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8-K/A - FORM 8-K/A - GME INNOTAINMENT, INC.form8-ka.htm
EX-99.4 - UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS. - GME INNOTAINMENT, INC.exhibit99-4a.htm
EX-99.2 - AUDITED FINANCIAL STATEMENTS OF UPJOY AS OF DECEMBER 31, 2009 AND 2008 AND FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009 - GME INNOTAINMENT, INC.exhibit99-2a.htm
EX-99.3 - AUDITED FINANCIAL STATEMENTS OF GREATGRAND AS OF DECEMBER 31, 2009 AND 2008 AND FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009 - GME INNOTAINMENT, INC.exhibit99-3a.htm
 
 


EXHIBIT99.1
 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

 
To the Board of Directors and
 
Stockholders of United Joy International Limited and Subsidiary
 
We have audited the accompanying consolidated balance sheets of United Joy International Limited and Subsidiary (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the two-year period ended December 31, 2009. United Joy International Limited and Subsidiary’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated 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 audit 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Joy International Limited and Subsidiary as of December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
 

/s/ Madsen & Associates CPAs, Inc.

Madsen & Associates CPAs, Inc.
Salt Lake City, Utah
March 15, 2010
 

 
UNITED JOY INTERNATIONAL LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008

   
2009
   
2008
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 1,185,292     $ 35,260  
Accounts receivable
    1,243,804       1,071,035  
Tax recoverable
    1,295       56,255  
Inventories
    1,243,947       1,562,142  
Prepaid expenses and other receivables
    198,730       349,604  
Total current assets
    3,873,068       3,074,296  
                 
PROPERTY, PLANT & EQUIPMENT, NET
    5,520,777       5,976,270  
                 
LAND USE RIGHT, NET OF AMORTIZATION
    274,778       290,136  
                 
TOTAL ASSETS
  $ 9,668,623     $ 9,340,702  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY
           
LIABILITIES
           
CURRENT LIABILITIES
           
Current maturities of long-term bank loan
  $ 2,240,218     $ 678,900  
Accounts payable
    1,628,079       1,729,417  
Accrued expenses and other payables
    1,073,070       919,596  
Amount due to a shareholder
    4,032,066       6,017,380  
Total current liabilities
    8,973,433       9,345,293  
                 
LONG-TERM BANK LOAN
    398,096       1,168,917  
                 
TOTAL LIABILITIES
  $ 9,371,529     $ 10,514,210  
                 
STOCKHOLDERS’ EQUITY
               
Common stock, par value $1; 50,000 shares authorized; 10,000 shares and 1 share issued and outstanding as of December 31, 2009 and 2008, respectively
    10,000       1  
Retained earnings/(accumulated deficit)
    61,280       (1,409,032 )
Accumulated other comprehensive income
    225,814       235,523  
TOTAL STOCKHOLDERS’ EQUITY
    297,094       (1,173,508 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 9,668,623     $ 9,340,702  
                 

See accompanying notes to consolidated financial statements

 
1

 

UNITED JOY INTERNATIONAL LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2009 and 2008

   
2009
   
2008
 
             
REVENUE
  $ 18,772,484     $ 16,901,084  
                 
COST OF SALES
    15,824,924       15,368,658  
                 
GROSS MARGIN
    2,947,560       1,532,426  
                 
EXPENSES
               
Selling and distribution
    457,419       497,385  
General and administrative
    954,593       621,394  
TOTAL OPERATING EXPENSES
    1,412,012       1,118,779  
                 
OPERATING INCOME
    1,535,548       413,647  
                 
OTHER INCOME/(EXPENSE)
               
Other income
    113,765       76,654  
Interest income
    456       46  
Interest expense
    (165,992 )     (134,704 )
Other expense
    (13,465 )     (89,593 )
TOTAL OTHER EXPENSE
    (65,236 )     (147,597 )
                 
INCOME BEFORE PROVISION FOR INCOME TAXES
    1,470,312       266,050  
                 
PROVISION FOR INCOME TAXES
    -       -  
                 
NET INCOME
    1,470,312       266,050  
                 
                 
OTHER COMPREHENSIVE INCOME
               
   (Loss)/gain on foreign exchange translation
    (9,709 )     126,220  
                 
COMPREHENSIVE INCOME
  $ 1,460,603     $ 392,270  
                 
                 
EARNINGS PER SHARE, BASIC AND DILUTED
  $ 1,470,312     $ 266,050  
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
    1       1  

See accompanying notes to consolidated financial statements



 
2

 

UNITED JOY INTERNATIONAL LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
AND COMPREHENSIVE INCOME
Years Ended December 31, 2009 and 2008

   
Common stock
   
(Accumulated deficit)/ retained earnings
   
Accumulated other
comprehensive income
 
Total equity
   
   
Number of shares
   
Amount
                 
                             
Balance at January 1, 2008
    1     $ 1     $ (1,675,082 )   $ 109,303     $ (1,565,778 )
                                           
Net income for the year
    -       -       266,050       -       266,050  
                                           
Foreign currency translation adjustments
    -       -       -       126,220       126,220  
                                           
Balance at December 31, 2008 and
January 1, 2009
    1     $ 1     $ (1,409,032 )   $ 235,523     $ (1,173,508 )
                                           
Net income for the year
    -       -       1,470,312       -       1,470,312  
                                           
Issuance of common stock for cash at $1 per share
    9,999       9,999       -       -       9,999  
                                           
Foreign currency translation adjustments
    -       -       -       (9,709 )     (9,709 )
                                           
Balance at December 31, 2009
    10,000     $ 10,000     $ 61,280     $ 225,814     $ 297,094  


See accompanying notes to consolidated financial statements
 
 

 
3

 

UNITED JOY INTERNATIONAL LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009 and 2008

   
2009
   
2008
 
             
Cash flows from operating activities
           
Net income
  $ 1,470,312     $ 266,050  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    497,634       432,660  
Amortization of land use right
    6,267       6,166  
Changes in assets and liabilities:
               
Increase in accounts receivable
    (172,769 )     (467,690 )
Decrease/(increase) in inventories
    318,195       (195,317 )
Decrease/(increase) in tax recoverable
    54,960       (20,036 )
Decrease/(increase) in prepaid expenses and other receivables
    150,874       (272,397 )
(Decrease)/increase in accounts payable
    (101,338 )     674,704  
Increase in accrued expenses and other payables
    153,474       366,972  
                 
Net cash provided by operating activities
    2,377,609       791,112  
                 
Cash flows from investing activities
               
Purchase of plant and equipment
    (14,749 )     (1,336,698 )
                 
Net cash used in investing activities
    (14,749 )     (1,336,698 )
                 
Cash flows from financing activities
               
Proceeds from bank loans
    1,463,634       864,137  
Repayment of bank loans
    (678,183 )     (413,237 )
Proceeds from issuance of shares of common stock
    9,999       -  
(Decrease)/increase in amount due to a shareholder
    (1,985,314 )     278,783  
                 
Net cash (used in)/provided by financing activities
    (1,189,864 )     729,683  
                 
Net increase in cash and cash equivalents
    1,172,996       184,097  
                 
Effect of foreign exchange rate changes
    (22,964 )     (197,607 )
                 
Cash and cash equivalents at beginning of year
    35,260       48,770  
                 
Cash and cash equivalents at end of year
  $ 1,185,292     $ 35,260  
                 
Analysis of cash and cash equivalents:
               
Cash and bank
  $ 1,185,292     $ 35,260  
                 
Cash paid for interest
  $ 165,992     $ 134,704  
                 
Cash paid for income taxes
  $ -     $ -  
                 

See accompanying notes to consolidated financial statements

 
4

 

UNITED JOY INTERNATIONAL LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2009 and 2008


NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

United Joy International Limited (“United Joy”), a company incorporated in the British Virgin Islands (“BVI”), is an investment holding company. Nanjing Crystal Pines Beverages & Packaging Co. Ltd (“Nanjing Crystal Pines”), a company incorporated in Nanjing city, Jiangsu province of the People’s Republic of China (the “PRC” or “China”), is a wholly-owned subsidiary of United Joy. During the years ended December 31, 2009 and 2008, Nanjing Crystal Pines was principally engaged in the manufacture of OEM bottled water in the PRC.

At December 31, 2009, details of the Company and its subsidiary are as follows:

 
Name
 
Domicile and date of incorporation
 
Effective ownership
 
 
Principal activities
             
United Joy
 
BVI
July 22, 2003
 
100%
 
Investment holding
             
Nanjing Crystal Pines
 
PRC
October 16, 2003
 
100%
 
Production of OEM bottled water
             
In July 2008, Nanjing Crystal Pines opened a branch in Hefei city, Anhui province of the PRC, which is engaging in the same business.
 
NOTE 2 – REORGANIZATION

On December 30, 2009, Great East Packaging Holdings Limited (“GEPH”), the then controlling shareholder of the Company, entered into a restructuring agreement with Great East (Overseas) Packaging Limited (“GEOP”), a wholly-owned subsidiary of Hangzhou Great East Packaging Co., Ltd. Pursuant to which, the Company issued 9,999 ordinary shares at $1 each to GEOP.

The shares were issued on December 31, 2009.  Immediately after the completion of the share issuance, the Company became a subsidiary of GEOP, and GEPH became a minority shareholder of the Company. Although GEPH is now a minority shareholder, it retains a three-year option exercisable at $1 to acquire a 60% interest in a company that owns 84% of the outstanding common stock of Hangzhou Great East.  The exercise of this option would give GEPH an indirect majority interest in the Company.
 
NOTE 3 – PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the United Joy and its subsidiary Nanjing Crystal Pines (collectively known as the “Company”). The consolidated financial statements are prepared in accordance with generally accepted accounting principles used in the United States of America, and all significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”), while the reporting currency is the US Dollar.
 
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Economic and Political Risk

The Company’s major operations are conducted in China. Accordingly, the political, economic, and legal environments in the PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition, and results of operations.

The Company’s major operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

(b)
Cash and Cash Equivalents

 
5

 
 
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  The Company maintains bank accounts in Hong Kong and China.

(c)
Accounts Receivable

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. There were no bad debts incurred for accounts receivables during the years ended December 31, 2009 and 2008.

(d)
Inventories

Inventories consisting of raw materials, work-in-progress, goods in transit and finished goods are stated at the lower of cost or net realizable value. Finished goods are comprised of direct materials, direct labor and a portion of overhead. Inventory costs are calculated using a weighted average, first in first out (FIFO) method of accounting.  There was no provision for obsolete inventories incurred during the years ended December 31, 2009 and 2008.

(e)
Property, Plant and Equipment, Net

Property, plant and equipment are carried at cost less accumulated depreciation. The cost of maintenance and repairs is charged to the statement of income as incurred, whereas significant renewals and improvements are capitalized. The cost and the related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income.

(f)
Land use rights

According to the law of PRC, the government owns all 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 for 40 to 50 years.

(g)
Depreciation and Amortization

The Company provides for depreciation of plant and equipment by use of the straight-line method for financial reporting purposes.

Plant and equipment are depreciated over the following estimated useful lives:

Building
20 years
Leasehold improvement
5 years
Office equipment
5 years
Machinery and equipment
5 – 15 years
Transportation equipment
5 years

The land use right is amortized over 50 years.

Depreciation expense for the years ended December 31, 2009 and 2008 was $497,634 and $432,660, respectively.

Amortization expense for the years ended December 31, 2009 and 2008 was $6,267 and $6,166, respectively.

(h)
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 technology or other industry 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 by 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. There were no impairments of long-lived assets for the years ended December 31, 2009 and 2008.

(i)
Income Tax

Income taxes are based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish valuation allowances against its deferred tax assets to the extent the Company no longer believes it is more likely than not that the tax assets will be fully utilized.

 
6

 
 
The Company evaluates a tax position to determine whether it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is subject to a measurement assessment to determine the amount of benefit to recognize and the appropriate reserve to establish, if any. If a tax position does not meet the more-likely-than-not recognition threshold, no benefit is recognized

In accordance with the relevant tax laws and regulations of PRC, the applicable corporation income tax rate was 25% for the years ended December 31, 2009 and 2008, respectively.  At times, generally accepted accounting principles require the Company to recognize certain income and expenses that do not conform to the timing and conditions allowed by the PRC.

(j)
Fair Value of Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses and other receivables, tax recoverable, accounts payable, accrued expenses and other payables, amount due to a shareholder, and bank loans.

The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
 
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments and the fact that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profiles at respective year ends.

(k)
Revenue Recognition

Revenue represents the invoiced value of goods sold recognized upon the shipment of goods to customers. Revenue is recognized when all of the following criteria are met:

 
a)
Persuasive evidence of an arrangement exists,
 
b)
Delivery has occurred,
 
c)
The seller’s price to the buyer is fixed or determinable, and
 
d)
Collectability is reasonably assured.

(l)
Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.  As of December 31, 2009 and 2008, there were no dilutive securities outstanding.

(m)
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

(n)
Retirement Benefits

The country of PRC mandates companies to contribute funds into the national retirement system, which benefits qualified employees based on where they were born within the country. The Company pays the required payment for qualified employees of the Company as a payroll tax expense. Very few employees in the Company fall under the mandatory conditions requiring the Company to pay as a payroll tax expense into the retirement system of the PRC.

The Company’s PRC subsidiaries are required to make appropriations to staff welfare fund, based on after-tax net income determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriations to the staff welfare fund are made at the discretion of the Board of Directors. The staff welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation.

The Company provides no other retirement benefits to its employees.

 
7

 


(o)
Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.  Comprehensive income includes net income and the foreign currency translation gain, net of tax.

(p)
Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States Dollars (US$). The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year.  The translation rates are as follows:

   
2009
   
2008
 
 
           
Year end RMB : US$ exchange rate
    0.1468       0.1458  
Average yearly RMB : US$ exchange rate
    0.1464       0.1446  
                 
On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/US$ exchange rate into a flexible rate under the control of the PRC’s government.

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.  No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

(q)
Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (the "FASB") issued guidance which establishes the FASB Accounting Standards Codification (the “Codification” or “ASC”) as the official single source of authoritative GAAP. All existing accounting standards are superseded by the Codification, and all other accounting guidance not included in the Codification will be considered non-authoritative. The Codification also includes all relevant SEC guidance organized using the same topical structure in separate sections within the Codification. Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”), which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. The Codification is not intended to change GAAP, but did change the way GAAP is organized and presented. The Codification was effective for interim and annual periods ending after September 15, 2009, and the Company adopted the provisions of the Codification beginning with financial statements issued after September 15, 2009. The impact on the Company’s financial statements is limited to disclosures, in that references to authoritative accounting literature no longer reference the prior guidance.
 
In August 2009, the FASB issued additional guidance clarifying the measurement of liabilities at fair value. When a quoted price in an active market for the identical liability is not available, the amendments require that the fair value of a liability be measured using one or more of the listed valuation techniques that should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. In addition the amendments clarify that when estimating the fair value of a liability, an entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The amendment also clarifies how the price of a traded debt security (i.e., an asset value) should be considered in estimating the fair value of the issuer’s liability. The amendments were effective immediately. The adoption of this amendment did not have a significant impact on the Company’s financial statements.
 
In October 2009, the FASB issued guidance that supersedes certain previous rules relating to how a company allocates consideration to all of its deliverables in a multiple-deliverable revenue arrangement. The revised guidance eliminates the use of the residual method of allocation in which the undelivered element is measured at its estimated selling price and the delivered element is measured as the residual of the arrangement consideration and alternatively requires that the relative-selling-price method be used in all circumstances in which an entity recognizes revenue for an arrangement with multiple-deliverables. The revised guidance requires both ongoing disclosures regarding an entity’s multiple-element revenue arrangements as well as certain transitional disclosures during periods after adoption. All entities must adopt the revised guidance no later than the beginning of their first fiscal year beginning on or after June 15, 2010 with earlier adoption allowed. Entities may elect to adopt the guidance through either prospective application or through retrospective application to all revenue arrangements for all periods presented. The Company plans to adopt the revised guidance effective January 1, 2011. The Company does not believe the adoption of this new guidance will have a significant impact on the Company’s financial statements.

 
8

 
 
In January 2010, the FASB issued a standard update that clarifies the scope and establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interest of a subsidiary. This standard update is effective beginning with the interim or annual reporting period ending on or after December 15, 2009. The Company began applying this new amendment in its December 31, 2009 financial statements. The adoption of this amendment did not have a significant impact on the Company’s financial statements.
 
NOTE 5 – ACCOUNTS RECEIVABLE

The Company’s accounts receivable as of the balance sheet dates are summarized as follows:

   
2009
   
2008
 
             
Accounts receivable
  $ 1,243,804     $ 1,071,035  
Less: Allowance for doubtful accounts
    -       -  
                 
Accounts receivable, net
  $ 1,243,804     $ 1,071,035  
                 
 
NOTE 6 – INVENTORIES

Inventories as of December 31, 2009 and 2008 are summarized as follows:

   
2009
   
2008
 
             
Raw materials
  $ 642,191     $ 626,679  
Work-in-progress
    395,845       854,760  
Finished goods
    191,610       61,362  
Goods-in-transit
    14,301       19,341  
                 
TOTAL
  $ 1,243,947     $ 1,562,142  
                 

NOTE 7 – PREPAID EXPENSES AND OTHER RECEIVABLES

Prepaid expenses consists of payments and deposits made by the Company to third parties in the normal course of business operations with no interest being charged and no fixed terms of repayment. These payments are made for the purchase of goods and services that are used by the Company for its current operations.

The Company evaluates the amounts recorded as prepaid expenses and other receivables on a periodic basis and records a charge to the current operations of the Company when the related expense has been incurred or when the amounts reported as other receivables is no longer deemed to be collectible by the Company.

Prepaid expenses and other receivables as of December 31, 2009 and 2008 are summarized as follows:

   
2009
   
2008
 
             
Prepaid expenses
  $ 47,489     $ 90,428  
Other receivables
    151,241       259,176  
                 
Total
  $ 198,730     $ 349,604  


 
9

 
 
NOTE 8 – TAX RECOVERABLE

As of the balance sheet dates, the Company’s tax recoverable is summarized as follows:

   
2009
   
2008
 
             
Value added tax
  $ 1,295     $ 56,255  
                 
Total
  $ 1,295     $ 56,255  
                 

NOTE 9 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment of the Company consist primarily of manufacturing facilities and equipment owned and operated by the Company’s wholly-owned subsidiary in China. Property, plant and equipment as of December 31, 2009 and 2008 are summarized as follows:

   
2009
   
2008
 
             
At cost:
           
Building
  $ 3,282,715     $ 3,347,463  
Machinery
    3,291,401       3,262,363  
Leasehold improvement
    290,677       229,251  
Transportation vehicles
    197,025       196,710  
Construction in progress
    486,528       485,751  
      7,548,346       7,521,538  
                 
Less: Accumulated depreciation
  $ 2,027,569     $ 1,545,268  
                 
Property, plant and equipment, net
  $ 5,520,777     $ 5,976,270  
                 
Depreciation expense for the years ended December 31, 2009 and 2008 was $497,634 and $432,660, respectively. The allocation of depreciation expense for years ended December 31, 2009 and 2008 is summarized as follows:

   
2009
   
2008
 
             
Included in cost of sales
  $ 457,178     $ 393,607  
Included in general and administrative expenses
    40,456       39,053  
                 
Total depreciation expense
  $ 497,634     $ 432,660  
                 
As of December 31, 2009 and 2008, certain machineries with net book value of $829,863 and $1,061,050, respectively, and certain buildings with net book value of $2,680,609 and $2,816,698, respectively, were pledged to secure the Company’s bank loans.
 
NOTE 10 – LAND USE RIGHT

Land use right as of December 31, 2009 and 2008 is summarized as follows:

   
2009
   
2008
 
At cost:
           
Land use right
  $ 304,623     $ 313,660  
                 
Less: Accumulated amortization
    29,845       23,524  
                 
TOTAL
  $ 274,778     $ 290,136  
                 
Amortization for the years ended December 31, 2009 and 2008 was $6,267 and $6,166, respectively.

As of December 31, 2009 and 2008, the Company’s land use right was pledged to secure certain bank loans.

 
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NOTE 11 – AMOUNT DUE TO A SHAREHOLDER

Amount due to a shareholder as of December 31, 2009 and 2008 represents temporary advances to GEPH. The balances are unsecured, interest free, and have no fixed terms of repayment. Although GEPH became a minority shareholder on December 31, 2009, it retained a three-year option exercisable at $1 to acquire a 60% interest in a company that owns 84% of the outstanding common stock of Hangzhou Great East.  The exercise of this option would give GEPH an indirect majority interest in the Company.
 
NOTE 12 – ACCRUED EXPENSES AND OTHER PAYABLES

As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:

   
2009
   
2008
 
             
Unearned revenue
  $ 484,528     $ 179,349  
Accrued expenses
    34,702       65,618  
Other payables
    553,840       674,629  
                 
Total
  $ 1,073,070     $ 919,596  
                 
Other payables consist of amounts owed by the Company to various entities that are incurred by the Company outside of the normal course of business operations.  These liabilities and accrued expenses are non interest bearing and are payable within a year.
 
NOTE 13 – BANK LOANS

Bank loans of the Company as of December 31, 2009 and 2008 were summarized as follows:

   
Interest rate
   
Bank loan balance
 
   
as of December 31,
   
as of December 31,
 
Name of bank
 
2009
   
2008
   
2009
   
2008
 
                         
DBS Bank (China) Limited
    7.72%- 8.10 %     7.72%- 8.10 %   $ 1,170,787     $ 1,847,817  
Shanghai Pudong Development Bank
    5.84 %     N/A       1,467,527       -  
                    $ 2,638,314     $ 1,847,817  
                                 
Less:
                               
Repayable after one year but within two years
      398,096       771,457  
Repayable after two years but within five years
      -       397,460  
                   
                                 
Current maturities of long-term bank loan
                    2,240,218       678,900  
                                 
The maturity dates for the above bank loan are summarized as follows:
 
           
 
 
Name of bank
 
Drawn down currency
 
 
Due date
 
Bank loan balance
 
 
As of December 31,
 
 
2009
   
2008
 
                 
DBS Bank (China) Limited
RMB
April
2011
  $ 629,010     $ 1,031,558  
DBS Bank (China) Limited
RMB
June
2011
    541,777       816,259  
Shanghai Pudong Development Bank
RMB
December
2010
    1,467,527       -  
                     
        $ 2,638,314     $ 1,847,817  
 
 
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The bank loans were secured and guaranteed by the following:

Secured by:
Machineries of the Company (see note 9)
 
Building and land use right of the Company (see note 9 and note 10)
   
Guaranteed by:
Directors
 
Mr. Guy Chung
 
Mr. Stetson Chung
 
Related companies
 
Hangzhou Crystal Pines Beverages & Packaging Company Limited
 
Nanjing Great East Packaging Co. Limited
 
Great East Packaging Holdings Ltd.
 
Janwise Limited
 
Great East Packaging (Hong Kong) Limited
   
Interest expense for the bank loan for the years ended December 31, 2009 and 2008 were $165,992 and $134,704, respectively.
 
NOTE 14 – COMMON STOCK

The Company’s common stock as of December 31, 2009 and 2008 was summarized as follows:

   
Number of shares
   
Amount
 
   
2009
   
2008
   
2009
   
2008
 
                         
Authorized $1 par value
    50,000       50,000     $ 50,000     $ 50,000  
                                 
Issued and outstanding
    10,000       1     $ 10,000     $ 1  
                                 
On December 31, 2009, the Company issued 9,999 common shares at $1 each to GEOP.
 
NOTE 15 – EARNINGS PER SHARE

Earnings per share for the years ended December 31, 2009 and 2008 is analyzed as follows:

   
2009
   
2008
 
             
Net income
  $ 1,470,312     $ 266,050  
                 
Weighted average number of shares
    1       1  
                 
Earnings per share
  $ 1,470,312     $ 266,050  
                 
The calculation of weighted average number of shares for the year ended December 31, 2009 is illustrated as follows:

   
2009
 
   
Number
of shares
   
Weighted average
number of shares
 
             
At January 1, 2009
    1     $ 1  
Share issuance at close of December 31, 2009
    9,999       -  
                 
At December 31, 2009
    10,000     $ 1  
                 
As of December 31, 2009 and 2008, there were no dilutive securities outstanding.

 
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NOTE 16 – INCOME TAX

A reconciliation of the expected tax with the actual tax expense is as follows:

   
2009
   
2008
 
   
Amount
   
%
   
Amount
   
%
 
                         
Income before provision for income taxes
  $ 1,470,312             266,050        
                             
Expected PRC income tax expense at statutory tax rate of 25%
    367,578       25.0       66,513       25.0  
Tax exemption
    (367,578 )     (25.0 )     (66,513 )     (25.0 )
                                 
Actual tax expense
  $ -       -     $ -       -  

(i)
Nanjing Crystal Pines is subject to PRC income tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC. Nanjing Crystal Pines enjoys a tax holiday for the year of 2008 and 2009, and the corresponding assessable profits are exempted from income tax.
(ii)
United Joy is not subject to tax in accordance with the relevant tax laws and regulations of the BVI.
 
NOTE 17 – OTHER INCOME

Other revenue for the years ended December 31, 2009 and 2008 are summarized as follows:

   
2009
   
2008
 
             
Sale of scrapped materials
  $ 4,389     $ 37,823  
Government subsidy
    31,628       -  
Foreign currency transaction gains
    26,306       1,851  
Other
    51,442       36,980  
                 
Total
  $ 113,765     $ 76,654  
                 

NOTE 18 – OTHER EXPENSES

Other expenses for the years ended December 31, 2009 and 2008 are summarized as follows:

   
2009
 
2008
         
Finance charges on discounted notes
$
-
$
45,756
Others
 
13,465
 
43,837
         
Total
$
13,465
$
89,593
         

NOTE 19 – RELATED PARTY TRANSACTIONS

In addition to the transactions detailed elsewhere in these financial statements, the Company entered into the following material transactions with GEPH for the years ended December 31, 2009 and 2008:

   
2009
   
2008
 
             
Sale of bottled water and materials
  $ 7,570,538     $ 5,118,610  
                 
Purchase of bottles and materials
               
-Included in cost of sales
  $ 8,188,492     $ 958,042  
-Included in inventories
    303,974       57,109  
Total purchase from GEPH
  $ 8,492,466     $ 1,015,151  

In our opinion, the above transactions were entered into by the Company in the normal course of business.

 
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NOTE 20 – CONCENTRATION OF CREDIT RISK

For the years ended December 31, 2009 and 2008, the customers who account for 10% or more of sales of the Company are presented as follows:
   
2009
   
2008
 
   
Sales
   
%
   
Sales
   
%
 
                         
Related party sales
  $ 7,570,538       40.3     $ 5,118,610       30.3  
Customer A
    10,579,093       56.4       9,322,249       55.1  
                                 
    $ 18,149,631       96.7     $ 14,440,859       85.4  
 
NOTE 21 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through March 15, 2010, which is the date the financial statements were issued.

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