UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 
 ý
                  
                  QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended March 31, 2009ORo
                  
                  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      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
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              Identification
      No.)16F,
      National Development Bank Tower,No.
      2, Gaoxin 1st.
      Road, Xi’an, PRC
              
              710075(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 011-86-29-88386415
 (Registrant’s
telephone number, including area code)
 
 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  o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
 Yes  o   No o
 
 
 
 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 o                                                                                                     
         Accelerated
filer  o
 
 Non-accelerated
filer   o  (Do not
check if a smaller reporting
company)            
Smaller reporting company  R
   Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
  Yes oNo  R
  Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
 
 Class
              
              Outstanding
      at May 10, 2009Common
      Stock, $0.01 par value per share
              
              22,271,786
      shares
 
  
 SKYPEOPLE
FRUIT JUICE, INC.
 
 INDEX
 PageForward Looking Statements
                          1Part I.
                          Financial InformationItem 1.
                          Financial Statements
                          2(a) Condensed Consolidated Balance Sheets as of March 31, 2009
      (Unaudited) and December 31, 2008
                          2(b) Condensed Consolidated Statements of Operations and
      Comprehensive Income for the Three Months Ended March 31, 2009 (Unaudited)
      and March 31, 2008 (Unaudited)
                          3(c) Condensed Consolidated Statements of Cash Flows for the
      Three Months Ended March 31, 2009 (Unaudited) and March 31, 2008
      (Unaudited)
                          4(d) Notes to Consolidated Financial Statements
      (Unaudited)
                          5Item 2.
                          Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                          22Item 3.
                          Quantitative and Qualitative Disclosures About Market Risk
                          33Item 4
                          Controls and Procedures
                          33Part IIItem 1.
                          Legal Proceedings
                          34Item 2.
                          Unregistered Sales of Equity Securities and Use of
      Proceeds
                          34Item 3.
                          Defaults Upon Senior Securities
                          34Item 4.
                          Submission of Matters to a Vote of Security
      Holders
                          34Item 5.
                          Other Information
                          34Item 6.
                          Exhibits
                          34Signatures
                          
                          35ExhibitsCertifications
 -i-
 Table of Contents
  SKYPEOPLE
FRUIT JUICE, INC.
 
 PART
I
 
 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 most recent Form 10-K 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 BALANCESHEETS, UNAUDITED
 March 31,
                              
                              
                              December
      31,2009
                              
                              
                              2008ASSETS
                              
                              (Unaudited)CURRENT
      ASSETSCash
      and equivalents
                              
                              $
                              23,243,078
                              
                              
                              $
                              15,274,171Accounts
      receivable
                              
                              
                              5,011,043
                              
                              
                              
                              11,610,506Other
      receivables
                              
                              
                              225,640
                              
                              
                              
                              297,394Inventories
                              
                              
                              2,312,116
                              
                              
                              
                              1,844,397Prepaid
      expenses and other current assets
                              
                              
                              904,368
                              
                              
                              
                              1,087,076Total
      current assets
                              
                              
                              31,696,245
                              
                              
                              
                              30,113,544PROPERTY,
      PLANT AND EQUIPMENT, Net
                              
                              
                              19,930,452
                              
                              
                              
                              20,406,967LAND
      USAGE RIGHTS (Note 10)
                              
                              
                              6,353,266
                              
                              
                              
                              6,404,771OTHER
      ASSETS
                              
                              
                              2,299,914
                              
                              
                              
                              2,362,049TOTAL
      ASSETS
                              
                              $
                              60,279,877
                              
                              
                              $
                              59,287,331LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                              
                              $
                              1,501,521
                              
                              
                              $
                              663,092Accrued
      expenses
                              
                              
                              1,341,469
                              
                              
                              
                              1,657,437Accrued
      liquidated damages
                              
                              
                              254,301
                              
                              
                              
                              254,301Related
      party payables
                              
                              
                              -
                              
                              
                              
                              23,452Income
      taxes payable
                              
                              
                              658,700
                              
                              
                              
                              1,450,433Advances
      from customers
                              
                              
                              1,404,299
                              
                              
                              
                              1,375,460Short-term
      notes payable
                              
                              
                              11,239,737
                              
                              
                              
                              11,256,871Total
      current liabilities
                              
                              
                              16,400,027
                              
                              
                              
                              16,681,046TOTAL
      LIABILITIES
                              
                              
                              16,400,027
                              
                              
                              
                              16,681,046EQUITYSkyPeople
      Fruit Juice, Inc. stockholders’ equity:Preferred
      Stock, $0.001 par value; 10,000,000 shares authorized
                                3,448,480
      Series B Preferred Stock issued and outstanding as of
                                March
      31, 2009 and December 31, 2008, respectively
                              
                              
                              3,448
                              
                              
                              
                              3,448Common
      Stock, $0.01 par value; 100,000,000 shares authorized
                                22,271,786
      shares issued and outstanding as of March 31, 2009
                                and
      December 31, 2008, respectively
                              
                              
                              222,717
                              
                              
                              
                              222,717Additional
      paid-in capital
                              
                              
                              13,791,724
                              
                              
                              
                              13,791,724Accumulated
      retained earnings
                              
                              
                              23,708,370
                              
                              
                              
                              22,468,934Accumulated
      other comprehensive income
                              
                              
                              4,479,718
                              
                              
                              
                              4,573,143Total
      SkyPeople Fruit Juice, Inc. stockholders' equity
                              
                              
                              42,205,977
                              
                              
                              
                              41,059,966Noncontrolling
      interests
                              
                              
                              1,673,873
                              
                              
                              
                              1,546,319TOTAL
      EQUITY
                              
                              
                              43,879,850
                              
                              
                              
                              42,606,285TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                              
                              $
                              60,279,877
                              
                              
                              $
                              59,287,331
 
 See accompanying
notes to condensed consolidated financial statements.
 
 -2-
 Table of Contents
 
 SKYPEOPLE
FRUIT JUICE, INC. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE
INCOME,
 UNAUDITED
 Three
      Months EndedMarch
      31,
                                  
                                  
                                  March
      31,2009
                                  
                                  
                                  2008(Unaudited)
                                  
                                  
                                  (Unaudited)Revenue
                                  
                                  $
                                  6,671,061
                                  
                                  
                                  $
                                  8,850,584Cost of
      Sales
                                  
                                  
                                  3,746,159
                                  
                                  
                                  
                                  6,990,966Gross
      Profit
                                  
                                  
                                  2,924,902
                                  
                                  
                                  
                                  1,859,618Operating
      ExpensesGeneral
      and administrative
                                  
                                  
                                  411,904
                                  
                                  
                                  
                                  566,714Selling
      expenses
                                  
                                  
                                  273,588
                                  
                                  
                                  
                                  241,345Research
      and development
                                  
                                  
                                  275,510
                                  
                                  
                                  
                                  7,477Total
      operating expenses
                                  
                                  
                                  961,002
                                  
                                  
                                  
                                  815,536Income
      from Operations
                                  
                                  
                                  1,963,900
                                  
                                  
                                  
                                  1,044,082Other
      Income (Expense)Interest
      expense
                                  
                                  
                                  (226,396
                                  )
                                  
                                  
                                  (59,028
                                  )Interest
      income
                                  
                                  
                                  7,
      316
                                  
                                  
                                  
                                  6,164Subsidy
      income
                                  
                                  
                                  87,800
                                  
                                  
                                  
                                  -Other
      income (expense)
                                  
                                  
                                  (40
                                  )
                                  
                                  
                                  238,956Total
      other income (expense)
                                  
                                  
                                  (131,320
                                  )
                                  
                                  
                                  186,092Income
      Before Income Taxes
                                  
                                  
                                  1,832,580
                                  
                                  
                                  
                                  1,230,174Income
      Tax Provision
                                  
                                  
                                  493,870
                                  
                                  
                                  
                                  130,520Net
      Income
                                  
                                  
                                  1,338,710
                                  
                                  
                                  
                                  1,099,654Less:Net income
      attributable to noncontrolling interests
                                  
                                  
                                  99,274
                                  
                                  
                                  
                                  47,835NET
      INCOME ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC.
                                  
                                  $
                                  1,239,436
                                  
                                  
                                  $
                                  1,051,819Earnings
      Per Share:Basic
      earnings per share
                                  
                                  $
                                  0.04
                                  
                                  
                                  $
                                  0.04Diluted
      earnings per share
                                  
                                  $
                                  0.04
                                  
                                  
                                  $
                                  0.04Weighted
      Average Shares Outstanding:Basic
                                  
                                  
                                  22,271,684
                                  
                                  
                                  
                                  22,485,118Diluted
                                  
                                  
                                  28,394,863
                                  
                                  
                                  
                                  27,907,889Comprehensive
      Income:Net
      income
                                  
                                  $
                                  1,338,710
                                  
                                  
                                  $
                                  1,099,654Foreign
      currency translation adjustment
                                  
                                  
                                  (93,425
                                  )
                                  
                                  
                                  1,420,300Comprehensive
      Income
                                  
                                  $
                                  1,245,285
                                  
                                  
                                  $
                                  2,519,954Comprehensive
      income attributable to the noncontrolling interest
                                  
                                  
                                  (127,554
                                  )
                                  
                                  
                                  (47,835Comprehensive
      income attributable to SkyPeople Fruit Juice, inc.
                                  
                                  $
                                  1,117,731
                                  
                                  
                                  $
                                  2,472,119
 
 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
 March
      31,
                              
                              
                              March
      31,2009
                              
                              
                              2008(Unaudited)
                              
                              
                              (Unaudited)Cash
      Flow from Operating ActivitiesNet
      income
                              
                              $
                              1,239,436
                              
                              
                              $
                              1,051,819Adjustments
      to reconcile net income tonet
      cash flow provided by operating activitiesBad
      debt expenses
                              
                              
                              1,130
                              
                              
                              
                              -Depreciation
      and amortization
                              
                              
                              487,158
                              
                              
                              
                              714,647D
      Earnings attributable to noncontrolling interests
                              
                              
                              99,274
                              
                              
                              
                              47,835Changes
      in operating assets and liabilities,net
      of acquisition effectsAccounts
      receivable
                              
                              
                              6,580,392
                              
                              
                              
                              (2,470,381
                              )Other
      receivables
                              
                              
                              71,292
                              
                              
                              
                              (158,285
                              )Prepaid
      expenses and other current assets
                              
                              
                              239,570
                              
                              
                              
                              3,340Inventories
                              
                              
                              (470,472
                              )
                              
                              
                              1,054,021Accounts
      payable
                              
                              
                              839,339
                              
                              
                              
                              1,053,211Accrued
      expenses and other current liabilities
                              
                              
                              710,238
                              
                              
                              
                              (239,362
                              )Advances
      from customers
                              
                              
                              30,929
                              
                              
                              
                              (304,904
                              )Taxes  payable
                              
                              
                              (1,549,833
                              )
                              
                              
                              45,262Net
      cash provided by operating activities
                              
                              
                              8,278,453
                              
                              
                              
                              797,203Cash
      Flow from Investing ActivitiesLoan
      advanced to related parties
                              
                              
                              -
                              
                              
                              
                              (1,758,745
                              )Additions
      to property, plant and equipment
                              
                              
                              -
                              
                              
                              
                              (154,458
                              )Net
      cash (used in) investing activities
                              
                              
                              -
                              
                              
                              
                              (1,913,203
                              )Cash
      Flow from Financing ActivitiesProceeds
      from stock issuance
                              
                              
                              -
                              
                              
                              
                              3,216,667Proceeds
      from bank loans
                              
                              
                              -
                              
                              
                              
                              1,144,900Repayments
      of related party loan
                              
                              
                              -
                              
                              
                              
                              (66,236
                              )Net
      cash provided by financing activities
                              
                              
                              -
                              
                              
                              
                              4,295,331Effect
      of Changes in Exchange Rate
                              
                              
                              (309,546
                              )
                              
                              
                              170,044NET
      INCREASE IN CASH
                              
                              
                              7,968,907
                              
                              
                              
                              3,349,375CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                              
                              
                              15,274,171
                              
                              
                              
                              4,094,238CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                              
                              $
                              23,243,078
                              
                              
                              $
                              7,443,613Supplementary
      Information of Cash FlowsCash
      paid for interest
                              
                              $
                              1,283,303
                              
                              
                              $
                              -Cash
      paid for taxes
                              
                              $
                              226,396
                              
                              
                              $
                              -Dividend
      Payable to Noncontrolling Interests
                              
                              $
                              -
                              
                              
                              $
                              303,118(Noncontrolling interest
      balance was offset by the dividend payable)
 
 See
accompanying notes to condensed consolidated financial statements.
 -4-
 Table of Contents
  SKYPEOPLE
FRUIT JUICE, INC. AND SUBSIDIARIES
 NOTESTO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 1.
              CORPORATE
      INFORMATION
 
 SkyPeople
Fruit Juice, Inc. (“SkyPeople” or the “Company”), formerly Entech Environment
Technology, Inc. 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.
  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 the Company. The
equity sections of the accompanying financial statements have been restated to
reflect the recapitalization of the Company 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.
  Pacific’s only businessis acting as a holding company forShaanxi 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.  Shaanxi Tianren is
engaged in the business of producing and selling a
wide variety of fruit products, including fruit juice concentrates, fruit
juice drinks, and fresh fruit and fruit
seeds.
 
 Shaanxi
Tianren holds a 91.15% interest in of Shaanxi Qiyiwangguo Modern
Organic Agriculture Co. Ltd.’s (“Shaanxi Qiyiwangguo”) The acquisition was
accounted for using the purchase method, and the financial statements of Shaanxi
Tianren and Shaanxi Qiyiwangguo have been consolidated on the purchase date of
May 27, 2006 and forward.
  Shaanxi
Tianren also holds a 100% interest in Huludao Wonder Fruit Co., Ltd. (“Huludao
Wonder”). 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. See Note 14-Related Party
Transactions.
 
 On May 23, 2008, we amended the Company’s Articles of
Incorporation and changed our name to SkyPeople Fruit Juice,Inc. to better reflect our business.A1-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.
  -5-
 Table of Contents
  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 interests in Shaanxi Qiyiwangguo (formerly called Xi’an Tianren Modern
Organic Co. Ltd.).
 
 2.           SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 Financial
Statements
  The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”). This basis differs from that used in the statutory accounts of our
subsidiaries in China, which were prepared in accordance with
the accounting principles and relevant financial regulations applicable to
enterprises in the PRC. All necessary adjustments have been made to present the
financial statements in accordance with U.S. GAAP.
 
 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 accounts have been reclassified to conform to the current
presentation because of the acquisition of Huludao Wonder. The reclassification
had no impact on net income for the quarter ended March 31, 2009 and
2008.
  -6-
 Table of Contents
 
 Consolidation
  The
accompanying condensed consolidated financial statements include the accounts of
SkyPeople, Pacific, Shaanxi Tianren, Shaanxi Qiyiwangguo and 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.
 
 Economic and Political
Risks
  The
Company faces a number of risks and challenges as a result of having primary
operations and marketing in the PRC. Changing political climates in the PRC
could have a significant effect on the Company’s business.
  Control by Principal
Stockholders
  The
directors, executive officers and their affiliates or related parties own,
beneficially and in the aggregate, the majority of the voting power of the
outstanding shares of the Common Stock of the Company. Accordingly, the
directors, executive officers and their affiliates, if they voted their shares
uniformly, would have the ability to control the approval of most corporate
actions, including increasing the authorized capital stock of the Company and
the dissolution, merger or sale of the Company’s assets.
  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
March 31, 2009, the cash balance in financial institutions in the United States
was $110,986. Accounts at these financial institutions are insured by the
Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At March 31,
2009, the Company had no deposits that 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 recoverabilityof 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.
  -7-
 Table of Contents
 
 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.
 Three
      Months Ended March 31,2009
                    
                    
                    2008NUMERATOR
      FOR BASIC AND DILUTED EPSNet
      income (numerator for Diluted EPS)
                    
                    $
                    1,239,436
                    
                    
                    $
                    1,051,819Net
      income allocated to Preferred Stock
                    
                    
                    (243,673
                    )
                    
                    
                    (204,368
                    )Net
      income to common stockholders (Basic)
                    
                    $
                    995,763
                    
                    
                    $
                    847,451DENOMINATORS
      FOR BASIC AND DILUTED EPSCommon
      Stock outstanding
                    
                    
                    22,271,684
                    
                    
                    
                    22,485,118DENOMINATOR
      FOR BASIC EPS
                    
                    
                    22,271,684
                    
                    
                    
                    22,485,118Add:  Weighted average preferred as if
      converted
                    
                    
                    5,448,480
                    
                    
                    
                    5,422,771Add:
      Weighted average stock warrants outstanding
                    
                    
                    674,699
                    
                    
                    
                    -DENOMINATOR
      FOR DILUTED EPS
                    
                    
                    28,394,863
                    
                    
                    
                    27,907,889EPS
      – Basic
                    
                    $
                    0.04
                    
                    
                    $
                    0.04EPS
      – Diluted
                    
                    $
                    0.04
                    
                    
                    $
                    0.04
 
 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 $251,180 and
$230,578 for the three months ended March 31, 2009 and 2008, 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.
  -8-
 Table of Contents
 
 Trade 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.
Based on the information available to management, the Company believed that its
allowance for doubtful accounts was adequate as of March 31, 2009. The Company
evaluates the credit risks of its customers utilizing historical data and
estimates of future performance.
  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.
  Inventories
consisted of:
 March
      31,
                    2009
                  
                  
                  December
      31,
                    2008Raw
      materials and packaging
                  
                  $
                  964,364
                  
                  
                  $
                  611,755Finished
      goods
                  
                  
                  1,347,752
                  
                  
                  
                  1,232,642Inventories
                  
                  $
                  2,312,116
                  
                  
                  $
                  1,844,397
  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.
  -9-
 Table of Contents
 
 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 69%
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 distributors to pay us after
we deliver the products to them, which is not contingent on resale to end
customers. Our credit term 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 rights with respect to that product.
  Advertising and Promotional
Expense
  Advertising
and promotional costs are expensed as incurred. The Company incurred $293 and
zero in advertising and promotional costs for the three months ended March 31,
2009 and 2008, respectively.
 
 Estimates
  The
preparation of financial statements in conformity with U.S. GAAP 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 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.
  -10-
 Table of Contents
 
 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, plant 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
 March
      31,
                    2009
                  
                  
                  December
      31,
                    2008Machinery
      and equipment
                  
                  $
                  14,509,459
                  
                  
                  $
                  14,531,577Furniture
      and office equipment
                  
                  
                  225,638
                  
                  
                  
                  226,929Motor
      vehicles
                  
                  
                  193,966
                  
                  
                  
                  194,262Buildings
                  
                  
                  8,508,567
                  
                  
                  
                  8,521,537Construction
      in progress
                  
                  
                  1,900,520
                  
                  
                  
                  1,903,418Subtotal
                  
                  
                  25,338,150
                  
                  
                  
                  25,377,723Less:
      accumulated depreciation
                  
                  
                  (5,407,698
                  )
                  
                  
                  (4,970,756
                  )Net
      property and equipment
                  
                  $
                  19,930,452
                  
                  
                  $
                  20,406,967
 
 Depreciation
expense included in general and administration expenses for the three
months ended March 31, 2009 and 2008 was $80,969 and $188,100, respectively.
Depreciation expense included in cost of sales for the three months ended
March 31, 2009 and 2008 was $364,438 and $472,512, respectively.
 
 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, $1,170,806 as of March 31, 2009. This
research and development center is expected to be completed by June 30, 2009.
Our estimated future capital expenditure for this project is $1,024,455. 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.
 
 In
addition, Shaanxi Qiyiwangguo began construction on an industrial waste water
processing facility and renovation of an employee building in the factory of
Zhouzhi County in Shaanxi Province in fiscal year
2008.
  -11-
 Table of Contents
  Shaanxi
Qiyiwangguo previously leased a waste-water processing facility at an annual fee
of approximately $14,371. 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
demands of Shaanxi Qiyiwangguo and will improve the use of recycled waste water.
We capitalized $679,300 as construction in progress as of March 31, 2009. 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 $110,994. The newly built
water processing facility in Shaanxi Qiyiwangguo 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.  In the fourth quarter of fiscal 2008, Shaanxi
Qiyiwangguo began renovation of an employee building. We capitalized $11,131 as
construction in progress as of March 31, 2009. This project is expected to be
completed by the second quarter of 2009. There will be no future input for this
project.
 
 Capitalized
interest expenses of $50,414 are 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.
 
 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 of SkyPeople and Pacific is the U.S. dollar and that of Shaanxi Tianrne
and its subsidiary 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.
  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.
  -12-
 Table of Contents
 
 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.
  Noncontrolling
interests
  Noncontrolling
interests represents the minority stockholders’ proportionate share of 1% of the
equity of Shaanxi Tianren and 8.85% of the equity of Shaanxi
Qiyiwangguo.
 
 Accounting Treatment of the
February 26, 2008 Private Placement
  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 were accounted for in accordance with
Financial Accounting Standard Board Staff Position EITF 00-19-2. Estimated
damages at the time of closing were recorded as a liability and deducted from
additional paid-in capital as costs of issuance. Liquidated damages determined
later pursuant to the criteria for SFAS 5 were 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.
 
 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). On February 5, 2009, the registration statement was declared
effective by the SEC.  We recorded liquidated damages of $254,301 in
fiscal year 2008 for failure to meet the timetables provided for in the
Registration Rights Agreement.
 
 Research and
Development
 
 Shaanxi
      Tianren established a research and development institution with nearly 41
      research and development personnel as of March 31, 2009. Shaanxi Tianren
      also from time to time retains external experts and research institutions.
      The research and development expenses were $275,510 and $7,477 for the
      three months ended March 31, 2009 and 2008,
  respectively.
  -13-
 Table of Contents
 New Accounting Pronouncements
  In April
2009, the FASB issued Staff Position (“FSP”) FAS 157-4, Determining Fair Value When the
Volume or Level of Activity for the Asset or Liability Had Significantly
Decreased and Identifying Transactions That Are Not Orderly (“FSP
FAS157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value
in accordance with SFAS No. 157 when the volume or level of activity for
the asset or liability has significantly decreased and requires that companies
provide interim and annual disclosures of the inputs and valuation technique(s)
used to measure fair value. FSP FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009 and is to be applied
prospectively. The Company does not expect the adoption of FSP FAS 157-4 to have
a significant impact on its financial statements.
  In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. FSP FAS 115-2 and FAS 124-2 amends the
other-than-temporary impairment guidance to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. FSP FAS 115-2 and FAS 124-2 is effective for interim
and annual reporting periods ending after June 15, 2009. The Company does
not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a significant
impact on its financial statements.
  In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. FSP FAS 107-1 and APB 28-1 requires disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. FSP FAS
107-1 and APB 28-1 is effective for interim and annual reporting periods ending
after June 15, 2009. The adoption of FSP 107-1 and APB 28-1 will have no
impact on the Company’s financial statements.
 
 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.
  -14-
 Table of Contents
 
 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”).
 
 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.
  -15-
 Table of Contents
  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
withoutany 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 fullypaid 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.
 
 The
Company also deposited 2,000,000 shares of the Series B Stock into an escrow
account to be 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.
 
 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.
 
 5.
              WARRANTS
 
 The
warrants that were issued pursuant to the Stock Exchange Agreement 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, L.P. (“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
Partners.
 
 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 evidenced by a promissory note dated February 22,
2008.
  -16-
 Table of Contents
 
 7.
              ACCQUISITION OF HULUDAO WONDER
  On June
10, 2008, the Company completed the acquisition of Huludao 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 acquisition is accounted for according
to FASB 141, appendix D,
paragraphs 11 to 18, Transactions between Entities under Common Control.When accounting for a transfer of assets or exchange of shares between
entities under common control, the entity that receives the net assets or the
equity interests shall initially recognize the assets and liabilities
transferred at their carrying amounts in the accounts of the transferring entity
at the date of transfer and report results of operations for the period in which
the transfer occurs as though the transfer of net assets or exchange of equity
interests had occurred at the beginning of the period.
  Prior to the June 2008 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”). 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.
 
 The
following table summarizes the carrying value of Huludao Wonder’s assets and
liabilities transfer:
 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
 
 8.           INVENTORIES
 
 As of
March 31, 2009 and December 31, 2008, inventories consisted of:
 March
      31,
                  
                  
                  December
      31,2009
                  
                  
                  2008Raw
      materials and packaging
                  
                  $
                  964,364
                  
                  
                  $
                  611,755Finished
      goods
                  
                  
                  1,347,752
                  
                  
                  
                  1,232,642Inventories
                  
                  $
                  2,312,116
                  
                  
                  $
                  1,844,397
 -17-
 Table of Contents
  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. Starting from 2009, Shaaxin Tianren is subject to
the regular tax rate of 25% according to the new tax law in China, which was
effective on January 1, 2008. In December 2007, the tax rate of Shaanxi
Qiywangguo was reduced from 33% to 25%, effective beginning January
2008. The tax rate of Huludao Wonder was also reduced to 25%, effective
beginning January 2008. As of result, the Company’s income tax rate in the PRC
is effectively 25%.
 
 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
March 31, 2009.
  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
$493,870 and $130,520 for the three months ended March 31, 2009 and March 31,
2008, respectively. The Company had recorded no deferred tax assets or
liabilities as of  March 31, 2009  and 2008, since nearly
all differences in tax basis and financial statement carrying values are
permanent differences.
 Three
      Months
                        Ended
      March 31,Income
      Tax Expenses
                      
                      2009
                      
                      
                      2008Current
                      
                      $
                      493,870
                      
                      
                      $
                      130,520Deferred
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      493,870
                      
                      
                      $
                      130,520
  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 were 20 to 50 years. The amortization expenses were $41,751 and
$54,035 for the three months ended March 31, 2009 and 2008,
respectively.
  -18-
 Table of Contents
 
 11.         COMMON
STOCK
 
 As of
March 31, 2009, the Company had 22,271,786 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
32,720,266.
  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 owed by the Company pursuant to a promissaory note in the amount of
$398,000.
  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 Partners. 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, and the Warrants became exercisable immediately 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.
  12.         NOTES
PAYABLE
 
 As of
March 31, 2009, the balance of the short-term loans totaled RMB 76,800,000 (U.S.
$11,239,737 based on the exchange rate on March 31, 2009), with interest rates
ranging from 5.58% to 9.83% per annum. Of these loans, $5,239,357 are
collateralized by land and buildings. These loans are due from May 2009 to
October 2009.
 
 Effective
January 1, 2008, the Company adopted Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”) as it relates to financial assets and financial liabilities. The
adoption of SFAS 157 did not have a material effect on our results of
operations, financial position or liquidity.
 
 The Company adopted SFAS No. 159,The
Fair Value Option for Financial Assets and Financial Liabilities—Including an
Amendment of FASB Statement No. 115as of January 1, 2008.  SFAS
159 permits entities to elect to measure many financial instruments and certain
other items at fair value. We did not elect the fair value option for the
Company’s loans payable. Therefore, valuation of the Company’s loans payable is
not affected by the adoption of SFAS 157 and SFAS 159.
 -19-
 Table of Contents
  13.
              DIVIDEND
      PAYMENT
  On
February 4, 2008, before the Share Exchange Transaction, the Board of Directors
of Shaanxi Qiyiwangguo declared a cash dividend of RMB 20,553,592, or $2,933,899
based on the average exchange rate for the  nine months ended
September 30, 2008, to its former shareholders. Since Shaanxi Tianren holds a
91.15% interest in Shaanxi Qiyiwangguo, 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
noncontrolling 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 noncontrolling interest holders. The inter-company dividend was
eliminated in the consolidated statement. The dividend paid to noncontrolling
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.
 
 14.
              RELATED
      PARTY TRANSACTIONS
  Yongke
Xue, the Chairman of the Board, and Chief Executive Officer of the Company, owns
80% of the equity interest of Hede. Xiaoqin Yan, a director of Shaanxi Tianren,
owns the remaining 20% of Hede.
  In
January 2008, Shaanxi Tianren paid rental expense of RMB 11,038 (approximately
$1,615 based on the exchange rate as of March 31, 2009) to the landlord of
Hede’s office space on behalf of Hede.
  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 Partners 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 the
date of this Form 10-Q Report, Barron Partners beneficially owns 10,159,265
shares of the Company’s Common Stock (approximately 31.3% of the Common Stock)..
The oral agreement with Barron Partners described in the preceding paragraph was
approved by the Chief Executive Officer of the Company.
  -20-
 Table of Contents
 
 The total
amount of principal and accrued interest under all convertible promissory notes
that were cancelled aggregated approximately $1,735,286 and the total amount of
accrued liquidated damages that 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.
 
 15.
              OTHER
      ASSETS
 
 Other
assets as of March 31, 2009 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
$2,195,261 based on the exchange rate of March 31, 2009, 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 second quarter of fiscal 2009.
 
 16.          LIQUIDATED
DAMAGES
  Our
registration statement to register for resale an aggregate of 9,833,333 shares
of the Common Stock issuable upon conversion of our Series B Convertible
Preferred Stock and warrants to purchase Common Stock that we sold to the
Investors pursuant to the Stock Purchase Agreement was declared effective by the
Securities and Exchange Commission on February 5, 2009.  We accrued
liquidated damages payable of $254,301 in fiscal year 2008 due to the failure to
meet the timetables provided for in the Registration Rights Agreement with such
Investors, which was entered into in connection with the Stock Purchase
Agreement.
 
 19           
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  RMB 674,000, or approximately $96,858. 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. The Company is planning to purchase the leased
offices from Zhonghai Trust Co., Ltd. The negotiation is still in process as of
the filing date of this Form 10-Q.
  -21-
 Table of Contents
 
 ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 The
following discussion and analysis of the consolidated financial condition and
results of operations should be read in conjunction with 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
Condition and Results of Operations” in our most recent Annual Report
on  Form 10-K.
 
 Overview
 
 We
produce and sell a wide variety of fruit products, including special fruit juice
concentrates, fruit juice drinks, and fresh fruit and fruit seeds  to
a stable network of distributors and end users  in the United States,
the European Union, China, South Korea, Russia, and the Middle East through our
indirect subsidiary, Shaanxi Tianren, which is located in the
PRC.
 
 Because
the operations of Shaanxi Tianren, which we acquired on February 26, 2008
through our acquisition of Pacific, are the only significant operations of the
Company and its affiliates, the business and financial results of Pacific and
the Company 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 ended March 31, 2009 with its results
in the corresponding period of 2008.
 
 Shaanxi
Tianren holds a 91.15% interest in of Shaanxi Qiyiwangguo, and a 100% interest
in Huludao Wonder.
 
 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 interests in Shaanxi Qiyiwangguo.
  -22-
 Table of Contents
  We
produce and sell fruit concentrate and fruit juice beverages. We usually produce
our core products such as apple, pear, and kiwifruit concentrate from August to
March of each year. The squeezing season for (i) apples is from August to March
or April of the following year; (ii) pears is from July or August until March of
the following year; and (iii) kiwifruit is from September through December of
each year. In the first quarter of 2009, we developed a fruit vinegar beverage
that has tested very well in the market. We currently offer our fruit vinegar
beverage for two fruits; kiwifruit and mulberry fruit. We introduced these
products in the first quarter of 2009. Our non-concentrate products, such as
fruit juice beverages, are sold and produced in all seasons. The ability to
produce fruit juice beverages is important when fresh fruit is out of season and
fruit concentrate cannot be produced.  Our range of products and
production flexibility allows us to diversify our operational risks and
supplement our revenue.  Fruit concentrate comprised 66% of revenue in
the first quarter of 2009, fruit juice beverages made up 22%, fruit vinegar made
up 5% and the remaining 7% of revenue consisted of sales of fresh fruit and
other products.
 
 We own
and operate three manufacturing facilities in China; two facilities are located
in Shaanxi Province and one facility is located in Liaoning Province. Our raw
materials mainly consist of apples, pears and kiwifruits. Fresh fruit is the
primary raw material needed for the production of our products. The purchase of
fresh fruit represents over 51% of our production cost in fiscal year
2008. China has the largest planting area of apples and kiwifruit in the
world. Our kiwifruit processing facilities are located in Zhouzhi County,
Shaanxi Province, which has the largest planting area of apples and kiwifruit in
China. Shaanxi is also the main pear producing province in China. The pear
supply can meet our production requirements. We source our apple supply mainly
from Liaoning Province, China’s epicenter for high acidity apples, which can
supply enough apples to meet our Liaoning factory’s production needs. 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.
 
 We
believe that continuous investment in research and development is a key
component to becoming a leader in fruit concentrate and fruit juice beverage
quality. We have an internal research and development team of approximately 41
people, and we retain external experts and research institutions for additional
consultation. Our research and development effort emphasizes the design and
development of our processing technology with the goal of decreasing processing
costs and optimizing our production capabilities.  We intend to
continue to invest in research and development to respond to and anticipate
customer needs.  For the quarters ended March 31, 2009 and 2008, our
research and development expenses were $275,510 and $7,477,
respectively.
 
 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. Producing multi-fruit concentrate and beverage
blends is more costly and time consuming. This strategy allows us to maximize
our output and minimize our cost. Our production lines use essentially the same
processing method with a few slight variations. 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 Shaanxi
Qiyiwangguo Modern Organic Co. Ltd. (“Shaanxi Qiyiwangguo”), 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 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.
 -23-
 Table of Contents
 
 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.
 
 Shaanxi
Tianren is permitted by the relevant governmental authorities to directly export
our products. More than 69% 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
United States, the European Union, South Korea, Russia, and the Middle
East.
 
 First Quarter Fiscal 2009
Highlights
 
 ·
              We
      introduced a fruit vinegar beverage in the first quarter of 2009 that has
      tested very well in the market. Our fruit vinegar beverages had a gross
      margin of 50% in the first quarter of
2009.
 ·
              Gross
      profit margins increased by 108.7% to 43.8% from 21.0% for the first
      quarter of fiscal 2009 due to a decrease in the price of fresh fruits in
      the squeezing season of fiscal 2008 and also the first quarter of fiscal
      2009.
 ·
              Income
      from operations increased by 88.1% to $1,963,900 for the first quarter of
      fiscal 2009 from $1,044,082 for the first quarter of fiscal 2008 due to a
      significant increase in gross margin and a decrease in operating expenses,
      which was offset by a decrease in
revenue.
 ·
              Net
      income increased $187,617, or 17.8%, to $1,239,436 compared with
      $1,051,819 for the first quarter of fiscal 2008 primarily due to an
      increase in gross margin in the first quarter of fiscal
    2009.
  The
highlights above are intended to identify some of our more significant events
and transactions during the quarter ended March 31, 2009.  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.
  -24-
 Table of Contents
 
 Results of Operations and
Business Outlook
 
 Our
consolidated financial information for the three months ended March 31, 2009
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 Annual Report
on  Form 10-K.
 
 Revenues
 
 The
following table presents our consolidated net revenues for our main products for
the three months ended March 31, 2009 and 2008, respectively:
 Three
      Months Ended

                                          March
      31,2009
                                        
                                        
                                        2008
                                        
                                        
                                        %
      ChangeConcentrated
      apple juice and apple aroma
                                        
                                        $
                                        316,707
                                        
                                        
                                        $
                                        2,390,261
                                        
                                        
                                        
                                        (86.8
                                        )%Concentrated
      pear juice
                                        
                                        
                                        2,658,642
                                        
                                        
                                        
                                        3,964,258
                                        
                                        
                                        
                                        (32.9
                                        )%Concentrated
      kiwifruit juice and kiwifruit puree
                                        
                                        
                                        1,428,195
                                        
                                        
                                        
                                        1,489,907
                                        
                                        
                                        
                                        (4.1
                                        )%Fresh
      kiwifruits
                                        
                                        
                                        476,101
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        N/AFruit
      beverage
                                        
                                        
                                        1,442,747
                                        
                                        
                                        
                                        1,006,158
                                        
                                        
                                        
                                        43.4
                                        %Fruit
      vinegar
                                        
                                        
                                        348,669
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        N/AConsolidated
                                        
                                        $
                                        6,671,061
                                        
                                        
                                        $
                                        8,850,584
                                        
                                        
                                        
                                        (24.6
                                        )%
  Revenue
for the three months ended March 31, 2009 was $6,671,061, a decrease of
$2,179,523, or 24.6%, when compared to the same sales period of the prior year.
This decrease was primarily due to the decrease in sales of concentrated apple
juice and pear juice, which was offset by an increase in sales of fruit
beverages, fresh fruits and fruit vinegars in our Chinese market. Since 2008, we
have focused more on the kiwifruit concentrate and fruit beverages, which have a
higher margin and less competition than our concentrated apple and pear juices.
Due to their nutritional advantages and unique image and taste, the consumption
of small breed fruits, such as kiwifruits and mulberry, and their processed
products are on the rise worldwide.
 
 Sales
from apple related products decreased by $2,073,554, or 86.8%, in the first
quarter of 2009 as compared to the same period of fiscal 2008. Due to
instability of the world financial markets and their influence on the global
economy, the demand for concentrated apple juice in the international market
decreased significantly in fiscal 2008 and such decrease demand continued into
the first quarter of 2009. Furthermore, the competition in apple-related
products became stronger in China in 2008. As a result, we saw a big decrease in
the price for apple-related products. In the first quarter of 2009, we did not
produce any apple- related products. All our sales were from the balance of our
previous inventories.
 
 Sales
from concentrated pear juice decreased by $1,305,616, or 32.9%, in the first
quarter of 2009 as compared to the same period of fiscal 2008. Sales from
concentrated kiwifruit juice and kiwifruit puree also decreased slightly, by
$61,712, or 4.1%, in the first quarter of 2009 as compared to the same period of
fiscal 2008. We believe that the decrease in sales from concentrated pear juice
and concentrated kiwifruit juice and kiwifruit puree was mainly caused by the
economic crisis worldwide and its influence on the international
market.
 -25-
 Table of Contents
 
 However,
these decreases were offset by improved sales in the Chinese market. As compared
with the first quarter of 2008, sales of fresh kiwifruits increased by $476,101,
and sales of fruit beverages increased by $436,589, or 43.4%. The new
introduction of fruit vinegar product in the first quarter of 2009 also
increased sales by $348,669 in China.  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.
 
 Gross
Margin
 
 The
following table presents the consolidated gross profit margin of our main
products and the consolidated gross profit margin as a percentage of related
revenues for the three months ended March 31, 2009 and 2008,
respectively:
 
 Three Months Ended
                                    March 31,Gross
      profit margin
                                  
                                  2009
                                  
                                  
                                  2008
                                  
                                  
                                  %
      ChangeConcentrated
      apple juice and apple aroma
                                  
                                  $
                                  108,339
                                  
                                  
                                  $
                                  120,024
                                  
                                  
                                  
                                  (9.7
                                  )%Concentrated
      pear juice
                                  
                                  
                                  1,276,156
                                  
                                  
                                  
                                  937,472
                                  
                                  
                                  
                                  36.1
                                  %Concentrated
      kiwifruit juice and kiwifruit puree
                                  
                                  
                                  740,118
                                  
                                  
                                  
                                  404,038
                                  
                                  
                                  
                                  83.2
                                  %Fresh  kiwifruits
                                  
                                  
                                  297,728
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  N/AFruit
      beverages
                                  
                                  
                                  328,559
                                  
                                  
                                  
                                  398,084
                                  
                                  
                                  
                                  (17.5
                                  )%Fruit
      vinegar
                                  
                                  
                                  174,002
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  N/AConsolidated
                                  
                                  $
                                  2,924,902
                                  
                                  
                                  $
                                  1,859,618
                                  
                                  
                                  
                                  57.3
                                  %Gross
      profit margin as a % of revenuesConcentrated
      apple juice and apple aroma
                                  
                                  
                                  34.2
                                  %
                                  
                                  
                                  5.0
                                  %
                                  
                                  
                                  581.2
                                  %Concentrated
      pear juice
                                  
                                  
                                  48.0
                                  %
                                  
                                  
                                  23.6
                                  %
                                  
                                  
                                  103.0
                                  %Concentrated
      kiwifruit juice and  kiwifruit puree
                                  
                                  
                                  51.8
                                  %
                                  
                                  
                                  27.1
                                  %
                                  
                                  
                                  91.1
                                  %Fresh  kiwifruits
                                  
                                  
                                  62.5
                                  %
                                  
                                  
                                  -
                                  
                                  
                                  
                                  N/AFruit
      beverages
                                  
                                  
                                  22.8
                                  %
                                  
                                  
                                  39.6
                                  %
                                  
                                  
                                  (42.4
                                  )%Vinegar
      beverages
                                  
                                  
                                  49.9
                                  %
                                  
                                  
                                  -
                                  
                                  
                                  
                                  N/AConsolidated
                                  
                                  
                                  43.8
                                  %
                                  
                                  
                                  21.0
                                  %
                                  
                                  
                                  108.7
                                  %
 
 Overall
gross margin as a percentage of revenue increased by 108.7% for the three months
ended March 31, 2009, from 21.0% to 43.8%, compared to the same period of fiscal
2008. In terms of dollar amount, gross margin in the three months ended March
31, 2009 was $2,924,902, an increase of $1,065,284, or 57.3 %, compared to
$1,859,618 in the same period of fiscal 2008, primarily due to favorable weather
conditions and a resultant overabundance of fresh fruit, which resulted in a
significant decrease in the purchase price of our raw materials.
 
 The
increase in gross margin as a percentage of revenue in the first quarter of
fiscal 2009 was primarily due to an increase in the gross margin of concentrated
apple juice and apple aroma, concentrated pear juice, concentrated kiwifruit
juice and kiwifruit puree, which was offset by a decrease in the gross margin of
fruit beverages.
  -26-
 Table of Contents
  The gross
profit margin of concentrated apple juice and apple aroma increased by 581.2% to
34.2% for the first quarter of fiscal 2009, as compared to 5.0% for the same
period of fiscal year 2008. Due to the heavy competition in the concentrated
apple juice market, and the instability of the financial markets and their
influence on the global economy, the demand for concentrated apple juice in the
international market continued to decrease. We only produced concentrated apple
juice and apple aroma for one month in this squeezing season for apples, which
is from August 2008 to March 2009. Compared with 2008, the purchase price of
apples was much higher in the last squeezing season of apples due to a natural
disaster in the winter of 2007.  This resulted in a significant
increase in the gross margin of apple-related products in the first quarter of
2009.
 
 The gross
profit margin of concentrated pear juice was 48.0% in the first quarter of 2009,
representing an increase of 103.0% as compared to the same period of fiscal year
2008. The increase in the gross profit margin of concentrated pear juice was
primarily due to a large decrease in the general price of fresh pears during
their squeezing season, which was from July or August until March of 2009. As
weather conditions in the beginning of this squeezing season were better than
last year, there was an abundant harvest of pears in this squeezing season. As a
result, the general price of pears decreased in the first quarter of fiscal year
2009, which in turn significantly improved our gross margin in pear-related
products.
 
 The gross
profit margin of concentrated kiwifruit juice and kiwifruit puree increased by
91.1% to 51.8% for the first quarter of 2009, as compared to 27.1% for the same
period of fiscal year 2008. This increase was mainly due to the large decrease
in the general price of fresh kiwifruits during this squeezing season, which was
from September through December of 2008, as a result of abundant harvests of
kiwifruits.
 
 The gross
profit margin of fresh kiwifruits was 62.5% for the first quarter of 2009. We
did not sell any fresh kiwifruits in the same period of last fiscal
year.
 
 The gross
profit margin of our fruit beverages decreased by 42.4% for the first quarter of
2009 as compared to the same period of last fiscal year. The decrease in the
gross margin of fruit beverages was attributable to the decrease in the selling
price of fruit beverages. We lowered our selling price of fruit beverages during
the approximately 30 day Chinese Lunar New Year holiday season in the first
quarter as a promotion to boost sales. We did not conduct the same promotion in
the same quarter of last fiscal year.
 
 We began
sales of fruit vinegar in the first quarter of fiscal 2009 in the Chinese
market, which has a gross margin of 49.9%.  As we are one of the
pioneers in the fruit vinegar industry in the Chinese market, our new products
enjoy a higher gross margin as a result of little competition in the
market.
  -27-
 Table of Contents
  Operating
Expenses
 The following table
presents consolidated operating expenses as a percentage of net revenues for the
three months ended March 31, 2009 and 2008, respectively:
 Three Months Ended
                            March 31,2009
                          
                          
                          2008
                          
                          
                          %(Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          ChangeGeneral
      and administrative
                          
                          $
                          411,904
                          
                          
                          $
                          566,714
                          
                          
                          
                          (27.3
                          )%Selling
      expenses
                          
                          
                          273,588
                          
                          
                          
                          241,345
                          
                          
                          
                          13.4
                          %Research
      and development
                          
                          
                          275,510
                          
                          
                          
                          7,477
                          
                          
                          
                          3,584.8
                          %Total
      operating expenses
                          
                          $
                          961,002
                          
                          
                          $
                          815,536
                          
                          
                          
                          17.8
                          %As
      a percentage of revenueGeneral
      and administrative
                          
                          
                          6.2
                          %
                          
                          
                          6.4
                          %
                          
                          
                          (3.6
                          )%Selling
      expenses
                          
                          
                          4.1
                          %
                          
                          
                          2.7
                          %
                          
                          
                          50.4
                          %Research
      and development
                          
                          
                          4.1
                          %
                          
                          
                          0.1
                          %
                          
                          
                          4,788.6
                          %Total
      operating expenses
                          
                          
                          14.4
                          %
                          
                          
                          9.2
                          %
                          
                          
                          56.3
                          %
  Our
operating expenses consist of general and administrative, selling expenses and
research and development expenses. Operating expenses increased by 17.8% to
$961,002 for the first quarter ended March 31, 2009, from $815,536 for the
corresponding periods in fiscal 2008.
 
 General
and administrative expenses decreased by $154,810, or 27.3%, to $411,904 for the
first quarter ended March 31, 2009, from $566,714 for the same period of fiscal
2008. The decrease in general and administrative expenses was mainly due to a
decrease of $176,147 in such expenses in our subsidiary- Huludao Wonder, which
produces apple juice products, did not have any production in the first
quarter of 2009 due to decreased global demand, and as a result, there was a
significant decrease in its general and administrative expenses in the first
quarter of 2009.
 
 Selling
expenses increased by $32,243, or 13.4%, to $273,588 for the first quarter ended
March 31, 2009 from $241,345 for the same period of fiscal 2008. This was mainly
due to an increase in freight and transportation expenses as a result of the
increase in sales of fruit beverages. Most of the freight and transportation
expenses in the sales of fruit beverages are paid by the Company, not our
customers. As a result, when the selling volumes increase, the freight and
transportation expenses increase simultaneously.
 
 Research
and development expenses increased by $268,033 to $275,510 for the first quarter
ended March 31, 2009 from $7,477 for the same periods of fiscal 2008, as we
entered into two contracts with an outside research institute to research and
develop new products in fiscal year 2008.  These two contracts are
from June 2008 to December 2009 with a monthly payment of RMB 600,000, or
$87,800.
 
 Income
from Operations
 
 In the
first quarter of fiscal 2009, income from operations increased by $919,818, or
88.1%, to $1,963,900 from $1,044,082 for the first quarter of fiscal 2008. As a
percentage of net sales, income from operations was approximately 29.4% for the
first quarter of fiscal 2009, an increase of 17.6% as compared to 11.8% for the
same quarter of fiscal 2008. The increase in income from operations in the first
quarter of fiscal 2008 was primarily due to an increase in gross margins, which
was offset by an increase in operating expenses, as previously
discussed.
  -28-
 Table of Contents
  Interest
Expense
 
 Interest
expense was $226,396 for the first quarter ended March 31, 2009, an increase of
$167,368 as compared with the same period of fiscal 2008, primarily due to an
increase in term loan facilities that we entered into after March 31, 2008 to
support expansion plans and potential business opportunities. As of March 31,
2009, the balance of these short-term loans totaled RMB 76,800,000
($11,239,737 based on the exchange rate as of March 31, 2009), with interest
rates ranging from 5.58% to 9.83% per annum and maturity dates ranging from May
2009 to October 2009.
 
 Income
Tax
 
 Our
provision for income taxes was $493,870 for the first quarter ended March 31,
2009, compared to $130,520 for the corresponding period in 2008. The increase in
tax provision for the first quarter of fiscal 2009 was due to an increase in the
effective tax rate of Shaanxi Tianren. 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. Starting from 2009, Shaanxin Tianren is subject to the regular tax rate of
25% according to the new tax law in China, which was effective on January 1,
2008. In December 2007, the tax rate of Shaanxi Qiyiwangguo was reduced from 33%
to 25%, effective beginning January 2008. The tax rate of Huludao Wonder was
also reduced to 25%, effective beginning January 2008. As of result, the
Company’s income tax rate in the PRC is effectively 25%.
 
 We
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), on July 1, 2007 and had no material adjustment to
liabilities to unrecognized income tax benefits since its adoption.
 
 Noncontrolling
Interest
 
 As of
March 31, 2009, Shaanxi Tianren held a 91.15% interest in Shaanxi Qiyiwangguo,
and Pacific held a 99% percent interest in Shaanxi Tianren. Net income
attributable to noncontrolling interests was $99,274 for the first quarter ended
March 31, 2009, an increase of $51,439, compared to $47,835 for the same quarter
of 2008.  The increase in the net income attributable to
noncontrolling interests was mainly attributable to the increase in the net
income generated from Shaanxi Tianren.
 
 Net
Income
 
 Net
income was $1,239,436 for the quarter ended March 31, 2009, an increase of
$187,617, or 17.8%, compared to the same quarter of 2008. Such increase was
primarily due to an increase in gross margin, as previously
discussed.
  -29-
 Table of Contents
 
 Financial
Condition
  During
the three months ended March 31, 2009, total assets increased $992,546, or 1.7%,
from $59,287,331 at December 31, 2008 to $60,279,877 at March 31,
2009.  The majority of the increase was in cash and inventory, which
was mainly offset by a decrease in accounts receivable, property, plant and
equipment, and prepaid expenses and other assets.
 
 For the
three months ended March 31, 2009, cash and cash equivalents increased
$7,698,907, or 52.2%, to $23,243,078 as compared to $15,274,171 for the fiscal
year ended December 31, 2008.  The increase in cash was mainly due to
an increase in collection of accounts receivable and an increase of $187,617 in
net income in the three months ended March 31, 2009.
 
 At March
31, 2009, the accounts receivable balance decreased by $6,599,463 from the
balance at December 31, 2008 due primarily to the collection in the accounts
receivable balance of fiscal year 2008 and a decrease in sales in the first
quarter of fiscal 2009. The accounts receivable turnover was 114 days for the
three months ended March 31, 2009, compared with 85 days for fiscal year 2008.
The increase in the accounts receivable turnover was mainly due to a downturn in
collection of accounts receivable in Shaanxi Tianren. We usually experience a
slow accounts receivable turn over in the first quarter of the fiscal year due
to reduced sales when compared with the fourth quarter as a result of the
seasonality of our industry. Due to the seasonality of fresh fruit, a
substantial portion of our revenues are earned during the third and fourth
fiscal quarters. We generally experience the lowest revenue during our first and
second fiscal quarters.
 
 Our
inventory as of March 31, 2009 was $2,312,116, reflecting an increase of
$467,719, or 25.4%, compared to inventory at December 31, 2008. Inventory
consists of raw materials, packaging materials and finished products. The
increase in inventory was mainly due to reduced sales in the first quarter of
fiscal year 2009.
  Prepaid
expenses and other current assets at March 31, 2009 were $904,368, a decrease of
$182,708 from the balance at December 31, 2008. The decrease in prepaid expenses
was primarily due to a decrease in prepaid raw material of fresh fruits as a
result of the end of the squeezing season for most of our products.
 
 Property,
plant and equipment decreased by $473,617, from $18,503,549 at December 31, 2008
to $18,029,932 at March 31, 2009. Construction in progress was $1,900,520 at
March 31, 2009. Total capital expenditures were zero in the three months ended
March 31, 2009. The decrease in property, plant and equipment was mainly due to
an increase in accumulated depreciation expenses in the first quarter of fiscal
2009 in the ordinary course of business.
 
 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, $1,170,806 as of March 31, 2009.
This research and development center is expected to be completed by June 30,
2009. Our estimated future capital expenditure for this project is $1,024,455.
Once it is completed, it will allow our engineers to better conduct research and
development toward the goal of innovating our product line.
 
 In
addition, Shaanxi Qiyiwangguo began construction on an industrial waste water
processing facility and renovation of an employee building in the factory of
Zhouzhi County in Shaanxi Province in fiscal year
2008.
  -30-
 Table of Contents
 
 Shaanxi
Qiyiwangguo previously leased a waste-water processing facility at an annual fee
of approximately $14,371. 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
demands of Shaanxi Qiyiwangguo and will improve the use of recycled waste
water. We capitalized $679,300 as construction in progress as of March 31,
2009. 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 $110,994. The
newly built water processing facility in Shaanxi Qiyiwangguo 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.  In the fourth quarter of
fiscal 2008, Shaanxi Qiyiwangguo began renovation of an employee building.
We capitalized $11,131 as construction in progress as of March 31, 2009. This
project is expected to be completed by the second quarter of 2009. There will be
no future capital expenditures required for this project.
 
 Capitalized
interest expenses of $50,414 are 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.
 
 Depreciation
and amortization was $487,158 for the first quarter of 2009, compared with
$714,647 for the same quarter of prior year.  The decrease in
depreciation expenses was mainly because that some fixed assets in Shaanxi
Qiyiwangguo have been fully depreciated after the first quarter of
2008.
 
 Other
assets were $2,299,914 at March 31, 2009, representing a slight decrease of
$62,135, or 2.6%, from the balance at December 31, 2008.
 -31-
 Table of Contents
  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 $7,481,250 to $8,278,453 for the
first quarter ended March 31, 2009 from $797,203 in the same period of fiscal
2008.  The increase in net cash provided by operating activities was
primarily due to an increase of $187,617 in net income from $1,051,819 to
$1,239,436 during the first quarter ended March 31, 2009 as compared to the same
period of the prior year and an increase of $10,000,373 in cash inflow from
changes in accounts receivables and accrued liabilities. Primarily offsetting
the increase in cash provided by operating activities was a cash outflow from
change in inventories and tax payable of $3,119,588.
 
 We did
not have any cash flow from investing activities for the first quarter ended
March 31, 2009. Net cash used in investing activities was $1,913,203 for the
first quarter ended March 31, 2008, representing loans of $1,758,745 to Hede in
the first quarter of fiscal 2008, as we intended to acquire Huludao Wonder in
the second quarter of 2008 at that time., and capital expenditures of $154,458.
On June 10, 2008, when the Company completed the acquisition of Huludao Wonder,
the loans payable to Hede were offset by the purchase price of Huludao
Wonder.
  We did
not have any cash flow from financing activities for the first quarter ended
March 31, 2009. Net cash provided by financing activities was $4,295,331 for the
first quarter ended March 31, 2008, representing stock sales proceeds of
$3,216,667 received from certain accredited investors in a private placement
transaction on February 26, 2008, proceeds from new long-term bank loans of
$1,144,900 and repayments of related party loans of $66,236.
 
 As of
March 31, 2009, the balance of short-term loans totaled RMB 76,800,000 (U.S.
$11,239,737 based on the exchange rate on March 31, 2009), with an interest rate
ranging from 5.58% to 9.83% per annum. Of these loans, $5,239,357 are
collateralized by land and buildings. These loans are due from May 2009 to
October 2009.
  Under the
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 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 second 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 $45.7 million for
the next two years.
  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. The capital needed for our business in the next 12 months does not
include the acquisition of Yingkou or the expansion of our current production
capacity.
  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.
 -32-
 Table of Contents
 
 ITEM
3.   QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK
 
 Not
applicable.
 
 ITEM4.  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 March 31, 2009, 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 these disclosure controls and
procedures were effective at a reasonable level.
  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 U.S. GAAP.  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.
  During
the period covered by this report, there have been no changes in the Company’s
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect the Company’s internal control over
financial reporting.
  -33-
 Table of Contents
  PARTII - OTHER INFORMATION
 
 Item
1. Legal Proceedings
 
 Not
applicable.
 
 Item
2. UnregisteredSales of Equity Securities and Use of
Proceeds
 
 Not
applicable.
 
 Item
3. DefaultsUpon Senior Securities
 
 Not
applicable.
 
 Item
4.Submission of Matters to a Vote of Security
Holders
 
 Not
applicable.
 
 Item5. Other Information
 
 Not
applicable.
  Item6.     Exhibits
 
 EXHIBIT
      NUMBER
                
                DESCRIPTION31.1
                
                Certification pursuant to Exchange Act Rules
      13a-15(e) and -15(e), as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002;31.2
                
                Certification pursuant to Exchange Act Rules
      13a-15(e) and15d-15(e), as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002;32
                
                Certification pursuant to 18 U.S.C.
      1350.
 
 
 
  -34-
 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: May 15, 2009