Business context and reporting period
SkyPeople Fruit Juice, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2013. It produces and sells fruit juice concentrates, beverages, and other fruit products, principally in China. The filing company is SkyPeople Fruit Juice, Inc.; this differs from the request metadata naming Future Fintech Group Inc.
Financial performance
| Metric | Three months ended June 30, 2013 | Six months ended June 30, 2013 |
|---|---|---|
| Revenue | $10.35 million, down 19% year over year | $28.96 million, up 4% |
| Gross profit / margin | $3.35 million / 32%, versus $4.22 million / 33% | $10.99 million / 38%, versus $9.01 million / 32% |
| Operating income | $0.94 million, down 68% | $6.43 million, up 16% |
| Net income | $0.78 million, down 69% | $4.94 million, up 8% |
| Net income attributable to company | $0.68 million; diluted EPS $0.03 | $4.50 million; diluted EPS $0.17 |
| Operating cash flow | $29.82 million for six months, versus $25.05 million | |
| Cash and cash equivalents | $80.31 million at June 30, 2013, versus $77.56 million at year-end 2012 |
First-half beverage revenue rose 76% to $17.18 million, while concentrate sales declined: apple products fell 48%, kiwifruit products 19%, and pear juice 31%. In Q2, beverage revenue grew 35%, but pear juice revenue fell 82% and kiwifruit products fell 98%. Management attributed concentrate declines to lower volumes and/or selling prices. Operating expenses rose 83% in Q2 and 32% in the first half, including higher legal, management payroll, and selling costs.
Liquidity, debt, and investment
Working capital was $73.39 million at June 30, down from $102.87 million at December 31, 2012. Current assets were $102.16 million and current liabilities $28.78 million. Short-term bank loans totaled $13.98 million, and an unsecured one-year related-party loan of $8.0 million bears 6% interest. A $5.39 million bank loan was past due on June 28, 2013 and in default; the company said it was negotiating renewal. The filing reports no long-term loans.
Investing activities used $38.49 million in the first half, principally reflecting prepayments for other assets and land-use rights; other assets increased to $39.99 million from $1.89 million at year-end. Financing activities provided $10.10 million. Management said operating cash flow, cash on hand, anticipated receipts, and trade credit should fund operating needs for at least 12 months, excluding potential production-capacity expansion.
Outlook, risks, and unusual items
- Management plans to broaden the domestic market for Hedetang beverages, expand beverage offerings, and develop higher-margin products. The filing provides no quantified earnings or revenue guidance.
- Planned projects include a Yidu orange-processing project with stated investment of approximately $48 million and a Mei County kiwi-processing/trading project with stated investment of approximately $71.9 million. The company reported partial payments toward related land-use rights and construction facilities; these projects entail substantial funding and execution risks.
- The business is seasonal and exposed to weather, volatile fruit prices, and concentrated suppliers. Two suppliers accounted for 39% of first-half purchases; no individual customer represented 10% of first-half sales.
- A securities class action remained pending, including a class-certification motion filed June 28, 2013. The company disputes the claims and recorded no contingency accrual. A shareholder demand letter also remained under review.
- The company suspended four outside R&D agreements in Q2, received a $79,642 refund, and said it would focus on an internal R&D team. Management reported disclosure controls were effective and no material change in internal financial controls.
- Fruit beverage growth partly offset weak concentrate sales. First-half operating cash flow was supported by a $36.67 million reduction in accounts receivable, while investment outflows were unusually large.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for SkyPeople Fruit Juice, Inc., not Future Fintech Group Inc.
- Check the status, renewal, collateral, and any consequences of the $5.39 million bank loan reported in default.
- Assess funding needs, land-title progress, and construction timelines for the Yidu, Mei County, and other projects against cash available and management’s 12-month liquidity statement.
- Review whether beverage growth and improved first-half gross margin can continue, given Q2’s lower revenue and sharply reduced operating income.
- Monitor the securities litigation and any resulting financial exposure; the filing records no accrual.
- Evaluate the sustainability of operating cash flow, particularly its reliance on collections of receivables, and the large rise in other assets.