UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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





For the
fiscal year ended December 31, 2008





OR





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





For the
Transition Period from ___ to ___





Commission
File Number 1-14523





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
      Number)16F,
      National Development Bank Tower,No.
      2, Gaoxin 1st.
      Road, Xi’an, PRC
            
            710075(Address
      of principal executive offices)
            
            (Zip
      Code)





Registrant's
Telephone Number:  011-86-29-88386415


Securities
registered pursuant to Section 12(b) of the Act: None


Securities
registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001
per share





Indicate
by check mark if the registrant is a well-known
seasoned issuer, as defined in rule 405 of the Securities
Act.£YesRNo





Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act.£YesRNo





Indicate by check markwhether 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.    R Yes £
No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   £







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





Large
      Accelerated Filer
              £
              
              Accelerated
      Filer
              £Non-Accelerated
      Filer
              £
              
              Smaller
      reporting company
              R(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act).  £Yes   RNo





The
aggregate market value of voting stock held by non-affiliates of the registrant,
based upon the closing price of $5.90 per share for shares of the registrant’s
Common Stock on June 30, 2008, the last business day of the registrant’s most
recently completed second fiscal quarter as reported by the OTC Bulletin Board,
was approximately $1.6 million. In calculating such aggregate market value,
shares of Common Stock held by each officer, director and holder of 5% or more
of the outstanding Common Stock (including outstanding shares with respect to
which a holder has the right to acquire beneficial ownership within 60 days)
were excluded because such persons may be deemed to be
affiliates.  This determination of affiliate status is not necessarily
a conclusive determination for other purposes.





The
number of shares of Common Stock outstanding as of March 25, 2009 was
22,271,786.






Documents
Incorporated by Reference




Part III
of this Form 10-K incorporates by reference information from Registrant’s Proxy
Statement for its 2008 Annual Meeting of Shareholders to be filed with the
Commission under Regulation 14A within 120 days of the end of the fiscal year
covered by this Form 10-K.





SKYPEOPLE
FRUIT JUICE, INC.





INDEX


PagePart I
                
                1Item 1
                Business
                
                2Item 1A
                Risk factors
                
                5Item 1B
                Unresolved staff comments
                
                21Item 2
                Properties
                
                21Item 3
                Legal proceedings
                
                22Item 4
                Submission of matters to a vote of security
      holders
                
                22Part II
                
                23Item 5
                Market for registrant’s common equity, related stockholder
      matters and issuer purchases of equity securities
                
                23Item 6
                Selected financial data
                
                24Item 7
                Management’s discussion and analysis of financial condition and
      results of operations
                
                25Item 7A
                Quantitative and qualitative disclosures about market
      risk
                
                41Item 8
                Financial statements and supplementary data
                
                41Item 9
                Changes in and disagreements with accountants on accounting and
      financial disclosure
                
                41Item 9A (T)
                Controls and procedures
                
                42Item 9B
                Other information
                
                43Part III
                
                45Item 10
                Directors, executive officers and corporate
      governance
                
                45Item 11
                Executive compensation
                
                45Item 12
                Security ownership of certain beneficial owners and
      management and related stockholder matters
                
                45Item 13
                Certain relationships and related transactions, and director
      independence
                
                45Item 14
                Principal accountant fees and services
                
                45Part IV
                
                4545Item 15
                Exhibits and financial statement schedulesSignatures
                
                
                49ExhibitsReport of independent registered public accounting
      firm
                
                F-1Consolidated Balance Sheets as of December 31, 2008 and
      2007
                
                F-2Consolidated Statements of Operations and Comprehensive
      Income for the Years Ended December 31, 2008
      and  2007
                
                F-3Consolidated Statements of Shareholders’ Equity for the
      Years Ended December 31, 2008 and  2007
                
                F-4Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2008 and 2007
                
                F-5Notes to Consolidated Financial
    Statements
                
                F-6


-i-
 Table of Contents


SKYPEOPLE
FRUIT JUICE, INC.





PART I





NOTE
CONCERNING FORWARD-LOOKING STATEMENTS








This
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (“Annual
Report”) of SkyPeople Fruit Juice, Inc. (“we,” “us,” “our” or “the Company”)
includes forward-looking statements that involve risks and uncertainties within
the meaning of the Private Securities Litigation Reform Act of 1995. Other than
statements of historical fact, all statements made in this Annual Report are
forward-looking, including, but not limited to (a) our projected sales,
profitability, and cash flows, (b) our growth strategies, (c) anticipated trends
in our industry, (d) our future financing plans and (e) our anticipated needs
for working capital. They are generally identifiable by use of the words "may,"
"will," "should," "anticipate," "estimate," "plans," “potential," "projects,"
"continuing," "ongoing," "expects," "management believes," "we believe," "we
intend" or the negative of these words or other variations on these words or
comparable terminology. Forward-looking statements involve risks and
uncertainties that are inherently difficult to predict, which could cause actual
outcomes and results to differ materially from our expectations, forecasts and
assumptions. The following important factors, in addition to those discussed
above, could affect our future results and could cause those results to differ
materially from those expressed in such forward-looking statements:





·
            fluctuations
      in the supply of raw material


·
            general
      economic conditions and conditions which affect the market for our
      products


·
            changes
      in U.S. and global financial and equity markets, including market
      disruptions and significant interest rate fluctuations, which may impede
      our access to, or increase the cost of, external financing for our
      operations and investments


·
            our
      success in implementing our business strategy or introducing new
      products


·
            our
      ability to attract and retain
customers


·
            changes
      in tastes and preferences for, or the consumption of, our
      products


·
            impact
      of competitive activities on our
business


·
            risks
      associated with conducting business internationally and especially in
      China, including currency fluctuations and devaluation, currency
      restrictions, local laws and restrictions and possible social, political
      and economic instability


·
            other
      economic, financial and regulatory factors beyond the Company’s
      control





Any
or all of our forward-looking statements in this report may turn out to be
inaccurate. They can be affected by inaccurate assumptions we might make or by
known or unknown risks or uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially as a
result of various factors, including, without limitation, the risks outlined
under “Item 1A. Risk Factors” in this Form 10-K.  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




ITEM1 – BUSINESS





Overview





We are
engaged in the business of production and sales of special concentrated fruit
juices, fast-frozen and freeze-dried fruits and vegetables and fruit juice
drinks through our indirect subsidiary, Shaanxi Tianren Organic Food Co., Ltd.
(“Shaanxi Tianren”), in the People’s Republic of China (“PRC”). We also are
conducting research and development relating to improvement of the quality of
our products as well as the development of new products.  Shaanxi
Tianren is 99% owned by Pacific Industry Holding Group Co., Ltd. (“Pacific”), a
Vanuatu corporation. Previously, we were a shell company with no significant
business operations. As a result of the consummation of a reverse merger
transaction, on February 26, 2008 we ceased to be a shell company and became an
indirect holding company for Shaanxi Tianren through Pacific. Pacific acquired a
99% ownership interest in Shaanxi Tianren in September 2007 through a
reorganization between entities under common control. Because Shaanxi Tianren’s
operations are the only significant operations of the Company and its
affiliates, the business and financial results of Pacific reflect those of
Shaanxi Tianren.





Below is
the Company’s corporate structure:








*Xi’an Qinmei Food Co., Ltd.,
an entity which is not affiliated with the Company, owns the other 8.85% of the
equity interest in Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd. (a
PRC corporation which was formerly called Xi’an Tianren Organic Co.
Ltd.)





We own
and operate three manufacturing facilities in China. To take advantage of
economies of scale and to enhance our production efficiency, each of our
manufacturing facilities has a focus on juice products centering around one
particular fruit according to the proximity of such manufacturing to the supply
center of that fruit. All concentrated juice products are manufactured using the
same type of production line with slight variations in processing methods. Since
June 2007, after we leased the production facilities of Huludao Wonder Fruit
Co., Ltd. (“Huludao Wonder”), we have been operating our pear juice products
business out of our Jingyang Branch Office of Shaanxi Tianren. 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 Agriculture Co., Ltd. (“Shaanxi Qiyiwangguo”), in
which we have held a 91.15% ownership interest since May 2006. -2-
 Table of Contents





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





Corporate
History




We were
initially incorporated in 1998 in Florida as Cyber Public Relations, Inc. for
the purpose of providing internet electronic commerce consulting services to
small and medium sized businesses. While we were operating under the name Cyber
Public Relations, Inc. we never had any material operations or
revenues.




Pursuant
to a Capital Stock Exchange Agreement between the stockholders of Environmental
Technologies, Inc., a Nevada corporation, and us, on January 21, 2004 the
Environmental Technologies stockholders transferred all of their shares of the
Environmental Technologies stock to us, Environmental Technologies, Inc. became
our wholly-owned subsidiary and we changed the Company’s name from “Cyber Public
Relations, Inc.” to “Entech Environmental Technologies, Inc.”




After our
acquisition of Environmental Technologies, we operated, through our wholly-owned
subsidiary, H.B. Covey, Inc., a business providing construction and maintenance
services to petroleum service stations in the southwestern part of the United
States of America and installation services for consumer home products in
Southern California.




During
July 2007, we entered into and consummated a Stock Sale and Purchase Agreement
pursuant to which we sold  H.B. Covey, Inc.





Principal
Products




Our
principal products include concentrated apple juice, concentrated pear juice,
concentrated kiwifruit puree, fruit juice drinks, fresh fruits and organic fresh
fruits.




There are
two general categories of fruit and vegetable juices available in the market.
One is fresh juice that is canned directly after filtering and
sterilization upon being squeezed out of fresh fruits or vegetables. The other
general category is juice drinks made out of concentrated fruit and vegetable
juices. Concentrated fruit and vegetable juices are produced through pressing,
filtering, sterilization and evaporation of fresh fruits or vegetables. They are
used as the base material or ingredient for products such as drinks, fruit jams
and fruit wines, etc. Concentrated juices are not drinkable. Instead, they are
used as a basic ingredient for manufacturing juice drinks and as an additive to
fruit wine and fruit jam, cosmetics and medicines.


-3-
 Table of Contents




Research
and Development




We
believe that through continuous investment in research and development, our
product quality is always among the leaders in the industry and our market share
continues to increase. Shaanxi Tianren has established a research and
development institution with 41 research and development personnel. Shaanxi
Tianren also from time to time retains external experts and research
institutions. Research and development costs increased by $418,817 to $449,695
in fiscal year 2008 when compared to $30,878 for fiscal 2007, as we entered 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 under which we are required to make  a monthly
payment of RMB 600,000 or $87,944.




Shaanxi
Tianren currently possesses know how or other intellectual property related to 5
special production technologies, including technologies relating to the
production of kiwifruit pulp, kiwifruit concentrated pulp, concentrated apple
juice, concentrated pear juice and concentrated mulberry juice. Shaanxi Tianren
has also developed new production processes for fruit juice products such as
kiwifruit juice, guava juice and strawberry juice. Our whole new pulp and juice
production technology and process consist of methods for membrane filtration,
resin decolonization, hair removal, seed removal and grinding pulp into juice.
The Flow-Through Capacitor (“FTC”) membrane reverse osmosis concentration and
composite biological enzymolysis technology is for clarification of pulp juice.
We believe that these are leading technologies for our industry.





Industry
and Principal Markets





Global
Market




The fruit
and vegetable juice processing industry is an emerging industry that came into
being at the end of the 19th century. Due to the natural and healthy quality of
fruit and vegetable juice drinks, in recent years the consumption of such
products has continued to grow and sales of pure fruit and vegetable juices and
fruit and vegetable juice drinks have increased rapidly.





As
reported in the Beverage Digest annual “Fact Book” for 2007, the non-alcoholic
single serve beverage business is $106 billion in size and grew 4.1% by volume
in 2006. Carbonated soft drinks (“CSD’s”) declined in volume in 2005 and 2006
for the first time in 20 years. Emerging as leaders within the beverage industry
are single serve non-carbonated brands in tea, coffee, fortified water, juice,
sports drinks, milk drinks and energy drinks (carbonated). This “new age”
beverage category grew 15% to $25.9 billion in 2006.





China
Market




China is
a country with a large population, but the consumption of fruit juice is
relatively very low, with annual per capita consumption of no more than 1
kilogram, which only accounts for 10% of total world consumption. If calculated
based on annual world consumption rates, China’s market capacity for fruit juice
beverages would be 9.1 million tons, indicating that there is a great
potential market for the marketing of fruit juice beverages in
China.




In China,
the output of fruit juice and drinks nationwide was approximately 8,600,000 tons
in 2006, an increase of 29.02% compared with that in 2005. From January to
November 2007, output was approximately 9,851,806 tons, an increase of 21.92%
compared with that of the first eleven months of 2006. From January to February
2008, output was approximately 1,685,673 tons, an increase of 9.54% compared
with that of the first two months of 2007. Approximately 98% of the output of
concentrated juices in China is exported to foreign countries, but only
approximately 69% of the Company’s concentrated fruit juices were exported
during the fiscal year ended December 31, 2008.


-4-
 Table of Contents





Shaanxi
Tianren is located in Shaanxi Province. In 2007, the production volume of
concentrated apple juice by companies located in Shaanxi Province was
640,000 tons, accounting for 61% of the total volume of concentrated apple juice
from all of the PRC. At present, the output value and export volume of
concentrated juice of Shaanxi Province all rank first among other provinces
and cities in China.





Marketing





Shaanxi
Tianren is certified and permitted to directly export its products. The
certificate is issued by the Commercial Department of China.  More than 69
percent of our concentrated juices are directly and indirectly exported. One
export channel is via distributors with good credit, and the other is the direct
sale to end-users. In its main export markets (the U.S., Europe and Middle
East), Shaanxi Tianren has stable distributors and end-users.




Sales of
fruit juice products are mainly made in Chinese markets. Most of the products
are sold through provincial level, city level and county level agents. The
Company also sells directly to hotels, supermarkets and similar outlets. Our
target markets for kiwifruit pulp, kiwifruit concentrated pulp and kiwifruit
concentrated juice are mainly in Europe, Southeast Asia, South Korea, Japan, the
Middle East, mainland China and Taiwan. Our target markets for concentrated
apple juice and pear juice are in North America (especially in the U.S.), Europe
and the Middle East.





Shaanxi
Tianren uses the following marketing methods: directly marketing with foreign
businesses via our sales department; attendance at various international farm
and sideline products sales exhibitions, at which we contact clients from abroad
to sell to them directly; and sales made through our trade
websites.




Competition





The
beverage industry is highly competitive. The principal areas of competition are
pricing, product quality, packaging, development of new products and flavors and
marketing campaigns. We believe that our advantages lie in our technology
relating to the production of concentrated fruit juice of small breeds,
including mulberry juice, kiwifruit juice and other types of juice with limited
raw material and output. We can produce concentrated apple juice with 4%--8%
acidity at relatively low cost. As all our factories are located near the
production area of the raw material of fresh fruits, we believe that our
transportation and storage costs are relatively lower than many of our
competitors. At the same time, we believe we are a leader in the production of
concentrated clear pear juice and can produce the highest quality products of
concentrated clear pear juice in China.





Our
ability to remain competitive will depend to a great extent upon our ongoing
performance in these areas.  We cannot assure that we will continue to
compete favorably or that we will be successful in the face of increasing
competition from new products introduced and technologies employed by our
existing competitors or new companies entering the market.




Raw
Materials and Other Supplies





Our raw
materials mainly consist of apples, pears and kiwifruits, which we procure in
the PRC market and the cost of which represents over 51% of our overall
production cost in fiscal year 2008. We source our pear and kiwifruit supplies
mainly from our home province, Shaanxi Province, which is known for its pear and
kiwifruit production. Our kiwifruit processing facilities are located in Zhouzhi
County, Shaanxi Province, where 70% of the country’s kiwifruits are grown. We
source our apple supply mainly from Liaoning Province, where our subsidiary,
Huludao Wonder is located. 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.


-5-
 Table of Contents




In
addition to the raw materials, we purchase various ingredients, packaging
materials and energy such as sweeteners, glass and plastic bottles, cans,
packing barrels, pectic enzyme, other packaging materials, electricity, natural
gas and motor fuel. We generally purchase our materials or supplies from
multiple suppliers. We are not dependent on any supplier or group of suppliers.
The Company does not have concentrations of business with vendors constituting
greater than 10% of the Company’s purchases in fiscal year 2008 and 2007. The
supply or cost of our materials could be adversely affected by various factors,
including price changes, economic conditions, weather conditions and
governmental controls.





Seasonality





Our
business experiences mild seasonal effects as sales of our products are
generally higher during the squeezing season from August through April of the
following year. Sales of our products during the months from March through July
generally tend to be lower due to a shortage of raw material of fresh fruits and
a lower level of production activity. As a result, our results of operations for
the third quarter and fourth quarter are generally stronger than those for our
first quarter and second quarter. However, we are trying to diversify our
products and prolong our squeezing season. There are also sales from inventory
during the non-squeezing season. In 2008, we started our squeezing season in
July with the early initiation of machine maintenance.





Government
Regulation





Our
products and services are subject to regulation by governmental agencies in the
PRC and Shaanxi Province. Business and company registrations, along with
the products, are certified on a regular basis and must be in compliance with
the laws and regulations of the PRC and provincial and local governments and
industry agencies, which are controlled and monitored through the issuance of
licenses. Our licenses include an operating license which enables us to sell
packaged food such as concentrated fruit and vegetable juice, fruit sugar, fruit
pectin, fast-frozen and freeze-dried fruits and vegetables, dehydrated fruits
and vegetables, fruit and vegetable juice drinks, fruit vinegar and organic
food. The registration No. is 610100400000601.





Intellectual
Property





The
Company possesses the patent for a device used to crush and remove fruit from
its peel (Patent No.: ZL200620078461.1), and a device for removing the filth on
fruit peel and fruit hair (Patent Number: ZL200620078460.7).  These
two patents have been granted by the State Intellectual Property Office of the
People’s Republic of China.





Shaanxi
Tianren registered the trademark of HEDETANG with the Trademark Bureau of
the State Administration for Industry and Commerce of China on Nov. 4, 2005. The
trademark expires on November 3, 2015 and can be extended upon expiration.
Shaanxi Tianren has authorized all its subsidiaries to use this registered
trademark for free on related products.





Employees




As of
December 31, 2008, Shaanxi Tianren had 357 full-time employees and 95 part-time
employees. Of that amount, 47 are in administration, 22 in finance, 41 in
research and development, 280 in production and 62 in marketing and
sales.





ITEM 1A─ RISK
FACTORS





Our
business and operations entail a variety of risks and uncertainties, including
those described below.


-6-
 Table of Contents




Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations and if we are not successful in addressing
risks and difficulties that we may likely encounter, our business may be
adversely affected.





Shaanxi
Tianren began its operations in 2001. Our limited operating history in the fruit
juice industry may not provide a meaningful basis on which to evaluate our
business. Although Shaanxi Tianren’s revenues have grown rapidly since its
inception, we cannot assure that we will maintain our profitability or that we
will not incur net losses in the future. We expect that our operating expenses
will increase as we expand. Any significant failure to realize anticipated
revenue growth could result in significant operating losses. We will continue to
encounter risks and difficulties frequently experienced by companies at a
similar stage of development, including potential failure to:





●           maintain
our proprietary technology;


●           expand
our product offerings and maintain the high quality of our
products;


●           manage
our expanding operations, including the integration of any future
acquisitions;


●           obtain
sufficient working capital to support our expansion and to fill customers’
orders in time;


●           maintain
adequate control of our expenses;


●           implement
our product development, marketing, sales, and acquisition strategies and adapt
and modify them as needed; ● anticipate
and adapt to changing conditions in the fruit juice industry markets in
which we operate as well as the impact of any changes in government regulation,
mergers and acquisitions involving our competitors, technological developments
and other significant competitive and market dynamics.




If we are
not successful in addressing any or all of these risks, our business may be
materially and adversely affected.




We
may encounter substantial competition in our business and failure to compete
effectively may adversely affect our ability to generate revenue.




We
believe that existing and new competitors will continue to improve their
products and to introduce new products with competitive price and performance
characteristics. We expect that we will be required to continue to invest in
product development and productivity improvements to compete effectively in our
markets. Our competitors could develop a more efficient product or undertake
more aggressive and costly marketing campaigns than ours, which may adversely
affect our marketing strategies and could have a material adverse effect on our
business, results of operations and financial condition.




Our major
competitors may be better able to successfully endure downturns in our industry.
In periods of reduced demand for our products, we can either choose to maintain
market share by reducing our selling prices to meet competition or maintain
selling prices, which would likely sacrifice market share. Sales and overall
profitability would be reduced in either case. In addition, we cannot
assure that additional competitors will not enter our existing markets, or
that we will be able to compete successfully against existing or new
competition.




Our
inability to fund capital expenditure requirements may adversely affect our
growth and profitability and we are restricted from issuing any preferred stock
or convertible debt in certain circumstances.




Our
continued growth is dependent upon our ability to raise capital from outside
sources. Our ability to obtain financing will depend upon a number of factors,
including:


-7-
 Table of Contents




●              our
financial condition and results of operations;


●              the
condition of the PRC economy and the environmental protection product industry
in the PRC; and


●              conditions
in relevant financial markets.





Under our
Series B Convertible Preferred Stock Purchase Agreement, dated February 25, 2008
with Barron Partners LLP and Eos Holdings, LLC (the “Stock Purchase Agreement”),
we may not issue any preferred stock or convertible debt for three years
following February 26, 2008, the closing date of the Stock Purchase Agreement,
for so long as such investors shall continue to beneficially own 20% of the
Series B Preferred Stock issued under the Stock Purchase Agreement.





If we are
unable to obtain financing, as needed, on a timely basis and on acceptable
terms, our financial position, competitive position, growth and profitability
may be adversely affected.




We may not be
able to effectively control and manage our growth and a failure to
do so could adversely affect our operations and financial
condition.




Our sales
revenues have increased from approximately $17,427,204 for the fiscal year ended
December 31, 2006 to approximately $29,361,941 for the fiscal year ended
December 31, 2007, to $41,648,605 for the fiscal year ended December 31, 2008.
If our business and markets continue to grow and develop, it will be necessary
for us to finance and manage expansion in an orderly fashion. In addition, we
may face challenges in managing expanding product offerings and in integrating
acquired businesses with our own. These eventualities will increase demands on
our existing management, workforce and facilities. Failure to satisfy these
kinds of increased demands could interrupt or adversely affect our operations
and cause production backlogs, longer product development time frames and
administrative inefficiencies.




We
depend on a concentration of customers, the loss of one or more of which could
materially adversely affect our operations and revenues.




Our
revenue is dependent, in large part, on significant orders from a limited number
of customers. Sales to our five largest customers accounted for approximately
34%, 29%,  and 57% of our net sales during the years ended December
31, 2008,2007 and 2006, respectively.. We believe that revenue derived from
current and future large customers will continue to represent a significant
portion of our total revenue. Our inability to continue to secure and maintain a
sufficient number of large customers would have a material adverse effect on our
business, operating results and financial condition. Moreover, our success will
depend in part upon our ability to obtain orders from new customers, as well as
the financial condition and success of our customers and general economic
conditions.




Any
significant fluctuation in the price of our raw materials may have a material
adverse effect on the manufacturing cost of our products.




The
prices of fresh fruits, our principal raw materials, are subject to market
conditions and generally we do not, and do not expect to, have long-term
contracts with our suppliers for those items. While these raw materials are
generally available and we have not experienced severe raw material shortages in
the past, in 2007 the prices of apples, kiwifruits and pears temporarily
significantly increased because of a poor climate, which caused a sharp decrease
in fruit output. We cannot assure that the necessary raw materials will continue
to be available to us at prices currently in effect or acceptable to us. The
prices for these raw materials have varied significantly and may vary
significantly in the future. Numerous factors, most of which are beyond our
control, influence prices of our raw material. These factors include general
economic conditions, geographic conditions, climate condition, transportation
delays and other uncertainties.


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We may
not be able to adjust our product prices, especially in the short-term, to
recover cost increases in these raw materials. Our future profitability may be
adversely affected to the extent we are unable to pass on higher raw material
costs to our customers.




There
are risks that the sales price of our products will change, which will affect
our profits.




According
to financial analysis of Shaanxi Tianren, the operating income of Shaanxi
Tianren is very sensitive to the sales price of concentrated fruit juice. If the
sales price of concentrated fruit juice changes, it will directly influence the
continuity and stability of our gains.




The
factors influencing the sales price of concentrated fruit juice include the
supply price of fresh fruit, supply and demand of our products in international
and domestic markets and competition in the fruit juice industry.




We
may engage in future acquisitions that could dilute the ownership interests of
our stockholders, cause us to incur debt and require us to assume contingent
liabilities.




As part
of our business strategy, we review acquisition and strategic investment
prospects that we believe would complement our current product offerings,
augment our market coverage or enhance our technological capabilities, or
otherwise offer growth opportunities. From time to time we review investments in
new businesses and we expect to make investments in, and to acquire, businesses,
products, or technologies in the future. In the event of any future
acquisitions, we could:




●       issue
equity securities which would dilute current stockholders’ percentage
ownership;


●       incur
substantial debt;


●       expend
significant cash.




These
actions could have a material adverse effect on our operating results or the
price of our Common Stock. Moreover, even if we do obtain benefits in the form
of increased sales and earnings, there may be a lag between the time when the
expenses associated with an acquisition are incurred and the time when we
recognize such benefits. Acquisitions and investment activities also entail
numerous risks, including:




●        difficulties in the
assimilation of acquired operations, technologies and/or products;


●        unanticipated
costs associated with the acquisition or investment transaction;


●        the
diversion of management’s attention from other business concerns;


●        adverse
effects on existing business relationships with suppliers and
customers;


●        risks
associated with entering markets in which we have no or limited prior
experience;


●        the
potential loss of key employees of acquired organizations;


●        accounting
issues that arise in connection with the acquisition or investment;


●       challenges
in retaining customers of acquired businesses; and


●       substantial charges for the amortization
of certain purchased intangible assets, deferred stock compensation


or similar items.





We cannot
ensure that we will be able to successfully integrate any businesses, products,
technologies, or personnel that we might acquire in the future, and our failure
to do so could have a material adverse effect on our business, operating results
and financial condition.


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We
may not be able to prevent others from unauthorized use of our patents, which
could harm our business and competitive position.




Our
success depends, in part, on our ability to protect our proprietary
technologies. We own two patents in the PRC covering our fruit process
technology. The process of seeking patent protection can be lengthy and
expensive and we cannot assure that our existing or future issued patents will
be sufficient to provide us with meaningful protection or commercial
advantages.





We also
cannot assure that our current or potential competitors do not have, and will
not obtain, patents that will prevent, limit or interfere with our ability to
make, use or sell our products in either the PRC or other
countries.




The
implementation and enforcement of PRC intellectual property laws historically
have not been vigorous or consistent, primarily because of ambiguities in the
PRC laws and a relative lack of developed enforcement mechanisms. Accordingly,
intellectual property rights and confidentiality protections in the PRC are not
as effective as in the United States and other countries. Policing the
unauthorized use of proprietary technology is difficult and expensive, and we
might need to resort to litigation to enforce or defend patents issued to us or
to determine the enforceability, scope and validity of our proprietary rights or
those of others. Such litigation will require significant expenditures of cash
and management efforts and could harm our business, financial condition and
results of operations. An adverse determination in any such litigation will
impair our intellectual property rights and may harm our business, competitive
position, business prospects and reputation.




We may need additional capital to
fund our future operations and, if it is not available when needed, we may need
to reduce our planned development and marketing efforts, which may reduce our
sales revenues.




We
believe that our existing working capital and cash available from operations
will enable us to meet our working capital requirements for at least the next 12
months. However, if cash from future operations is insufficient, or if cash is
used for acquisitions or other currently unanticipated uses, we may need
additional capital. The development and marketing of new products and the
expansion of distribution channels and associated support personnel requires a
significant commitment of resources. In addition, if the markets for our
products develop more slowly than anticipated, or if we fail to establish
significant market share and achieve sufficient net revenues, we may continue to
consume significant amounts of capital. As a result, we could be required to
raise additional capital. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, the issuance of such
securities could result in dilution of the shares held by existing stockholders.
If additional funds are raised through the issuance of debt securities, such
securities may provide the holders certain rights, preferences, and privileges
senior to those of common stockholders, and the terms of such debt could impose
restrictions on our operations. We cannot assure that additional capital, if
required, will be available on acceptable terms, or at all. If we are unable to
obtain sufficient amounts of additional capital, we may be required to reduce
the scope of our planned product development and marketing efforts, which could
harm our business, financial condition and operating results.





We
may not have adequate internal accounting controls. While we have certain
internal procedures in our budgeting, forecasting and in the management and
allocation of funds, our internal controls may not be adequate.


-10-
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We are
constantly striving to improve our internal accounting controls. We hope to
develop an adequate internal accounting control to budget, forecast, manage and
allocate our funds and account for them. There is no guarantee that such
improvements will be adequate or successful or that such improvements will be
carried out on a timely basis. The PRC historically has not adopted a Western
style of management and financial reporting concepts and practices, as in
modern banking, computer and other control systems. We may have difficulty
in hiring and retaining a sufficient number of qualified employees to work in
the PRC. As a result of these factors, we may experience difficulty in
establishing accounting and financial controls, collecting financial data,
budgeting, managing our funds and preparing financial statements, books of
account and corporate records and instituting business practices that meet
Western standards. Therefore, we may, in turn, experience difficulties in
implementing and maintaining adequate internal controls as will be required
under Section 404 of the Sarbanes Oxley Act of 2002 and complying with other
U.S. securities laws.





Our internal controls over financial
reporting may not be effective, and ourindependent auditors may not be able
to certify as to their effectiveness, which could have a significant and adverse
effect on our business.




Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting, and
attestation of this assessment by the Company’s independent registered public
accountants. The SEC extended the compliance dates for “non-accelerated filers,”
as defined by the SEC. During 2008 we changed our fiscal year end from September
30 to December 31 and in accordance with SEC rules, we filed a transition report
for the period from October 1, 2007 to December 31, 2007. The transition report
was on Form 10-Q and contained unaudited financial statements as permitted under
such rules. The annual assessment of our internal controls requirement applies
to this Annual Report on Form 10-K and the attestation requirement of
management’s assessment by our independent registered public accountants will
first apply to our Annual Report on Form 10-K for the fiscal year ending
December 31, 2009. The standards that must be met for management to assess the
internal control over financial reporting as effective are new and complex, and
require significant documentation, testing and possible remediation to meet the
detailed standards. Our lack of familiarity with Section 404 may unduly divert
management’s time and resources in executing the business plan. If, in the
future, management identifies one or more material weaknesses, or our external
auditors are unable to attest that our management’s report is fairly stated or
to express an opinion on the effectiveness of our internal controls, this could
result in a loss of investor confidence in our financial reports, have an
adverse effect on our stock price and/or subject us to sanctions or
investigation by regulatory authorities.





We
may have inadvertently violated Section 402 of the Sarbanes-Oxley Act of 2002
and Section 13(k) of the Exchange Act of 1934 as a result of advances we made to
a company controlled by our Chairman of the Board and Chief Executive Officer
and a director of one of our subsidiaries, as well as a distribution which one
of our subsidiaries erroneously paid to such persons; as a result, we may be
subject to civil and criminal sanctions which, if imposed, could have a material
adverse effect upon us.


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On
February 22, 2008 we consummated a Share Exchange Agreement pursuant to which we
acquired Pacific, a Vanuatu corporation which in turn owns 99% of the equity
interests in Shaanxi Tianren. At such time Shaanxi Hede Investment Management
Co., Ltd. (“Hede”), a PRC company of which Yongke Xue, the Chairman of the
Board, Chief Executive Officer and a director of the Company, and Xiaoqin Yan, a
director of the Company, own 80% and 20%, respectively, of the equity interests,
was indebted to Shaanxi Tianren on account of previous loans made by Shaanxi
Tianren to Hede, including advances aggregating RMB 31,544,043 (approximately
$4,318,381 based on the exchange rate as of December 31, 2007) made during the
period from June 6, 2007 to December 29, 2007 which were used by Hede to pay a
portion of the purchase price for Hede’s acquisition of Huludao Wonder (a
company which Shaanxi Tianren and Hede contemplated would be sold at Hede’s cost
to the Company after a one year holding period).  In January 2008, Shaanxi
Tianren paid rental expense of RMB 11,038 (approximately $1,618 based on the
exchange rate as of December 31, 2008) to the landlord of Hede’s office
space on behalf of Hede. In May 2008, Shaanxi Tianren assumed Hede’s
obligation of RMB 18,000,000 (approximately $2,638,329 based on the exchange
rate of December 31, 2008) for the balance of the purchase price for Huludao
Wonder.




On June
10, 2008 Hede sold Huludao Wonder to Shaanxi Tianren for a total price of RMB
48,250,000 (the same price which Hede paid for Huludao Wonder). As of May 31,
2008, Shaanxi Tianren had a related party receivable of RMB 48,929,272 from
Hede, which was credited against the purchase price (so that Shaanxi Tianren did
not pay any cash to Hede for the purchase) and the remaining balance of the
loans and advances of RMB 679,272 (approximately $99,564 based on the exchange
rate as of December 31, 2008) to Hede was repaid to the Company on June 11,
2008. No interest or other consideration was paid by Hede to the Company on
account of the time value of money with respect to the loans and advances made
by Shaanxi Tianren to Hede.




Notwithstanding
Hede’s repayment in full of loans made by Shaanxi Tianren to Hede, the existence
of indebtedness of Hede to Shaanxi Tianren at the time the Company acquired
Shaanxi Tianren and the continuation of such indebtedness thereafter until it
was fully repaid in June 2008 may constitute a violation of Section 13(k) of the
Exchange Act (Section 402(a) of the Sarbanes-Oxley Act of 2002). Section 13(k)
provides that it is unlawful for a company, such as the Company, which has a
class of securities registered under Section 12(g) of the Exchange Act, to
directly or indirectly, including through any subsidiary, extend or
maintain credit in the form of a personal loan to or for any director or
executive officer of the company.




In
addition, in May 2008 Pacific erroneously paid $5,007,850 to its former
shareholders, including Xiaoqing Yan and Yongke Xue, as the result of a dividend
declaration by Pacific in February 2008. Because the recipients of the money
were no longer shareholders of Pacific, the transaction has been treated for
accounting purposes as an interest free loan. In June 2008, the directors and
other related parties returned the monies they received, without interest.
Although the money has been repaid to the Company in full, the receipt by
Xiaoqing Yan and Yongke Xue of the erroneous dividend may also be deemed to
be a violation of Section 13(k) of the Exchange Act.




Issuers
violating Section 13(k) of the Exchange Act may be subject to civil sanctions,
including injunctive remedies and monetary penalties, as well as criminal
sanctions. The imposition of any of such sanctions on the Company may have a
material adverse effect on our financial position, results of operations or cash
flows.




The
Company has not concluded that either the advances made to Hede by Shaanxi
Tianren or the receipt of money by two of the Company’s directors as a result of
an erroneously paid dividend were personal loans within the meaning of Section
13(k) of the Exchange Act or that any violations of the Exchange Act have
occurred relating to such matters. The Company also has not received any notice
that the matters discussed herein are under investigation by any governmental
authority or that any proceeding relating to such matters has been initiated by
any person.


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Partially
in response to the matters set forth herein, in September 2008, our Board of
Directors adopted a policy regarding approval of related party transactions.
Under the policy, any related party transaction in which the aggregate amount
involved is expected to exceed $50,000 must be approved by the Audit Committee
and no director shall participate in any discussion or approval of a transaction
which would be considered to be a related party transaction in which such person
is interested.





The
release from escrow of Make Good Escrow Stock due to our failure to achieve
certain financial targets in 2008 or 2009 would dilute the equity interests of
existing stockholders.




Under our
Stock Purchase Agreement dated February 25, 2008 with Barron Partners LLP and
EOS Holdings, LLC (collectively, the “Investors”), if our consolidated pre-tax
income for the fiscal years ended December 31, 2007 and  December 31,
2008 was less than RMB 67,400,000 and RMB 84,924,000, respectively or our
consolidated pre-tax income for the fiscal year ending December 31, 2009 is less
than RMB 107,004,240, then, depending on the amount of the shortfall from such
targets, some or all of the 2,000,000 shares of our Series B Stock we have
placed in escrow (“Make Good Escrow Stock”) may be transferred to the Investors
who purchased Series B Stock from us in the financing transaction which closed
in February 2008. Our consolidated pre-tax income for the fiscal years ended
December 31, 2007 and December 31, 2008 were RMB 68,939,855 and RMB 91,227,389,
respectively  Therefore, there was no Make Good Escrow Stock delivered
to the Investors out of the escrow in respect of the fiscal years ended December
31, 2007 and December 31, 2008. If we also achieve our income target in 2009,
none of such shares shall be transferred to the Investors and such shares will
be cancelled. The transfer to Investors of some or all of the Make Good Escrow
Stock and the subsequent conversion of such shares into common stock would
increase the number of outstanding shares of our common stock and dilute the
equity interests of existing stockholders. Whether or not shares of Series B
Stock which are transferred to Investors are converted into Common Stock, the
transfer of some or all of Make Good Escrow Stock to the Investors could depress
the market price of our Common Stock.





We
do not have key man insurance on our Chairman and CEO, on whom we rely for the
management of our business; the loss of the services of our Chairman or CEO
could have a material adverse effect on our business.





We
depend, to a large extent, on the abilities and participation of our current
management team, but have a particular reliance upon Mr. Hongke Xue, Shaanxi
Tianren’s Chairman of the Board and CEO, and Mr. Yongke Xue, the Company’s
Chairman of the Board and CEO. The loss of the services of Mr. Hongke
Xue or Mr. Yongke Xue, for any reason, may have a material adverse effect
on our business and prospects. We cannot assure you that their services will
continue to be available to us, or that we will be able to find a suitable
replacement for either of them. We do not carry key man life insurance for any
key personnel.




We
may not be able to hire and retain qualified personnel to support our growth and
if we are unable to retain or hire such personnel in the future, our ability to
improve our products and implement our business objectives could be adversely
affected.




If one or
more of our senior executives or other key personnel are unable or unwilling to
continue in their present positions, we may not be able to replace them easily
or at all, and our business may be disrupted and our financial condition and
results of operations may be materially and adversely affected. Competition for
senior management and senior technology personnel is intense, the pool of
qualified candidates is very limited, and we may not be able to retain the
services of our senior executives or senior technology personnel, or attract and
retain high-quality senior executives or senior technology personnel in the
future. Such failure could materially and adversely affect our future growth and
financial condition.


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We
do not presently maintain product liability insurance, and our property and
equipment insurance does not cover the full value of our property and equipment,
which leaves us with exposure in the event of loss or damage to our properties
or claims filed against us.




We
currently do not carry any product liability or other similar insurance. Unlike
the United States and other countries, product liability claims and lawsuits are
extremely rare in the PRC. However, we cannot assure that we would not face
liability in the event of the failure of any of our products. We cannot assure
that, especially as the PRC’s domestic consumer economy and industrial economy
continues to expand, product liability exposures and litigation will
not become more commonplace in the PRC, or that we will not face product
liability exposure or actual liability as we expand our sales into international
markets, like the United States, where product liability claims are more
prevalent.





Our
concentrated fruit juices exported to foreign countries have to be incompliance
with foreign quality standards. The Company has obtained a number of globally
recognized quality certificates, including ISO9001 certification, HACCP (Hazard
Analysis and Critical Control Point) certification, kosher certification, and
Organic Food Quality System certification (OSA). In addition, our manufacturing
techniques and products comply with rigorous standards set forth by the FDA
(U.S. Food and Drug Administration), NFPA (U.S. National Food Processors
Association), KFL (U.S. Krueger Food Laboratories) and SGF (Market Control
System of Fruit Juice in Europe). Our success depends on our ability to maintain
the product quality of our existing products and new products. Product quality
issues, real or imagined, or allegations of product contamination, even if false
or unfounded, could tarnish the image of the affected brands and may cause
consumers to choose other products.  We may be required from time to time
to recall products entirely or from specific co-packers, markets or
batches.  Product recalls could adversely affect our profitability and our
brand image.  We do not maintain recall insurance.




While we
have to date not experienced any credible product liability litigation, there is
no assurance that we will not experience such litigation in the future.  In
the event we were to experience product liability claims or a product recall,
our financial condition and business operations could be materially adversely
affected.




We
may be adversely affected by changes in the international fruit juice market
because of our dependence on the international market.




In 2008,
over 69% of the Company’s concentrated fruit juice was exported directly or
indirectly. Because of our reliance on international markets, changes of foreign
politics, law, economy and demands in international markets will have a large
influence on the operation of Shaanxi Tianren.




Shaanxi
Tianren’s operating income is very sensitive to the sales price of concentrated
fruit juice. A change in international demands will directly influence the sales
price.




If there
is a large gap between the export price and the domestic price of concentrated
fruit juice and China exports on a large scale, anti-dumping actions might apply
to Chinese concentrated fruit juice. As the majority of concentrated fruit juice
of Shaanxi Tianren is for export, there is a potential risk for us to be
affected by any anti-dumping action.




Risks
Related to Doing Business in the PRC




We
face the risk that changes in the policies of the PRC government could have a
significant impact upon the business we may be able to conduct in the PRC and
the profitability of such business.


-14-
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The PRC’s
economy is in transition from a planned economy to a market oriented economy
subject to five-year and annual plans adopted by the government that set
national economic development goals. Policies of the PRC government can have
significant effects on economic conditions in China. The PRC government has
confirmed that economic development will follow the model of a market economy,
such as the United States. Under this direction, we believe that the PRC will
continue to strengthen its economic and trading relationships with foreign
countries and business development in the PRC will follow market forces. While
we believe that this trend will continue, we cannot assure you that this will be
the case. Our interests may be adversely affected by changes in policies by the
PRC government, including:




●           changes
in laws, regulations or their interpretation;


●           confiscatory
taxation;


●           restrictions
on currency conversion, imports or sources of supplies;


●           expropriation
or nationalization of private enterprises.




Although
the PRC government has been pursuing economic reform policies for more than two
decades, we cannot assure that the government will continue to pursue such
policies or that such policies may not be significantly altered, especially in
the event of a change in leadership, social or political disruption, or other
circumstances affecting the PRC’s political, economic and social
life.




The
PRC laws and regulations governing our current business operations are sometimes
vague and uncertain. Any changes in such PRC laws and regulations may harm our
business.




There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing our business, and the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy and criminal proceedings. We, and any future subsidiaries, are
considered foreign persons or foreign funded enterprises under PRC laws, and as
a result, we are required to comply with PRC laws and regulations. These
laws and regulations are sometimes vague and may be subject to future changes,
and their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness of newly enacted laws, regulations or amendments
may be delayed, resulting in detrimental reliance by foreign investors. New laws
and regulations that affect existing and proposed future businesses may also be
applied retroactively. We cannot predict what effect the interpretation of
existing or new PRC laws or regulations may have on our business.




Inflation in the
PRC could negatively affect our profitability and growth.




While the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth could lead to growth in the money supply and
rising inflation. If prices for our products rise at a rate that is insufficient
to compensate for the rise in the costs of supplies, it may harm our
profitability.




In order
to control inflation in the past, the PRC government has imposed controls on
bank credit, limits on loans for fixed assets and restrictions on state bank
lending. Such an austere policy can lead to a slowing of economic growth. In
October 2004, the People’s Bank of China, the PRC’s central bank, raised
interest rates for the first time in nearly a decade and indicated in a
statement that the measure was prompted by inflationary concerns in the Chinese
economy. Repeated raises in interest rates by the central bank would likely slow
economic activity in China which could, in turn, materially increase our costs
and also reduce demand for our products.


-15-
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Shaanxi
Tianren is subject to restrictions on paying dividends and making other payments
to us. We might be unable to pay dividends to investors.





We are a
holding company incorporated in the State of Florida and do not have any assets
or conduct any business operations other than our investments in our
subsidiaries and affiliates, Pacific and Shaanxi Tianren. As a result of our
holding company structure, we rely entirely on dividend payments from Shaanxi
Tianren, our subsidiary in China. PRC regulations currently permit payment of
dividends only out of accumulated profits, as determined in accordance with PRC
accounting standards and regulations. Our subsidiary in the PRC also is required
to set aside a portion of its after-tax profits according to PRC accounting
standards and regulations to fund certain reserve funds. The PRC government also
imposes controls on the conversion of RMB into foreign currencies and the
remittance of currencies out of the PRC. We may experience difficulties in
completing the administrative procedures necessary to obtain and remit foreign
currency. Furthermore, if Shaanxi Tianren incurs debt on its own in the future,
the instruments governing the debt may restrict its ability to pay dividends or
make other payments. If we or Pacific are unable to receive all of the revenues
from Shaanxi Tianren’s operations, we may be unable to pay dividends on our
Common Stock.





Governmental
control of currency conversion may affect the value of your
investments.




The PRC
government imposes controls on the convertibility of renminbi into foreign
currencies and, in certain cases, the remittance of currency out of the PRC.
Renminbi is currently not a freely convertible currency. Shortages in the
availability of foreign currency may restrict our ability to remit sufficient
foreign currency to pay dividends, or otherwise satisfy foreign currency
dominated obligations. Under existing PRC foreign exchange regulations, payments
of current accounting items, including profit distributions, interest payments
and expenditures from the transaction, can be made in foreign currencies without
prior approval from the PRC State Administration of Foreign Exchange by
complying with certain procedural requirements. However, approval from
appropriate governmental authorities is required where renminbi is to be
converted into foreign currency and remitted out of China to pay capital
expenses such as the repayment of bank loans denominated in foreign
currencies.




The PRC
government may also in the future restrict access to foreign currencies for
current account transactions. If the foreign exchange control system prevents us
from obtaining sufficient foreign currency to satisfy our currency demands, we
may not be able to pay certain of our expenses as they come due.




The
fluctuation of the renminbi may harm your investments.




The value
of the RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in the PRC’s political and economic
conditions. Any significant revaluation of the RMB may materially and adversely
affect our cash flows, revenues and financial condition. For example, to the
extent that we need to convert U.S. dollars we receive from an offering of our
securities into RMB for our operations, appreciation of the RMB against the U.S.
dollar would diminish the value of the proceeds of the offering and this could
harm our business, financial condition and results of operations. Conversely, if
we decide to convert our RMB into U.S. dollars for the purpose of making
payments for dividends on our Common Stock or for other business purposes and
the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of the
RMB we convert would be reduced. In addition, the depreciation of significant
U.S. dollar denominated assets could result in a charge to our income statement
and a reduction in the value of these assets.




On July
21, 2005, the PRC government changed its decade-old policy of pegging the value
of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy has resulted in significant appreciation of
the RMB against the U.S. dollar. There remains significant international
pressure on the PRC government to adopt an even more flexible currency policy,
which could result in a further and more significant appreciation of the RMB
against the U.S. dollar.


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PRC
regulations relating to the establishment of offshore special purpose companies
by PRC residents, if applied to us, may subject the PRC resident shareholders of
us or our parent company to personal liability and limit our ability to acquire
PRC companies or to inject capital into our PRC subsidiary, limit our PRC
subsidiary’s ability to distribute profits to us or otherwise materially
adversely affect us.





In
October 2005, the PRC State Administration of Foreign Exchange (“SAFE”) issued a
public notice, the Notice on Relevant Issues in the Foreign Exchange Control
over Financing and Return Investment Through Special Purpose Companies by
Residents Inside China (the “SAFE Notice”), which requires PRC residents,
including both legal persons and natural persons, to register with the competent
local SAFE branch before establishing or controlling any company outside of
China, referred to as an “offshore special purpose company,” for the purpose of
overseas equity financing involving onshore assets or equity interests held by
them. In addition, any PRC resident that is the shareholder of an offshore
special purpose company is required to amend its SAFE registration with the
local SAFE branch with respect to that offshore special purpose company in
connection with any increase or decrease of capital, transfer of shares, merger,
division, equity investment or creation of any security interest over any assets
located in China. Moreover, if the offshore special purpose company was
established and owned the onshore assets or equity interests before the
implementation date of the SAFE notice, a retroactive SAFE registration is
required to have been completed before March 31, 2006. If any PRC shareholder of
any offshore special purpose company fails to make the required SAFE
registration and amendment, the PRC subsidiaries of that offshore special
purpose company may be prohibited from distributing their profits and the
proceeds from any reduction in capital, share transfer or liquidation to the
offshore special purpose company. Moreover, failure to comply with the SAFE
registration and amendment requirements described above could result in
liability under PRC laws for evasion of applicable foreign exchange
restrictions. After the SAFE notice, an implementation rule on the SAFE notice
was issued on May 29, 2007 which provides for implementation guidance and
supplements the procedures as provided in the SAFE notice. For an offshore
special purpose company which was established and owned onshore assets or equity
interests before the implementation date of the SAFE notice, a retroactive SAFE
registration requirement is required.




Due to
lack of official interpretation, some of the terms and provisions of the SAFE
Notice and its implementation rules remain unclear, and the implementation of
the SAFE Notice by central SAFE and local SAFE branches has been inconsistent
since its adoption. Based on the advice of our PRC counsel, Global Law Offices,
located in Beijing, and after consultation with relevant SAFE officials, we
believe that the PRC resident shareholders of our parent company were required
to complete their respective SAFE registrations pursuant to the SAFE
Notice.




Moreover,
because of uncertainty over how the SAFE Notice will be interpreted and
implemented, and how or whether the SAFE Notice and implementation rules will
apply to us, we cannot predict how SAFE will affect our business operations or
future strategies. For example, our present and prospective PRC subsidiaries’
ability to conduct foreign exchange activities, such as the remittance of
dividends and foreign currency-denominated borrowings, may be subject to
compliance with the SAFE Notice by our or our parent company’s PRC resident
shareholders. In addition, such PRC residents may not always be able to complete
registration procedures required by the SAFE Notice. We also have little control
over either our present or prospective direct or indirect shareholders or the
outcome of such registration procedures. A failure by our or our parent
company’s PRC resident shareholders or future PRC resident shareholders to
comply with the SAFE Notice, if SAFE requires it, could subject us to fines
or legal sanctions, restrict our overseas or cross-border investment activities,
limit our subsidiary’s ability to make distributions or pay dividends or affect
our ownership structure, which could adversely affect our business and
prospects.




Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could adversely affect our operations.


-17-
 Table of Contents




A renewed
outbreak of SARS or another widespread public health problem in the PRC, where
all of our revenue is derived, could have an adverse effect on our operations.
Our operations may be impacted by a number of health-related factors, including
quarantines or closures of some of our offices that would adversely disrupt our
operations.




Any of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our operations.




Because
our principal assets are located outside of the United States, it may be
difficult for you to use the United States Federal securities laws to enforce
your rights against us and our officers and some directors in the United States
or to enforce judgments of United States courts against us or them in the
PRC.




All of
our present officers and directors (except directors Norman Ko, Robert B. Fields
and CFO and Corporate Secretary Spring Liu, who are residents of the United
States) reside outside of the United States. In addition, our operating
subsidiary, Shaanxi Tianren, is located in the PRC and substantially all of its
assets are located outside of the United States. It may therefore be difficult
for investors in the United States to enforce their legal rights based on the
civil liability provisions of the United States Federal securities laws against
us in the courts of either the United States or the PRC and, even if civil
judgments are obtained in courts of the United States, to enforce such judgments
in the PRC courts. Further, it is unclear if extradition treaties now in effect
between the United States and the PRC would permit effective enforcement against
us or our officers and directors of criminal penalties, under the United States
Federal securities laws or otherwise.





The relative lack of public company
experience of our management team may put us at a competitive
disadvantage.




Ourmanagement team lacks
public company experience, which could impair our ability to comply with legal
and regulatory requirements such as those imposed by the Sarbanes-Oxley Act of
2002. Aside from CFO Spring Liu, the individuals who now constitute our senior
management have never had responsibility for managing a publicly traded company.
Such responsibilities include complying with federal securities laws and making
required disclosures on a timely basis. Our senior management may not be able to
implement programs and policies in an effective and timely manner that
adequately respond to such increased legal, regulatory compliance and reporting
requirements. Our failure to comply with all applicable requirements could lead
to the imposition of fines and penalties and distract our management from
attending to the growth of our business.




Risks
Related to Our Common Stock.




Our
officers, directors and their relatives control us through their positions and
stock ownership and their interests may differ from other
stockholders.





Hongke
Xue, the brother of one of our directors and our CEO, Yongke Xue, is the voting
trustee for the benefit of Fancylight Limited. Fancylight Limited owns
17,604,938 shares of Common Stock, which carry 17,604,938 votes upon all matters
submitted for a vote of stockholders. As a result, our officers and directors
and their relatives may be able to control the outcome of stockholder votes on
various matters, including the election of directors and extraordinary corporate
transactions, including business combinations. The interests of our directors
and officers may differ from other stockholders. Furthermore, the current ratios
of ownership of our Common Stock reduce the public float and liquidity of our
Common Stock which can, in turn, affect the market price of our Common
Stock.




Our
current ownership structure may affect the market price of our Common
Stock.


-18-
 Table of Contents





Hongke
Xue, the brother of one of our directors and our CEO, Yongke Xue, is the voting
trustee for the benefit of Fancylight Limited. Fancylight Limited owns
17,604,938 shares of Common Stock, which is approximately 79% of our outstanding
Common Stock as of March 25, 2009. The substantial ownership of our Common Stock
by one stockholder reduces the public float and liquidity of our Common
Stock. The limited public float of our Common Stock may adversely affect the
market price of our Common Stock.





We
are not likely to pay cash dividends in the foreseeable future.




We
currently intend to retain any future earnings for use in the operation and
expansion of our business. We do not expect to pay any cash dividends in the
foreseeable future but will review this policy as circumstances dictate. Should
we decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends or
other payments from our operating subsidiary. In addition, our operating
subsidiary, Shaanxi Tianren, from time to time may be subject to restrictions on
its ability to make distributions to us, including restrictions on the
conversion of local currency into U.S. dollars or other hard currency and other
regulatory restrictions.





Our Common Stock is thinly traded, so
you may be unable to sell at or near asking prices or at all if you need to
sell your shares to
raise money or otherwise desire to liquidate your
shares.




Currently
our Common Stock is quoted in the OTC Bulletin Board market and the trading
volume we will develop may be limited by the fact that many major institutional
investment funds, including mutual funds, as well as individual investors follow
a policy of not investing in Bulletin Board stocks and certain major brokerage
firms restrict their brokers from recommending Bulletin Board stocks because
they are considered speculative, volatile and thinly traded. The OTC Bulletin
Board market is an inter-dealer market much less regulated than the major
exchanges and our Common Stock is subject to abuses, volatility and shorting.
Thus there is currently no broadly followed and established trading market for
our Common Stock. An established trading market may never develop or be
maintained. Active trading markets generally result in lower price volatility
and more efficient execution of buy and sell orders. Absence of an active
trading market reduces the liquidity of the shares traded
there.




The
trading volume of our Common Stock has been and may continue to be limited and
sporadic. As a result of such trading activity, the quoted price for our Common
Stock on the OTC Bulletin Board may not necessarily be a reliable indicator of
its fair market value. Further, if we cease to be quoted, holders would find it
more difficult to dispose of or to obtain accurate quotations as to the market
value of our Common Stock and as a result, the market value of our Common Stock
likely would decline.




Our
Common Stock is currently subject to the “penny stock” rules which require
delivery of a schedule explaining the penny stock market and the associated
risks before any sale.


-19-
 Table of Contents




Our
Common Stock is currently subject to regulations prescribed by the SEC relating
to “penny stocks.” The SEC has adopted regulations that generally define a penny
stock to be any equity security that has a market price (as defined in such
regulations) of less than $5.00 per share, subject to certain exceptions. These
regulations impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5,000,000 and
individuals with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 (individually) or $300,000 (jointly with their spouse)). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of these securities and have
received the purchaser’s prior written consent to the transaction. Additionally,
for any transaction, other than exempt transactions, involving a penny stock,
the rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer’s presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the “penny stock” rules may
restrict the ability of broker-dealers to sell the Common Stock and may affect
the ability of investors to sell their Common Stock in the secondary
market.





Our
Common Stock is illiquid and subject to price volatility unrelated to our
operations.




The
market price of our Common Stock could fluctuate substantially due to a variety
of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of other companies in the same industry,
trading volume in our Common Stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our Common Stock.





A
large number of shares is eligible for future sale and this may depress our
stock price.




Pursuant
to a Registration Statement on Form S-1 which was declared effective by the
Securities and Exchange Commission on February 5, 2009, we have registered for
resale by two stockholders an aggregate of 9,833,333 shares of our Common Stock
which may be issued upon conversion of shares of our Series B Convertible
Preferred Stock and upon exercise of warrants to purchase Common Stock which are
held by such stockholders. Accordingly such shares, upon issuance would be
freely tradable. In addition, sales of our Common Stock not held by our
affiliates may be currently made under Rule 144.  Sales of our Common
Stock, or a perception that such sales could occur, and the existence of
warrants to purchase shares of Common Stock at prices that may be below the then
current market price of the Common Stock, could adversely affect the market
price of our Common Stock and could impair our ability to raise capital through
the sale of our equity securities.





We
are authorized to issue “blank check” preferred stock, which, if issued without
stockholders approval, may adversely affect the rights of holders of our Common
Stock.


-20-
 Table of Contents


We are
authorized to issue 10,000,000 shares of preferred stock. Our Board of Directors
is authorized under our Articles of Incorporation to provide for the issuance of
shares of preferred stock by resolution, and by filing a certificate of
designations under Florida law, to fix the designation, powers, preferences
and rights of the shares of each such series of preferred stock and the
qualifications, limitations or restrictions thereof without any further vote or
action by the stockholders. Accordingly, our Board of Directors has designated
7,000,000 shares of Series B Convertible Preferred Stock (of which 5,448,480
shares of Series B Preferred Convertible Stock are issued or outstanding,
including 2,000,000 shares of Series B Preferred Convertible Stock that are in
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.). Any shares of preferred stock
that are issued are likely to have priority over our Common Stock with respect
to dividend or liquidation rights. In the event of issuance, the preferred stock
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control, which could have the effect of
discouraging bids for the Company and thereby prevent stockholders from
receiving the maximum value for their shares. We have no present intention to
issue any shares of our preferred stock in order to discourage or delay a change
of control or for any other reason. However, there can be no assurance that
preferred stock will not be issued at some time in the future.




We are responsible for the indemnification of our officers and
directors.




Our
Bylaws provide for the indemnification of our directors, officers, employees,
and agents, under certain circumstances, against costs and expenses incurred by
them in any litigation to which they become a party arising from their
association with or activities on our behalf. Consequently, we may be required
to expend substantial funds to satisfy these indemnity obligations.




ITEM 1B–UNRESOLVED STAFF
COMMENTS





Not
applicable.





ITEM
2 – PROPERTIES





Our
principal executive offices are located at
16F, National Development Bank Tower, No.2 Gaoxin 1st Road,
Hi-Tech Industrial Zone, Xi’an, Shaanxi Province, PRC 710065, and our
telephone number is 011-86-29-88386415. The area of our office is approximately
1,400 square meters. We lease such offices from Zhonghai Trust Co., Ltd. under a
lease dated June 23, 2008, for a one-year term commencing July 1, 2008 at a
total annual rental of RMB 674,000, or approximately $96,858, based on the
exchange rate as of December 31, 2009. 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 Annual Report on Form 10-K.





We also
own three factories through our subsidiaries. One is a factory located at
Sanqu Town, Jingyang County, Xianyang City, Shaanxi Province. The
factory occupies an aggregate of approximately 34,476 square meters of land and
contains a manufacturing facility. Another factory is located at
Siqun Village, Mazhao Town, Zhouzhi County, Xi’an City, Shaanxi
Province. That factory occupies an aggregate of approximately 57,935 square
meters of land and contains a manufacturing facility. The third factory is
located at Hujia Village, Gaotai Town, Suizhong County, Huludao,
Liaoning Province.  The factory occupies an aggregate of approximately
86,325 square meters of land, factory buildings and machinery.




There is
no private ownership of land in China. All land ownership is held by the
government of the PRC, its agencies and collectives. Land use rights can be
transferred upon approval by the land administrative authorities of the PRC
(State Land Administration Bureau) upon payment of the required land transfer
fee. We own the land use rights for the 34,476 square meters of land at
Sanqu Town, which have a term of 49 years from 2007, 57,935 square meters
of land at Siqun Village, which have a term of 41 years from 2007, and the
86,325 square meters of land at Suizhong County, which have a term of 50 years
from 2004.


-21-
 Table of Contents




We
believe that our current office is adequate to meet our needs, and that
additional facilities will be available for lease, if necessary, to meet our
future needs.





ITEM3 – LEGAL PROCEEDINGS





From time
to time we are a party to various litigation proceedings arising in the ordinary
course of our business, none of which, in the opinion of management, is likely
to have a material adverse effect on our financial condition or results of
operations.





ITEM
4– SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.


-22-
 Table of Contents


PARTII





ITEM5–MARKET FOR
      REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES





Our
Common Stock is traded on the OTC Bulletin Board (ticker symbol SPFJ.OB) The
following table sets forth, for the periods indicated, the range of high and low
sales prices of our Common Stock as quoted by the OTC Bulletin
Board:





Quarter
      Ended
                                  
                                  High
                                  
                                  
                                  LowFiscal
      2007March
      31, 2007
                                  
                                  $
                                  13.15
                                  
                                  
                                  $
                                  3.29June
      30, 2007
                                  
                                  $
                                  19.72
                                  
                                  
                                  $
                                  3.29September
      30, 2007
                                  
                                  $
                                  23.01
                                  
                                  
                                  $
                                  9.86December
      31, 2007
                                  
                                  $
                                  9.86
                                  
                                  
                                  $
                                  8.22Fiscal
      2008March
      31, 2008
                                  
                                  $
                                  9.86
                                  
                                  
                                  $
                                  2.47June
      30, 2008
                                  
                                  $
                                  6.58
                                  
                                  
                                  $
                                  3.29September
      30, 2008
                                  
                                  $
                                  5.90
                                  
                                  
                                  $
                                  2.65December
      31, 2008
                                  
                                  $
                                  3.25
                                  
                                  
                                  $
                                  2.25
  Stockholders





As of December 31, 2008, there were22,271,786
shares of our Common Stock issued and outstanding,
and the Company had approximately 87 record holders of Common
Stock.





Dividend
Policy





We have
not declared or paid any cash dividends on our Common Stock during our last two
fiscal years. On February 4, 2008, before the reverse merger transaction, the
Board of Directors of Shaanxi Qiyiwangguo declared a cash dividend of $2,953,665
to its former shareholders. Since Shaanxi Tianren holds a 91.15% interest in
Shaanxi Qiyiwangguo, $2,692,266 was payable to Shaanxi Tianren and $261,399
was payable to its minority interest holders. On the same date, the Board of
Directors of Shaanxi Tianren declared a cash dividend of $5,058,434 to its
shareholders. Since Pacific holds a 99% interest in Shaanxi Tianren, $5,007,850
was payable to Pacific and $50,584 was payable to its minority interest holders.
The inter-company dividend was eliminated in the consolidated statement. The
dividend payable to minority interest holders was $311,983.




The
payment of dividends is at the discretion of the Board of Directors and is
contingent on the Company’s revenues and earnings, capital requirements,
financial condition and the ability of our operating subsidiary, Shaanxi
Tianren, to obtain approval to send monies out of the PRC. We currently
intend to retain all earnings, if any, for use in business operations.
Accordingly, we do not anticipate declaring any dividends in the near
future.


-23-
 Table of Contents




The PRC’s
national currency, the yuan, is not a freely convertible currency. Please refer
to the risk factors “Governmental control of currency conversion may affect the
value of your investment,” “The fluctuation of the renminbi may harm your
investment” and “PRC regulations relating to the establishment of offshore
special purpose companies by PRC residents, if applied to us, may subject the
PRC resident shareholders of us or our parent company to personal liability and
limit our ability to acquire PRC companies or to inject capital into our PRC
subsidiary, limit our PRC subsidiary’s ability to distribute profits to us or
otherwise materially adversely affect us.”





ITEM6 – SELECTED FINANCIAL DATA





December
      31,
                        
                        
                        December
      31,
                        
                        
                        
                        December
      31,
                        
                        
                        
                        December
      31,2008
                        
                        
                        2007
                        
                        
                        
                        2006
                        
                        
                        
                        2005Net
      Sales
                        
                        $
                        41,648,605
                        
                        
                        $
                        29,361,941
                        
                        (2)
                        
                        $
                        17,427,204
                        
                        (1)
                        
                        $
                        7,027,889Income
      from Operations
                        
                        
                        13,053,000
                        
                        
                        
                        9,018,440
                        
                        
                        
                        
                        6,251,907
                        
                        
                        
                        
                        1,619,163Net
      Income
                        
                        
                        10,010,302
                        
                        
                        
                        7,596,403
                        
                        
                        
                        
                        3,845,270
                        
                        
                        
                        
                        1,035,384Basic
      Earnings per Share:
                        
                        
                        0.37
                        
                        
                        
                        0.35
                        
                        
                        
                        
                        0.17
                        
                        
                        
                        
                        0.05Diluted
      Earnings per Share :
                        
                        
                        0.37
                        
                        
                        
                        0.35
                        
                        
                        
                        
                        0.17
                        
                        
                        
                        
                        0.05Weighted
      Average CommonStocks
      OutstandingBasic
                        
                        
                        22,230,334
                        
                        
                        
                        22,006,173
                        
                        
                        
                        
                        22,006,173
                        
                        
                        
                        
                        22,006,173Diluted
                        
                        
                        26,831,961
                        
                        
                        
                        22,006,173
                        
                        
                        
                        
                        22,006,173
                        
                        
                        
                        
                        22,006,173Consolidated
      Balance SheetsCurrent
      Assets
                        
                        $
                        30,113,544
                        
                        
                        $
                        17,865,439
                        
                        
                        
                        $
                        8,248,890
                        
                        
                        
                        $
                        2,138,090Current
      Liabilities
                        
                        
                        16,681,046
                        
                        
                        
                        12,747,223
                        
                        
                        
                        
                        4,409,004
                        
                        
                        
                        
                        4,634,979Working
      Capital
                        
                        
                        13,432,498
                        
                        
                        
                        5,118,216
                        
                        
                        
                        
                        3,839,886
                        
                        
                        
                        
                        (2,496,889
                        )Total
      Assets
                        
                        
                        59,287,331
                        
                        
                        
                        42,119,955
                        
                        
                        
                        
                        21,422,048
                        
                        
                        
                        
                        10,423,129Long-term
      Debt andCapital
      Leases
                        
                        
                        -
                        
                        
                        
                        2,053,501
                        
                        
                        
                        
                        -
                        
                        
                        
                        
                        -Stockholders'
      Equity
                        
                        $
                        41,059,966
                        
                        
                        $
                        26,245,867
                        
                        
                        
                        $
                        16,300,181
                        
                        
                        
                        $
                        5,777,652





(1)
            The
      net sales included the sales from the business acquired in Shaanxi
      Qiyiwangguo


(2)
            The
      net sales included the sales from the business acquired in Huludao
      Wonder. -24-
 Table of Contents




ITEM7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS





The
following discussion and analysis should be read in conjunction with our
disclaimer on “Forward-Looking Statements,”  “Item 1. Business,” “Item
1A. Risk Factors,” “Item 6. Selected Financial Data” and Consolidated Financial
Statements, the notes to those statements and other financial information
contained elsewhere in this Annual Report on Form 10-K.




Overview





We are
engaged in the business of research and development, production and sales of
special concentrated fruit juices, fast-frozen and freeze-dried fruits and
vegetables and fruit juice drinks through our indirect subsidiary, Shaanxi
Tianren, in the PRC. Shaanxi Tianren is 99% owned by Pacific. Previously, we
were a shell company with no significant business operations. As a result of the
consummation of a reverse merger transaction, on February 26, 2008 we ceased to
be a shell company and became an indirect holding company for Shaanxi Tianren
through Pacific. Pacific acquired a 99% ownership interest in Shaanxi Tianren in
September 2007 through a reorganization between entities under common control.
Because Shaanxi Tianren’s operations are the only significant operations of the
Company and its affiliates, the business and financial results of Pacific
reflect those of Shaanxi Tianren. As a result, this discussion and analysis
focuses on the business results of Shaanxi Tianren comparing its results in the
fiscal year ended December 31, 2008 with its results in the corresponding period
of 2007.





Below is
the Company’s corporate structure:









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


-25-
 Table of Contents


There are
two general categories of fruit and vegetable juices available in the market.
One is fresh juice that is canned directly after filtering and
sterilization upon being squeezed out of fresh fruits or vegetables. The other
general category is juice drinks made out of concentrated fruit and vegetable
juice. Concentrated fruit and vegetable juices are produced through pressing,
filtering, sterilization and evaporation of fresh fruits or vegetables. They are
used as the base material or ingredient for products such as drinks, fruit jam
and fruit wine, etc. Concentrated juices are not drinkable. Instead, they are
used as a basic ingredient for manufacturing juice drinks and as an additive to
fruit wine and fruit jam, cosmetics and medicines.





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





Our main
products include concentrated apple juice, concentrated pear juice, concentrated
kiwifruit puree, fruit juice drinks, fresh fruits and organic fresh fruits. Our
raw materials mainly consist of apples, pears and kiwifruits, which we procure
in the PRC market and the cost of which represents over 51% of our overall
production cost in fiscal year 2008. We source our pear and kiwifruit supplies
mainly from our home province, Shaanxi Province, which is known for its pear and
kiwifruit production. Our kiwifruit processing facilities are located in Zhouzhi
County, Shaanxi Province, where 70% of the country’s kiwifruits are grown. We
source our apple supply mainly from Liaoning Province, where our subsidiary,
Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”) is located. The Company is
committed to continual research and development in new products and
technologies. In June 2008, Shaanxi Tianren began the production of concentrated
peach juice in its Jingyang Branch Office.  It uses low-temperature
pulp breaking technology and low-temperature concentration technology to produce
concentrated white peach pulp, optimizing the production parameters. The
production of peach juice helped the diversification of our products and
prolonged the squeeze season.  Because of the seasonal nature in the
growing and harvesting of fruits and vegetables, our business is seasonal and
can be greatly affected by weather. In the squeezing season of 2007, the main
production areas of apples and pears in China suffered from poor weather, which
caused a lower yield in the apple and pear crops. As a result, our cost of raw
materials was higher in 2007.





To take
advantage of economies of scale and to enhance our production efficiency, each
of our manufacturing facilities has a focus on juice products centering around
one particular fruit according to the proximity of such manufacturing to the
supply center of that fruit. All concentrated juice products are manufactured
using the same type of production line with slight variations in processing
methods. Since June 2007, after we leased the production facilities of Huludao
Wonder, we have been operating our pear juice products business out of our
Jingyang Branch Office. Our business involving apple juice products is operated
out of the facilities of Huludao Wonder, and our business involving kiwifruit
products is run out of Shaanxi Qiyiwangguo Modern Organic Agriculture 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 Shaanxi Hede
Investment Management Co., Ltd. (“Hede”), pursuant to which Shaanxi Tianren, for
a term of one year and for a monthly lease payment of RMB 300,000, leased all
the assets and operating facilities of Huludao Wonder, which was wholly-owned by
Shaanxi Hede. On June 10, 2008, we completed the acquisition of Huludao Wonder
for a total purchase price of RMB 48,250,000, or approximately U.S. $6,308,591
based on the exchange rate on June 1, 2007. The payment was made through the
offset of related party receivables.


-26-
 Table of Contents


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





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





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
U.S., Europe, Russia, and the Middle East.





Fiscal
2008 Highlights





·
            Total
      revenue increased by $12,286,664, or 41.8%, from $29,361,941 for fiscal
      2007 to $41,648,605.


·
            Income
      from operations increased by $4,034,560 to $13,053,000, compared to
      $9,018,440 for fiscal 2007.


·
            Gross
      profit margins increased by 16.7% to 43.3% for fiscal 2008, compared with
      gross profit margins of 37.1% for fiscal year
  2007.


·
            General
      and administrative expenses as a percentage of revenue increased by 60.2%
      from 3.9% of revenue for fiscal year 2007 to 6.3% of revenue for fiscal
      year 2008.


·
            Selling
      expenses as a percentage of revenue increased by 38.8%, from 2.3% of
      revenue for fiscal year 2007 to 3.2% of revenue for fiscal year
      2008.


·
            Research
      and development expenses as a percentage of revenue increased by 854.9%,
      from 0.1% of revenue for fiscal year 2007 to 1.0% of revenue for fiscal
      year 2008.


·
            Net
      income increased by $2,413,899, or 31.8%, from $7,596,403 for fiscal 2007
      to $10,010,302.


●
            Total
      assets increased 27.2% to $59,287,331 as compared to $46,610,128 in fiscal
      2007.


·
            Total
      liabilities increased 12.7% to $16,681,046 as compared to $14,800,724 in
      fiscal 2007.


·
            Working
      capital increased 162.4% to $13,432,498 as compared to $5,118,216 in
      fiscal 2007.


·
            Shareholders’
      equity increased 56.4% to $41,059,966 as compared to $26,245,867 in fiscal
      2007.


·
            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 a share exchange transaction and
      raised $3,400,000 gross proceeds from certain accredited investors in a
      private placement transaction. As a result of the consummation of these
      transactions, Pacific is now a wholly-owned subsidiary of the Company.
      Pacific acquired a 99% ownership interest in Shaanxi Tianren in September
      2007. Because Shaanxi Tianren’s operations are the only significant
      operations of the Company and its affiliates, the business and financial
      results of Pacific reflect those of Shaanxi
  Tianren.


·
            In
      April 2008, we increased the size of our Board of Directors to five, a
      majority of whom are independent directors. On April 25, 2008, we
      established an Audit Committee and Compensation Committee of our Board of
      Directors.


·
            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.


·
            On
      June 10, 2008, we completed the acquisition of Huludao
      Wonder.


-27-
 Table of Contents





·
            On
      June 1, 2008, Shaanxi Tianren entered into a memorandum agreement with
      Xi’an Dehao Investment Consultation Co. Ltd. (“Dehao”). Under the terms of
      the agreement, Dehao agreed to transfer 100% of the ownership interest of
      Yingkou Trusty Fruits Co., Ltd. (“Yingkou”) to Shaanxi Tianren. Shaanxi
      Tianren made a refundable down payment of RMB 15,000,000, or approximately
      $2,198,608 based on the exchange rate of December 31, 2008, to Dehao as a
      deposit for the purchase in August 2008. As of March 23, 2009 we were
      still in the process of negotiating certain of  the terms of the
      acquisition with Dehao and also were seeking a  third party
      market value evaluation of Yingkou. We hope to complete the acquisition by
      the end of  the second quarter of fiscal
  2009.


·
            We
      began the production of concentrated peach juice in at our Jingyang
      production base in June 2008. We launched large-scale production of
      concentrated mulberry juice at our Jingyang production base in September
      2008.





The
highlights above are intended to identify some of our more significant events
and transactions during our fiscal year 2008, and recent events that occurred
after the fiscal year end. However, these highlights are not intended to be a
full discussion of our results for the year.  These highlights should
be read in conjunction with the following discussion of “Results of Operations”
and “Liquidity and Capital Resources” and with our consolidated financial
statements and footnotes accompanying this Annual Report.





Subsequent
Events





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 which we sold to two
Investors pursuant to a Stock Purchase Agreement on February 26, 2008 was
declared effective by the Securities and Exchange Commission (the “SEC”) on
February 5, 2009.  We recorded liquidated damages 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.





General
Financial Information





During
fiscal year 2008, total assets increased by $17,167,376 from $42,119,955 at
December 31, 2007 to $59,287,331 at December 31, 2008. The majority of the
increase was in cash and equivalents, accounts receivable, prepaid expenses and
other current assets, property, plant and equipment and other
assets.





Cash and
cash equivalents reached $15,274,171 as of December 31, 2008, an increase of
273.1% from $4,094,238 as of December 31, 2007. The increase in cash and cash
equivalents was mainly due to net gross proceeds of $3,115,072 received from
certain accredited investors in a private placement transaction on February 26,
2008 and an increase of $15,418,864 in net revenue generated in fiscal year
2008.





Accounts
receivable at December 31, 2008 were $11,610,506, an increase of $2,456,819, or
26.8%, compared to $9,153,687 at December 31, 2007. The increase was
attributable mainly to an increase in sales in fiscal 2008. The turnover of
accounts receivable was 85 days for fiscal 2008, a decrease of 3 days, compared
to 88 days for fiscal 2007. The decrease in the accounts receivable turnover was
due primarily to improvement in collections in Shaanxi Tianren.


-28-
 Table of Contents




Inventory
at December 31, 2008 was $1,844,397, a decrease of $2,615,752, or 58.6%,
compared to $4,460,419 at December 31, 2007.  Our inventory as of
December 31, 2007 consisted largely of concentrated apple juice produced by
Huludao Wonder. We started operating Huludao Wonder in June 2007 pursuant to a
lease and management arrangement with Hede. However, Huludao Wonder did not book
any sales until November 2007 due to the delay in obtaining an export permit. As
such, we accrued a large amount of inventory in fiscal year 2007. In addition,
we reduced the inventory of apple related products in fiscal year 2008, which
have a low gross margin due to the decrease in price in the international
market.





Prepaid
expenses and other current assets at December 31, 2008 were $1,087,076, an
increase of $985,448 from that balance at December 31, 2007, due primarily to an
increase of $580,314 in prepaid raw material of fresh apples. In the squeezing
season of apple in 2008, we saw a decrease in the price of fresh apples due to
an abundant harvest of apple and the influence of the decrease in the sales
price of apple related products in the international market of 2008. To ensure
that we have enough fresh apples at the current low price during the squeezing
season for our production needs, we prepaid certain percentage of the estimated
purchase amount to suppliers in the apple squeezing season.





Property,
plant and equipment increased by $2,842,820 from $17,564,147 at December 31,
2007 to $20,406,967 at December 31, 2008. The increase in property, plant and
equipment was mainly due to an addition of $1,426,944 in buildings and
$1,903,418 in construction in progress. In 2008, we built a new factory facility
of $193,324 in Shaanxi Qiyiwangguo for the expansion of kiwifruit production
capacity. In Shaanxi Tianren, we completed a technology innovation and expansion
project of $860,274 over its original industrial waste water processing facility
located in the factory of Jingyang County in Shaanxi Province. The expanded
industrial waste water processing facility will enable the Company to increase
its production capacity in the future and will be in compliance with local
environmental laws. We also made a leasehold improvement of $373,346 in the
newly leased office in Shaanxi Tianren. Construction in progress was $1,903,418
at December 31, 2008. Total capital expenditures were approximately $2,924,217
in fiscal year 2008.





During
2008, Shaanxi Tianren commenced construction on the expansion of its research
and development center. This project covers an area of 2,000 square meters and
will encompass additional space required for research and development
laboratories. The expansion is currently in progress on the existing site of the
factory in Jingyang County, Shaanxi Province. Related to this project, we have
capitalized, as construction in progress, $1,211,933 in the fiscal year
2008. This research and development center is expected to be completed by
June 30, 2009. Our estimated future input for this project is $1,026,017. 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. Shaanxi Qiyiwangguo previously leased a
waste water processing facility at an annual fee of approximately $11,600. This
1,118 square meter industrial waste water processing facility remains on
schedule and once completed will process 1,200 cubic meters of waste water per
day, which will meet the increasing production demand of Shaanxi Qiyiwangguo and
will improve the use of recycled waste water. We capitalized $680,336 as
construction in progress during 2008. This project is expected to be operational
by the end of the third quarter of fiscal 2009. Our estimated future input for
this project is $111,163. 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 the employee building. We capitalized $11,149 as
construction in progress during 2008. This project has no economic profit to the
Company and is expected to be completed by the first quarter of
2009.  There will be no future monetary input for this
project.


-29-
 Table of Contents


We
capitalized interest expenses of $39,473 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.




Land
usage right was $6,404,771 as of December 31, 2008 as compared to $6,138,297 as
of December 31, 2007. The increase in land usage right was mainly due to a
decrease in exchange rate as of December 31, 2008 as compared December 31, 2007.
In Chinese currency, the land usage right decreased by RMB1,141,259, or
approximately $164,005, based on the average exchange rate of fiscal year
2008,  due to an increase in amortization cost.





Depreciation
and amortization was $1,903,117 for fiscal 2008, compared with $1,454,746 for
fiscal 2007.  The increase in depreciation expenses was due mainly to
an increase in property, plant and equipment acquired after December 31,
2007.





Other
assets were $2,362,049 at December 31, 2008, an increase of $2,290,231 from the
balance at December 31, 2007. The increase in other assets was primarily
due to a down payment of $2,198,608 for the acquisition of Yingkou Trusty Fruits
Co., Ltd. (“Yingkou”). On June 1, 2008, Shaanxi Tianren entered into a
memorandum agreement with Xi’an Dehao Investment Consultation Co., Ltd.
(“Dehao”). Under the terms of the agreement, Dehao agreed to transfer 100% of
the ownership interest of Yingkou to Shaanxi Tianren. Shaanxi Tianren is
required to make a down payment of RMB 15,000,000, or approximately $2,198,608,
based on the exchange rate as of December 31, 2008 to Dehao as a deposit for the
purchase. The acquisition is targeted for completion in second quarter of fiscal
2009 after the third party market value evaluation.





Total
liabilities at December 31, 2008 were $16,681,046, an increase of $1,880,322, or
12.7%, compared to $14,800,724 at December 31, 2007.  The increase in
liabilities was mainly due to the increase in notes payable and income tax
payable, but partially offset by the decrease in accounts payable.





In fiscal
year 2008, the Company paid off RMB 98,800,000, or approximately $14,198,105, of
short-term loans payable. The Company also entered into nine new short-term loan
agreements with some local banks in China. As of December 31, 2008, the balance
of these short-term loans totaled RMB 76,800,000 (U.S. $11,256,871 based on the
exchange rate on December 31, 2008), with an interest rate ranging from 5.58% to
9.83% per annum. These loans are due from May 2009 to October 2009. Of these
loans, $5,247,343 are collateralized by land and buildings.





Income
tax payable increased by $1,335,524 to $1,450,433 at December 31, 2008, as
compared to $114,909 at December 31, 2007. The increase in income tax payable
was mainly due to an increase in net income generated by Shaanxi Qiyiwangguo in
fiscal year 2008.





Accounts
payable decreased by $2,334,648 from $2,997,740 at December 31, 2007, to
$663,092 at December 31, 2008. The decrease in accounts payable was a result of
the prompt payment to our vendors in fiscal year 2008. To ensure that we have
sufficient fresh fruits and other materials for the production needs during the
squeezing season, we expedited our payment term to our vendors and
suppliers.





Related
party payables decreased to $23,452 as of December 31, 2008 from $143,366 as of
December 31, 2007, representing a decrease of 83.6%. Related party payables
included the outstanding borrowing from its shareholders and related entities
with common owners and directors. These loans bear no interest and have no fixed
payment terms.


-30-
 Table of Contents





Critical
Accounting Estimates & Policies





The
discussion and analysis of the Company’s financial condition presented in this
section are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States.  During the preparation of the consolidated financial
statements, we are required to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities.  On an ongoing basis,
we evaluate our estimates and judgments, including those related to sales,
returns, pricing concessions, bad debts, inventories, investments, fixed assets,
intangible assets, income taxes and other contingencies.   We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable under current conditions.  Actual
results may differ from these estimates under different assumptions or
conditions.





We
consider our critical accounting policies to be those that involve significant
uncertainties, require judgments or estimates that are more difficult for
management to determine, or that may produce materially different results when
using different assumptions. We consider the following accounting policies to be
critical:





Consolidation




The
consolidated financial statements include the accounts of Shaanxi Tianren,
Shaanxi Qiyiwangguo, Huludao Wonder and Pacific. All material inter-company
accounts and transactions have been eliminated in
consolidation.





The
consolidated financial statements are prepared in accordance with U.S. GAAP.
This basis differs from that used in the statutory accounts of Shaanxi Tianren,
Shaanxi Qiyiwangguo and Huludao Wonder, 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.




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.




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.
Determination of recoverability of assets to be held and used is by comparing
the carrying amount of an asset to future net undiscounted cash flows to be
generated by the assets.





If such
assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. During the reporting
periods, there was no impairment loss. -31-
 Table of Contents





Accumulated Other
Comprehensive Income




Accumulated
other comprehensive income represents foreign
currency translation adjustments.




Accounts
Receivable




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. Receivable amounts outstanding more than 6 months are allowed for. The
Company evaluates the credit risks of its customers utilizing historical data
and estimates of future performance.




Inventory




Inventory
consists 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 first-in, first-out methods.




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 or
determinable and collection of the revenue is reasonably assured. More than 69%
of our products are exported either through distributors or to end-users.
Of this amount, 80% of the revenue is exported through distributors. Our general
sales agreement requires the distributors to pay us after we deliver the
products to them, which is not contingent on resale to end customers. Our credit
terms for distributors with good credit history are from 30 days to 90
days. For new customers, we usually require 100% advance payment for direct
export sales. Customer advances 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 receivable is less than 0.5% and
because of our strict quality standards during the production, storage and
transportation process we have experienced no returns based on the quality of
our products. Our customers have no contractual right to return our products and
historically we have not had any products returned. Accordingly, no provision
has been made for returnable goods. We are not required to rebate or credit a
portion of the original fee if we subsequently reduce the price of our product
and the distributor still has right with respect to that product.




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.


-32-
 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 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




Foreign Currency and
Comprehensive Income




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




On July
21, 2005, the PRC changed its foreign currency exchange policy from a fixed
RMB/USD exchange rate into a flexible rate under the control of the PRC’s
government. We use the closing rate method in currency translation of the
financial statements of the Company.




RMB is
not freely convertible into the currency of other nations. All such exchange
transactions must take place through authorized institutions. There is no
guarantee the RMB amounts could have been, or could be, converted into U.S.
dollars at rates used in translation.




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
recorded no deferred tax assets or liabilities as of December 31, 2008, since
nearly all differences in tax basis and financial statement carrying values are
permanent differences.





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.


-33-
 Table of Contents




Minority Interest in
Subsidiary




Minority
interest 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
Company has issued shares and put them into escrow to protect the investor group
from a decline in value should the Company not meet certain income targets. If
the Company fails to achieve the income targets, the Make Good Escrow Shares
will be released to the investors. Since the investors have no relationship to
the Company other than as Investors, no compensation cost will be recognized. If
the Company achieves the income targets, the Make Good Escrow Shares will be
canceled, resulting in no income or expense recognition. During the time the
Make Good Escrow Shares are outstanding, they will be accounted for as
contingently issuable shares in determining the 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 FSP
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 was
recorded as a liability and deducted from operating income.





Comparison of Operation
Results





Comparison
of Fiscal 2008 and 2007





The
following table presents our consolidated net revenues for our main products for
the fiscal year 2008 and 2007, respectively:


Year
      Ended December 31,2008
                            
                            
                            2007
                            
                            
                            %
      ChangeConcentrated
      apple juice and apple aroma
                            
                            $
                            6,853,649
                            
                            
                            $
                            7,461,278
                            
                            
                            
                            (8.1
                            %)Concentrated
      pear juice
                            
                            
                            11,992,610
                            
                            
                            
                            11,278,990
                            
                            
                            
                            6.3
                            %Concentrated
      kiwifruit juice and kiwifruit puree
                            
                            
                            13,602,600
                            
                            
                            
                            5,848,690
                            
                            
                            
                            132.6
                            %Kiwifruit
      seeds
                            
                            
                            1,558,463
                            
                            
                            
                            -
                            
                            
                            
                            N/AFresh
      kiwifruits
                            
                            
                            2,315,392
                            
                            
                            
                            1,247,760
                            
                            
                            
                            85.6
                            %Fruit
      beverages
                            
                            
                            5,325,891
                            
                            
                            
                            3,525,223
                            
                            
                            
                            51.1
                            %Consolidated
                            
                            $
                            41,648,605
                            
                            
                            $
                            29,361,941
                            
                            
                            
                            41.8
                            %





Revenue
for the fiscal year 2008 was $41,648,605, an increase of $12,286,664 or 41.8%,
when compared to the prior year. This increase was primarily due to an increase
in sales of concentrated kiwifruit juice and kiwifruit puree, kiwifruit seeds,
fresh kiwifruits and fruit beverages, which was partially offset by a decrease
in sales of concentrated apple juice and apple aroma.


-34-
 Table of Contents




We
believe that the increase in sales of concentrated kiwifruit juice and kiwifruit
puree was due to the increase in market acknowledgement of our products in both
the international and national markets and an increase in the market demand for
small breed fruit products. Sales from kiwifruit related products was
$17,476,455 in fiscal year 2008, an increase of $10,380,005, or 146.3%, compared
to $7,096,450 for fiscal 2007. 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. Our market
share of fruit beverages in the Chinese market also showed improvement in the
fiscal 2008.  The net sales of fruit beverages increased by 51.1% to
$5,325,891 as compared to $3,525,223 for fiscal year 2007 due to continuous
marketing efforts from our sales person in Shaanxi Tianren and an increase in
market demand for fruit juice in the Chinese market. We believe that the pure
juice market is a high-growth market in China because of growing personal income
and an increase in health awareness.  Sales from pear related products
increased by $713,620, or 6.3%, in fiscal year 2008 compared to the prior year
as a result of increased consumer demand in both China and
internationally.





Sales
from apple related products decreased by $607,629, or 8.1%, in fiscal year 2008
as compared to fiscal year 2007. We believe that the decrease in sales from
apple related products was mainly due to instability of the financial markets
and their influence on the global economy, which in turn decreased the demand
for concentrated apple juice in the international market. In 2008, the volume of
concentrated apple juice exported from China decreased by 34% as compared to
2007. Furthermore, the competition in apple related products became stronger in
China in 2007. Some small and middle-sized juice manufacturer sold their
inventory of apple related products at a lower price to improve their cash flow
due to the decrease in export volume. As a result, it further reduced the demand
of our apple related products.





Gross
Margin





The
following table presents consolidated gross profit margin of our main products
and consolidated gross profit margin as a percentage of related revenues for the
fiscal years 2008 and 2007, respectively:


-35-
 Table of Contents




Year
      Ended December 31,Gross
      profit margin
                              
                              2008
                              
                              
                              2007
                              
                              
                              %
      ChangeConcentrated
      apple juice and apple aroma
                              
                              $
                              1,442,694
                              
                              
                              $
                              2,096,941
                              
                              
                              
                              (31.2
                              %)Concentrated
      pear juice
                              
                              
                              4,552,628
                              
                              
                              
                              4,046,384
                              
                              
                              
                              12.5
                              %Concentrated
      kiwifruit juice and kiwifruit puree
                              
                              
                              7,338,762
                              
                              
                              
                              2,850,474
                              
                              
                              
                              157.5
                              %Kiwifruit
      seeds
                              
                              
                              1,383,958
                              
                              
                              
                              -
                              
                              
                              
                              N/AFresh
      fruits
                              
                              
                              1,491,896
                              
                              
                              
                              861,706
                              
                              
                              
                              73.1
                              %Fruit
      beverages
                              
                              
                              1,831,258
                              
                              
                              
                              1,039,391
                              
                              
                              
                              76.2
                              %Consolidated
                              
                              $
                              18,041,196
                              
                              
                              $
                              10,894,896
                              
                              
                              
                              65.6
                              %Gross
      profit margin as a % of revenuesConcentrated
      apple juice and apple aroma
                              
                              
                              21.1
                              %
                              
                              
                              28.1
                              %
                              
                              
                              (25.1
                              %)Concentrated
      pear juice
                              
                              
                              38.0
                              %
                              
                              
                              35.9
                              %
                              
                              
                              5.8
                              %Concentrated
      kiwifruit juice and kiwifruit puree
                              
                              
                              54.0
                              %
                              
                              
                              48.7
                              %
                              
                              
                              10.7
                              %Kiwifruit
      seeds
                              
                              
                              88.8
                              %
                              
                              
                              -
                              
                              
                              
                              N/AFresh
      fruits
                              
                              
                              64.4
                              %
                              
                              
                              69.1
                              %
                              
                              
                              (6.7
                              %)Fruit
      beverages
                              
                              
                              34.4
                              %
                              
                              
                              29.5
                              %
                              
                              
                              16.6
                              %Consolidated
                              
                              
                              43.3
                              %
                              
                              
                              37.1
                              %
                              
                              
                              16.7
                              %





Overall
gross margin as a percentage of revenue increased by 16.7% for fiscal year 2008,
from 37.1% to 43.3% compared to fiscal 2007. In terms of dollar amount, gross
margin for fiscal year 2008 was $18,041,196, an increase of $7,146,300, or 65.6
%, compared to $10,894,896 in fiscal 2007, primarily due to a significant
increase in sales.





The
increase in gross margin as a percentage of revenue in fiscal 2008 was primarily
due to an increase in the gross margin of concentrated kiwifruit juice and
kiwifruit puree, concentrated pear juice and fruit beverages, which was offset
by a decrease in the gross margin of concentrated apple juice and apple aroma
and fresh fruits.





The gross
profit margin of concentrated kiwifruit juice and kiwifruit puree increased by
10% to 54.0% for fiscal year 2008, as compared to 48.7% for fiscal year 2007.
This increase was mainly due to the large decrease in the general price of fresh
kiwifruits in the kiwifruit squeezing season of fiscal 2008 as a result of
abundant harvests of kiwifruits in 2008. The gross profit margin of fresh
kiwifruits decreased by 6.7% for fiscal 2008 as compared to fiscal 2007,
primarily due to a decrease in the price of fresh kiwifruits in the
international market.





The gross
profit margin of concentrated pear juice was 38.0% in fiscal year 2008,
representing an increase of 5.8% as compared to fiscal year 2007. 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 is from July or August until March of the following year. As
weather conditions in the beginning of this squeezing season were better than
last year, there was an abundant harvest of pears in fiscal 2008. As a result,
the general price of pears decreased this year, which in turn significantly
improved our gross margin in pear related products.


-36-
 Table of Contents




The gross
profit margin of our fruit beverages increased by 16.6% for fiscal year 2008 as
compared to fiscal year 2007. This increase was primarily due to the change in
our product mix. We sold more concentrated fruit beverages in fiscal 2008, which
have a higher margin, as the result of a change in demand in the Chinese market.
As the middle class of China grows, we believe the demand for higher quality,
higher margin products will also increase.





In fiscal
2008, we also had sales of $1,558,463 from kiwifruit seeds.  Kiwifruit
seeds are the byproduct of kiwifruit juice. They are removed from the fresh
kiwifruits when we process kiwifruit juice for purity. Initially, the Company
did not allocate any cost to kiwifruit seeds as there was no expected sales
value.  In the second quarter of 2008, the Company began the sale of
kiwifruit seeds. As kiwifruit seeds are byproducts of concentrated kiwifruit
juice, the cost cannot be determined individually.  For purposes of
determining our cost of goods sold we have applied the “relative sales value
costing” method in determining our cost for kiwifruit seeds. In calculating the
gross margin of kiwifruit seeds, the Company applied the average method to
simplify the calculation.  In applying this method, we first
calculated the average sales values of kiwifruit seeds and kiwifruit juice that
can be produced from one ton of kiwifruit based on our estimate in a normal
production situation in the second quarter of 2008. This percentage was then
applied to actual cost for the production of kiwifruit juice to calculate the
actual cost of sales for kiwifruit seeds and concentrated kiwifruit juice in the
period covered by the financial statements. As the Company is using the first
in, first out inventory method, the kiwifruit seeds of zero cost allocation were
sold first, then the kiwifruit seeds of higher cost allocation. Hence, the gross
margin for kiwifruit seeds as a percentage of revenue in fiscal year 2008
was much higher than that of concentrated kiwifruit juice. The high margin of
kiwifruit seeds in fiscal 2008 contributed to the improvement in gross margin
for fiscal year 2008.





The gross
profit margin of concentrated apple juice and apple aroma decreased by 25.1% to
21.1% for fiscal year 2008, as compared to 28.1% for fiscal year 2007, which was
primarily due to a decrease in the price of apple related products in the
international market.





Operating
Expenses




The following table
presents consolidated operating expenses as a percentage of net revenues for the
fiscal year 2008 and 2007, respectively:


Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    %
      ChangeGeneral
      and administrative
                    
                    $
                    2,830,739
                    
                    
                    $
                    1,158,759
                    
                    
                    
                    144.3
                    %Selling
      expenses
                    
                    
                    1,453,461
                    
                    
                    
                    686,819
                    
                    
                    
                    111.6
                    %Research
      and development
                    
                    
                    449,695
                    
                    
                    
                    30,878
                    
                    
                    
                    1,356.4
                    %Accrued
      liquidated damages
                    
                    
                    254,301
                    
                    
                    
                    -
                    
                    
                    
                    N/ATotal
      operating expenses
                    
                    $
                    4,988,196
                    
                    
                    $
                    1,876,456
                    
                    
                    
                    165.8
                    %As
      a percentage of revenueGeneral
      and administrative
                    
                    
                    6.3
                    %
                    
                    
                    3.9
                    %
                    
                    
                    60.2
                    %Selling
      expenses
                    
                    
                    3.2
                    %
                    
                    
                    2.3
                    %
                    
                    
                    38.8
                    %Research
      and development
                    
                    
                    1.0
                    %
                    
                    
                    0.1
                    %
                    
                    
                    854.9
                    %Accrued
      liquidated damages
                    
                    
                    0.6
                    %
                    
                    
                    0.0
                    %
                    
                    
                    N/ATotal
      operating expenses
                    
                    
                    11.1
                    %
                    
                    
                    6.3
                    %
                    
                    
                    74.3
                    %




-37-
 Table of Contents





Our
operating expenses consist of general and administrative, selling expenses and
research and development expenses. Operating expenses increased by 165.8% to
$4,988,196 for fiscal year 2008 as compared to $1,876,456 for fiscal year
2007.





General
and administrative expenses increased by $1,671,980, or 144.3%, to $2,830,739
for fiscal year 2008, from $1,158,759 for fiscal year 2007. The increase in
general and administrative expenses in fiscal 2008 compared with fiscal 2007 was
mainly due to the consolidation of Huludao’s operating results with those of
Shaanxi Tianren since June 1, 2007 and forward and an increase in legal and
auditing expenses, which were primarily associated with the Company becoming a
public company.  Huludao Wonder had a large amount of general and
administrative expenses, which contributed to the substantial increase of the
Company’s operating expenses as a result of the operating combination.
Management believes that our operating expenses will continue to increase in
the future compared to previous years due to the expansion of our
business.





Selling
expenses increased by $766,642, or 111.6%, to $1,453,461 for fiscal 2008 from
$686,819 for fiscal year 2007. This was mainly due to an increase in freight and
transportation expenses as a result of the increase in sales.





Research
and development expenses increased by $418,817 to $449,695 for fiscal year 2008
from $30,878 for fiscal year 2007, as we entered 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 $87,944.





We
accrued $254,301 as liquidated damages in fiscal year 2008 due to a failure to
meet the timetables provided for in the Registration Rights
Agreement.  The registration statement was declared effective by the
SEC on February 5, 2009.





Income
from Operations





In fiscal
year 2008, income from operations increased by $4,034,560, or 44.7%, to
$13,053,000 from $9,018,440 for fiscal 2007. As a percentage of net sales,
income from operations was approximately 29.1% for fiscal 2008, a decrease of
5.1% as compared to 30.7% for fiscal 2007. The decrease in the income from
operations was mainly due to an increase in operating expenses, as previously
discussed.





Interest
Expense





Interest
expense was $932,048 for fiscal year 2008, an increase of $861,426 as compared
with fiscal 2007, primarily due to an increase in term loan facilities in 2008
to support expansion plans and potential business opportunities. In fiscal year
2008, the Company entered into nine short-term loan agreements with local
banks in China. As of December 31, 2008, the balance of these
short-term loans totaled RMB 76,800,000 ($11,256,871), 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 $2,231,140 for fiscal 2008, compared to
$1,109,160 for fiscal 2007. The increase in tax provision for fiscal 2008 was
due to a significant increase in net income for Shaanxi Qiyiwangguo in fiscal
2008, which was partially offset by a decrease in the effective tax rate for
Shaanxi Qiyiwangguo. The tax rate for Shaanxi Qiyiwangguo was reduced from 33%
to 25%, effective beginning January 2008.





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


-38-
 Table of Contents





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





Minority
Interest




As of
December 31, 2008, Shaanxi Tianren held a 91.15% interest in Shaanxi Qiyiwangguo
and Pacific held a 99% interest in Shaanxi Tianren. Minority interest in net
income of subsidiaries was $613,135 for fiscal 2008, an increase of $252,634
compared to a minority interest in the net income of $360,501 for
fiscal 2007.  The increase in the minority interest was mainly
attributable to the increase in the net income generated from Shaanxi
Tianren.





Net
Income




Net
income was $10,010,302 for fiscal 2008, an increase of $2,413,899 or 31.8%,
compared to fiscal 2007. Such increase was primarily due to an increase in
sales, as previously discussed.





Liquidity and Capital
Resources


Comparison
of Fiscal 2008 and 2007





Net cash
provided by operating activities during fiscal 2008 was $13,020,774, an increase
of $6,867,696 from $6,153,078 in fiscal 2007. The increase in net cash provided
by operating activities in fiscal 2008 was primarily due to a
$2,413,889  increase in net income from  $7,596,403_in
fiscal year 2007 to $10,010,302 in fiscal year 2008, and usage of inventory
during fiscal year 2008 compared to inventory build up for the prior year. In
addition, there was an increase in income tax payable of $2,048,172 during
fiscal year 2008 as compared to a decrease in income tax payable for fiscal year
2007.  Partially offsetting this cash inflow was the paying down of
accounts payable of $4,612,589.





Net cash
used in investing activities increased by $2,794,177 to $7,156,059 for fiscal
year 2008 from $4,361,882 for fiscal 2007. The increase in cash used in
investing activities was mainly due to $2,155,583 in deposits paid to Dehao for
the acquisition of Yingkou, $2,220,394 paid to Huludao Wonder’s former owners
upon acquisition, and an increase of $2,870,889 in the capital expenditures in
cash, as previously discussed. Offsetting this increase in cash used in
investing activities was a decrease of $3,828,304 in the purchase of a
subsidiary. We paid $3,838,204 to purchase Huludao Wonder in fiscal year
2007.





Net cash
provided by financing activities in fiscal 2008 was $4,836,919, representing an
increase of $4,887,773 compared to the net cash used in financing activities of
$50,854 in fiscal 2007.  The increase was mainly due to stock sales
proceeds of $3,115,072 received from certain accredited investors in a private
placement transaction on February 26, 2008, and a decrease of $1,743,897 in
repayment of related party loans.





Capital
Resources





Our
working capital has historically been generated from the operating cash flow,
advances from our customers and loans from bank facilities. Our working capital
was $13,432,498 as of December 31, 2008, representing an increase of $8,314,282,
or 162.4%, compared to working capital of $5,118,216 as of December 31, 2007,
mainly due to an increase in cash, accounts receivable and a decrease in
accounts as discussed above.


-39-
 Table of Contents





The
majority of our capital expenditures are for the expansion of our production
capacity.  In the past three years, our capital expenditures ranged
from $53,000 to $2.9 million.  We financed our capital expenditures
and other operating expenses through operating cash flows and bank loans. As of
December 31, 2008, we had several short-term loans outstanding which we intended
to pay back within a year. The balance of these loans totaled RMB 76,800,000
($11,256,871 based on the exchange rate as of December 31, 2008). The interest
rates on these short-term loans range from5.58% to 9.83% per annum. These loans
are due from May 2009 to October 2009.





Under our
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. The
planned capital expenditures are approximately $15 to $20 million for fiscal
year 2009.  We believe that as of December 31, 2008 we had sufficient cash
on hand, combined with anticipated cash receipts, to fund our business for at
least the next 12 months.





In order
to fund our capital expenditures we will likely need to seek additional debt or
equity financing. We believe any such financing could come in the form of
additional corporate debt or straight equity issuance of our registered shares
through a private investment 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.





Contractual
Obligations





The
following contractual obligations servicing table describes our overall future
cash obligations based on various current contracts in the next five
years:


Payments
      Due by Period (at December 30, 2009)Less
      than
                    
                    
                    
                    1 -
      3
                    
                    
                    AfterTotal
                    
                    
                    1
      Year
                    
                    
                    Years
                    
                    
                    3
      YearsShort-term
      Notes Payable
                    
                    $
                    11,256,871
                    
                    
                    $
                    11,256,871
                    
                    
                    $
                    -
                    
                    
                    $
                    -Interest
      on Notes Payable
                    
                    
                    546,379
                    
                    
                    
                    546,379
                    
                    
                    
                    -
                    
                    
                    
                    -Operating
      Leases
                    
                    
                    49,395
                    
                    
                    
                    49,395
                    
                    
                    
                    -
                    
                    
                    
                    -Contract
      with Shaanxi Normal University *
                    
                    
                    2,110,664
                    
                    
                    
                    1,055,332
                    
                    
                    
                    1,055,332
                    
                    
                    
                    -Total
                    
                    $
                    13,963,309
                    
                    
                    $
                    12,907,977
                    
                    
                    $
                    1,055,332
                    
                    
                    $
                    -





*We have
two research and development contracts with Shaanxi Normal University to develop
new products. These two contracts are from June 2008 to December 2009 with a
monthly payment of RMB 600,000 or $87,944.


-40-
 Table of Contents





Corporate
Guarantee Arrangement





The
Company provides a corporate guarantee of approximately $87,944 to one of its
subsidiaries in Shaanxi Province to secure line-of-credit and bills
issuing.  With the strong financial position of the subsidiary
company, the Company believes this corporate guarantee arrangement will have no
material impact on its liquidity or capital resources.





ITEM
7A– QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as interest rates and foreign currency exchange rates. Changes in
interest rates and changes in foreign currency exchange rates have an impact on
our results of operations.





Foreign Currency
Exchange Rate Risk





The majority of our sales, cost of manufacturing and
marketing are transacted in Chinese yuan.  Consequently, our costs,
revenue and operating margins may be affected by fluctuations in exchange rates,
primarily betweenthe U.S. dollar and
Chinese currencies.  Our financial position and results of operations
are also affected by fluctuations in exchange rates between reporting currency
(which is in U.S. dollars) and functional currencies used in our
operations.  Foreigncurrency
translation adjustments resulted in an increase of $1,688,725 in fiscal 2008 and
an increase of $2,349,283 in fiscal 2007 to shareholders’equity.





As
currency exchange rates change, translation of the statements of operations of
our businesses outside the U.S. into U.S. dollars affects
year-over-year comparability. We generally have not hedged against these types
of currency risks because cash flows from the China operations have been
reinvested locally.





Interest
Rate Risk





At
December 31, 2008, approximately $11,256,871 of our outstanding borrowings were
subject to changes in interest rates; however, we do not use derivatives to
manage this risk. The interest rates on our loans range from 5.58% to 9.83% per
annum.  These interest rates are subject to change and we cannot
predict an increase or decrease in rates. Of these loans, $5,247,343 are
collateralized by land and buildings.





Management
believes that moderate changes in the prime rate would not materially affect our
operating results or financial condition.





ITEM8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The
information called for by this item is included in the Company's consolidated
financial statements beginning on page F-1 of this Annual Report on Form
10-K.





ITEM9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE





None.


-41-
 Table of Contents




ITEM9A (T) –
CONTROLS AND
PROCEDURES





As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), our management, including our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of December 31, 2008.





In its
evaluation, management evaluated whether the Company had sufficient “preventive
controls” which are controls that have the objective of preventing the
occurrence of errors or fraud that could result in a misstatement of the
financial statements, and “detective controls” which have the objective of
detecting errors or fraud that have already occurred that could result in a
misstatement of the financial statements.   In its evaluation,
management considered whether there were sufficient internal controls over
financial reporting in the context of the Company’s control environment,
financial risk assessment, internal control activities, monitoring, and
communication to determine whether sufficient controls are present and
functioning effectively. .  Management used the framework set forth in
the report entitled “Internal Control – Integrated Framework” published by the
Committee of Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness of the Company’s internal control over financial
reporting.





In
designing and evaluating our disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating and
implementing possible controls and procedures. Management conducted its
evaluation of disclosure controls and procedures under the supervision of our
Chief Executive Officer and our Chief Financial Officer.  Based on
that evaluation, management concluded that our disclosure controls and
procedures were effective.  Our disclosure controls and procedures are
designed to provide reasonable assurance of achieving their objectives and our
Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective at that reasonable assurance
level.





During
the quarter ended June 30, 2008, Pacific erroneously paid monies to its former
shareholders as the result of a dividend declaration in February
2008.  The monies were then returned to the
Company.  Because the recipients of the money were no longer
shareholders of Pacific, the transaction has been treated for accounting
purposes as an interest free loan.  The Sarbanes-Oxley Act of 2002
makes it unlawful for any public company, directly or indirectly, to extend
credit, maintain credit or arrange for the extension of credit in the form of a
personal loan to or for the benefit of any director or executive officer.
Therefore, the failure of the Company to prevent the loan may be considered a
material weakness in the efficiency and effectiveness of the Company’s
procedures with respect to the conduct of its operations and the Company’s
compliance with laws and regulations, and therefore a material weakness in the
Company’s internal control over financial reporting.





The
Company’s Chief Executive Officer and Chief Financial Officer concluded,
however, that the material weakness in the Company’s operational and compliance
controls referred to in the immediately preceding paragraph did not constitute a
failure in the Company’s “disclosure controls and procedures” as such term is
defined in Rule 13a-15 because the failure to prevent the loan to or for the
benefit of any executive officer or director does not constitute a failure or
weakness in the Company’s procedures to ensure that information is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC or that information is accumulated and communicated
to our management.  Therefore, as stated above, despite the material
weakness in internal control over financial reporting which existed during the
fiscal year ended December 31, 2008, the Company’s Chief Executive Officer and
Chief Financial Officer were still able to conclude that the Company’s
disclosure controls and procedures were effective as of the end of such fiscal
year.


-42-
 Table of Contents





The
Company and its Audit Committee have taken steps to remedy the material weakness
in the Company’s operational and compliance controls discussed above. On
September 30, 2008 the Board of Directors of the Company approved a Statement of
Policies and Procedures with Respect to Related Party Transactions (the “Policy
Statement”) under which the Audit Committee shall review the material facts of
all Interested Transactions that require the Committee’s approval and either
approve or disapprove of the entry of the Company into the Interested
Transaction, subject to certain exceptions. If advance approval by the Audit
Committee of an Interested Transaction is not feasible, then the Interested
Transaction shall be considered and, if the Audit Committee determines it to be
appropriate, ratified at the Committee’s next regularly scheduled meeting. In
determining whether to approve or ratify an Interested Transaction, the Audit
Committee will take into account, among other factors it deems appropriate,
whether the Interested Transaction is on terms no less favorable than terms
generally available to an unaffiliated third-party under the same or similar
circumstances and the extent of the Related Person’s interest in the
transaction.





No
director shall participate in any discussion or approval of an Interested
Transaction for which he or she is a Related Party, except that the director
shall provide all material information concerning the Interested Transaction to
the Committee.





If an
Interested Transaction will be ongoing, the Audit Committee may establish
guidelines for the Company’s management to follow in its ongoing dealings with
the Related Party. Thereafter, the Audit Committee, on at least an annual basis,
shall review and assess ongoing relationships with the Related Party to see
that they are in compliance with the Audit Committee’s guidelines and that the
Interested Transaction remains appropriate.





For
purposes of the Policy Statement, an “Interested Transaction” is any
transaction, arrangement or relationship or series of similar transactions,
arrangements or relationships (including any indebtedness or guarantee of
indebtedness) in which (1) the aggregate amount involved will or may be
expected to exceed $50,000 in any calendar year, (2) the Company is a
participant, and (3) any Related Party has or will have a direct or
indirect interest (other than solely as a result of being a director or a less
than 10 percent beneficial owner of another entity).





A
“Related Party” is any (a) person who is or was (since the beginning of the
last fiscal year for which the Company has filed a Form 10-K and proxy
statement, even if he or she does not presently serve in that role) an executive
officer, director or nominee for election as a director, (b) greater than
5 percent beneficial owner of the Company’s common stock, or
(c) immediate family member of any of the foregoing. Immediate family
members include a person’s spouse, parents, stepparents, children, stepchildren,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law and anyone residing in such person’s home (other than a
tenant or employee).





The
material weakness in operational and compliance controls discussed in the fourth
paragraph of this Item 9A (T) above was a change in our internal control over
financial reporting during the quarter ended September 30, 2008 that materially
affected our internal control over financial reporting. The Company believes
that this material weakness has been remedied by the approval by the Company’s
Board of Directors of the Policy Statement on September 30, 2008.  Our
internal control system is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles
generally accepted in the United States.





There is
no assurance that our disclosure controls or our internal controls over
financial reporting can prevent all errors.  An internal control
system, no matter how well designed and operated, has inherent limitations,
including the possibility of human error.  Because of the inherent
limitations in a cost-effective control system, misstatements due to error may
occur and not be detected.  We monitor our disclosure controls and
internal controls and make modifications as necessary.  Our intent in
this regard is that our disclosure controls and our internal controls will
improve as systems change and conditions warrant.


-43-
 Table of Contents





This
Annual Report does not include an attestation report of the Company’s registered
independent public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this Annual Report.




ITEM9B – OTHER INFORMATION





Not
applicable.


-44-
 Table of Contents


PARTIII





The
information required by Items 10 through 14 of Part III of this Form 10-K
(information regarding our directors and executive officers, executive
compensation, security ownership of certain beneficial owners, management,
related stockholder matters, and certain relationships and related transactions
and principal accountant fees and services, respectively) is hereby incorporated
by reference from the Company's Proxy Statement to be filed with the Securities
and Exchange Commission within 120 days after the end of fiscal
2008.





PARTIV





ITEM
15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





(a)
(1)                    FINANCIAL
STATEMENTS:


The
following financial statements, including notes thereto and the independent
auditors' report with respect thereto, are filed as part of this Annual Report
on Form 10-K, starting on page F-1 hereof:


1.           Management’s
Report on Internal Control over Financial Reporting


2           Report
of Independent Public Registered Accounting Firm


3           Consolidated
Balance Sheets


4.           Consolidated
Statements of Income and Comprehensive Income


5.           Consolidated
Statements of Shareholders' Equity


6.           Consolidated
Statements of Cash Flows


7.           Notes
to Consolidated Financial Statements





(b)                    EXHIBITS:





Number
              Description2.1
              Share
      Exchange Agreement, dated as of February 22, 2008 by and among Pacific
      Industry Holding Group Co., Ltd. (“Pacific”), Terrence Leong, the Company
      and the shareholders of Pacific. Incorporated by reference to Exhibit 2.1
      to our Current Report on Form 8-K filed with the Commission on February
      28, 2008 (the "February 28, 2008 8-K").3.1
              Amended
      and Restated Articles of Incorporation of the Company. Incorporated by
      reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the
      Commission on March 3, 2008 (the “March 3, 2008 8-K”).3.3
              Certificate
      of Designations, Preferences and Rights of the Company’s Series A
      Convertible Preferred Stock. Incorporated by reference to Exhibit 3.1 to
      the February 28, 2008 8-K.3.4
              Certificate
      of Designations, Preferences, Rights and Limitations of the Company’s
      Series B Convertible Preferred Stock. Incorporated by reference to Exhibit
      3.2 to the February 28, 2008 8-K.3.5
              Bylaws
      of Entech Environmental Technologies, Inc. Incorporated by reference to
      Exhibit 3.5 to the March 3, 2008
8-K.




-45-
 Table of Contents





3.6
              Articles
      of Amendment to the Articles of Incorporation of the Company filed with
      the Department of State of Florida on May 23, 2008.*4.2
              Warrants
      issued to EOS Holdings LLC, dated as of February 25, 2008. Incorporated by
      reference to Exhibit 4.2 to the March 3, 2008 8-K.9.1
              Voting
      Trust Agreement, dated as of February 25, 2008, by and among Fancylight
      Limited and Hongke Xue. Incorporated by reference to Exhibit 9.1 to the
      March 3, 2008 8-K.9.2
              Voting
      Trust and Escrow Agreement, dated as of February 25, 2008, by and among
      Winsun Limited and Sixiao An. Incorporated by reference to Exhibit 9.2 to
      the March  3, 2008 8-K.9.3
              Voting
      Trust and Escrow Agreement, dated as of February 25, 2008, by and among
      China Tianren Organic Food Holding Company Limited and Lin Bai.
      Incorporated by reference to Exhibit 9.3 to the March 3, 2008
      8-K.10.1
              Series
      B Convertible Preferred Stock Purchase Agreement by and among the Company,
      Barron Partners LP and EOS Holdings, LLC, dated as of February 25, 2008.
      Incorporated by reference to Exhibit 10.1 to the March 3, 2008
      8-K.10.2
              Registration
      Rights Agreement by and among the Company, Barron Partners LP and EOS
      Holdings, LLC, dated as of February 25, 2008. Incorporated by reference to
      Exhibit 10.2 to the March 3, 2008 8-K.10.3
              Escrow
      Agreement by and among Shaanxi Tianren Organic Food Co., Ltd., Barron
      Partners LP, EOS Holdings, LLC and Tri-state Title & Escrow, LLC,
      dated as of February 6, 2008. Incorporated by reference to Exhibit 10.3 to
      the March 3, 2008 8-K.10.4
              Make
      Good Escrow Agreement by and among the Company, Barron Partners LP, EOS
      Holdings, LLC and Tri-state Title & Escrow, LLC, dated as of February
      25, 2008. Incorporated by reference to Exhibit 10.4 to the March 3, 2008
      8-K.10.5
              Call
      Option Agreement between Hongke Xue and Fancylight Limited, dated as of
      February 25, 2008. Incorporated by reference to Exhibit 10.5 to the March
      3, 2008 8-K.10.6
              Share
      Transfer Agreement by and among Shaanxi Hede Investment Management Co.,
      Ltd. Niu Hongling, Wang Qifu, Wang Jianping, Zhang Wei, Cui Youming and
      Yuan Ye, dated as of May 31, 2007. Incorporated by reference to Exhibit
      10.6 to the March 3, 2008 8-K.10.7
              Lease
      Agreement between Shaanxi Tianren Organic Food Co., Ltd. and Shaanxi Hede
      Investment Management Co. Ltd., dated as of June 2, 2007. Incorporated by
      reference to Exhibit 10.7 to the March 3, 2008 8-K.10.8
              Loan
      Agreement between Shaanxi Tianren Organic Food Co., Ltd. and Shaanxi Hede
      Investment Management Co., Ltd., dated as of June 5, 2007. Incorporated by
      reference to Exhibit 10.8 to the March 3, 2008
  8-K.


-46-
 Table of Contents


10.9
              Loan
      Agreement between Shaanxi Tianren Organic Food Co., Ltd. and Shaanxi Hede
      Investment Management Co., Ltd., dated as of August 1, 2007. Incorporated
      by reference to Exhibit 10.9 to the March 3, 2008 8-K.10.10
              Stock
      Transfer Agreement dated as of May 31, 2008, by and between Shaanxi
      Tianren Organic Food Co., Ltd. and Shaanxi Hede Investment Management Co.,
      Ltd. Incorporated by reference to Exhibit 10.1 to our Current Report on
      Form 8-K filed with the Commission on June 5, 2008 (the “June 5, 2008
      8-K”).10.11
              Credit
      Facility Letter dated July 9, 2004 between Huludao Wonder Fruit Co., Ltd.
      and Industrial-Commercial Urban Credit Cooperative. Incorporated by
      reference to Exhibit 10.11 to Pre-Effective Amendment No. 2 to the
      Company’s Registration Statement on Form S-1 (File No. 333-149896) filed
      with the SEC on October 6, 2008 (the “S-1”).10.12
              Credit
      Facility Letter dated September 25, 2004 between Huludao Wonder Fruit Co.,
      Ltd. and Industrial-Commercial Urban Credit
      Cooperative.  Incorporated by reference to Exhibit 10.12 to the
      S-1.10.13
              Credit
      Facility Letter dated April 30, 2006 between Huludao Wonder Fruit Co.,
      Ltd. and Suizhong Branch, Huludao City Commercial Bank. Incorporated by
      reference to Exhibit 10.13 to the S-1.10.14
              Credit
      Facility Letter dated August 3, 2006 between Huludao Wonder Fruit Co.,
      Ltd. and Suizhong Branch, Huludao City Commercial Bank. Incorporated by
      reference to Exhibit 10.14 to the S-1.10.15
              Credit
      Facility Letter dated September 25, 2006 between Huludao Wonder Fruit Co.,
      Ltd. and Suizhong Branch, Huludao City Commercial Bank. Incorporated by
      reference to Exhibit 10.15 to the S-1.10.16
              Credit
      Facility Letter dated August 10, 2007 between Shaanxi Tianren Organic Food
      Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China
      Construction Bank. Incorporated by reference to Exhibit 10.16 to the
      S-1.10.17
              Credit
      Facility Letter dated September 24, 2007 between Shaanxi Tianren Organic
      Food Co., Ltd. and Gaoxin Branch of China Construction Bank. Incorporated
      by reference to Exhibit 10.17 to the S-1.  -47-
 Table of Contents
 10.18
              Credit
      Facility Letter dated September 28, 2007 between Huludao Wonder Fruit Co.,
      Ltd. and Suizhong Branch, Huludao City Commercial Bank. Incorporated by
      reference to Exhibit 10.18 to the S-1.10.19
              Credit
      Facility Letter dated April 21, 2008 between Shaanxi Tianren Organic Food
      Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China
      Construction Bank. Incorporated by reference to Exhibit 10.19 to the
      S-1.10.20
              Credit
      Facility Letter dated June 18, 2008 between Shaanxi Tianren Organic Food
      Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China
      Construction Bank. Incorporated by reference to Exhibit 10.20 to the
      S-1.10.21
              Credit
      Facility Letter dated June 18, 2008 between Shaanxi Tianren Organic Food
      Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China
      Construction Bank . Incorporated by reference to Exhibit 10.21 to the
      S-1.10.22
              Credit
      Facility Letter dated June 27, 2008 between Huludao Wonder Fruit Co., Ltd.
      and Suizhong Branch, Huludao City Commercial Bank . Incorporated by
      reference to Exhibit 10.22 to the
S-1.





10.23
              Credit
      Facility Letter dated June 27, 2008 between Shaanxi Tianren Organic Food
      Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of China
      Construction Bank . Incorporated by reference to Exhibit 10.23 to the
      S-1.10.25
              Credit
      Facility Letter dated August 10, 2008 between Huludao Wonder Fruit Co.,
      Ltd. and Suizhong Branch, Huludao City Commercial Bank . Incorporated by
      reference to Exhibit 10.24 to the S-1.10.24
              Real
      Estate Lease, dated June 23, 2008 between Zhonghai Trust Co., Ltd. and
      Shaanxi Tianren Organic Food Co., Ltd. for the premises located at the
      16th floor of National Development Bank Tower in Xi’an, China .
      Incorporated by reference to Exhibit 10.25 to the S-1.10.26
              Credit
      Facility Letter dated October 15, 2008 between Shaanxi Tianren Organic
      Food Co., Ltd. and Hi-tech Industrial Development Zone, Gaoxin branch of
      China Construction Bank .*10.27
              Credit
      Facility Letter dated December 5, 2008 between Shaanxi Tianren Organic
      Food Co., Ltd. and Hi-tech Industrial Development Zone, Xi’an branch of
      China Construction Bank.*16.1
              Letter
      from Tavarsan Askelson & Company LLP dated March 6, 2008. Incorporated
      by reference to Exhibit 16.1 to our Current Report on Form 8-K filed with
      the Commission on March 6, 2008.21.1
              Description
      of Subsidiaries of the Company. Incorporated by reference to Exhibit 21.1
      to the March 3, 2008 8-K.23.1
              Consent
      of Independent Registered Public Accounting Firm*31.1
              Rule
      13a-14(a) Certification of Principal Executive Officer of
      Registrant*31.2
              Rule
      13a-14(a) Certification of Principal Financial Officer of
      Registrant*32
              Section
      1350 Certification. *




*Filed
herewith





(c) Other
Financial Statement Schedules - None


-48-
 Table of Contents





SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





SkyPeople
      Fruit Juice, Inc./s/
      Yongke XueBy:
      Yongke XueChief
      Executive Officer and Director(principal
      executive officer)





Pursuant
to the requirement of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacity and on the dates indicated.








Name
      and Title
                      
                      Date/s/
      Yongke Xue
                      
                      March
      31, 2009Yongke
      XueChief
      Executive Officer and Director(principal
      executive officer)/s/
      Spring LiuSpring
      LiuChief
      Financial Officer(principal
      financial officer and accounting officer)
                      March
      31, 2009/s/
      Xiaoqing YanXaioqing
      Yan, Director
                      
                      March
      31, 2009/s/
      Guolin WangGuolin
      Wang, Director
                      
                      March
      31, 2009/s/
      Robert B. FieldsRobert
      B. Fields, Director
                      
                      March
      31, 2009/s/
      Norman KoNorman
      Ko, Director
                      
                      March
      31,
2009


-49-
 Table of Contents


REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the
Board of Directors


SkyPeople
Fruit Juice, Inc.





We have
audited the accompanying consolidated balance sheets of SkyPeople Fruit Juice,
Inc. (the “Company”) as of December 31, 2008 and 2007, and the related
consolidated statements of operations and comprehensive income, shareholders'
equity and cash flows for each of the two years in the period ended December 31,
2008. These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over
financial reporting.Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting.  Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of SkyPeople Fruit Juice, Inc.
at December 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.











CHILD,
VAN WAGONER & BRADSHAW, PLLC


Salt Lake
City, Utah


March 31,
2009




F-1
 Table of Contents




SKYPEOPLE FRUIT JUICE,
INC.





CONSOLIDATED
BALANCESHEETS


December
      31,
                      
                      
                      December
      31,ASSETS
                      
                      2008
                      
                      
                      2007CURRENT
      ASSETSCash
      and equivalents
                      
                      $
                      15,274,171
                      
                      
                      $
                      4,094,238Accounts
      receivable
                      
                      
                      11,610,506
                      
                      
                      
                      9,153,687Other
      receivables
                      
                      
                      297,394
                      
                      
                      
                      55,737Inventories
                      
                      
                      1,844,397
                      
                      
                      
                      4,460,149Advances
      to suppliers and other current assets
                      
                      
                      1,087,076
                      
                      
                      
                      101,628Total
      current assets
                      
                      
                      30,113,544
                      
                      
                      
                      17,865,439RELATED
      PARTY RECEIVABLES
                      
                      
                      -
                      
                      
                      
                      480,254PROPERTY,
      PLANT AND EQUIPMENT, Net
                      
                      
                      20,406,967
                      
                      
                      
                      17,564,147LAND
      USAGE RIGHTS (Note 11)
                      
                      
                      6,404,771
                      
                      
                      
                      6,138,297OTHER
      ASSETS
                      
                      
                      2,362,049
                      
                      
                      
                      71,818TOTAL
      ASSETS
                      
                      $
                      59,287,331
                      
                      
                      $
                      42,119,955LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                      
                      $
                      663,092
                      
                      
                      $
                      2,997,740Payable-acquisition
      of a subsidiary (Note 8)
                      
                      
                      -
                      
                      
                      
                      1,818,418Accrued
      expenses
                      
                      
                      1,657,437
                      
                      
                      
                      557,577Accrued
      liquidated damages
                      
                      
                      254,301
                      
                      
                      
                      -Related
      party payables
                      
                      
                      23,452
                      
                      
                      
                      143,366Income
      taxes payable
                      
                      
                      1,450,433
                      
                      
                      
                      114,909Advances
      from customers
                      
                      
                      1,375,460
                      
                      
                      
                      708,291Short-term
      notes payable
                      
                      
                      11,256,871
                      
                      
                      
                      6,406,922Total
      current liabilities
                      
                      
                      16,681,046
                      
                      
                      
                      12,747,223NOTE
      PAYABLE, net of current portion
                      
                      
                      -
                      
                      
                      
                      2,053,501-TOTAL
      LIABILITIES
                      
                      $
                      16,681,046
                      
                      
                      $
                      14,800,724MINORITY
      INTEREST
                      
                      
                      1,546,319
                      
                      
                      
                      1,073,364STOCKHOLDERS'
      EQUITYPreferred
      Stock, $0.001 par value; 10,000,000 shares authorized
                        3,448,480
      Series B Preferred Stock issued and outstanding
                      
                      
                      3,448
                      
                      
                      
                      -Common
      Stock, $0.01 par value; 100,000,000 shares authorized
                        22,271,786
      and 22,006,173 shares issued and outstanding as of
                        December
      31, 2008 and December 31, 2007, respectively
                      
                      
                      222,718
                      
                      
                      
                      220,062Additional
      paid-in capital
                      
                      
                      13,791,723
                      
                      
                      
                      10,682,755Accumulated
      retained earnings
                      
                      
                      22,468,934
                      
                      
                      
                      12,458,632Accumulated
      other comprehensive income
                      
                      
                      4,573,143
                      
                      
                      
                      2,884,418Total
      stockholders' equity
                      
                      
                      41,059,966
                      
                      
                      
                      26,245,867TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                      
                      $
                      59,287,331
                      
                      
                      $
                      42,119,955





See
accompanying notes to consolidated financial statements.


F-2
 Table of Contents


SKYPEOPLE FRUIT JUICE,
INC.





CONSOLIDATED
STATEMENTSOF OPERATIONS AND COMPREHENSIVE INCOME





For
      the Year Ended December 31,2008
                  
                  
                  2007Revenue
                  
                  $
                  41,648,605
                  
                  
                  $
                  29,361,941Cost
      of Sales
                  
                  
                  23,607,409
                  
                  
                  
                  18,467,045Gross
      Margin
                  
                  
                  18,041,196
                  
                  
                  
                  10,894,896Operating
      ExpensesGeneral
      and administrative expenses
                  
                  
                  2,830,739
                  
                  
                  
                  1,158,759Selling
      expenses
                  
                  
                  1,453,461
                  
                  
                  
                  686,819Research
      and development expenses
                  
                  
                  449,695
                  
                  
                  
                  30,878Liquidated
      damages
                  
                  
                  254,301
                  
                  
                  
                  -Total
      operating expenses
                  
                  
                  4,988,196
                  
                  
                  
                  1,876,456Income
      from Operations
                  
                  
                  13,053,000
                  
                  
                  
                  9,018,440Other
      Income (Expenses)Interest
      income
                  
                  
                  63,775
                  
                  
                  
                  18,295Subsidy
      income
                  
                  
                  316,152
                  
                  
                  
                  500,468Interest
      expense
                  
                  
                  (932,048
                  )
                  
                  
                  (70,622
                  )Other
      income (expenses)
                  
                  
                  353,698
                  
                  
                  
                  (400,517
                  )Total
      other income (expenses)
                  
                  
                  (198,423
                  )
                  
                  
                  47,624Income
      Before Income Tax
                  
                  
                  12,854,577
                  
                  
                  
                  9,066,064Income
      Tax Provision
                  
                  
                  2,231,140
                  
                  
                  
                  1,109,160Income
      Before Minority Interest
                  
                  
                  10,623,437
                  
                  
                  
                  7,956,904Minority
      interest
                  
                  
                  613,135
                  
                  
                  
                  360,501Net
      Income
                  
                  $
                  10,010,302
                  
                  
                  $
                  7,596,403Earnings
      Per Share:Basic
      earnings per share
                  
                  $
                  0.37
                  
                  
                  $
                  0.35Diluted
      earnings per share
                  
                  $
                  0.37
                  
                  
                  $
                  0.35Weighted
      Average Shares OutstandingBasic
                  
                  
                  22,230,334
                  
                  
                  
                  22,006,173Diluted
                  
                  
                  26,831,961
                  
                  
                  
                  22,006,173Comprehensive
      IncomeNet
      income
                  
                  $
                  10,010,302
                  
                  
                  $
                  7,596,403Foreign
      currency translation adjustment
                  
                  
                  1,688,725
                  
                  
                  
                  2,349,283Comprehensive
      Income
                  
                  $
                  11,699,027
                  
                  
                  $
                  9,945,686




See
accompanying notes to consolidated financial statements.


F-3
 Table of Contents


SKYPEOPLE FRUIT JUICE,
INC.





CONSOLIDATED
STATEMENTS OF SHAREHOLDERS'EQUITY


Preferred
      Stock Shares
                  
                  
                  Preferred
                    Stock
                  
                  
                  Common
                    Stock
                    Shares
                  
                  
                  Common
                    Stock
                  
                  
                  Additional
                    Paid
      in
                    Capital
                  
                  
                  Retained
                    Earnings
                  
                  
                  Other
                    Comprehensive
                    Income
                  
                  
                  TotalBalance
      at December 31, 2006
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  22,006,173
                  
                  
                  $
                  220,062
                  
                  
                  $
                  10,682,755
                  
                  
                  $
                  4,862,229
                  
                  
                  $
                  535,135
                  
                  
                  $
                  16,300,181Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  7,596,403
                  
                  
                  
                  —
                  
                  
                  
                  7,596,403Foreign
      currency translation adjustment
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  2,349,283
                  
                  
                  $
                  2,349,283Balance
      at December 31, 2007
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  22,006,173
                  
                  
                  $
                  220,062
                  
                  
                  $
                  10,682,755
                  
                  
                  $
                  12,458,632
                  
                  
                  $
                  2,884,418
                  
                  
                  $
                  26,245,867Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  10,010,302
                  
                  
                  
                  —
                  
                  
                  
                  10,010,302Foreign
      currency translation adjustment
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  1,688,725
                  
                  
                  $
                  1,688,725Share
      Exchange and Private Placement Financing
                  
                  
                  3,448,480
                  
                  
                  
                  3,448
                  
                  
                  
                  265,613
                  
                  
                  
                  2,656
                  
                  
                  
                  3,108,968
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,115,072Balance
      at December 31, 2008
                  
                  
                  3,448,480
                  
                  
                  $
                  3,448
                  
                  
                  
                  22,271,786
                  
                  
                  $
                  222,718
                  
                  
                  $
                  13,791,723
                  
                  
                  $
                  22,468,934
                  
                  
                  $
                  4,573,143
                  
                  
                  $
                  41,059,966





See
accompanying notes to consolidated financial statements.


F-4
 Table of Contents


SKYPEOPLE FRUIT JUICE,
INC.





CONSOLIDATED
STATEMENTS OF CASHFLOW


December
      31,
                      2008
                    
                    
                    December
      31,
                      2007Cash
      Flows from Operating ActivitiesNet
      income
                    $
                    10,010,302
                    
                    
                    $
                    7,596,403Adjustments
      to reconcile net income to net cash flow provided by operating
      activitiesBad
      debt
                    
                    17,690
                    
                    
                    
                    -Depreciation
      and amortization
                    
                    1,903,117
                    
                    
                    
                    1,454,746Loss
      on sale of property, plant and equipment
                    
                    1,282
                    
                    
                    
                    -Minority
      interest
                    
                    613,135
                    
                    
                    
                    360,501Changes
      in operating assets and liabilitiesAccounts
      receivable
                    
                    (1,798,369
                    )
                    
                    
                    (1,101,307
                    )Other receivables
                    
                    (233,740
                    )
                    
                    
                    (1,369
                    )Prepaid
      expenses and other current assets
                    
                    (1,052,874
                    )
                    
                    
                    (164,389
                    )Inventories
                    
                    2,873,565
                    
                    
                    
                    (3,439,851
                    )Accounts
      payable
                    
                    (2,512,196
                    )
                    
                    
                    2,100,393Accrued
      expenses
                    
                    291,347
                    
                    
                    
                    183,669Accrued
      liquidated damages
                    
                    254,301
                    
                    
                    
                    -Taxes payable or receivable
                    
                    2,048,172
                    
                    
                    
                    (1,516,106
                    )Advances
      from customers
                    
                    605,042
                    
                    
                    
                    680,388Net
      cash provided by operating activities
                    
                    13,020,774
                    
                    
                    
                    6,153,078Cash
      Flows from Investing ActivitiesPurchase
      of a subsidiary
                    
                    -
                    
                    
                    
                    (3,828,304
                    )Paid
      off of Huludao Wonder's debt
                    
                    (2,220,394
                    )
                    
                    
                    -Deposits
      to purchase target company
                    
                    (2,155,583
                    )
                    
                    
                    -Prepayment
      for lease improvement
                    
                    (359,264
                    )
                    
                    
                    -Additions
      to fixed assets
                    
                    (2,924,217
                    )
                    
                    
                    (53,328
                    )Loan
      repayment from related parties
                    
                    600,335
                    
                    
                    
                    -Loan
      advanced to related parties
                    
                    (101,966
                    )
                    
                    
                    (480,250
                    )Proceeds
      from sale of property, plant and equipment
                    
                    5,030
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    (7,156,059
                    )
                    
                    
                    (4,361,882
                    )Cash
      Flows from Financing ActivitiesCapital
      contribution from stockholders
                    
                    -
                    
                    
                    
                    -Proceeds
      from stock issuance
                    
                    3,115,072
                    
                    
                    
                    -Repayment
      of short-term loan
                    
                    (14,198,
      105
                    )
                    
                    
                    -Proceeds
      from short-term loans
                    
                    16,353,688
                    
                    
                    
                    1,814,795Prepayments
      of related party loan
                    
                    (121,752
                    )
                    
                    
                    (1,865,649
                    )Advanced
      from related party
                    
                    -
                    
                    
                    
                    -Payment
      of dividends to minority shareholders
                    
                    (311,984
                    )
                    
                    
                    -Net
      cash provided by (used in) financing activities
                    
                    4,836,919
                    
                    
                    
                    (50,854
                    )Effect
      of Changes in Exchange Rate
                    
                    478,299
                    
                    
                    
                    218,723NET
      INCREASE IN CASH
                    
                    11,179,933
                    
                    
                    
                    1,959,065CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                    
                    4,094,238
                    
                    
                    
                    2,135,173CASH
      AND CASH EQUIVALENTS, END OF YEAR
                    $
                    15,274,171
                    
                    
                    $
                    4,094,238Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                    $
                    951,888
                    
                    
                    $
                    400,517Cash
      paid for income taxes
                    $
                    2,231,133
                    
                    
                    $
                    2,018,534Purchase
      of Huludao, offset by related party receivables
                    $
                    6,887,391
                    
                    
                    $
                    -





See
accompanying notes to consolidated financial statements.


F-5
 Table of Contents


SKYPEOPLEFRUIT
JUICE, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


YEARS
ENDED December 31, 2008 and  2007




1.           CORPORATE
INFORMATION




SkyPeople
Fruit Juice, Inc.




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




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




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




This
share exchange transaction resulted in Pacific obtaining a majority voting and
control interest in the Company. Generally accepted accounting principles
require that the company whose stockholders retain the majority controlling
interest in a combined business be treated as the acquirer for accounting
purposes, resulting in a reverse acquisition with Pacific as the accounting
acquirer and SkyPeople as the acquired party. Accordingly, the share exchange
transaction has been accounted for as a recapitalization of 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.




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. The
1-for-328.72898 reverse stock split of the outstanding shares of Common Stock
and a mandatory 1-for-22.006 conversion of Series A Preferred Stock, which had
been approved by written consent of the holders of a majority of the outstanding
voting stock, also became effective on May 23, 2008.




Shaanxi Tianren Organic Food
Co., Ltd.




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




On May
27, 2006, Shaanxi Tianren purchased 91.15% of Shaanxi Qiyiwangguo’s ownership
interest for a purchase price in the amount of RMB 36,460,000 (or approximately
U.S. $4,213,662). 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 and forward.


F-6
 Table of Contents




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





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










*Xi’an
Qinmei Food Co., Ltd., an entity which is not affiliated with the Company, owns
the other 8.85% of the equity interests in Shaanxi Qiyiwangguo Modern Organic
Co. Ltd.) (former 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.


F-7
 Table of Contents




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 year ended December 31, 2008 and
2007.




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
December 31, 2008, the cash balance in financial institutions in the United
States was $42,153. Accounts at these financial institutions are insured by the
Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31,
2008, the Company had no deposits which were in excess of the FDIC insurance
limit.




Accounting for the
Impairment of Long-Lived Assets




The
long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. It is reasonably possible that these assets could
become impaired as a result of technological or other industrial changes. The
determination of recoverability of assets to be held and used is made by
comparing the carrying amount of an asset to future net undiscounted cash flows
to be generated by the assets.


F-8
 Table of Contents




If such
assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less cost to sell. During the reporting
periods there was no impairment loss.




Earnings Per
Share




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


For
      the Year Ended December 31,2008
                  
                  
                  2007NUMERATOR
      FOR BASIC AND DILUTED EPSNet
      income (numerator for Diluted EPS)
                  
                  $
                  10,010,302
                  
                  
                  $
                  7,596,403Net
      income allocated to Preferred Stock
                  
                  
                  (1,716,767
                  )
                  
                  
                  -Net
      income to common stockholders (Basic)
                  
                  $
                  8,293,535
                  
                  
                  $
                  7,596,403DENOMINATORS
      FOR BASIC AND DILUTED EPSCommon
      Stock outstanding
                  
                  
                  22,230,334
                  
                  
                  
                  22,006,17322,230,334
                  
                  
                  
                  22,006,173DENOMINATOR
      FOR BASIC EPSAdd:  Weighted average preferred as if
      converted
                  
                  
                  4,601,627
                  
                  
                  
                  -Add:
      Weighted average stock warrants outstanding
                  
                  
                  -
                  
                  
                  
                  -DENOMINATOR
      FOR DILUTED EPS
                  
                  
                  26,831,961
                  
                  
                  
                  22,006,173EPS
      – Basic
                  
                  $
                  0.37
                  
                  
                  $
                  0.35EPS
      – Diluted
                  
                  $
                  0.37
                  
                  
                  $
                  0.35





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 $1,344,484 and
$625,416 for 2008 and 2007, respectively, are reported in the Consolidated
Statement of Income as a component of selling expenses.


F-9
 Table of Contents




Accumulated Other
Comprehensive Income




Accumulated
other comprehensive income represents foreign currency translation
adjustments.




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 December 31, 2008. 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 includes 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:


December
      31,
                  2008
                
                
                December
      31,
                  2007Raw
      materials and packaging
                
                $
                611,755
                
                
                $
                255,936Finished
      goods
                
                
                1,232,642
                
                
                
                4,204,213Inventories
                
                $
                1,844,397
                
                
                $
                4,460,149




Intangible
Assets




The
Company adopted the provisions of SFAS No. 142, Goodwill and Other IntangibleAssets (“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.


F-10
 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 right with respect to that product.





Advertising and Promotional
Expense




Advertising
and promotional costs are expensed as incurred. The Company incurred $32,835 and
$12,945 in advertising and promotional costs for the years ended December 31,
2008 and 2007, respectively.





Estimates




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




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




F-11
 Table of Contents





December
      31,
                  2008
                
                
                December
      31,
                  2007Machinery
      and equipment
                
                $
                14,531,577
                
                
                $
                13,672,861Furniture
      and office equipment
                
                
                226,929
                
                
                
                200,266Motor
      vehicles
                
                
                194,262
                
                
                
                193,899Buildings
                
                
                8,521,537
                
                
                
                6,489,513Subtotal
                
                
                23,474,305
                
                
                
                20,556,539Less:
      accumulated depreciation
                
                
                (4,970,756
                )
                
                
                (2,992,392
                )Net
      property and equipment
                
                $
                18,503,549
                
                
                $
                17,564,147




Depreciation
expense included in general and administration expenses for the years ended
December 31, 2008 and 2007 was $600,084 and $188,100, respectively. Depreciation
expense included in cost of sales for the years ended December 31, 2008, and
2007 was $1,139,028 and $1,138,102, 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, $1,211,933 during fiscal year 2008.
This research and development center is expected to be completed by June 30,
2009. Our estimated future capital expenditure for this project is $1,026,017.
Once it is completed, it will provide more space for our engineers to conduct
research and development toward the goal of improving and facilitating our
product line. The Company also completed a technology innovation and expansion
project of $5,869,218 over its original industrial waste water processing
facility located in the factory of Jingyang County in Shaanxi Province during
the fiscal year 2008. This 600 square meter industrial waste water processing
facility increases the capacity of waste water processing and recycling from the
current 100 cubic meters per day to 300 cubic meters per day. The expanded
industrial waste water processing facility enables the Company to increase its
production capacity in the future and will be in compliance with local
environmental laws.





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.





Shaanxi
Qiyiwangguo previously leased a waste-water processing facility at an annual fee
of approximately $11,600. This 1,118 square meter industrial waste water
processing facility remains on schedule and once completed will process 1,200
cubic meters of waste water per day, which will meet the increasing
production demands of Shaanxi Qiyiwangguo and will improve the use of recycled
waste water. We capitalized $680,336 as construction in progress during 2008.
This project is expected to be operational by the end of the third quarter of
fiscal 2009. Our estimated future input for this project is $111,163. 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
$11,149 as construction in progress during 2008. This project is expected to be
completed by the first quarter of 2009. There will be no future input for this
project.





Capitalized
interest expenses of $39,473 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.


F-12
 Table of Contents


Foreign Currency and Comprehensive
Income




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




On July
21, 2005, the PRC changed its foreign currency exchange policy from a fixed
RMB/USD exchange rate into a flexible rate under the control of the PRC’s
government. We use the closing rate method in currency translation of the
financial statements of the Company.





RMB is
not freely convertible into the currency of other nations. All such exchange
transactions must take place through authorized institutions. There is no
guarantee the RMB amounts could have been, or could be, converted into U.S.
dollars at rates used in translation.




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




Restrictions on Transfer of
Assets Out of the PRC


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




Minority Interest in
Subsidiaries




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


F-13
 Table of Contents




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 41 research and
development personnel as of December 31, 2008. Shaanxi Tianren also from time to
time retains external experts and research institutions. Research and
development expenses were $449,695 and $30,878 for the years ended December 31,
2008 and 2007, respectively.




New Accounting
Pronouncements




We
adopted Financial Accounting Standards Board (“FASB”) Statement of Financial
Accounting Standard (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”) on January 1, 2008 for financial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. SFAS 157 defines fair value, establishes a framework for measuring fair
value as required by other accounting pronouncements and expands fair value
measurement disclosures. The provisions of SFAS 157 are applied prospectively
upon adoption and did not have a material impact on our consolidated financial
statements. The disclosures required by SFAS 157 are included in Note 14, “Note
Payable,” to these consolidated financial statements.





We
adopted SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities—Including an
Amendment of FASB Statement No. 115 (“SFAS 159”) as 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 any assets or liabilities which were not previously carried at fair value.
Accordingly, the adoption of SFAS 159 had no impact on our consolidated
financial statements.





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


F-14
 Table of Contents


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





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




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




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




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


F-15
 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.




4.           CONVERTIBLE
PREFERRED STOCK




The
Series A Convertible Preferred Stock




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


F-16
 Table of Contents





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




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




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




6.           NOTE
PURCHASE AGREEMENT




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




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


F-17
 Table of Contents


7.           ACQUISITION
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.  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.  In this regard, some of the 2007
accounts have been reclassified to be comparable to  the 2008
presentation.




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





Pro
Forma Financial Information




The
unaudited pro forma financial information presented below summarizes the
combined operating results of the Company and Huludao Wonder for the year ended
December 31, 2007 as if the acquisition had occurred on January 1,
2007.




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


F-18
 Table of Contents




PRO
FORMA STATEMENT OF OPERATIONS


FOR
THE YEAR ENDED DECEMBER 31, 2007





Historical
      Information of the Company(1)
                
                
                Historical
      Information of the Acquired Entity (2)
                
                
                Pro
      Forma
                  Adjustments
      (3)
                
                
                Pro
      Forma(Unaudited)
                
                
                (Unaudited)
                
                
                
                
                (Unaudited)Net
      sales
                
                $
                29,361,941
                
                
                $
                1,775,241
                
                
                $
                -
                
                
                $
                31,137,182Net
      income (loss)
                
                $
                7,596,403
                
                
                $
                (271,213
                )
                
                $
                (34,432
                )
                
                $
                7,290,758Basic
      earnings per share
                
                $
                0.35
                
                
                
                
                
                
                
                
                
                
                $
                0.33Diluted
      earnings per share
                
                $
                0.35
                
                
                
                
                
                
                
                
                
                
                $
                0.33Basic
      weighted average common shares outstanding
                
                
                22,006,173
                
                
                
                
                
                
                
                
                
                
                
                22,006,173Diluted
      weighted average common shares outstanding
                
                
                22,006,173
                
                
                
                
                
                
                
                
                
                
                
                22,006,173





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





(1)
            The
      historical operating results of the Company were based on the Company’s
      unaudited financial statements for the year ended December 31,
      2007.(2)
            The
      historical information of Huludao was derived from the books and the
      records of Huludao for the five months ended May 30,
  2007.





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





8.           PAYABLE-ACQUISTION
OF HULUDAO WONDER





As of
December 31, 2007, payable of $1,818,418 represents balance owed to Huludao
Wonder’s former owners upon acquisition.  Amount was paid off during
2008.





9.           INVENTORIES




Inventories
consisted of the following:


December
      31,
                      
                      December
      31,2008
                      
                      2007Raw
      materials and packaging
                      
                      $
                      611,755
                      
                      $
                      255,936Finished
      goods
                      
                      
                      1,232,642
                      
                      
                      4,204,213Inventories
                      
                      $
                      1,844,397
                      
                      $
                      4,460,149




F-19
 Table of Contents





10.           INCOME
TAX




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





As the
Company had no income generated in the United States, there was no tax expense
or tax liability due to the Internal Revenue Service of the United States as of
December 31, 2008.





The
Company had no material adjustments to its liabilities for unrecognized income
tax benefits according to the provisions of FIN 48. The current year tax was
$2,231,140 and $1,109,160 for fiscal year 2008 and 2007, respectively. The
Company has recorded no deferred tax assets or liabilities as of December 31,
2008 and 2007, since nearly all differences in tax basis and financial statement
carrying values are permanent differences.





Income
      Tax Expenses
                          
                          December
      31,
                            2008
                          
                          December
      31,
                            2007Current
                          
                          $
                          2,231,140
                          
                          $
                          1,109,160Deferred
                          
                          
                          -
                          
                          
                          -Total
                          
                          $
                          2,231,140
                          
                          $
                          1,109,160




11.           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 is 20 to 50 years. The amortization expenses were $160,005 and
$128,544 for fiscal year 2008 and 2007, respectively.




12.           RELATED
PARTIES RECEIVABLES AND PAYABLES




As of
December 31, 2008, the Company had no outstanding loans to related entities with
common owners and directors. During the year ended December 31, 2008, Pacific
erroneously paid RMB 34,848,000, or approximately $5,007,850 based on the
average rate of the year ended December 31, 2008, to its former shareholders,
the Company’s director Xiaoqing Yan and its CEO, Yongke Xue as the result of a
dividend declaration by Pacific in February 2008 (See Note 15). Because the
recipients of the money were no longer shareholders of Pacific, the transaction
has been treated for accounting purposes as an interest free loan. As of
December 31, 2008, the directors and other related parties had returned the
monies they received (along with amounts loaned to related parties prior to
January 1, 2008) in cash in the amount of $5,506,229.





During
the year ended December 31, 2008, the related party loan and advances to Hede of
RMB 48,929,272 were credited against the purchase price that the Company paid
for Huludao on June 10, 2008. The Company also paid off approximately $121,752
of its loans payable to related parties in the year ended December 31, 2008. The
indebtedness of the Company to related entities with common owners and directors
as of December 31, 2007 totaled $4,970,427 as follows. The loans were unsecured
and bear no interest. These loans had no fixed payment terms.


F-20
 Table of Contents





Name
      of Related Party to Whom Loans were Given
                  
                  December
      31, 2007
                  
                  RelationMr.
      Andu Liu
                  
                  $
                  22,177
                  
                  Former
      shareholder of Shaanxi TianrenMr.
      Ke Lu
                  
                  
                  7,734
                  
                  Manager
      of Shaanxi TianrenXi’an
      Hede Investment Consultation Company Limited
                  
                  
                  101,286
                  
                  The
      Managing Director of Xi’an Hede is one of the family members of Shaanxi
      TianrenShaanxi
      Xirui Group Co., Ltd.
                  
                  
                  198,216
                  
                  Shareholder
      of Shaanxi QiyiwangguoYingkou
      Trusty Fruits Co., Ltd. (“Yingkou”)
                  
                  
                  77,212
                  
                  Hede
      is a shareholder of YingkouShaanxi
      Fruits Processing Co., Ltd.
                  
                  
                  73,629
                  
                  Former
      Shaanxi TianrenTotal
                  
                  $
                  480,254




As of
December 31, 2008, the indebtedness of the Company to its shareholders and
related entities with common owners and directors was $23,452 as
follows:





Name of Related
      Party from
      Whom Loans were Received
                        
                        December
      31, 2008
                        
                        RelationMr.
      Yongke Xue
                        
                        $
                        (23,452
                        )
                        
                        Former
      shareholder of Shaanxi TianrenTotal
                        
                        $
                        (23,452
                        )





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










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




13.           COMMON
STOCK




As of
December 31, 2008, 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, for the professional services that they provided, and
59,060 shares of Common Stock to Grover Moss for the conversion of principal
under the obligation of $398,000 with the Company.


F-21
 Table of Contents




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





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




14.           NOTE
PAYABLE




In the
year ended December 31, 2008, the Company paid off RMB 98,800,000, or
approximately $14,198,105 of short-term loans payable, and transferred RMB
15,000,000, or approximately $2,155,583 based on the average exchange rate for
the year ended December 31, 2008 from long-term loans payable to short-term
loans payable, which will be due in September 2009. The Company also entered
into nine new short-term loan agreements with some local banks in China. As of
December 31, 2008, the balance of these short-term loans totaled RMB 76,800,000
(U.S. $11,256,871 based on the exchange rate on December 31, 2008), with an
interest rate ranging from 5.58% to 9.83% per annum. Of these loans, $5,247,343
are collateralized by land and buildings. These loans are due from May 2009 to
October 2009.




During
2007, the Company borrowed a short-term loan from a bank in the amount of RMB
54,000,000 ($7,392,602 based on the exchange rate on December 31, 2007) with an
interest rate ranging from 5.40% to 9.48% per annum due from January 2008 to
September 2008. During December 2007, a short-term loan of RMB 720,000
($985,680) was paid off. At December 31, 2007, the short -term loan balance was
$6,406,922.




During
2007, the Company borrowed a long-term loan from a bank in the amount of RMB
15,000,000 ($2,053,501 based on the exchange rate on December 31, 2007) at the
bank’s prime rate of 9.49% plus a floating rate per annum. The loan has a term
of two years from the date of draw down. The principal of RMB 10,000,000
($1,369,000) is due on July 10, 2009, and the balance of RMB 5,000,000
($684,501) is due on September 20, 2009. At December 31, 2007, the long-term
loan balance was $2,053,501.





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. 115 as 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.


F-22
 Table of Contents





15.           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 $2,953,665
based on the average rate for the year ended December 31, 2008, to its former
shareholders. Since Shaanxi Tianren holds a 91.15% interest in Shaanxi
Qiyiwangguo, RMB 18,734,599, (or $2,692,266) was paid to Shaanxi Tianren and RMB
1,818,993 (or $261,399) was paid to its minority interest holders. On the same
date, the Board of Directors of Shaanxi Tianren declared a cash dividend of RMB
35,200,000 (or $5,058,434 based on the average exchange rate for the year ended
December 31, 2008), to its shareholders. Since Pacific holds a 99% interest in
Shaanxi Tianren, RMB 34,848,000 (or $5,007,850 based on the average exchange
rate for the year ended December 31, 2008) was paid to Pacific and RMB 352,000
(or $50,584 based on the average exchange rate for the year ended December 31,
2008) was paid to its minority interest holders. The inter-company dividend was
eliminated in the consolidated statement. The dividend paid to minority interest
holders was RMB 2,170,993 (or $311,984 based on the average exchange rate for
the year ended December 31, 2008).




In May
2008, Pacific erroneously paid RMB 34,848,000 (or $5,007,850 based on the
average exchange rate for the year ended December 31, 2008) to its former
shareholders as the result of a dividend declaration in February 2008. The
monies were then returned to the Company in June 2008 (See Note
12).




16.           RELATED
PARTY TRANSACTIONS





During
the year ended December 31, 2007, the Company made a loan of $198,216 to Shaanxi
Xirui Group Co. Ltd., which is a shareholder of the former Shaanxi
Qiyiwangguo.





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





On May
31, 2007, Huludao Wonder was acquired by Hede at the fair market price of RMB
48,250,000, which was based on a third party valuation. At the time Hede
acquired Huludao Wonder, both Hede and Shaanxi Tianren intended that Huludao
Wonder would be sold to Shaanxi Tianren after a one-year holding period. The
management of Shaanxi Tianren wanted an affiliate to run Huludao Wonder first to
make sure there were no issues before it was conveyed to Shaanxi Tianren.
Shaanxi Tianren participated significantly in the design of this purchase
transaction, and the purchase price was agreed upon by the Board of Shaanxi
Tianren. The purchase agreement under which Hede acquired Huludao Wonder
required that installments of the purchase price be paid as follows: RMB
10,000,000 on June 10, 2007; RMB 20,000,000 before September 2007; and RMB
18,250,000 before March 31, 2008. Immediately following the acquisition, Hede
leased to Shaanxi Tianren all of the assets and facilities of Huludao Wonder
under a Lease Agreement dated June 2, 2007 between Hede and Shaanxi Tianren. The
lease was for a term of one year from July 1, 2007 to June 30, 2008. The monthly
rent under the lease was RMB 300,000 (approximately $43,972 based on the
exchange rate on December 31, 2008). Upon execution of the lease, Hede was paid
RMB 1.8 million, representing the first 6 months rent, and a refundable security
deposit of RMB 1.2 million.





In
January 2008, Shaanxi Tianren paid rental expense of RMB 11,038 (approximately
$1,618 based on the exchange rate on December 31, 2008) to the landlord of
Hede’s office space on behalf of Hede.




In May
2008, Shaanxi Tianren paid to Hede an aggregate amount of RMB 1,500,000
(approximately $219,861 based on the exchange rate on December 31, 2008) of rent
for the period from January to May 2008 pursuant to the Huludao Wonder Lease. In
the same month, Shaanxi Tianren assumed Hede’s obligation of RMB 18,000,000
(approximately $2,638,329 based on the exchange rate on December 31, 2008) for
the balance of the purchase price for Huludao Wonder.


F-23
 Table of Contents





On May
31, 2008, Shaanxi Tianren entered into a Stock Transfer Agreement with Hede.
Under the terms of the Stock Transfer Agreement, Hede agreed to transfer all its
stock ownership of Huludao Wonder to Shaanxi Tianren for a total price of RMB
48,250,000 (approximately $6,308,591 based on the exchange rate on June 1,
2007). The sale was closed on June 10, 2008. As of May 31, 2008, Shaanxi
Tianren had a related party receivable of RMB 48,928,272 from Hede, which was
credited against the purchase price (so that Shaanxi Tianren did not pay any
cash to Hede for the purchase) and the remaining balance of the loans and
advances of RMB 679,272 (approximately $99,564 based on the exchange rate on
December 31, 2008) to Hede was repaid to the Company on June 11,
2008.




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




As of the
date of this Annual Report, Barron Partners beneficially owns 10,159,265 shares
of the Company’s Common Stock (approximately 31.3% of the Common Stock) and is a
selling stockholder herein. The oral agreement with Barron Partners was approved
by the Chief Executive Officer of the Company.





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




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




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




17.           CONTINGENCIES




The
Company has not, historically, carried any property or casualty insurance and
has never incurred property damage or incurred casualty losses. Management feels
the chances of such an obligation arising are remote. Accordingly, no amounts
have been accrued for any liability that could arise from a lack of
insurance.




Deposits
in banks in the PRC are not insured by any government entity or agency, and are
consequently exposed to risk of loss. Management believes the probability of a
bank failure, causing loss to the Company, is remote.


F-24
 Table of Contents




18.           CONCENTRATIONS,
RISKS AND UNCERTAINTIES




The
Company does not have concentrations of business with customers constituting
greater than 10% of the Company’s revenue in fiscal year 2008 and 2007. Sales to
our five largest customers accounted for approximately 34% and 29% of our net
sales during the years ended December 31, 2008 and 2007,
respectively.





The
Company has not experienced any significant difficulty in collecting its
accounts receivable in the past and is not aware of any financial difficulties
being experienced by its major customers. There was bad debt expense of $17,690
and $0 during the years ended December 31, 2008 and 2007,
respectively.





The
Company does not have concentrations of business with vendors constituting
greater than 10% of the Company’s purchases in fiscal year 2008 and
2007.





19.           NEW
LEASE AGREEMENT




On June
23, 2008, Shaanxi Tianren entered into a lease agreement for China office space.
The lease has a term of one year, with a commencement date of July 1, 2008 and
covers approximately 1,400 total rentable square meters. The annual rent
is  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-K.





20.           OTHER
ASSETS





Other
assets as of December 31, 2008 included RMB 15,000,000 of deposits to purchase
Yingkou Trusty Fruits Co., Ltd. (“Yingkou”). On June 1, 2008, Shaanxi Tianren
entered into a memorandum agreement with Xi’an Dehao Investment Consultation Co.
Ltd. (“Dehao”). Under the term of the agreement, Dehao agreed to transfer 100%
of the ownership interest of Yingkou to Shaanxi Tianren. Shaanxi Tianren is
required to make a refundable down payment of RMB 15,000,000, or approximately
$2,198,608 based on the exchange rate of December 31, 2008, to Dehao as a
deposit for the purchase. The acquisition is in the negotiating process with
Dehao and also a third party market value evaluation is in process. The
acquisition is targeted to be complete in the second quarter of fiscal
2009.





21.           
SUBSEQUENT EVENT




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 which we sold to two
Investors pursuant to a Stock Purchase Agreement on February 26, 2008 was
declared effective by the Securities and Exchange Commission on February 5,
2009.  We recorded liquidated damages 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.