Business context and reporting period
This is SkyPeople Fruit Juice, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2012, filed November 13, 2012. The filing identifies the registrant as SkyPeople Fruit Juice, Inc. (not Future Fintech Group Inc.); investors should verify the filing-company and security identity. The company produces and sells fruit juice concentrates, beverages, and other fruit products, principally in China and in export markets.
Key financial metrics
| Metric | Three months ended September 30, 2012 | Nine months ended September 30, 2012 |
|---|---|---|
| Revenue | $28.6 million | $56.4 million |
| Gross profit / margin | $8.5 million / 30% | $17.5 million / 31% |
| Operating income | $6.7 million | $12.2 million |
| Net income | $5.3 million | $9.8 million |
| Net income attributable to SkyPeople | $5.0 million; diluted EPS $0.19 | $9.4 million; diluted EPS $0.35 |
| Net cash provided by operating activities | Not separately stated for the quarter | $20.3 million |
At September 30, cash and cash equivalents were $80.9 million, restricted cash $31,541, and working capital $94.9 million. Current assets were $117.0 million against current liabilities of $22.1 million. Short-term bank loans were $11.6 million, up from $6.4 million at year-end 2011; the disclosed loans bear interest rates of approximately 4.5%–9.5% and are due in 2013. The company reported no off-balance-sheet arrangements.
Material changes versus prior comparable periods
- Third-quarter revenue rose 64% year over year, while nine-month revenue rose 15%. Third-quarter growth reflected higher pear concentrate, beverage, and other-product sales. For the nine months, higher pear concentrate and beverage sales more than offset lower apple concentrate, kiwifruit, and fresh-produce revenue.
- Third-quarter gross margin increased to 30% from 28%; nine-month gross margin declined to 31% from 36%. Nine-month gross profit was nearly flat year over year despite higher revenue.
- Nine-month operating income decreased 1% to $12.2 million. Net income attributable to SkyPeople increased 9%, mainly reflecting higher subsidy income, including export-related VAT rebates.
- Nine-month operating cash flow fell 30% to $20.3 million. Investing activities used $5.3 million, and financing activities provided $5.2 million. Cash increased $19.7 million from December 31, 2011.
Outlook, commentary, risks, and unusual items
- Management said operating cash flows, expected receipts, cash on hand, and trade credit should cover operating cash needs for at least 12 months, excluding potential costs of expanding production capacity. The filing gives no earnings or revenue guidance.
- Management describes the business as seasonal and exposed to weather, volatile fruit prices, and raw-material supply. A later apple squeezing season and kiwi shortages reduced apple and kiwi sales in the period. Beverage price reductions supported volume growth but contributed to lower nine-month beverage margins.
- On October 29, 2012, after quarter-end, SkyPeople (China) agreed with the Yidu municipal government to develop an orange processing zone, with stated investment of RMB 300 million (approximately $48 million), including fixed assets and land-use rights. The filing does not clearly specify the funding plan or completion schedule. The company also reported estimated capital expenditure of $18.6 million across listed projects and approximately $12 million spent on capital projects as of September 30.
- A securities class action remained pending: on September 10, 2012, the court granted in part and denied in part the company’s motion to dismiss. The company disputed the allegations and recorded no contingency accrual. A shareholder demand had not resulted in a formal derivative complaint. A separate dispute with Absaroka was settled in June 2012, with no admission of wrongdoing by either party.
- Five largest customers represented 29% of nine-month sales, versus 22% in the prior-year period; one supplier represented 20% of nine-month purchases. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant and security identity: this supplied 10-Q is for SkyPeople Fruit Juice, Inc., despite the request metadata naming Future Fintech Group Inc.
- Assess the sustainability of revenue and margins, especially the effects of seasonality, fruit supply and costs, beverage pricing, and export-related subsidies.
- Review the funding, land acquisition, timing, and execution risks of the approximately $48 million Yidu project relative to reported cash and other capital spending.
- Check the status and potential exposure of the securities litigation and shareholder demand; no litigation-loss accrual was recorded.
- Verify customer and supplier concentration and the collection of receivables; accounts receivable remained $29.2 million at quarter-end.
- Note the October 1, 2012 conversion of the remaining 230,147 preferred shares into 153,431 common shares, a subsequent event after the reporting date.