Attached files

file filename
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-99.1 - AUDITED FINANCIAL STATEMENTS OF UNITED JOY AS OF DECEMBER 31, 2009 AND 2008 AND FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009 - GME INNOTAINMENT, INC.exhibit99-1a.htm
 
 


EXHIBIT 99.3

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

 
To the Board of Directors and
 
Stockholders of Greatgrand Global Limited and Subsidiary
 
We have audited the accompanying consolidated balance sheets of Greatgrand Global 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. Greatgrand Global 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 Greatgrand Global 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

 
 

 

GREATGRAND GLOBAL LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008

   
2009
   
2008
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 10,229     $ 41,265  
Accounts receivable
    615,044       492,426  
Inventories
    674,040       544,795  
Prepaid expenses and other receivables
    183,539       83,157  
Total current assets
    1,482,852       1,161,643  
                 
PROPERTY, PLANT & EQUIPMENT, NET
    4,687,192       5,058,807  
                 
TOTAL ASSETS
  $ 6,170,044     $ 6,220,450  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY
           
LIABILITIES
           
CURRENT LIABILITIES
           
Current maturities of long-term bank loan
  $ 153,922     $ 144,196  
Accounts payable
    865,834       647,375  
Accrued expenses and other payables
    98,473       169,115  
Taxes payables
    73,985       43,211  
Amount due to a shareholder
    4,147,669       4,883,666  
Total current liabilities
    5,339,883       5,887,563  
                 
LONG-TERM BANK LOAN
    131,014       288,403  
                 
TOTAL LIABILITIES
  $ 5,470,987     $ 6,175,966  
                 
STOCKHOLDERS’ EQUITY
               
Common stock, 50,000 shares authorized; $1 par value; 10,000 shares and 1 share issued and outstanding as of December 31, 2009 and 2008, respectively
    10,000       1  
Retained earnings/(accumulated deficit)
    213,765       (436,704 )
Accumulated other comprehensive income
    475,382       481,187  
TOTAL STOCKHOLDERS’ EQUITY
    699,147       44,484  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 6,170,044     $ 6,220,450  
                 

See accompanying notes to consolidated financial statements

 
1

 

GREATGRAND GLOBAL LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2009 and 2008

   
2009
   
2008
 
             
REVENUE
  $ 4,115,453     $ 4,157,281  
                 
COST OF SALES
    3,064,836       3,366,667  
                 
GROSS MARGIN
    1,050,617       790,614  
                 
EXPENSES
               
Selling and distribution
    59,266       69,423  
General and administrative
    374,618       309,363  
TOTAL OPERATING EXPENSES
    433,884       378,786  
                 
OPERATING INCOME
    616,733       411,828  
                 
OTHER INCOME/(EXPENSE)
               
           Other income
    65,203       18,107  
Interest income
    239       519  
Interest expense
    (28,983 )     (45,872 )
Other expense
    (2,723 )     (3,783 )
TOTAL OTHER INCOME/(EXPENSE)
    33,736       (31,029 )
                 
INCOME BEFORE PROVISION FOR INCOME TAXES
    650,469       380,799  
                 
PROVISION FOR INCOME TAXES
    -       -  
                 
NET INCOME
    650,469       380,799  
                 
                 
OTHER COMPREHENSIVE INCOME
               
   (Loss)/gain on foreign exchange translation
    (5,805 )     165,124  
                 
COMPREHENSIVE INCOME
  $ 644,664     $ 545,923  
                 
                 
EARNINGS PER SHARE, BASIC AND DILUTED
  $ 650,469     $ 380,799  
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
    1       1  

See accompanying notes to consolidated financial statements

 
2

 

GREATGRAND GLOBAL 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)/
retained earnings
   
Accumulated other
comprehensive income
   
Total equity
 
                               
Balance at January 1, 2008
    1     $ 1     $ (817,503 )   $ 316,063     $ (501,439 )
                                         
Net income for the year
    -       -       380,799       -       380,799  
                                         
Foreign currency translation adjustments
    -       -       -       165,124       165,124  
                                         
Balance at December 31, 2008 and
January 1, 2009
    1     $ 1     $ (436,704 )   $ 481,187     $ 44,484  
                                         
Net income for the year
    -       -       650,469       -       650,469  
                                         
Issuance of common stock for $1 per share
    9,999       9,999       -       -       9,999  
                                         
Foreign currency translation adjustments
    -       -       -       (5,805 )     (5,805 )
                                         
Balance at December 31, 2009
    10,000     $ 10,000     $ 213,765     $ 475,382     $ 699,147  


See accompanying notes to consolidated financial statements

 
3

 

GREATGRAND GLOBAL LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009 and 2008

   
2009
   
2008
 
             
Cash flows from operating activities
           
Net income
  $ 650,469     $ 380,799  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    354,188       320,312  
Changes in assets and liabilities:
               
(Increase)/decrease in trade receivables
    (122,618 )     6,899  
(Increase)/decrease in inventory
    (129,245 )     219,365  
Increase in prepaid expenses and other receivables
    (100,382 )     (4,892 )
Increase in trade payables
    218,459       368,203  
Increase in income taxes payables
    30,774       26,692  
Decrease in accrued expenses other payables
    (70,642 )     (2,002 )
                 
Net cash provided by operating activities
    831,003       1,315,376  
                 
Cash flows from investing activities
               
Purchase of plant and equipment
    -       (451,715 )
                 
Net cash used in investing activities
    -       (451,715 )
                 
Cash flows from financing activities
               
Proceeds from bank loans
    -       363,859  
Repayment of bank loans
    (147,960 )     (222,935 )
Proceeds from issuance of shares of common stock
    9,999       -  
Decrease in amount due to a shareholder
    (735,997 )     (776,354 )
                 
Net cash used in financing activities
    (873,958 )     (635,430 )
                 
Net (decrease)/increase in cash and cash equivalents
    (42,955 )     228,231  
                 
Effect of foreign exchange rate changes
    11,919       (215,090 )
                 
Cash and cash equivalents at beginning of year
    41,265       28,124  
                 
Cash and cash equivalents at end of year
  $ 10,229     $ 41,265  
                 
Analysis of cash and cash equivalents:
               
Cash and bank
  $ 10,229     $ 41,265  
                 
Cash paid for interest
  $ 28,983     $ 45,872  
                 
Cash paid for income taxes
  $ -     $ -  
                 

See accompanying notes to consolidated financial statements

 
4

 

GREATGRAND GLOBAL LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2009 and 2008


NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

Greatgrand Global Limited (“Greatgrand”), a company incorporated in the British Virgin Islands (“BVI”), is an investment holding company. Shenyang Great East Packaging Co. Ltd (“Shenyang Great East”), a company incorporated in Shenyang city, Liaoning province, the People’s Republic of China (the “PRC” or “China”), is a wholly owned subsidiary of Greatgrand. During the years ended December 31, 2009 and 2008, Shenyang Great East was principally engaged in production of beverage bottles 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
             
Greatgrand
 
BVI
July 2, 2002
 
100%
 
Investment holding
             
Shenyang Great East
 
PRC
May 8, 2003
 
100%
 
Production of beverage bottles
             

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 Greatgrand and its subsidiary Shenyang Great East (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

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.

 
5

 

(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 were 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 $354,188 and $320,312, 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, accounts receivable, prepaid expenses and other receivables, accounts payable, accrued expenses and other payables, taxes 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
  $ 615,044     $ 492,426  
Less: Allowance for doubtful accounts
    -       -  
Accounts receivable, net
  $ 615,044     $ 492,426  
                 

NOTE 6 – INVENTORIES

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

   
2009
   
2008
 
             
Raw materials
  $ 272,492     $ 171,222  
Work-in-progress
    283,284       330,467  
Finished goods
    114,564       42,859  
Goods-in-transit
    3,700       247  
Total
  $ 674,040     $ 544,795  
                 

NOTE 7 – 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 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
  $ 129,746     $ 22,643  
Other receivables
    53,793       60,514  
Total
  $ 183,539     $ 83,157  


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:

 
9

 
 
   
2009
   
2008
 
             
At cost:
           
Machinery
  $ 4,970,926     $ 4,993,686  
Leasehold improvement
    110,350       110,174  
Transportation vehicles
    75,361       75,090  
Construction in progress
    1,300,522       1,298,444  
      6,457,159       6,477,394  
                 
Less: Accumulated depreciation
  $ (1,769,967 )   $ (1,418,587 )
                 
Property, plant and equipment, net
  $ 4,687,192     $ 5,058,807  
                 
Depreciation expense for the years ended December 31, 2009 and 2008 was $354,188 and $320,312 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
  $ 340,936     $ 287,841  
Included in general and administrative expenses
    13,252       32,471  
                 
Total depreciation expense
  $ 354,188     $ 320,312  
                 
As of December 31, 2009 and 2008, certain machineries with net book value of $551,966 and $611,494 respectively were pledged to secure the Company’s bank borrowings.
 
NOTE 10 – 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
  $ 36,738     $ 72,625  
Deposits received in advance from customers
    42,760       89,252  
Other payables
    18,975       7,238  
Total
  $ 98,473     $ 169,115  
                 
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 11 – BANK LOANS

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

   
Interest rate
   
Bank loans balance
 
   
As of December 31,
   
As of December 31,
 
Name of banks
 
2009
   
2008
   
2009
   
2008
 
                         
DBS Bank (Hong Kong) Limited
    8.775%- 10.836 %     8.775%- 10.836 %   $ 284,936     $ 432,599  
                                 
                      284,936       432,599  
Less:
                               
Repayable after one year but within two years
                    (112,873 )     (153,676 )
Repayable after two years but within five years
                    (18,141 )     (134,727 )
Current portion
                  $ 153,922     $ 144,196  
                                 
                                 
The maturity dates for the above bank loans are summarized as follows:
         
 
 
Name of banks
Drawn
down currency
 
 
Due date
 
Bank loans balance
 
 
As of December 31,
 
 
2009
   
2008
 
                 
DBS Bank (Hong Kong) Limited
RMB
March, 2011
  $ 84,337     $ 135,216  
DBS Bank (Hong Kong) Limited
RMB
March, 2011
    33,721       59,730  
DBS Bank (Hong Kong) Limited
RMB
March, 2012
    166,878       237,653  
        $ 284,936     $ 432,599  

All bank loans were secured and guaranteed by the following:

Secured by:
Machineries of the Company (see note 8)
   
Guaranteed by:
Directors
 
Mr. Guy Chung
 
Mr. Stetson Chung
   
Interest expenses for the bank loan for the years ended December 31, 2009 and 2008 were $28,983 and $45,872 respectively.
 
NOTE 12 – TAXES PAYABLE

As of the balance sheet dates, the Company’s taxes payable are summarized as follows:

   
2009
   
2008
 
             
Value added tax payables
  $ 73,012     $ 42,428  
Other tax payables
    973       783  
Total
  $ 73,985     $ 43,211  
                 

NOTE 13 – 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 14 – EARNINGS PER SHARE

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

   
2009
   
2008
 
             
Net income
    650,469     $ 380,799  
                 
Weighted average number of shares
    1       1  
                 
Earnings per share
    650,469     $ 380,799  
                 
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.
 
NOTE 15 – INCOME TAX

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

   
2009
   
2008
 
   
Amount
   
%
   
Amount
   
%
 
                         
Income from before provision for income taxes
  $ 650,469             380,799        
                             
Expected PRC income tax expense at statutory tax rate of 25%
    162,617       25.0       (95,200 )     25.0  
Tax exemption
    (162,617 )     (25.0 )     95,200       (25.0 )
                                 
Actual tax expense
  $ -       -     $ -       -  

(i)
Shenyang Great East 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. Shenyang Great East enjoys a tax holiday for the year of 2008 and 2009, and the corresponding assessable profits are exempted from income tax.
(ii)
Greatgrand is not subject to tax in accordance with the relevant tax laws and regulations of the BVI.
 
NOTE 16 – OTHER INCOME

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

   
2009
   
2008
 
             
Sale of scrapped materials
  $ 34,830     $ 10,632  
Others
    30,373       7,475  
Total
  $ 65,203     $ 18,107  
                 

NOTE 17 – 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 PET CSD bottles and materials
  $ 40,921     $ -  
                 
Purchase of PET CSD bottles and materials
               
-Included in cost of sales
    423,879       -  
-Included in inventories
    426,874       -  
Total
  $ 850,753     $ -  

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

 
10

 
 
NOTE 18 – 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
   
%
 
                         
Customer A
  $ 2,406,909       58.5     $ 2,112,111       50.8  
Customer B
    487,153       11.8       921,148       22.2  
Customer C
    455,932       11.1       572,162       13.8  
Customer D
    313,368       7.6       443,302       10.6  
                                 
    $ 3,663,362       89.0     $ 4,048,723       97.4  
NOTE 19 – SUBSEQUENT EVENTS

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

 11