Attached files
EXHIBIT 99.2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Upjoy Holdings Limited and Subsidiary
We have
audited the accompanying consolidated balance sheets of Upjoy Holdings 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. Upjoy Holdings 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 Upjoy Holdings 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
UPJOY
HOLDINGS LIMITED AND SUBSIDIARY
December
31, 2009 and 2008
2009
|
2008
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 40,270 | $ | 60,825 | ||||
Pledged
deposits
|
6,163,611 | 1,974,479 | ||||||
Accounts
receivable
|
1,219,279 | 407,733 | ||||||
Tax
recoverable
|
- | 93,414 | ||||||
Inventories
|
483,640 | 812,250 | ||||||
Prepaid
expenses and other receivables
|
148,110 | 923,240 | ||||||
Total current
assets
|
8,054,910 | 4,271,941 | ||||||
PROPERTY,
PLANT & EQUIPMENT, NET
|
2,362,744 | 1,551,936 | ||||||
TOTAL
ASSETS
|
$ | 10,417,654 | $ | 5,823,877 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
LIABILITIES
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Bank
loans
|
$ | 1,320,774 | $ | - | ||||
Accounts
payable
|
690,980 | 629,537 | ||||||
Accrued
expenses and other payables
|
5,966 | 33,880 | ||||||
Tax
payable
|
59,118 | - | ||||||
Amount
due to a shareholder
|
8,163,296 | 5,687,615 | ||||||
TOTAL
CURRENT LIABILITIES AND TOTAL LIABILITIES
|
10,240,134 | 6,351,032 | ||||||
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 | ||||||
Accumulated
deficit
|
(133,609 | ) | (819,410 | ) | ||||
Accumulated
other comprehensive income
|
301,129 | 292,254 | ||||||
TOTAL
STOCKHOLDERS’ EQUITY
|
177,520 | (527,155 | ) | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 10,417,654 | $ | 5,823,877 | ||||
See
accompanying notes to consolidated financial statements
1
UPJOY
HOLDINGS LIMITED AND SUBSIDIARY
Years
Ended December 31, 2009 and 2008
2009
|
2008
|
|||||||
REVENUE
|
$ | 13,378,563 | $ | 8,257,663 | ||||
COST
OF SALES
|
12,026,171 | 7,861,417 | ||||||
GROSS
MARGIN
|
1,352,392 | 396,246 | ||||||
EXPENSES
|
||||||||
Selling and
distribution
|
196,248 | 97,537 | ||||||
General and
administrative
|
273,295 | 199,483 | ||||||
TOTAL
OPERATING EXPENSES
|
469,543 | 297,020 | ||||||
OPERATING
INCOME
|
882,849 | 99,226 | ||||||
OTHER
INCOME/(EXPENSE)
|
||||||||
Other
income
|
16,779 | 70,610 | ||||||
Interest
income
|
67,558 | 77,661 | ||||||
Interest
expense
|
(63,691 | ) | (67,647 | ) | ||||
Other expense
|
(217,694 | ) | (371,081 | ) | ||||
TOTAL
OTHER EXPENSE
|
(197,048 | ) | (290,457 | ) | ||||
INCOME/(LOSS)
BEFORE PROVISION FOR INCOME TAXES
|
685,801 | (191,231 | ) | |||||
PROVISION
FOR INCOME TAXES
|
- | - | ||||||
NET
INCOME/(LOSS)
|
685,801 | (191,231 | ) | |||||
OTHER
COMPREHENSIVE INCOME
|
||||||||
Gain
on foreign exchange translation
|
8,875 | 134,998 | ||||||
COMPREHENSIVE
INCOME/(LOSS)
|
$ | 694,676 | $ | (56,233 | ) | |||
EARNINGS
PER SHARE, BASIC AND DILUTED
|
$ | 685,801 | $ | (191,231 | ) | |||
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
|
1 | 1 |
See
accompanying notes to consolidated financial statements
2
UPJOY
HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
AND
COMPREHENSIVE INCOME
Years
Ended December 31, 2009 and 2008
Common
stock
|
||||||||||||||||||||
Number
of shares
|
Amount
|
Accumulated
deficit
|
Accumulated
other
comprehensive
income
|
Total
equity
|
||||||||||||||||
Balance
at January 1, 2008
|
1 | $ | 1 | $ | (628,179 | ) | $ | 157,256 | $ | (470,922 | ) | |||||||||
Net
loss for the year
|
- | - | (191,231 | ) | - | (191,231 | ) | |||||||||||||
Foreign
currency translation adjustments
|
- | - | - | 134,998 | 134,998 | |||||||||||||||
Balance
at December 31, 2008 and
January
1, 2009
|
1 | $ | 1 | $ | (819,410 | ) | $ | 292,254 | $ | (527,155 | ) | |||||||||
Net
income for the year
|
- | - | 685,801 | - | 685,801 | |||||||||||||||
Issuance
of common stock for cash at $1 per share
|
9,999 | 9,999 | - | - | 9,999 | |||||||||||||||
Foreign
currency translation adjustments
|
- | - | - | 8,875 | 8,875 | |||||||||||||||
Balance
at December 31, 2009
|
10,000 | $ | 10,000 | $ | (133,609 | ) | $ | 301,129 | $ | 177,520 |
See
accompanying notes to consolidated financial statements
3
UPJOY
HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31, 2009 and 2008
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income/(loss)
|
$ | 685,801 | $ | (191,231 | ) | |||
Adjustments
to reconcile net income to net cash provided by/(used in) operating
activities:
|
||||||||
Depreciation
|
258,733 | 132,222 | ||||||
Changes
in assets and liabilities:
|
||||||||
Increase
in trade receivables
|
(811,546 | ) | (147,634 | ) | ||||
Decrease/(increase)
in inventory
|
328,610 | (388,018 | ) | |||||
Decrease/(increase)
in prepaid expenses and other receivables
|
775,130 | (865,347 | ) | |||||
Increase
in trade payables
|
61,443 | 318,419 | ||||||
Decrease/(increase)
in tax recoverable
|
93,414 | (50,519 | ) | |||||
Increase/(decrease)
in tax payable
|
59,118 | - | ||||||
(Decrease)/increase
in accrued expenses and other payables
|
(27,914 | ) | 31,252 | |||||
Net
cash provided by/(used in) operating activities
|
1,422,789 | (1,160,856 | ) | |||||
Cash
flows from investing activities
|
||||||||
Purchase
of plant and equipment
|
(1,064,914 | ) | (790,299 | ) | ||||
Net
cash used in investing activities
|
(1,064,914 | ) | (790,299 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
from bank loans
|
1,317,271 | - | ||||||
Repayment
of bank loans
|
- | (936,148 | ) | |||||
(Increase)/decrease
in pledged deposits
|
(4,189,132 | ) | 1,314,005 | |||||
Proceeds
from issuance of shares of common stock
|
9,999 | - | ||||||
Increase
in amount due to a shareholder
|
2,475,681 | 1,501,084 | ||||||
Net
cash (used in)/provided by financing activities
|
(386,181 | ) | 1,878,941 | |||||
Net
decrease in cash and cash equivalents
|
(28,306 | ) | (72,214 | ) | ||||
Effect
of foreign exchange rate changes
|
7,751 | 111,909 | ||||||
Cash
and cash equivalents at beginning of year
|
60,825 | 21,130 | ||||||
Cash
and cash equivalents at end of year
|
$ | 40,270 | $ | 60,825 | ||||
Analysis
of cash and cash equivalents:
|
||||||||
Cash
and bank
|
$ | 40,270 | $ | 60,825 | ||||
Cash
paid for interest
|
$ | 63,691 | $ | 67,647 | ||||
Cash
paid for income taxes
|
$ | - | $ | - | ||||
See
accompanying notes to consolidated financial statements
4
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 1 – ORGANIZATION AND
PRINCIPAL ACTIVITIES
Upjoy
Holdings Limited (“Upjoy”), a company incorporated in the British Virgin Islands
(“BVI”), is an investment holding company. Hangzhou Crystal Pines Beverages
& Packaging Co. Ltd (“Hangzhou Crystal Pines”), a company incorporated in
Hangzhou city, Zhejiang province of the People’s Republic of China (the “PRC” or
“China”), is a wholly-owned subsidiary of Upjoy. During the years ended December
31, 2009 and 2008, Hangzhou 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
|
|||
Upjoy
|
BVI
December
3, 2003
|
100%
|
Investment
holding
|
|||
Hangzhou
Crystal Pines
|
PRC
March
24, 2004
|
100%
|
Production
of OEM bottled water
|
|||
In June
2008, Hangzhou Crystal Pines opened a branch in Taizhou city, Zhejiang 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 (“Hangzhou Great East”). 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 Upjoy
and its subsidiary Hangzhou 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 betterments 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)
|
Depreciation
and Amortization
|
The
Company provides for depreciation of plant and equipment principally 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 –
10 years
|
Transportation
equipment
|
5
years
|
The
depreciation expense for the year ended December 31, 2009 and 2008 amounted to
$258,733 and $132,222, respectively.
(g)
|
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.
(h)
|
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.
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.
(i)
|
Fair
Value of Financial Instruments
|
6
The
Company’s financial instruments primarily consist of cash and cash equivalents,
pledged deposits, accounts receivable, prepaid expenses and other receivables,
tax recoverable, accounts payable, accrued expenses and other payables, tax
payable, 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.
(j)
|
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.
|
(k)
|
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.
(l)
|
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.
(m)
|
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.
(n)
|
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.
7
(o)
|
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.
(p)
|
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.
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.
8
NOTE 5 – ACCOUNTS
RECEIVABLE
The
Company’s accounts receivable as of the balance sheet dates are summarized as
follows:
2009
|
2008
|
|||||||
Accounts
receivable
|
$ | 1,219,279 | $ | 407,733 | ||||
Less:
Allowance for doubtful accounts
|
- | - | ||||||
Accounts
receivable, net
|
$ | 1,219,279 | $ | 407,733 | ||||
NOTE 6 – PLEDGED
DEPOSITS
Amount
represents restricted cash pledged as deposits for bankers’ notes facilities
(notes payable to a shareholder – see Footnote 11). As of December 31, 2009 and
2008, pledged deposits are summarized as follows:
2009
|
2008
|
|||||||
China
Construction Bank
|
$ | 953,892 | $ | 1,315,147 | ||||
China
Merchants Bank
|
2,568,171 | - | ||||||
Guangdong
Development Bank
|
2,641,548 | 659,332 | ||||||
Total
|
$ | 6,163,611 | $ | 1,974,479 | ||||
NOTE 7 –
INVENTORIES
Inventories
as of December 31, 2009 and 2008 are summarized as follows:
2009
|
2008
|
|||||||
Raw
materials
|
$ | 122,310 | $ | 203,589 | ||||
Work-in-progress
|
156,338 | 226,800 | ||||||
Finished
goods
|
204,992 | 366,379 | ||||||
Goods-in-transit
|
- | 15,482 | ||||||
Inventories
|
$ | 483,640 | $ | 812,250 | ||||
NOTE 8 – 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
|
$ | 87,259 | $ | 895,343 | ||||
Other
receivables
|
60,851 | 27,897 | ||||||
Total
|
$ | 148,110 | $ | 923,240 |
9
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
|
$ | 188,204 | $ | 187,904 | ||||
Machinery
|
2,533,900 | 1,515,459 | ||||||
Leasehold
improvement
|
318,176 | 159,005 | ||||||
Transportation
vehicles
|
49,168 | 41,450 | ||||||
Construction in
progress
|
- | 114,654 | ||||||
3,089,448 | 2,018,472 | |||||||
Less:
Accumulated depreciation
|
$ | 726,704 | $ | 466,536 | ||||
Property,
plant and equipment, net
|
$ | 2,362,744 | $ | 1,551,936 | ||||
Depreciation
expense for the years ended December 31, 2009 and 2008 was $258,733 and
$132,222, 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
|
$ | 244,972 | $ | 131,796 | ||||
Included
in general and administrative expenses
|
13,761 | 426 | ||||||
Total
depreciation expense
|
$ | 258,733 | $ | 132,222 | ||||
NOTE 10 – TAX
PAYABLE/(RECOVERABLE)
As of the
balance sheet dates, the Company’s tax payable/(recoverable) is summarized as
follows:
2009
|
2008
|
|||||||
Value
added tax
|
$ | 59,118 | $ | (93,414 | ) | |||
Total
|
$ | 59,118 | $ | (93,414 | ) | |||
NOTE 11 – AMOUNT DUE TO A
SHAREHOLDER
Amount
due to a shareholder as of December 31, 2009 and 2008 are summarized as
follows:
2009
|
2008
|
|||||||
(Receivable
from)/temporary advance to Great East Packaging Holdings Limited (“GEPH”)
– (i)
|
$ | (421,734 | ) | $ | 2,449,565 | |||
Notes
payable to GEPH – (ii)
|
8,585,030 | 3,238,050 | ||||||
Net
|
$ | 8,163,296 | $ | 5,687,615 |
10
(i)
|
As
of December 31, 2009, GEPH was the minority shareholder of the Company.
The amounts as of the balance sheet dates 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.
|
(ii)
|
Banks
issued notes to the Company’s suppliers payable at any time prior to a
maturity date as part of the credit facility granted to the Company.
Should the supplier want to call the note prior to maturity, the bank
would satisfy the note at a discount, and then be paid the full face
amount of the note by the Company, at maturity. The Company is also
required to make certain deposits in bank accounts at the date of issue
and until maturity. As such, there is no interest payable by the
Company to the banks under this credit facility, and Company payments are
always due at the maturity date. Details of the notes payable to GEPH are
summarized as follows:
|
Maturity
date
|
2009
|
2008
|
||||||
June
2010
|
$ | 1,907,784 | $ | - | ||||
April
2010
|
1,100,645 | - | ||||||
March
2010
|
4,109,074 | - | ||||||
February
2010
|
1,467,527 | - | ||||||
June
2009
|
- | 2,271,032 | ||||||
March
2009
|
- | 307,686 | ||||||
February
2009
|
- | 366,296 | ||||||
January
2009
|
- | 293,036 | ||||||
Current
portion
|
$ | 8,585,030 | $ | 3,238,050 | ||||
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
|
|||||||
Accrued
expenses
|
$ | 1,466 | $ | 31,864 | ||||
Other
payables
|
4,500 | 2,016 | ||||||
Total
|
$ | 5,966 | $ | 33,880 | ||||
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
|
||||||||||||
China
Merchants Bank
|
5.841 | % | N/A | $ | 1,320,774 | $ | - | |||||||||
Current
portion
|
$ | 1,320,774 | $ | - | ||||||||||||
The
maturity date for the above bank loan is summarized as follows:
11
Name
of bank
|
Drawn
down currency
|
Due
date
|
Bank
loan balance
|
|||||||
As
of December 31,
|
||||||||||
2009
|
2008
|
|||||||||
China
Merchants Bank
|
RMB
|
February
2010
|
$ | 1,320,774 | $ | - | ||||
The bank
loan is jointly guaranteed by Nanjing Crystal Pines Beverages & Packaging
Co. Ltd, Nanjing Great East Packaging Co. Limited, and Hangzhou Great East
Packaging Co. Limited. As of December 31, 2009, these companies were fellow
subsidiaries of GEOP.
Interest
expenses for the bank loan for the years ended December 31, 2009 and 2008 were
$63,691 and $67,647, respectively.
NOTE 14 – COMMON
STOCK
The
Company’s common stock as of December 31, 2009 and 2008 were 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/(LOSS)
PER SHARE
Earnings
per share for the years ended December 31, 2009 and 2008 is analyzed as
follows:
2009
|
2008
|
|||||||
Net
income/(loss)
|
685,801 | $ | (191,231 | ) | ||||
Weighted
average number of shares
|
1 | 1 | ||||||
Earnings/(loss)
per share
|
685,801 | $ | (191,231 | ) | ||||
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 completed 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.
12
NOTE 16 – INCOME
TAX
A
reconciliation of the expected tax with the actual tax expense is as
follows:
2009
|
2008
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Income/(loss)
from before provision for income taxes
|
$ | 685,801 | (191,231 | ) | ||||||||||||
Expected
PRC income tax expense at statutory tax rate of 25%
|
171,450 | 25.0 | (47,808 | ) | 25.0 | |||||||||||
Tax
exemption
|
(171,450 | ) | (25.0 | ) | 47,808 | (25.0 | ) | |||||||||
Actual
tax expense
|
$ | - | - | $ | - | - |
(i)
|
Hangzhou
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. Hangzhou Crystal Pines enjoys a tax
holiday for the year of 2008 and 2009, and the corresponding assessable
profits are exempted from income
tax.
|
(ii)
|
Upjoy
is not subject to tax in accordance with the relevant tax laws and
regulations of the BVI.
|
NOTE 17 – OTHER
INCOME
Other
income for the years ended December 31, 2009 and 2008 are summarized as
follows:
2009
|
2008
|
|||||||
Sale
of scrapped materials
|
$ | 15,722 | $ | 53,148 | ||||
Others
|
1,057 | 17,462 | ||||||
Total
|
$ | 16,779 | $ | 70,610 | ||||
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
|
$ | 167,755 | $ | 318,008 | ||||
Others
|
49,939 | 53,073 | ||||||
Total
|
$ | 217,694 | $ | 371,081 | ||||
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
|
$ | 2,389,366 | $ | 958,042 | ||||
Purchase
of bottles and materials
|
||||||||
-Included
in cost of sales
|
12,021,233 | 5,118,611 | ||||||
-Included
in inventories
|
361,182 | 386,222 | ||||||
Total
purchase from GEPH
|
$ | 12,382,415 | $ | 5,504,833 |
In our
opinion, the above transactions were entered into by the Company in the normal
course of business.
13
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
|
$ | 2,389,366 | 17.8 | $ | 958,042 | 11.6 | ||||||||||
Customer
A
|
10,982,280 | 82.1 | 7,233,873 | 87.6 | ||||||||||||
$ | 13,371,646 | 99.9 | $ | 8,191,915 | 99.2 |
NOTE 21 – SUBSEQUENT
EVENTS
The
Company has evaluated subsequent events through March 15, 2010, which is the
date the financial statements were issued.
14