SecProbe.io

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    spcorrespnov3-2010.htm

Via EDGAR

Mr. Brad Skinner

Mr. Bob Carrol

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20002

Re:

SkyPeople Fruit Juice

Form 10-K for the fiscal year ended December 31, 2009

File No. 1-14523

Dear Mr. Skinner and Mr. Carrol:

We submit this letter in response to comments from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in the letter dated September 27, 2010 (the “Comment Letter”), relating to the Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the “10-K Report”) of SkyPeople Fruit Juice, Inc. (the “Company”, “We” or “Us”).

We have responded to each of the Staff’s comments either by providing (i) information as requested by the Staff, (ii) an explanation if we do not believe an revision is necessary, or (iii) a proposed disclosure in future filings.  Our responses to the Staff’s comments are as follows (the numbered paragraphs below correspond to the numbered paragraphs of the Staff’s comment letter, which has been retyped in bold for your ease of reference):

Form 10-K for the fiscal year ended December 31, 2009

Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 34

Comparison of Operation Results, page 49

Comparison of years ended December 31, 2009 and 2008, page 49

Operating Expense, page 52

1. We note your disclosure that you recorded all the depreciation expense related with your production machinery in general and administrative expenses in the squeezing season of 2008, and during the squeezing season of 2009, the depreciation expenses related to you production equipment was recorded in the cost of goods sold. Please quantify the amount of depreciation that was recorded in general and administrative expense in 2008, and the impact this had on your gross margins presented on page 50. Tell us why you classify the depreciation expense related to production machinery on different line items within your statement of operations based on the demand for your products. Further, clarify how this disclosure is consistent with Note 3 on page 89 which states deprecation related to property and equipment used in production is reported in cost of sales.

SkyPeople Fruit Juice, Inc.

Add: 16F, China Development Bank Tower, No. 2 Gaoxin 1st RD, Xi'an, China     Postcode: 710075

Tel:  0086-29-88377001    Fax:  0086-296-88377295

www.skypeoplefruitjuice.com

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Response: In response to the Staff’s comment, the Company hereby clarifies to the Staff that we do not classify the depreciation expense related to production machinery on different line items within our statement of operations based on demand for our products. Rather, we classify such depreciation expense based on whether our production machinery and equipment are used in producing products.

As discussed in the 10-K Report, our business operations are mildly seasonable because our production of concentrated fruit juice is based on the availability of the fresh fruits. Our machinery and equipment are used in production only during the squeezing season when fresh fruits are available.  In accordance with Standards of Financial Accounting and Reporting, Amendment of ARB No. 43, paragraph 5 and footnote 2 of ARB 43, Chapter 4, issued by the Financial Accounting Standards Board in November 2004 (attached hereto as Exhibit A for your convenience), we consistently records depreciation expenses in cost of sales during the squeezing season when property and equipment are used in production; and in general and administrative expenses during non-squeezing season when they are not used in production. By doing this, our inventory will not be overstated as a consequence of low production activities during a non- squeezing season or during a period in a squeezing season when the production is abnormally low. This approach is consistent with our disclosure in Note 3 on page 89 of the 10-K that 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 using the straight line method over the useful lives of such property and equipment.

With respect to our disclosure on page 52 of the 10-K Report regarding the decrease in general and administrative expenses in 2009 compared to 2008 due to the decrease in depreciation expenses for our Huludao Wonder facility, our Huludao Wonder facility, which produces concentrated apple juice, was operating near its full capacity during the squeezing season of 2009.  Accordingly, substantially all the depreciation expenses related to our production machinery at Huludao Wonder were recorded in the cost of goods sold in 2009.  In 2008, our Huludao Wonder facility did not produce any concentrated apple juice during the squeezing season in 2008 due to the lower demand for concentrated apple juices in the international market as a result of the instability of the world financial markets and their influence on the global economy. Accordingly, depreciation expenses related to our production machinery in Huludao Wonder facility were recorded in the general and administrative expenses.

With respective to the disclosure of the depreciation expenses for our Huludao Wonder facility under the “operating expenses” of Item 7 or our 10K report, depreciation expense for Huludao Wonder facility included in general and administration expenses for the years ended December 31, 2009 and 2008 were $11,763 and $486,328, respectively. Depreciation expense included in cost of sales for the years ended December 31, 2009 and 2008 were $583,431 and $97,798, respectively.

The deprecation cost included in the cost of goods sold accounted for 98% and 17% of the total depreciation expenses (including depreciation expenses for other fixed assets) of Huludao Wonder facility in 2009 and 2008, respectively.

SkyPeople Fruit Juice, Inc.

Add: 16F, China Development Bank Tower, No. 2 Gaoxin 1st RD, Xi'an, China     Postcode: 710075

Tel:  0086-29-88377001    Fax:  0086-296-88377295

www.skypeoplefruitjuice.com

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Our production capacity for concentrated apple juice is roughly estimated to be 10,000 tons annually. We only produced 1,251 tons of concentrated apple juice in 2008, which was about 13% of the total output capacity.  In 2009, we produced 9,051 tons of concentrated apple juice, which was about 91% of the total output capacity.

Depreciation expense included in general and administration expenses for the years ended December 31, 2009 and 2008 were $229,555 and $600,084, respectively. Depreciation expense included in cost of sales for the years ended December 31, 2009, and 2008 were $1,608,539 and $1,139,028, respectively. As a result, our gross margin of 2009 and 2008 was reduced by $$1,608,539 and $1,139,028, respectively, by the depreciation expenses.

We believe that the depreciation expenses of our property and equipment were correctly allocated, based on the nature of the use of such property and equipment, to the general and administration expenses and cost of goods sold in 2008 and 2009, respectively.

Other Income (Expenses), Net, page 53

2. We note your subsidy income of $2.2 million in 2009 from the local government, and that $1.3 million of that total was provided to support your kiwifruit industrialization development plan. We also note you recorded an additional $2.2 million in subsidy income from the Shaanxi government for similar programs in the six months ended June 30, 2010. Please revise your footnote disclosure to more fully describe the terms of these subsidies and your policies for recognition of these subsidies in income.

Response: As we disclosed in Note 3 of the 10K report, we recognize a government subsidy when there is reasonable assurance that we complied with any conditions attached to the grant and the grant will be received.  In response to the Staff’s comment, the Company hereby clarifies with the Staff that, as disclosed on page 53 of the 10-K Report, the local government granted the Company various subsidies based on the Company’s recognized status as a “High and New Technology Enterprise in Shaanxi Province” for the past three years.  Historically, there has been no specific condition or terms attached to any of our government grants. As such,  the Company recognized such amounts as other income at the time such amounts were granted to the Company. On page 24 of the 10-K Report, under the risk factor entitled “We benefit from various forms of governmental subsidies and grants, the withdrawal of which could affect our operations”, the Company further indicated to the effect that there is no assurance that the Company will continue to be eligible for government grants or other forms of government support. The Company believes that it has adequately and accurately disclosed the nature of the government subsidies and the accounting policy based on which such government subsidies were recognized with respect to its past government subsidies in the 10-K Report.  If the Company receives government grants or subsidies in the future, to the extent there are specific conditions and/or terms attached to such grants or subsidies, the Company fully intends to disclose such conditions and terms accordingly in the appropriate filing(s) with the Commission.

SkyPeople Fruit Juice, Inc.

Add: 16F, China Development Bank Tower, No. 2 Gaoxin 1st RD, Xi'an, China     Postcode: 710075

Tel:  0086-29-88377001    Fax:  0086-296-88377295

www.skypeoplefruitjuice.com

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Liquidity and Capital Resource, page 54

3. We note that the number of days sales in account receivable increased significantly at December 31, 2009 as compared to the prior year end and appears to be significantly in excess of your stated credit terms. With a review towards additional disclosure, explain to us, in reasonable detail, the reason for the increase in your accounts receivable and how the resulting balance is consistent with the credit term you have disclosed in your filling.

Response: 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 users.  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. As disclosed in the Critical Accounting Policies of our 10K report, our historical bad debt rate of our accounts receivable is less than 0.5%. Management believed that its allowance for doubtful accounts was adequate as of December 31, 2009. As of December 31, 2009, our accounts receivable within the term of 30 days accounted for 44% of our total outstanding accounts receivable; accounts receivable within the term of 60 days accounted for 38% of our total outstanding accounts receivable; accounts receivable within the term of 90 days accounted for 13% of our total outstanding accounts receivable; and accounts receivable within the term of over 120 days accounted for 5% of our total outstanding accounts receivable. We believe that the increase in accounts receivable turnover in days in 2009 compared with 2008 was mainly due to an increase of $16,570,957, or 86%, in revenue in the fourth quarter of 2009, compared to the same period of 2008. The accounts receivable increased by $12,492,941, or 84%, to $27,398,821 as of December 31, 2009 from $14,905,880 as of September 30, 2009, which was mainly due to the increase in revenue in the fourth quarter of 2009

4. Send us, as supplemental information, an aging of your accounts receivable as of December 31, 2008 and 2009. Clearly indicate the date of sales, terms of the sale, payment history, remaining balance and aging as of year-end.

Response: In response to the Staff’s comment, the Company hereby provides to the Staff the Accounts Receivable Analysis Report as Exhibit B to this letter for your review.

Financial Statements, page 75

Consolidated Statement of Operations and Comprehensive Income, page 78

5. Based on your disclosure on page 52, it appears that you have reported the depreciation expense for production machinery as an operating expense and hence, exclude this depreciation and amortization expenses from gross margin. To avoid placing under emphasis on “cash flow”, depreciation and amortization should not be positioned in the income statement in a manner which results in reporting a figure for income before depreciation; we refer you to SAB Topic 11:B. Please revise your presentation to comply with this guidance.

SkyPeople Fruit Juice, Inc.

Add: 16F, China Development Bank Tower, No. 2 Gaoxin 1st RD, Xi'an, China     Postcode: 710075

Tel:  0086-29-88377001    Fax:  0086-296-88377295

www.skypeoplefruitjuice.com

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Response: SAB Topic 11: B states “If cost of sales or operating expenses exclude charges for depreciation, depletion and amortization of property, plant and equipment, the description of the line item should read somewhat as follows: "Cost of goods sold (exclusive of items shown separately below)" or "Cost of goods sold (exclusive of depreciation shown separately below).” Only part of our depreciation expenses of Huludao Wonder facility was excluded from cost of sales.  Depreciation expense for Huludao Wonder facility included in general and administration expenses for the years ended December 31, 2009 and 2008 were $11,763 and $486,328, respectively. Depreciation expense included in cost of sales for the years ended December 31, 2009 and 2008 were $583,431 and $97,798, respectively.

Therefore, we believe that the depreciation related to property, plant and equipment used in production was properly recorded as cost of sales and hence SAB Topic 11:B is properly followed.

6. We note that you operate four different manufacturing facilities, and that each “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.” Separately, we note that your MD&A includes operating results for various fruit-based products. In view of these factors, explain to us how you have applied the guidance of ASC Topic 280-Segment Reporting. As part of your response, tell you how you have identified your operating segments and whether operating segments have been aggregated. To the extent you have aggregated segments, explain, in reasonable details, how you have applied the aggregation criteria of ASC paragraph 280-10-50-11, including similarity of economic characteristics. As part of your response, provide us with a copy of the report your chief operating decision maker reviews to make resource allocation decision and to assess performance.

Response:

A. Operating Segments and Aggregation

In response to the Staff’s comment, the Company respectfully advises the Staff that the Company has identified our operating segments based on FASB ASC 280 and applied the aggregation criteria of ASC paragraph 280-10-50-11 based on the following analysis:

Based on our understanding, FASB ASC 280 requires the use of management approach; that is, segment reporting depends on the firm's internal organization. FASB ASC 280 defines an operating segment as a component:

a) that engages in business activities generating revenues and incurring expenses;

b) whose operating results are regularly reviewed by the enterprise's chief operating decision maker (“CODM”) to allocate resources and assess performance; and

c) for which discrete financial information is available.

SkyPeople Fruit Juice, Inc.

Add: 16F, China Development Bank Tower, No. 2 Gaoxin 1st RD, Xi'an, China     Postcode: 710075

Tel:  0086-29-88377001    Fax:  0086-296-88377295

www.skypeoplefruitjuice.com

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We have four subsidiaries that produce fruit juice and related fruit juice products. Each of our factories is located