88.3%, to $1,185,083 compared with $629,217
      for the third quarter of fiscal 2007 primarily due to an increase in
      revenue in the third quarter of fiscal 2008.·
            We
      launched the large-scale production of concentrated mulberry juice at our
      Jingyang production base in September
2008.





The
highlights above are intended to identify some of our more significant events
and transactions during the quarter ended September 30, 2008.  These
highlights are not intended to be a full discussion of our operating results for
this quarter.  These highlights should be read in conjunction with the
following discussion and with our unaudited consolidated financial statements
and notes thereto accompanying this Quarterly Report.




Results of Operations and
Business Outlook





Our
consolidated financial information for the three and nine months ended September
30, 2008 should be read in conjunction with our consolidated financial
statements and the notes thereto and the section entitled “Management’s
Discussion and Analysis of Financial Conditions and Results of Operations” in
our most recent Form S-1.





Revenues





The
following table presents our consolidated net revenues for our main products for
the three and nine months ended September 30, 2008 and 2007,
respectively:


Three
      Months Ended September 30,
                        
                        
                        Nine
      Months Ended September 30,2008
                        
                        
                        2007
                        
                        
                        %
      Change
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        %
      ChangeConcentrated
      apple juice and apple aroma
                        
                        $
                        350,429
                        
                        
                        $
                        38,766
                        
                        
                        
                        804.0
                        %
                        
                        $
                        4,636,448
                        
                        
                        $
                        38,766
                        
                        
                        
                        1,1860.1
                        %Concentrated
      pear juice
                        
                        
                        3,257,801
                        
                        
                        
                        2,336,695
                        
                        
                        
                        39.4
                        
                        
                        
                        9,375,489
                        
                        
                        
                        6,915,992
                        
                        
                        
                        35.6Concentrated
      kiwifruit juice and kiwifruit puree
                        
                        
                        1,014,070
                        
                        
                        
                        443,442
                        
                        
                        
                        128.7
                        
                        
                        
                        3,404,790
                        
                        
                        
                        1,738,064
                        
                        
                        
                        95.9Kiwifruit
      seeds
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        N/A
                        
                        
                        
                        554,322
                        
                        
                        
                        -
                        
                        
                        
                        N/AFresh
      kiwifruit
                        
                        
                        -
                        
                        
                        
                        9,220
                        
                        
                        
                        N/A
                        
                        
                        
                        -
                        
                        
                        
                        435,352
                        
                        
                        
                        N/AFruit
      beverage
                        
                        
                        1,723,478
                        
                        
                        
                        942,767
                        
                        
                        
                        82.8
                        
                        
                        
                        4,471,240
                        
                        
                        
                        3,365,628
                        
                        
                        
                        32.9Consolidated
                        
                        $
                        6,345,778
                        
                        
                        $
                        3,770,890
                        
                        
                        
                        68.3
                        %
                        
                        $
                        22,442,329
                        
                        
                        $
                        12,493,802
                        
                        
                        
                        79.6
                        %


-26-
 Table of Contents





Revenue
for the three months ended September 30, 2008 were $6,345,778, an increase of
$2,574,488, or 68.3%, when compared to the same sales period of the prior year.
This increase was primarily due to the increase in sales of concentrated pear
juice, fruit beverages and concentrated kiwifruit juice and kiwifruit puree. We
believe that the increase in sales of concentrated pear juice and concentrated
kiwifruit juice and kiwifruit puree was due to the increase in market
acknowledgement of our products in both the international and national markets
and an increase in the market demand for juice related products.  Due
to continuous marketing efforts from our sales person in Shaanxi Tianren, our
market share of fruit beverages in the China market also shows an improvement in
the third quarter of fiscal 2008. In the third quarter of the fiscal year ended
September 30, 2007, we did not have any sales of concentrated apple juice, but
only sales of $38,766 in apple aroma. As a result, the revenue of concentrated
apple juice and apple aroma increased by 804.0% to $350,429 in the third quarter
of fiscal 2008 as compared with the same quarter of fiscal 2007.





Revenue
for the nine months ended September 30, 2008 were $22,442,329, an increase of
$9,948,527, or 79.6%, when compared to the same sales period of the prior year,
primarily due to Shaanxi Tianren’s consolidation of Huludao Wonder’s operating
results beginning June 1, 2007.  In the nine months ended September
30, 2008, Huludao Wonder generated revenue of $4,636,448 from the sale of apple
related products, compared with $38,766 in the same period of last fiscal
year.





Sales
from pear related products increased by $2,459,497, or 35.6%, in the nine months
ended September 30, 2008 compared to the same period in 2007 as a result of
increased consumer demand in both China and internationally. Sales from
kiwifruit related products increased by $1,666,726, or 95.9%, as a result of
continued sales of concentrated kiwifruit juice and puree and kiwifruit seeds in
the first two quarters of fiscal year 2008. There was no revenue generated from
sales of concentrated kiwifruit juice and puree and kiwifruit seeds in the
second quarter of fiscal year 2007. Squeezing season for kiwifruit is from
September of each year to January of the next year.Generally, we do not produce
or sell concentrated kiwifruit juice or kiwifruit puree during the non-squeeze
season. However, during the second quarter of 2008, Xi’an Tianren continued to
sell concentrated kiwifruit juice and puree and kiwifruit seeds, which are a
byproduct of kiwifruit juice puree. As a result, we saw an increase in net sales
of kiwifruit related products in the nine months ended September 30, 2008. The
net sales of fruit beverages also increased by 32.9% to $4,471,240 as compared
to the same period in fiscal 2007 due to an increase in market demand of fruit
juice in the China market.  We believe that the pure juice market is a
high-growth market in China because of growing personal income and an increase
in health awareness.


-27-
 Table of Contents





Gross
Margin





The
following table presents consolidated gross profit margin of our main products
and consolidated gross profit margin as a percentage of related revenues for the
three and nine months ended September 30, 2008 and 2007,
respectively:





Three
      Months Ended September 30,
                                                
                                                
                                                Nine
      Months Ended September 30,Gross
      profit margin
                                                
                                                2008
                                                
                                                
                                                2007
                                                
                                                
                                                %
      Change
                                                
                                                
                                                2008
                                                
                                                
                                                2007
                                                
                                                
                                                %
      ChangeConcentrated
      apple juice and apple aroma
                                                
                                                $
                                                73,014
                                                
                                                
                                                $
                                                25,755
                                                
                                                
                                                
                                                183.5
                                                %
                                                
                                                $
                                                978,905
                                                
                                                
                                                $
                                                25,755
                                                
                                                
                                                
                                                3,700.8
                                                %Concentrated
      pear juice
                                                
                                                
                                                1,813,059
                                                
                                                
                                                
                                                914,091
                                                
                                                
                                                
                                                98.3
                                                
                                                
                                                
                                                3,489,496
                                                
                                                
                                                
                                                2,653,734
                                                
                                                
                                                
                                                31.5Concentrated
      kiwifruit juice and kiwifruit puree
                                                
                                                
                                                616,701
                                                
                                                
                                                
                                                158,583
                                                
                                                
                                                
                                                288.9
                                                
                                                
                                                
                                                1,330,881
                                                
                                                
                                                
                                                861,636
                                                
                                                
                                                
                                                54.5Kiwifruit
      seeds
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                503,307
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                N/AFresh
      fruits
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                320,280
                                                
                                                
                                                
                                                N/AFruit
      beverages
                                                
                                                
                                                527,573
                                                
                                                
                                                
                                                212,542
                                                
                                                
                                                
                                                148.2
                                                
                                                
                                                
                                                1,503,973
                                                
                                                
                                                
                                                901,793
                                                
                                                
                                                
                                                66.8Consolidated
                                                
                                                $
                                                3,030,347
                                                
                                                
                                                $
                                                1,310,971
                                                
                                                
                                                
                                                131.2
                                                %
                                                
                                                $
                                                7,806,562
                                                
                                                
                                                $
                                                4,763,198
                                                
                                                
                                                
                                                63.9
                                                %Gross
      profit margin as a % of revenuesConcentrated
      apple juice and apple aroma
                                                
                                                
                                                20.8
                                                %
                                                
                                                
                                                66.4
                                                %
                                                
                                                
                                                (68.6)
                                                %
                                                
                                                
                                                21.1
                                                %
                                                
                                                
                                                66.4
                                                %
                                                
                                                
                                                (68.2)
                                                %Concentrated
      pear juice
                                                
                                                
                                                55.7
                                                
                                                
                                                
                                                39.1
                                                
                                                
                                                
                                                42.3
                                                
                                                
                                                
                                                37.2
                                                
                                                
                                                
                                                38.4
                                                
                                                
                                                
                                                (3.0
                                                )Concentrated
      kiwifruit juice and  kiwifruit puree
                                                
                                                
                                                60.8
                                                
                                                
                                                
                                                35.8
                                                
                                                
                                                
                                                70.1
                                                
                                                
                                                
                                                39.1
                                                
                                                
                                                
                                                49.6
                                                
                                                
                                                
                                                (21.2
                                                )Kiwifruit
      seeds
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                90.8
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                N/AFresh
      fruits
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                73.6
                                                
                                                
                                                
                                                N/AFruit
      beverages
                                                
                                                
                                                30.6
                                                
                                                
                                                
                                                22.5
                                                
                                                
                                                
                                                35.8
                                                
                                                
                                                
                                                33.6
                                                
                                                
                                                
                                                26.8
                                                
                                                
                                                
                                                25.5Consolidated
                                                
                                                
                                                47.8
                                                %
                                                
                                                
                                                34.8
                                                %
                                                
                                                
                                                37.4
                                                %
                                                
                                                
                                                34.8
                                                %
                                                
                                                
                                                38.1
                                                %
                                                
                                                
                                                (8.8)
                                                %





Overall
gross margin as a percentage of revenue increased by 37.4% for the three months
ended September 30, 2008, from 34.8% to 47.8%, compared to the same period of
fiscal 2007. In terms of dollar amount, gross margin in the three months ended
September 30, 2008 was $3,030,347, an increase of $1,719,376, or 131.2 %,
compared to $1,310,917 in the same period of fiscal 2007, primarily due to a
significant increase in sales and a decrease in raw material cost.




The
increase in gross margin as a percentage of revenue in the third quarter of
fiscal 2008 was primarily due to an increase in the gross margin of concentrated
pear juice, kiwifruit juice and kiwifruit puree and fruit beverages, which was
offset by a decrease in the gross margin of concentrated apple juice and apple
aroma. In the third quarter of fiscal year 2008, we saw a large decrease in the
general price of fresh fruits. As weather conditions in the beginning of this
squeezing season were better than last year, there was an abundant harvest of
pear and kiwifruit in the third quarter of fiscal 2008. As a result, the general
price of pear and kiwifruit decreased in the third quarter of this year, which
in turn significantly improved our gross margin in pear and kiwifruit related
products. However, the gross margin of concentrated apple juice and apple aroma
reduced by 68.6% compared with the same quarter of last fiscal year due to a
reduction in the average selling price of our apple related products as the
result of strong competition in apple related products in the
market.





Overall
gross margin as a percentage of revenue decreased by 8.8% for the nine months
ended September 30, 2008, from 38.1% to 34.8%, compared to the same period of
fiscal 2007. Gross margin in the nine months ended September 30, 2008 was
$7,806,562, an increase of $3,043,364, or 63.9 %, compared to $4,763,198 for the
same period of fiscal 2007.


-28-
 Table of Contents




The
decrease in gross profit margin as a percentage of revenue for the nine months
ended September 30, 2008 was primarily due to a decrease in gross margin in the
sales of concentrated apple and kiwifruit juice in the first two quarters of
fiscal 2008. In the first two quarters of fiscal 2008, the general price of raw
apples and pears increased due to a reduced available supply of fresh apples and
pears, while the prices we received for our apple and pear related products
remained constant with the same period of fiscal 2007, which resulted in a lower
gross margin for our products in fiscal 2008. During the fruit squeezing season
in 2007 and early 2008, the main production areas of apple, pear and kiwifruit
in China suffered from bad weather, resulting in output
reduction.





In the
first two quarters of fiscal year 2008, the general price of raw kiwifruit
increased as a result of a reduced available supply of fresh kiwifruits, while
the prices we received for our kiwifruit related products, such as our beverage
series, remained constant. This in turn decreased our margin in kiwifruit
related products. During the fruit squeezing season in 2007 and early 2008, the
main production areas of apple, pear and kiwifruit in China suffered from bad
weather, resulting in output reduction. We believe that our gross margin on
kiwifruit related products may increase if the supply of fresh kiwifruit
increases in the future.  In the second quarter of fiscal 2008, we
also had sales of $554,332 from kiwifruit seeds.  As kiwifruit seeds
are byproducts of concentrated kiwifruit juice, the cost cannot be determined
individually.  We have applied the “relative sales value costing”
method in determining its cost for the purposes of this report. The high margin
of kiwifruit seeds in the second quarter of fiscal 2008 contributed to the
improvement of kiwifruit related products, helping to offset the decrease in
overall gross margin for the nine months ending September 30, 2008.





The gross
profit margin of our fruit beverages increased by 25.5% for the nine months
ended September 30, 2008 as compared to the same period in 2007. This increase
was primarily due to the change in our product mix. We sold more concentrated
fruit beverages, which have a higher margin, in the first three quarters of
2008, as the result of a change in demand in the Chinese market. As the middle
class of China grows, we believe the demand for higher quality, higher margin
products will also increase.





Operating
Expenses




The
following table presents consolidated operating expenses as a percentage of net
revenues for the three and nine months ended September 30, 2008 and 2007,
respectively:


Three
      Months Ended September 30,
                    
                    
                    Nine
      Months Ended September 30,(Unaudited)
                    
                    2008
                    
                    
                    2007
                    
                    
                    %
      Change
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    %
      ChangeGeneral
      and administrative
                    
                    $
                    702,385
                    
                    
                    $
                    414,929
                    
                    
                    
                    69.3
                    %
                    
                    $
                    1,409,895
                    
                    
                    $
                    632,399
                    
                    
                    $
                    122.9
                    %Selling
      expenses
                    
                    
                    311,931
                    
                    
                    
                    62,120
                    
                    
                    
                    402.1
                    
                    
                    
                    808,576
                    
                    
                    
                    301,331
                    
                    
                    
                    168.3Research
      and development
                    
                    
                    175,431
                    
                    
                    
                    14,094
                    
                    
                    
                    1,144.7
                    
                    
                    
                    199,056
                    
                    
                    
                    49,040
                    
                    
                    
                    305.9Accrued
      liquidated damages
                    
                    
                    208,658
                    
                    
                    
                    -
                    
                    
                    
                    N/A
                    
                    
                    
                    208,658
                    
                    
                    
                    -
                    
                    
                    
                    N/ATotal
      operating expenses
                    
                    $
                    1,398,405
                    
                    
                    $
                    491,143
                    
                    
                    
                    184.7
                    %
                    
                    $
                    2,626,185
                    
                    
                    $
                    982,770
                    
                    
                    $
                    167.2
                    %As
      a percentage of revenueGeneral
      and administrative
                    
                    
                    11.1
                    %
                    
                    
                    11.0
                    %
                    
                    
                    0.6
                    %
                    
                    
                    6.3
                    %
                    
                    
                    5.1
                    %
                    
                    
                    24.1
                    %Selling
      expenses
                    
                    
                    4.9
                    
                    
                    
                    1.6
                    
                    
                    
                    198.4
                    
                    
                    
                    3.6
                    
                    
                    
                    2.4
                    
                    
                    
                    49.4Research
      and development
                    
                    
                    2.8
                    
                    
                    
                    0.4
                    
                    
                    
                    639.7
                    
                    
                    
                    0.9
                    
                    
                    
                    0.4
                    
                    
                    
                    126.0Accrued
      liquidated damages
                    
                    
                    3.3
                    
                    
                    
                    -
                    
                    
                    
                    N/A
                    
                    
                    
                    0.9
                    
                    
                    
                    -
                    
                    
                    
                    N/ATotal
      operating expenses
                    
                    
                    22.0
                    %
                    
                    
                    13.0
                    %
                    
                    
                    69.2
                    %
                    
                    
                    11.7
                    %
                    
                    
                    7.9
                    %
                    
                    
                    48.8
                    %




-29-
 Table of Contents





Our
operating expenses consist of general and administrative, selling expenses and
research and development expenses. Operating expenses increased by 184.7% to
$1,398,405 and by 167.2% to $2,626,185 for the three and nine months ended
September 30, 2008, respectively, from $491,143 and $982,770 for the
corresponding periods in fiscal 2007, respectively.





General
and administrative expenses increased by $287,456, or 69.3%, to $702,385 and by
$777,496, or 122.9%, to $1,409,895 for the three and nine months ended September
30, 2008, respectively, from $414,929 and $632,399 for the same periods of
fiscal 2007, respectively.





The
increase in general and administrative expenses in the third quarter of fiscal
2008 compared with the same quarter of fiscal 2007 is mainly due to an increase
of $132,971 in legal and auditing expenses related to the compliance of related
rules as a public company, an increase of $83,554 in depreciation and
amortization expenses due to an increase in fixed assets, and an increase of
$43,607 in payroll and related expenses as the result of a larger headcount to
handle the rise in sales volume.





The
increase in general and administrative expenses in the nine months ended
September 30, 2008 compared with the same period of fiscal year was mainly due
to the consolidation of Huludao’s operating results with those of Shaanxi
Tianren since June 1, 2007 and forward and an increase in legal and auditing
expenses which was primarily associated with the Company becoming a public
company.  Huludao Wonder had a large amount of general and
administrative expenses, which contributed to the substantial increase of the
Company’s operating expenses as a result of the operating combination.
Management believes that our operating expenses will continue to increase in
the future compared to previous years due to the expansion of our
business.




Selling
expenses increased by $249,811, or 402.1%, to $311,931 and by $507,245, or
168.3%, to $808,576 for the three and nine months ended September 30, 2008,
respectively, from $62,120 and $301,331 for the same period of fiscal year 2007,
respectively. This was mainly due to an increase in freight and transportation
expenses as a result of the increase in sales.





Research
and development expenses increased by $161,337, or 1,144.7%, to $175,431 and by
$150,016, or 305.9%, to $199,056 for the three and nine months ended September
30, 2008, respectively, from $14,094 and $49,040 for the same period of fiscal
year 2007. The increase in research and development expenses was because we
outsourced our research and development of new fruit related products to a third
party in the third quarter of fiscal 2008.





We
accrued $208,658 as of September 30, 2008 as liquidated damages due to the
failure to meet the timetables provided for in the Registration Rights
Agreement. We estimated that our registration statement will become effective
before December 31, 2008. Since none of the estimates is better than the other,
we have booked an expense and a liability equal to the minimum estimated loss in
accordance with FIN 14.





Income
from Operations





In the
third quarter of fiscal 2008, income from operations increased by $812,114, or
99.1%, to $1,631,942 from $819,928 for the third quarter of fiscal 2007. As a
percentage of net sales, income from operations was approximately 25.7% for the
third quarter of fiscal 2008, an increase of 18.3% as compared to 21.7% for the
same quarter of fiscal 2007. The increase in income from operations in the third
quarter of fiscal 2008 was primarily due to an increase in sales in the third
quarter of fiscal 2008, which was offset by an increase in operating
expenses.





In the
nine months ended September 30, 2008, income from operations increased by
$1,399,949, or 37.0%, to $5,180,377 from $3,780,428 for the corresponding period
in 2007. As a percentage of net sales, income from operations was approximately
23.1% for the nine months ended September 30, 2008, a decrease of 23.7% as
compared to 30.3% for the corresponding period in fiscal 2007. The decrease in
the percentage of net sales was due to a decrease in gross margin and an
increase in operating expenses, as previously discussed.


-30-
 Table of Contents


Interest
Expense





Interest
expense was $179,699 and $624,802 for the three and nine months ended September
30, 2008, respectively, increases of $159,938 and $605,041, respectively, as
compared with the same periods of fiscal 2007, primarily due to an increase in
term loan facilities in 2008 to support expansion plans and potential business
opportunities. In the nine months ended September 30, 2008, the Company
entered into eight short-term loan agreements with local banks in China. As
of September 30, 2008, the balance of these short-term loans totaled RMB
65,000,000 ($9,573,042), with interest rates ranging from 5.28% to 9.83% per
annum and maturity dates ranging from January 2009 to September
2009.




Income
Tax





Our
provision for income taxes was $214,387 and $525,585 for the three and nine
months ended September 30, 2008, respectively, compared to $127,406 and $584,389
for the corresponding periods in 2007, respectively. The decrease in tax
provision for the third quarter of fiscal 2008 was due to a decrease in the
effective tax rate of Xi’an Tianren. The tax rate of Xi’an Tianren was reduced
from 33% to 25%, effective beginning January 2008. However, as the income of
Xi’an Tianren increased significantly in the third quarter of 2008, the income
tax provision increased by 10.1% in the third quarter, as compared to the same
period of last fiscal year.





Shaanxi
Tianren was awarded the status of a nationally recognized High and New
Technology Enterprise in December 2006, which entitled Shaanxi Tianren to
tax-free treatment for two years starting from 2007 and thereafter reduced
income taxes at 50% of its regular income tax rate then effective from 2009 to
2010.





We
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), on July 1, 2007 and had no material adjustment to
its liabilities to unrecognized income tax benefits since its
adoption.





Minority
Interest





As of
September 30, 2008, Shaanxi Tianren held a 91.15% interest in Xi’an Tianren, and
Pacific held a 99% percent interest in Shaanxi Tianren. Minority interest in net
income of subsidiaries was $73,459 and $256,242 for the three and nine months
ended September 30, 2008, respectively,
increases of $26,336 and $119,395, respectively, compared to a minority interest
in the net income of $47,123 and $136,847for the
corresponding period of fiscal 2007,
respectively.  The increase in the minority interest was mainly
attributable to the increase in the net income generated from Shaanxi
Tianren.





Net
Income




Net
income was $1,185,083 and $3,900,123 for the three and nine months ended
September 30, 2008, respectively, increases of $555,866,
or 88.3%, and $891,791, or 29.6%, respectively, compared to the corresponding
periods of 2007. Such increases were primarily
due to an increase in sales, as previously discussed.





Financial
Condition





During
the nine months ended September 30, 2008, total assets increased $2,713,464, or
5.8%, from $46,610,128 at December 31, 2007 to $49,323,592 at September 30,
2008.  The majority of the increase was in cash, prepaid expenses,
property plant and equipment, construction in progress and other assets. The
increase in total assets was offset by a decrease in accounts receivable,
inventory, and related party receivables.




For the
nine months ended September 30, 2008, cash and cash equivalents increased
$8,702,321, or 212.6%, to $12,796,559 as compared to $4,094,238 for the fiscal
year ended December 31, 2007.  The increase in cash was mainly due to
net gross proceeds of $3,115,072 received from certain accredited investors in a
private placement transaction on February 26, 2008 and an increase of $9,948,527
in net revenue in the nine months ended September 30, 2008.


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At
September 30, 2008, the accounts receivable balance decreased by $5,528,086 from
the balance at December 31, 2007 due primarily to an improvement in accounts
receivable collections in fiscal 2008. The accounts receivable turnover was 78
days for the nine months ended September 30, 2008, compared with 88 days for
fiscal year 2007. The decrease in the accounts receivable turnover was due
primarily to improvement in collections in Shaanxi Tianren.





Our
inventory as of September 30, 2008 was $1,860,384, reflecting a decrease of
$2,599,765, or 58.3%, compared to inventory at December 31, 2007. Inventory
consists of raw materials, packaging materials and finished products. The
decrease in inventory was mainly from the increase in sales in kiwifruit and
apple related products in fiscal year 2008 which were produced in 2007 and
January 2008.




Prepaid
expenses and other current assets at September 30, 2008 were $1,267,956, an
increase of $1,166,328 from the balance at December 31, 2007. The increase in
prepaid expenses was primarily due to an increase of $821,424 in prepaid raw
material of fresh fruits. To ensure that we have enough fresh fruits for our
production needs, we usually pay 30% to 50% of the estimated purchase amount to
suppliers before the start of squeezing season.





Property,
plant and equipment increased by $211,226 from $17,564,147 at December 31, 2007
to $17,775,373 at September 30, 2008. Construction in progress was $2,711,753 at
September 30, 2008. Total capital expenditures were approximately $2,826,179 in
the nine months ended September 30, 2008.





During
2008, Shaanxi Tianren commenced construction on the expansion of its research
and development center. This project covers an area of 2,000 square meters and
will encompass additional space required for research and development
laboratories. The expansion is currently in progress on the existing site of the
factory in Jingyang County, Shaanxi Province. Related to this project, we have
capitalized, as construction in progress, $1,178,221 during the nine months
ended September 30, 2008. This research and development center is expected to be
completed by June 30, 2009. Our estimated future input for this project is
$44,183. Once it is completed, it will provide more space for our engineers to
conduct research and development toward the goal of improving and facilitating
our product line. The Company also started a technology innovation and expansion
project over its original industrial waste water processing facility located in
the factory of Jingyang County in Shaanxi Province. This 600 square meter
industrial waste water processing facility will increase the capacity of waste
water processing and recycling from the current 100 cubic meters per day to 300
cubic meters per day. We capitalized $810,027 as construction in progress during
the nine months ended September 30, 2008. This project is expected to be
operational by the end of the third quarter of fiscal 2009.  Our
estimated future input for this project is $1,030,943. The expanded industrial
waste water processing facility will enable the Company to increase its
production capacity in the future and will be in compliance with local
environmental laws. In addition, Xi’an Tianren began construction on an
industrial waste water processing facility in the factory of Zhouzhi County in
Shaanxi Province.





Xi’an
Tianren previously leased a waste water processing facility at an annual fee of
approximately $11,600. This 1,118 square meter industrial waste water processing
facility remains on schedule and once completed will process 1,200 cubic meters
of waste water per day, which will meet the increasing production demand of
Xi’an Tianren and will improve the use of recycled waste water. We capitalized
$659,804 as construction in progress during the nine months ended September 30,
2008. This project is expected to be operational by the end of the third quarter
of fiscal 2009. Our estimated future input for this project is $135,495. The
newly built water processing facility in Xi’an Tianren will help the Company
save on leasing fees and also enable the Company to increase its production
capacity in the future.  Furthermore, it will be in compliance with
local environmental laws.  We also capitalized interest expenses of
$63,701 in construction in progress in accordance with FASB Statement of
Financial Accounting Standards(“SFAS”) No. 34, Capitalization of Interest
Cost. The source of the future investment in these three projects will be
generated from our working capital and our current bank loans.


-32-
 Table of Contents




Depreciation
and amortization were $1,409,907 for the nine months ended September 30, 2008,
compared with $827,945 for the same period of 2007. The increase in depreciation
expenses was due mainly to an increase in property, plant and equipment acquired
after September 30, 2007.




The
related party receivables of $4,970,427 as of December 31, 2007 were fully
collected as of September 30, 2008. The related party receivables as of December
31, 2007 consisted primarily of two interest-free loans in the aggregate amount
of approximately RMB 27,000,000 (approximately $3,971,495 based on the exchange
rate as of September 30, 2008) that we advanced to Hede in June and July
2007 for Hede to acquire Huludao Wonder. On June 10, 2008, Shaanxi Tianren
completed the acquisition of Huludao Wonder for a total purchase price of RMB
48,250,000, or approximately $6,887,391 based on the average exchange rate for
the nine months ended September 30, 2008. The outstanding amount of the loan at
the time of the acquisition was deducted from the purchase price.




Other
assets were $2,749,985 at September 30, 2008, an increase of $2,678,167 from the
balance at December 31, 2007. The increase in other assets was primarily
due to a down payment of $2,209,164 for the acquisition of Yingkou Trusty Fruits
Co., Ltd. (“Yingkou”). On June 1, 2008, Shaanxi Tianren entered into a
memorandum agreement with Xi’an Dehao Investment Consultation Co., Ltd.
(“Dehao”). Under the terms of the agreement, Dehao agreed to transfer 100% of
the ownership interest of Yingkou to Shaanxi Tianren. Shaanxi Tianren is
required to make a down payment of RMB 15,000,000, or approximately $2,141,158
to Dehao as a deposit for the purchase. The acquisition is targeted for
completion in the first quarter of fiscal 2009 after the third party market
value evaluation. In addition, we made a down payment of $356,860 to a
construction company for the remolding services that they will provide for our
newly leased office in Shaanxi Tianren.





Liquidity and Capital
Resources





Our
working capital has historically been generated from the operating cash flow,
advances from our customers and loans from bank facilities.





Net cash
provided by operating activities increased by $7,583,005 to $12,003,155 for the
nine months ended September 30, 2008 from $4,420,150 in the same period of
fiscal 2007.  The increase in net cash provided by operating
activities was primarily due to (i) an increase of $891,791 in net income from
$3,008,332 to $3,900,123 during the nine months ended September 30, 2008 as
compared to the same period of the prior year, (ii) an increase of $702,631 of
adjusting non-cash items, and (iii) an increase of $11,416,914 in cash inflow
from changes in accounts receivables, inventory and tax payables. Primarily
offsetting the increase in cash provided by operating activities was a cash
outflow from change in prepaid expenses, accounts payable and advances from
customers of $5,733,986.





Net cash
used in investing activities increased by $3,590,723 to $7,023,992 for the nine
months ended September 30, 2008 from $3,433,269 for the same period of fiscal
2007. The increase in cash used in investing activities was mainly due to
$2,141,158 in deposits paid to Dehao for the acquisition of Yingkou, an increase
of $3,857,216 in loans advanced to related parties, an increase of $356,860 in
prepayment for the lease improvement and an increase of $2,715,577 in the
capital expenditures in cash, as previously discussed. Offsetting this increase
in cash used in investing activities was an increase of $5,475,092 in the
repayment of loans from related parties and an increase of $4,996 in the
proceeds from the sale of property, plant and equipment.




Net cash
provided by financing activities in the nine months ended September 30, 2008 was
$3,112,471, representing an increase of $3,731,366 compared to the net cash used
in financing activities of $618,895 during the same period of 2007. The increase
was mainly due to stock sales proceeds of $3,115,072 received from certain
accredited investors in a private placement transaction on February 26,
2008.




As of
September 30, 2008, we had several short-term loans outstanding. The balance of
these loans totaled RMB 65,000,000 ($9,573,042), with interest rates ranging
from 5.28% to 9.83% per annum. These loans mature from January 2009 to September
2009.  The proceeds of these short-term loans are used as working capital
in the Company’s ordinary course of business.


-33-
 Table of Contents




Under our
Preferred Stock Purchase Agreement with Barron Partners, for a period of three
years from the closing date of the agreement (February 26, 2008), so long as
Barron Partners shall continue to beneficially own 20% of the Series B Preferred
Stock issued thereunder, we may not issue any preferred stock or any convertible
debt, except for preferred stock issued to Barron Partners.





Further,
under the Preferred Stock Purchase Agreement with Barron Partners, until
February 26, 2010, at all times our debt-to-EBITDA ratio shall not exceed 3.5:1
for the most recent 12-month period.




The
Company plans to acquire Yingkou in the first quarter of fiscal year 2009. The
Company also plans to expand its current operations in the next two years.
Planned expenditures for land and equipment are approximately $45.4 million for
the period from October 2008 to September 2009, and $1.34 million for the last
quarter of fiscal year 2009. The Company needs to purchase land to expand its
current operations. Much of its planned expenditures in the period from October
2008 to September 2009 represent the purchase price of land and construction
expenses of $10 million.


We
believe that we currently have sufficient cash on hand, combined with
anticipated cash receipts, to fund our business for at least the next 12
months.




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


-34-


Table of Contents




ITEM
3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Not
applicable.




ITEM
4.  CONTROLS AND PROCEDURES




An
evaluation was carried out by the Company’s Chief Executive Officer and Chief
Financial Officer of the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of September 30, 2008, the end of the
period covered by this Form 10-Q. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective in alerting them in a timely manner to
information relating to the Company, required to be disclosed in this
report.





During
the quarter ended June 30, 2008, Pacific erroneously paid monies to its former
shareholders as the result of a dividend declaration in February
2008.  The monies were then returned to the
Company.  Because the recipients of the money were no longer
shareholders of Pacific, the transaction has been treated for accounting
purposes as an interest free loan.   The Sarbanes-Oxley Act 2002
makes it unlawful for any public company, directly or indirectly, to extend
credit, maintain credit or arrange for the extension of credit in the form of a
personal loan to or for the benefit of any director or executive officer.
Therefore, the failure of the Company to prevent the loan may be considered a
material weakness in its internal controls. The Company and its Audit Committee
are taking steps to remedy this material weakness. Other than with respect to
the identification of this material weakness, there was no change in our
internal control over financial reporting during the quarter ended September 30,
2008, that materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting. Our internal control system is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United
States.  There is no assurance that our disclosure controls or our
internal controls over financial reporting can prevent all errors.  An
internal control system, no matter how well designed and operated, has inherent
limitations, including the possibility of human error.  Because of the
inherent limitations in a cost-effective control system, misstatements due to
error may occur and not be detected.  We monitor our disclosure
controls and internal controls and make modifications as
necessary.  Our intent in this regard is that our disclosure controls
and our internal controls will improve as systems change and conditions
warrant.


-35-
 Table of Contents


PART
II - OTHER INFORMATION





Item
1. Legal
Proceedings
 
 Not
applicable.
 
 
 Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds
 
 Not
applicable.
 
 
 Item
3. Defaults Upon Senior
Securities
 
 Not
applicable.
 
 Item
4. Submission of Matters to a
Vote of Security Holders
 
 Not
applicable.
 
 Item
5. Other Information
 
 Not
applicable.
 
 Item
6. Exhibits
 
 EXHIBIT
 NUMBERDESCRIPTION
  31.1
              Certification
      pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e),
      as adopted pursuant to Section 302 of the Sarbanes-OxleyAct
      of 2002.31.2
              Certification
      pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e),
      as adopted pursuant to Section 302 of the Sarbanes-OxleyAct
      of 2002.32.1
              Certification
      pursuant to 18 U.S.C. 1350.
 10.1
              Facility for Trade
      Financing Contract
 
 -36-
 Table of Contents


SIGNATURES





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








SKYPEOPLE FRUIT JUICE,
INC.


By: /s/ Spring
Liu


SPRING
LIU


Chief
Financial Officer


(Principal
Financial Officer)


Dated:
November 14, 2008