Future FinTech Group Inc. - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2014

☐ 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: 001-34502

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

TABLE OF CONTENTS

SKYPEOPLE FRUIT JUICE, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

The accompanying notes are an intagral part of these consolidated financial statements.

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Unaudited)

The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2014 and the results of operations and cash flows for the periods ended September 30, 2014 and 2013. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2014. The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2013 as included in our Annual Report on Form 10-K.

The principal activities of the Company consist of production and sales of fruit juice concentrates, fruit juice beverages, and other fruit-related products in the PRC and overseas markets. All activities of the Company are principally conducted by subsidiaries operating in the PRC.

Organizational Structure

Current organizational structure is set forth in the diagram below:

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

Principles of Consolidation

Our consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany 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 SkyPeople (China), Shaanxi Qiyiwangguo, Huludao Wonder, Yingkou, Hedetang Juice Beverages, Orange Products, SkyPeople Suizhong, Kiwi Fruit & Farm Products, Guo Wei Mei, Xi’an Hedetang, Cornucopia and Fruitee Fun, 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.

Uses of estimates in the preparation of financial statements

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful accounts receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation of change in fair value of warrant liability, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. 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.

Impairment of long-lived assets

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or 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 undiscounted cash flows to be generated by the assets.

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 of long-lived assets recognized.

Inventories

Inventories consist of raw materials, packaging materials (which include ingredients and supplies) and finished goods (which include finished juice in the bottling and canning operations). Inventories are valued at the lower of cost or market. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are reserved or written off.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenue from sales of products is recognized upon shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss have been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably assured. Customers have no contractual right to return products. Historically, the Company has not had any returned products. Accordingly, no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the original fee if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.

Shipping and Handling Costs

Shipping and handling amounts billed to customers in related sales transactions are included in sales revenues and shipping expenses incurred by the Company are reported as a component of selling expenses. The shipping and handling expenses of $765,911 and $371,699 for three months ended September 30, 2014 and 2013, respectively; and $1,560,062 and $1,077,340 for the nine months ended September 30, 2014 and 2013, respectively; are reported in the Consolidated Statements of Comprehensive Income as a component of selling expenses.

Leases

Leases are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases. For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent account

In January 2014, the Company entered into a five-year equipment leasing agreement with Cinda Financial Leasing Co., Ltd. (“Cinda”). The total cost of equipment under this lease agreement is RMB129 million (approximately $21 million). Estimated lease payment will be approximately RMB 8 million per quarter (approximately $1.3 million). The Company has the right to purchase the equipment for $161 at the end of the lease. During the second quarter of 2014, equipment under the lease agreements were received and the Company has started making payment. The Company will classify the leases as capital leases in accordance with ASC 840 “Leases”. The Company also agreed to pay consulting fees of $831,100 (RMB 5,160,000) for consulting services and $414,492 (RMB 2,580,000) services fees to Cinda, which are amortized over service period. During the third quarter of 2014, the Company paid approximately RMB 8 million (approximately $1.3 million) to Cinda under capital lease agreement.

Foreign Currency and Other Comprehensive Income

The financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency; however, the functional currency and the reporting currency of the Company are the United States dollar (“USD”). Assets and liabilities of the Company’s foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date while equity accounts are translated using the historical exchange rate. The average exchange rate for the period has been used to translate revenues and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation adjustment).

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other comprehensive income for nine months ended September 30, 2014 and 2013 represented foreign currency translation adjustments and were included in the consolidated statements of income and comprehensive income.

Income Taxes

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

Earnings per share

Under ASC 260-10, Earnings Per Share, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing net income available to common stockholders by the weighted-average number of Common Stock outstanding for the period. Our Series B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in determining net income available to common stockholders.

Diluted EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation.

The diluted earnings per share calculation for the three and nine months ended September 30, 2014 and 2013 did not include the warrants to purchase up to 175,000 shares of common stock, because their effect was anti-dilutive.

Inventories by major categories are summarized as follows:

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Short-term bank loans consist of the following loans collateralized by assets of the company:

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Notes payable - bank consists of a series of bank notes from various banks. Bank notes are collateralized by restricted cash and assets of the Company. The following table sets forth the outstanding bank notes as of September 30, 2014:

Sales to related party

The company’s subsidiary sold fruit beverages to a related entity, Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. ("Fullmart") for approximately $2,020,900 and $2,051,500 for the nine months ended September 30, 2014 and 2013, respectively and approximately $667,700 and $1,088,400 for the three months ended September 30, 2014 and 2013, respectively. The accounts receivable balances were approximately $1,040,700 and $731,000 as of September 30, 2014 and December 31, 2013, respectively. Fullmart is a company indirectly owned by our Chairman, Mr. Yongke Xue.

Short-term loan – related party

The Company borrowed $24,970 from SkyPeople International Holdings Group Limited during the year ended December 31, 2013. This loan is non-interest bearing and due on demand. This balance was paid in full in January 2014.

Long-term loan – related party

On February 18, 2013, SkyPeople (China) entered into a loan agreement with SkyPeople International Holdings Group Limited (the "Lender"). The Lender indirectly holds 50.2% interest in the Company. Mr. Yongke Xue ("Y. K. Xue"), the Chairman of the board of directors of the Company (the "Board"), and Mr. Hongke Xue, the Chief Executive Officer of the Company and director of the Board, indirectly and beneficially own 80.0% and 9.4% of equity interest in the Lender, respectively. Pursuant to the Agreement, the Lender agrees to extend to the Company a one-year unsecured term loan with a principal amount of $8.0 million at an interest rate of 6% per annum. During 2013, the Company received $8.0 million from the Lender. In February 2014, both parties extended this loan for another two years.

The Company recorded interest expense of $351,717 and $208,672 for the nine months ended September 30, 2014 and 2013, respectively and of $95,146 and $118,079 for the three months ended September 30, 2014 and 2013, respectively.

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, the Company reached a settlement on the Zachary Lewy et al. consolidated securities fraud class action on January 27, 2014. The settlement amount of $2,200,000 has been paid in full to the settlement fund.

As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, in connection with a shareholder demand letter received August of 2011, the Company entered into a settlement agreement on April 17, 2014. The settlement amount of $100,000 has been paid in full.

From time to time we may be a party to various litigation proceedings arising in the ordinary course of 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.

Sales to five largest customers accounted for approximately 25% and 20% of our net sales during the nine months ended September 30, 2014 and 2013, respectively. There was no single customer representing 10% of total sales for the nine months ended September 30, 2014 and 2013, respectively.

Sales to our five largest customers accounted for approximately 38% and 25% of our net sales during the three months ended September 30, 2014 and 2013, respectively. The two largest customers accounted for 10.7% and 10.3% of net sales during the third quarter of 2014. There was no single customer representing 10% of total sales for the three months ended September 30, 2013.

During nine months ended September 30, 2014, two suppliers accounted for 34% and 15% of our purchases. During the nine months ended September 30, 2013, two suppliers accounted for 38% and 12% of our purchases. There was no other single supplier representing 10% of purchase during both periods.

During the three months ended September 30, 2014, one supplier accounted for 59% of our purchases. During the three months ended September 30, 2013, one supplier accounted for 14% of our purchases. There was no other single supplier representing 10% of purchase during both periods.

The Company operates in six segments: concentrated apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, concentrated pear juice, fruit juice beverages and fresh fruits and vegetables, and others. Our concentrated apple juice and apple aroma is primarily produced by the Company’s Huludao Wonder factory; concentrated pear juice is primarily produced by the Company’s Jingyang factory. However, as the Company use the same production line to manufacture concentrated apple juice and concentrated pear juice. In addition, both Shaanxi Province, where the factory of Jingyang factory is located, and Liaoning Province, where the factory of Huludao Wonder is located, are rich in fresh apple and pear supplies, Jingyang factory also produces concentrated apple juice and Huludao Wonder factory also produces concentrated pear juice when necessary. Concentrated kiwifruit juice and kiwifruit puree is primarily produced by the Company’s Qiyiwangguo factory, and fruit juice beverages is primarily produced by the Company’s Qiyiwangguo factory. The Company’s other products include fructose, concentrated turnjujube juice, and other by products, such as kiwifruit seeds.

Concentrated fruit juice is used as a basic ingredient for manufacturing juice drinks and as an additive to fruit wine and fruit jam, cosmetics and medicines. The Company sells its concentrated fruit juice to domestic customers and exported directly or via distributors. The Company believes that its main export markets are the United States, the European Union, South Korea, Russia and the Middle East to North America, Europe, Russia, South Korea and the Middle East.  The Company sells its Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the PRC. The Company sells its fresh fruit and vegetables to supermarkets and whole sellers in the PRC.

Some of these product segments might never individually meet the quantitative thresholds for determining reportable segments and we determine the reportable segments based on the discrete financial information provided to the chief operating decision maker. The chief operating decision maker evaluates the results of each segment in assessing performance and allocating resources among the segments. Since there is an overlap of services provided and products manufactured between different subsidiaries of the Company, the Company does not allocate operating expenses and assets based on the product segments. Therefore, operating expenses and assets information by segment are not presented.  Segment profit represents the gross profit of each reportable segment.

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

SKYPEOPLE FRUIT JUICE, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table reconciles reportable segment profit to the Company’s condensed consolidated income before income tax provision for the three months ended September 30, 2014 and 2013:

Pursuant to a resolution approved by Qiyiwangguo’s shareholders’ meeting, which was hosted on March 7, 2014, 65% of the retained earnings of Qiyiwangguo as of December 31, 2013, approximately RMB306 million (approximately $50 million) was distributed to its two shareholders, SkyPeople (China), which owns 91.15% of Qiyiwangguo’s shares; and Xi’an Qinmei Food Co., Ltd, an entity not affiliated with the Company, owns the other 8.85% of the equity interest in Shaanxi Qiyiwangguo.

On April 10, 2014, approximately RMB27 million (approximately $4.4 million) was wired from Qiyiwangguo to Xi’an Qinmei Food Co., Ltd.

In accordance with ASC 855, “Subsequent Events,” the Company has evaluated subsequent events that have occurred through the date of issuance of these financial statements and has determined that there was no material event that occurred after the date of the balance sheets included in this report.

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.

DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

The following discussion and analysis of the condensed consolidated financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and with the information under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed in this report and under the heading “Risk Factors” in our most recent Annual Report on Form 10-K.

Overview of Our Business

We are engaged in the production and sales of fruit juice concentrates (including fruit purees, concentrated fruit purees and concentrated fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages), and other fruit related products (including organic and non-organic fresh fruits) in and from the PRC. Our fruit juice concentrates, which include apple, pear and kiwifruit concentrates, are sold to domestic customers and exported directly or via distributors. We sell our Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the PRC. For the nine months ended September 30, 2014, sales of our fruit concentrates, fruit beverages, fresh fruits and other fruit related products represented 37%, 56% and 7% of our revenue, respectively, compared to 36%, 62% and 2%, respectively, for the same period of 2013.

We export our products as well as sell them domestically. We sell our products either through distributors with good credit or to end users directly. We believe that our main export markets are the Asia, North America, Europe, Russia and the Middle East. We sell our other fruit related products to domestic customers.

During the nine months ended September 30, 2014, we exported our Hedetang-branded fruit juice beverages to Mongolia and Canada. We currently market our Hedetang brand fruit beverages in only certain regions of the PRC. We plan to expand the market presence of Hedetang over a broader geographic area in the PRC. In particular, we plan to expand our glass bottle production line to produce higher margin portable fruit juice beverages targeting consumers in more populated Chinese cities. Currently we produce six flavors of fruit beverages in 280 ml glass bottles, 418 ml glass and 500 ml glass bottles and BIB package, including apple juice, pear juice, kiwifruit juice, mulberry juice, kiwifruit cider and mulberry cider. We currently sell our fruit beverages to over 100 distributors and more than 20,000 retail stores in approximately 20 provinces. Our products are sold through distributors in stores such as Hualian Supermarket in Beijing, RT-Mart in Shenyang, Carrefour in Chongqing and Shenyang and Lianhua Supermarket in Shanghai, etc.

We plan to continue to focus on creating new products with high margins to supplement our current product offering.

We believe that continuous investment in research and development is a key component to being a leader in fruit juice concentrate and fruit beverage quality. As of September 30, 2014, we are in the process of building up an internal research and development team, we will use external experts and research institutions for additional consultation when necessary. In nine months ended September 30, 2014 and 2013, our research and development expenses were $nil and $18,980, respectively.

Our business is highly seasonal and can be greatly affected by weather because of the seasonal nature in the growing and harvesting of fruits and vegetables. Our core products are apple, pear and kiwifruit juice concentrates, which are produced from July or August to April of the following year. The squeezing season for (i) apples is from August to January or February; (ii) pears is from July or August until April of next year; and (iii) kiwifruit is from September through December. Typically, a substantial portion of our revenues is earned during our first and fourth quarters. To minimize the seasonality of our business, we make continued efforts in identifying new products with harvesting seasons complementary to our current product mix. Our goal is to lengthen our squeezing season, thus increasing our annual production of fruit juice concentrates and fruit beverages. In the first quarter of 2009, we introduced mulberry and kiwifruit cider beverages in the Chinese market. Unlike fruit juice concentrates, which can only be produced during the squeezing season, such fruit beverages are made out of fruit juice concentrates and can be produced and sold in all seasons. With continuous efforts in marketing of our beverages in domestic market, we believe that our seasonality will be reduced.

Fresh fruits are the primary raw materials needed for the production of our products. Our raw materials mainly consist of apples, pears and kiwifruits. Other raw materials used in our business include pectic enzyme, amylase, auxiliary power fuels and other power sources such as coal, electricity and water.

We purchase raw materials from local markets and fruit growers that deliver directly to our plants. We have implemented a fruit-purchasing program in areas surrounding our factories. In addition, we organize purchasing centers in rich fruit production areas, helping farmers deliver fruit to our purchasing agents easily and in a timely manner. We are then able to deliver the fruit directly to our factory for production. We have assisted local farmers in their development of kiwifruit fields to help ensure a high quality product throughout the production channel. Our raw material supply chain is highly fragmented and raw fruit prices are highly volatile in China. Fruit concentrate and fruit juice beverage companies generally do not enter into purchasing agreements. In addition to raw materials, we purchase various ingredients and packaging materials such as sweeteners, glass and plastic bottles, cans and packing barrels. We generally purchase our materials or supplies from multiple suppliers.

Shaanxi and Liaoning Provinces, where our manufacturing facilities are located, are large fruit producing provinces. We own and operate four manufacturing facilities in the PRC, all of which are strategically located near fruit growing centers so that we can better preserve the freshness of the fruits and lower our transportation costs. To take advantage of economies of scale and to enhance our production efficiency, generally, each of our manufacturing facilities has a focus on products made from one particular fruit according to the proximity of such manufacturing to the sources of supply for that fruit. Our kiwifruit processing facilities are located in Zhouzhi County of Shaanxi Province, which has the largest planting area of apples and kiwifruit in the PRC. Our pear processing facilities are located in Shaanxi Province, which is the main pear-producing province in the PRC. Our apple processing facilities are located in Liaoning Province, a region that abounds with high acidity apples. As we use the same production line for concentrated apple juice and concentrated pear juice and both Shaanxi Province and Liaoning Province are rich in fresh apple and pear production, our Liaoning facilities also produced concentrated apple juice and our Shaanxi Province facilities also produced concentrated apple juice based on customer need. We believe that these regions provide adequate supply of raw materials for our production needs in the foreseeable future.

On August 30, 2010, we closed the public offering of 5,181,285 shares of our Common Stock at a price of $5.00 per share for approximately $25.9 million. We received an aggregate of approximately $24 million as net proceeds after deducting underwriting discounts and commissions and offering expenses. As of September 30, 2014, we had spent approximately $11 million on various capital projects in Huludao Wonder as described in projects (4) and (5) below. The following table presents the capital projects on which we currently plan to use the proceeds from this offering. We review these projects and capital expenditures on a quarterly basis based on the market conditions and associated costs of these projects.

Capital Wonder Projects

Shaanxi Qiyiwangguo Projects

We previously identified several projects for our Shaanxi Qiyiwangguo factory, which we expected to finance by using our operating cash flow. These projects included a 24,000 PET bottle/hour fruit juice beverage aseptic cold-filling line, and a PET bottle blowing machine system. Based on the current market conditions and other potential opportunities, management has decided to delay these projects to a future date when appropriate.

Other Projects

Investment/Service Agreement with Yidu Municipal People’s Government

On October 29, 2012, SkyPeople (China) entered into an investment/service agreement (the “Investment Agreement”) with Yidu Municipal People’s Government in Hubei Province of China.

Under the Investment Agreement, the parties agree to invest and establish an orange comprehensive deep processing zone in Yidu.

The Company will be responsible for the establishment, construction and financing of the project with a total investment of RMB 300 million (approximately $48 million), in fixed assets and the purchase of land use rights, while Yidu government agrees to provide a parcel of land for the project that is approximately 280 mu in size located at Gaobazhou Town of Yidu for a fee payable by the Company. The consideration for transferring the land use right for the project land shall be RMB 0.3 million per mu.

The main scope of the Yidu project includes the establishment of:

The total amount of RMB 300 million (approximately $48 million) will mainly be used to establish the distribution center and the deep processing zone on the project land of approximately 280 mu. SkyPeople and Yidu Municipal People’s Government agreed to discuss the investment amount and location for establishing the R&D center and the orange plantation in the future.

Yidu Municipal People’s Government is in the process of demolition buildings on project land. It is expected that demolition of buildings will be completed in the next few months. The Company is actively working with various bodies of local government making preparations for the start of the project.

Investment/Service Agreement with Mei County National Kiwi Fruit Wholesale Trading Center

On April 3, 2013, SkyPeople (China) entered into an Investment Agreement (the "Agreement") with the Managing Committee of Mei County National Kiwi Fruit Wholesale Trading Center (the "Committee"). The Committee has been authorized by the People’s Government of Mei County to be in charge of the construction and administration of the Mei County National Kiwi Fruit Wholesale Trading Center (the “Trading Center”).

Under the Agreement, the parties agreed to invest and establish a kiwi fruit comprehensive deep processing zone and kiwi fruit and fruit-related materials trading zone in Yangjia Village, Changxing Town of Mei County with a total planned area of total planned area of 286 mu (approximately 47 acres) (the “Project”).

Pursuant to the Agreement, the Company will be responsible for the construction and financing of the Project with a total investment of RMB 445.6 million (approximately $ 71.9 million) in buildings and equipment. In addition, the Company agreed to pay for the land use rights for the Project land a fee of RMB 0.3 million per mu. The Committee is responsible for financing and constructing the basic infrastructure surrounding the Project, such as the main water supply, main water drainage, natural gas, electricity, sewage, access roads to the Project, natural gas and communications networks.

As of the date of this report, the Company is in the process of building up facilities and purchasing equipment. The construction of kiwi fruit and fruit-related materials trading zone has been mostly completed. Trail production has been delayed until second half of 2014.

Suizhong Project

On July 15, 2011, SkyPeople entered into a Letter of Intent with the People’s Government of Suizhong County, Liaoning Province, to establish a fruit and vegetable industry chain and further processing demonstration zone in Suizhong County, Liaoning Province (the “Suizhong project”).

The Suizhong project may include one or more of the following: the construction and operation of fruit juice production lines, vegetable and fruit flash freeze facility, refrigeration storage facility and warehouse, a world class food safety testing center, fruit and vegetable modern supply chain and e-commerce platform, fruit and vegetable finished products processing center and exhibition center, etc. The implementation of the project is subject to government approval of the project.

During first quarter of 2014, the Company finished the feasibility study and submitted detailed project proposal to the local government. Both parties decided to continue the project. The Company has made partial payment to acquire land use right from the local government, purchase equipment and build facilities.

Results of Operations

Comparison of Three Months ended September 30, 2014 and 2013:

Revenue

The following table presents our consolidated revenues for each of our main products for the three months ended September 30, 2014 and 2013 respectively (in thousands):

Our gross revenue for the three months ended September 30, 2014 was $34.8 million, an increase of $15.3 million, or 79%, from $19.5 million for the three months ended September 30, 2013. This increase was primarily due to an increase in sales in almost all of our products lines, offset by the decrease of revenue from other products.

Sales from apple related products increased by $5.6 million, or 10,113%, from $0.055 million for the three months ended September 30, 2013, to $5.6 million for the same period of 2014. During the third quarter of 2013, the Company sold approximately 50 tons of concentrated apple juice, which increased to approximately 4,370 tons of concentrated apple juice sold in the same period of 2014. The increase of revenue generated from concentrated apple juice was mainly caused by the increase of amount sold, which was coupled with unit price.

Sales from concentrated kiwifruit juice and kiwifruit puree were $0.036 million for the third quarter of 2014, an increase of $0.009 million, or 33%, from $0.027 million in the same quarter of 2013, primarily due to increase in unit price, which was partially offset by the decreased amount of kiwi-related products sold. During the three months ended September 30, 2014, the Company sold approximately 105.7 tons of kiwi-related products. During the three months ended September 30, 2013, the Company sold approximately 221.2 tons of kiwi-related products.

Sales of concentrated pear juice increased to $10.5 million in the third quarter of 2014, an increase of $4.3 million, or 71%, from $6.2 million in the same quarter of 2013. During the third quarter of 2014 and 2013, the Company sold 7,644 and 3,802 tons of concentrated pear juice, respectively. The increase of revenue generated from concentrated pear juice was mainly due to increased amount of concentrated pear juice sold, which was partially offset by decreased unit price.

Revenue from our fruit juice beverages in the PRC increased to $14.5 million, an increase of $1.7 million or 13%, from $12.8 million for the same period of 2013, primarily due to bigger market share gained from our continuous efforts of expanding sales channel.

Revenue from our fresh fruits and vegetables in the PRC were $3.9 million and $0.001 for the third quarter of 2013 and 2014, respectively.

Revenue from other products decreased to $0.01 million, a decrease of $0.137 million or 93%, from $0.15 million for the same period of 2013. The amount of sales of other products is expected to be unstable and is generally not indicative of our future sales of other products.

Gross Margin

The following table presents the consolidated gross profit of each of our main products and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the three months ended September 30, 2014 and 2013, respectively (in thousands for the gross profit):

The consolidated gross profit for the three months ended September 30, 2014 was $10.2 million, an increase of $3 million, or 41%, from $7.2 million for the same period of 2013, primarily due to increased amount of gross profit generated from apple-related products, concentrated pear juice, fruit juice beverages, fresh fruits and vegetables and other products segments, which was partially offset by less amount of gross profit generated from kiwi-related products.

The consolidated gross profit margin for the three months ended September 30, 2014 was 29%, a decrease of 8%, from 37% for the same period of 2013, primarily due to an increase in gross margin of apple-related products, fruit juice beverages and fresh fruit and vegetables, which was partially offset by a decrease in gross profit margin of kiwi-related products, concentrated pear juice and other products.

The gross margin of concentrated apple juice and apple aroma increased to 2% for the three months ended September 30, 2014 from gross loss margin of 36% for the same period of 2013, primarily due to higher selling price of concentrated apple juice.

The gross profit margin of the concentrated kiwifruit juice and kiwifruit puree decreased from 70% for the three months ended September 30, 2013 to gross loss margin of 6% for the same period of 2014. During the current quarter of 2014, the Company sold kiwifruit juice only, which had a negative gross profit margin.

The gross margin of the concentrated pear juice decreased from 36% to 25% for third quarter of 2013 to 2014, primarily due to decreased selling price in the current quarter of 2014 as compared to same period of 2013.

The gross profit margin of our fruit juice beverages increased from 38% for the three months ended September 30, 2013, to 44% for the same period of 2014, primarily due to lower cost of raw materials purchased in the three months ended September 30, 2014 as compared to same period of 2013.

Gross margin for the fruits and vegetables was 29% for the second quarter of 2013, during the same period of 2014, the Company did not sell any fresh fruits and vegetables.

The gross loss margin for other products was 10% for the three months ended September 30, 2014 and 6% for the same period of 2013. Given the relatively low production volume and sales of other products, the gross profit margin is expected to change from time to time. 

Operating Expenses

The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the three months ended September 30, 2014 and 2013, respectively:

Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses increased $320,049 or 12% for the three months ended September 30, 2014 compare to the corresponding period in 2013.

General and administrative expenses decreased by $311,153, or 19%, to $1,317,546 for the three months ended September 30, 2014, from $1,628,699 for the same period of 2013. The decrease in general and administrative expenses was mainly due to decreased amount of legal fees related to our pending litigation for the year ago period, and offset by higher salary expenses resulted from an increase in the headcount of our management staff.

Selling expenses increased by $631,202, or 63%, to $1,628,415 for the three months ended September 30, 2014 from $997,213 for the same period of 2013, mainly due to an increase in the shipping and handling costs as a result of increased sales.

The Company did not incur research and development expenses for the three months ended September 30, 2014 and 2013. The Company does not have any research and development agreements with research institutions but concentrate on building up a research and development team of itself.

Income from Operations

Income from operations increased from $4,591,352, an increase of 57% or $2,613,625 to $7,204,977, for the three months ended September 30, 2014.The increase in the income from operations was mainly due to increase in both revenue as well as gross margin and increase in the operating expenses.

Other Income (Expense)

Other expense was $665,098, for the third quarter of 2014, representing an increase of $461,270 or 226% from other expense of $203,828 for the three months ended September 30, 2013, primarily due to increased amount of $336,127 interest expense for the current period as compare to same period of last year, mainly due to interest incurred by our capital lease. Subsidy income decreased $103,225 during the third quarter of 2014 as contrast of same period of 2013.

Income Tax

Our provision for income taxes was $1,822,995 and $1,130,388 for the three months ended September 30, 2014 and 2013, respectively, an increase of $692,607, or 61%. The increase in tax provision was due to increased amount of income before taxes in the third quarter of 2014. Our consolidated income tax rates were 28% and 26% for the three months ended September 30, 2014 and 2013, respectively.

Net Income

Net income was $4,716,884 for the three months ended September 30, 2014; in contrast, net income was $3,257,136 for the same period of 2013, an increase of $1,459,748, or 45%, primarily due to the 41% increase in gross profit, offset by 12% increase in total operating expenses and other factors discussed above.

Noncontrolling Interests

As of September 30, 2014, SkyPeople (China) held a 91.15% interest in Shaanxi Qiyiwangguo and Pacific held a 99.78% interest in SkyPeople (China). Net income attributable to noncontrolling interests, which is deducted from our net income, was $153,475 and $243,260 for the three months ended September 30, 2014 and 2013, respectively. The decrease in the net income attributable to noncontrolling interests was mainly due to the increase in the net income generated from SkyPeople (China).

Net Income Attributable to SkyPeople Fruit Juice, Inc.

Net income attributable to the Company was $4,563,409 for the three months ended September 30, 2014; in contrast, during the same period of 2013, net income attributable to the Company was $3,013,876 for the reasons described above.

Comparison of Nine months ended September 30, 2014 and 2013:

Revenue

The following table presents our consolidated revenues for each of our main products for the nine months ended September 30, 2014 and 2013, respectively (in thousands):

Our gross revenue for the nine months ended September 30, 2014 and 2013 was 58.6 million and $48.4 million, respectively, representing an increase of $10.2 million, or 21%. This increase was primarily due to an increase in sales of apple-related products, concentrated pear juice, fruit juice beverage and fresh fruits and vegetables, which was partially offset by reduced revenue generated by kiwi-related products and other products.

Sales from apple related products increased by $5 million, or 282%, to $6.7 million for the nine months ended September 30, 2014, from $1.7 million for the same period of 2013. During the nine months ended September 30, 2014, the Company sold approximately 5,062 tons of concentrated apple juice, which increased from approximately 1,060 tons of concentrated apple juice sold in the same period of 2013.

Sales from concentrated kiwifruit juice and kiwifruit puree were $2.2 million for the nine months ended September 30, 2014, a decrease of $1.5 million, or 41%, from $3.7 million in the same period of 2013. During the nine months ended September 30, 2014, the Company sold 1,673 tons kiwi-related products. The decrease in sales was primarily due to decrease in amount sold.

Sales of concentrated pear juice increased from $12 million in the nine months ended September 30, 2013 to $12.9 million during the same period of 2014, representing an increase of $0.9 million, or 7%. During the nine months ended September 30, 2014 and 2013, the Company sold 9,262 and 7,701 tons of concentrated pear juice, respectively. During the nine months ended September 30, 2014, the unit selling price of concentrated pear juice decreased.

Revenue from our fruit juice beverages in the PRC increased to $32.9 million, an increase of $2.9 million or 10%, from $30 million for the same period of 2013, primarily due to bigger market share gained from our continuous efforts of expanding sales channel.

Revenue from our fresh fruits and vegetables in the PRC were $3.9 million and $0.8 million for the nine months ended September 30, 2014 and 2013, respectively.

Revenue from other products increased from $0.153 million for nine months ended September 30, 2013 to $0.048 million for the same period of 2014. The amount of sales of other products is expected to be unstable and is generally not indicative of our future sales of other products.

Gross Margin

The following table presents the consolidated gross profit of each of our main products and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the nine months ended September 30, 2014 and 2013, respectively (in thousands for the gross profit):

The consolidated gross profit for the nine months ended September 30, 2014 was $18.4 million, an increase of $0.2 million, or 1%, from $18.2 million for the same period of 2013, primarily due to increased amount of gross profit generated from our apple-related products, fruit juice beverages, fresh fruit and vegetables and other products, which was partially offset by decreased gross profit generated from kiwi-related products and concentrated pear juice.

The consolidated gross profit margin for the nine months ended September 30, 2014 and 2013 was 31% and 38%, respectively, primarily due to decreased amount of cost of sales incurred. During the nine months ended September 30, 2014, gross margin of fruit juice beverages and other products increased; however, gross margin of concentrated apple juice and apple aroma, concentrated kiwi-related products, concentrated pear juice and fresh fruit and vegetables decreased.

The gross profit margin of concentrated apple juice and apple aroma was 3% for the nine months ended September 30, 2014 and 5% for the same period of 2013, primarily due to lower selling price of concentrated apple juice.

The gross profit margin of the concentrated kiwifruit juice and kiwifruit puree decreased from 62% for the nine months ended September 30, 2013 to 33% for the same period of 2014, primarily due to higher cost of fresh kiwi purchased in nine months ended September 30, 2014 as compared to the same period of 2013.

The gross profit margin of the concentrated pear juice decreased from 33% to 25% for the nine months ended September 30, 2013 and 2014, primarily due to lower selling price.

The gross profit margin of our fruit juice beverages slightly increased from 38% for the nine months ended September 30, 2013, to 40% for the same period of 2014.

Gross profit margin for the fruits and vegetables was 29% and 48% for the nine months ended September 30, 2014 and 2013, respectively.

The gross loss margin for other products was 5% for the nine months ended September 30, 2013 and for the same period of 2014, the gross profit margin was 2%. Given the relatively low production volume and sales of other products, the gross profit margin is expected to change from time to time.

Operating Expenses

The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the nine months ended September 30, 2014 and 2013, respectively:

Our operating expenses consist of general and administrative expenses, selling expenses and research and development expenses. Operating expenses increased $197,993 or 3% for the nine months ended September 30, 2014 compare to the corresponding period in 2013.

General and administrative expenses decreased to $3,506,497 from $4,216,128, representing $709,631 or 17% decrease for the nine months ended September 30, 2014 and 2013, respectively. The decrease in general and administrative expenses was mainly due to decreased amount of legal fees related to our current pending litigation, and offset by higher salary expenses resulted from an increase in the headcount of our management staff.

Selling expenses increased to $3,877,904 from $2,951,300, for the nine months ended September 30, 2014 and 2013, respectively, representing $926,604 or 31% increase. The increase in selling expenses mainly due to an increase in the payroll and related expenses as a result of an increase in our headcounts to handle the increased sales work and increased shipping and handling costs in the current period of 2014 as a result of increased sales.

During the nine months ended September 30, 2013, the Company incurred $18,980 research and development expense. In the same period of 2014, the Company did not have any research and development agreements with research institutions but concentrate on building up a research and development team of itself and comparably, did not incur any research and development expenses.

Income from Operations

Income from operations decreased to $10,992,122 from $11,025,744, representing a decrease of less than 1% or $33,622, for the nine months ended September 30, 2014 and 2013. The decrease in the income from operations was mainly due to increase in revenue and gross profit, which was partially offset by increased amount of operating expenses.

Other Income (Expense)

Other income, net of other expenses was $109,449 for the nine months ended September 30, 2013. In contrast, during the same period of 2014, other expense, net of other income was $3,327,158, primarily due to an increase of $2,270,275 in interest expenses.

Income Tax

Our provision for income taxes was $2,154,205 and $2,937,007 for the nine months ended September 30, 2014 and 2013, respectively, a decrease of $782,802 or 27%. The decrease in tax provision was due to decreased amount of income before taxes in the nine months ended September 30, 2014. Our consolidated income tax rates were 28% and 26% for the nine months ended September 30, 2014 and 2013, respectively.

Net Income

Net income was $5,510,759 and $8,198,186 for the nine months ended September 30, 2014 and 2013, respectively, representing a decrease of $2,687,427 or 33%, primarily due to 3% increase in total operating expenses and $3.4 million increase in other expense and other factors discussed above.

Noncontrolling Interests

As of September 30, 2014, SkyPeople (China) held a 91.15% interest in Shaanxi Qiyiwangguo and Pacific held a 99.78% interest in SkyPeople (China). Net income attributable to noncontrolling interests, which is deducted from our net income, was $394,810 and $686,120 for the nine months ended September 30, 2014 and 2013, respectively. The decrease in the net income attributable to noncontrolling interests was mainly due to the decrease in the net income generated from SkyPeople (China).

Net Income Attributable to SkyPeople Fruit Juice, Inc.

Net income attributable to the Company was $5,115,949 for the nine months ended September 30, 2014; in contrast, during the same period of 2013, net income attributable to the Company was $7,512,066 for the reasons described above.

Liquidity and Capital Resources

As of September 30, 2014, we had cash, cash equivalents of $33,879,350, a decrease of $33,009,604, or 49%, from $66,888,954 as of December 31, 2013. We expect the projected cash flows from operation, anticipated cash receipts, cash on hand, and trade credit to provide necessary capital to meet our projected operating cash requirements at least for the next 12 months, which does not take into account any potential expenditures related to the potential expansion of our current production capacity.

Our working capital has historically been generated from our operating cash flows, advances from our customers and loans from bank facilities. Our working capital was $31,304,195 as of September 30, 2014, a decrease of $40,608,210, from working capital of $71,912,405 as of December 31, 2013. During the nine months ended September 30, 2014, our operating activities generated net cash inflow of $12,929,774, a decrease of $18,452,716 or 59% from $31,382,490, net cash inflow from operating activities of same period of 2013.

During the nine months ended September 30, 2014 and 2013, our investing activities used net cash of $37,116,565 and $39,194,760, respectively. During nine months ended September 30, 2014 and 2013, our investing activities cash outflow included $28,184,348 and $38,531,578 of deposits to land use right and equipment.

During the nine months ended September 30, 2014 and 2013, our financing activities incurred net cash outflow of $8,264,673, in contrast, during the same period of 2013, our financing activities generated net cash inflow of $15,610,374.

In January 2014, the Company entered into a five-year equipment leasing agreement with Cinda Financial Leasing Co., Ltd. (“Cinda”). The total cost of equipment under this lease agreement is RMB129 million (approximately $21 million). Estimated lease payment will be approximately RMB 8 million per quarter (approximately $1.3 million). The Company has the right to purchase the equipment for $161 at the end of the lease. During the nine months ended September 30, 2014, equipment under the lease agreements were received and the Company has paid and accrued interest on capital lease for approximately $796,000. The Company classified the lease as a capital lease in accordance with ASC 840 “Leases”. The Company also agreed to pay consulting fees of $831,100 (RMB 5,160,000) for consulting services and $414,492 (RMB 2,580,000) services fees to Cinda, which was amortized over service period.

Pursuant to a resolution approved by Qiyiwangguo’s shareholders’ meeting held on March 7, 2014, 65% of the retained earnings of Qiyiwangguo as of December 31, 2013, approximately RMB 306 million (approximately $50 million) will be distributed to its two shareholders, SkyPeople (China), which owns 91.15% of Qiyiwangguo’s shares; and Xi’an Qinmei Food Co., Ltd, an entity not affiliated with the Company, owns the other 8.85% of the equity interest in Shaanxi Qiyiwangguo. The distribution to SkyPeople (China) was treated as inter-company transaction and the amount was eliminated during the consolidation. On April 10, 2014, approximately RMB 27 million (approximately $4.4 million) was wired from Qiyiwangguo to Xi’an Qinmei Food Co., Ltd.

During the nine months of 2014, the Company borrowed $20,302,162 from local banks and repaid $20,673,500 to local banks. In contrast, during the same period of 2013, the Company borrowed 13,649,887 from local banks and repaid $6,715,275 to them. During the nine months of current year, the Company raised $12,123,678 through short-term bank notes and used $11,635,476 for restricted cash as collaterals on bank notes. The Company also paid $3,148,902 to Cinda as deposit of capital lease and $797,443 for obligations under capital lease. There was no transaction in similar nature during the same period of last year.

On February 18, 2013, SkyPeople (China) entered into a loan agreement with SkyPeople International Holdings Group Limited (the “Lender”). The Lender indirectly holds 50.2% interest in the Company. Mr. Yongke Xue (“Y. K. Xue”), the Chairman of the board of directors of the Company (the “Board”), and Mr. Hongke Xue, the newly elected Chief Executive Officer of the Company and director of the Board, indirectly and beneficially own 80.0% and 9.4% of equity interest in the Lender, respectively. Pursuant to the Agreement, the Lender agrees to extend to the Company a one-year unsecured term loan with a principal amount of $8.0 million at an interest rate of 6% per annum. During the nine months of 2013, the Company received $8.0 million from the Lender. Both parties extended this loan for another two years in February 2014.

Off-balance sheet arrangements

As of September 30, 2014, we did not have any off-balance sheet arrangements.

Item 3.     Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4.     Controls and Procedures

Disclosure Controls and Procedures

An evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2014, the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2014, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures were completed, our disclosure controls and procedures were effective in providing reasonable assurance of achieving their objectives for the three months ended September 30, 2014.

Changes in Internal Controls Over Financial Reporting

There have been no changes to the Company’s internal control over financial reporting during the three months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.     OTHER INFORMATION

Item 1.     Legal Proceedings

As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, the Company reached a settlement on the Zachary Lewy et al. consolidated securities fraud class action on January 27, 2014. The settlement amount of $2,200,000 has been paid in full to the settlement fund.

As previously reported in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, in connection with a shareholder demand letter received August of 2011, the Company entered into a settlement agreement on April 17, 2014. The settlement amount of $100,000 has been paid in full.

From time to time we may be a party to various litigation proceedings arising in the ordinary course of 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 1A. Risk Factors

Not applicable.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.     Defaults upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not applicable.

Item 5.     Other Information

None.

Item 6.     Exhibits