Exhibit 99.1

  

GENERAL RED HOLDING, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2011 AND 2010

 

 

 

GENERAL RED HOLDING, INC.

Consolidated Financial Statements

December 31, 2011 and 2010

 

Table of Contents

 

	Page
Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets	2
Consolidated Statements of Operations and Comprehensive Income	3
Consolidated Statements of Stockholders’ Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6

 

  

Patrizio & Zhao, LLC
Certified Public Accountants and Consultants	322 Route 46 West
	Parsippany, NJ 07054
Member of	Tel:  (973) 882-8810 Fax: (973) 882-0788 www.pzcpa.com
Alliance of worldwide accounting firms

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders

General Red Holding, Inc.

 

We have audited the accompanying consolidated balance sheets of General Red Holding, Inc. (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 includes 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of General Red Holding, Inc. as of December 31, 2011 and 2010, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

  

/s/ Patrizio & Zhao, LLC

 

Parsippany, New Jersey

March 27, 2012

 

 

GENERAL RED HOLDING, INC.

  

Consolidated Balance Sheets

 

		December 31				December 31,
		2011				2010
Assets
Current assets:
Cash and cash equivalents		$	3,265,179			$	971,321
Accounts receivable			1,436,890				2,676,597
Inventory			2,058,467				2,787,290
Advance payments			1,850,888				1,445,451
Prepaid leases – current			1,550,780				-
Other current assets			14,731				133,308
Total current assets			10,176,935				8,013,967
Property and equipment, net			16,053,123				15,883,354
Other assets:
Intangibles, net			158,911				156,637
Prepaid leases – non current			12,406,243				-
Total other assets			12,565,154				156,637
Total assets		$	38,795,212			$	24,053,958
Liabilities
Current liabilities:
Accounts payable and accrued expenses		$	9,735,073			$	3,492,450
Short-term bank loans			5,351,600				2,730,600
Advances from customers			-				595,196
Current portion of long-term bank loan			-				758,500
Due to related parties			328,434				803,254
Other current liabilities			247,728				328,548
Total current liabilities			15,662,835				8,708,548
Long-term bank loan			-				758,500
Total liabilities			15,662,835				9,467,048
Stockholders’ equity
Common stock, $0.0001 par value, 200,000,000 shares authorized 125,112,803 and 74,814,862 shares issued and outstanding at December 31, 2011 and 2010, respectively.			12,511				7,481
Additional paid-in capital			4,590,933				4,595,963
Statutory reserves			1,762,042				968,127
Retained earnings			14,971,258				8,102,893
Accumulated other comprehensive income			1,795,633				912,446
Total stockholders’ equity			23,132,377				14,586,910
Total liabilities and stockholders’ equity		$	38,795,212			$	24,053,958

 

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

 

 

GENERAL RED HOLDING, INC.

 

Consolidated Statements of Operations and Comprehensive Income

 

		For the Years Ended December 31,
		2011				2010
Sales		$	17,096,403			$	13,820,121
Cost of sales			8,007,614				7,255,714
Gross profit			9,088,789				6,564,407
Operating expenses
Selling expenses			748,149				516,459
General and administrative expenses			746,618				568,278
Total operating expenses			1,494,767				1,084,737
Income from operations			7,594,022				5,479,670
Other income (expenses):
Government subsidy			-				295,880
Interest income			12,730				5,148
Interest expense			(214,597	)			(220,161	)
Other income, net			270,125				114,419
Total other income			68,258				195,286
Income before provision for income taxes			7,662,280				5,674,956
Provision for income taxes			-				838,162
Net income			7,662,280				4,836,794
Other comprehensive income
Foreign currency translation adjustment			883,187				464,201
Total comprehensive income		$	8,545,467			$	5,300,995

 

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

 

 

GENERAL RED HOLDING, INC.

 

Consolidated Statements of Stockholders’ Equity

																						Accumulated
										Additional												Other				Total
		Common				Stock				Paid in				Retained				Statutory				Comprehensive				Stockholders’				Noncontrolling				Total
		Shares				Value				Capital				Earnings				Reserve				Income				Equity				Interest				Equity
Balance at January 1, 2010			74,814,862			$	7,481			$	4,803,544			$	3,473,237			$	431,150			$	448,245			$	9,163,657			$	722,850			$	9,886,507
Purchase of subsidiary shares from			-				-				-				-				-				-				-				(293,400	)			(293,400	)
Noncontrolling interest
Comprehensive income:
Net income			-				-				-				4,836,794				-				-				4,836,794				-				4,836,794
Other comprehensive income:
Foreign currency translation       adjustment			-				-				-				-				-				450,174				450,174				-				450,174
Comprehensive income																											5,286,968				-				5,286,968
Acquisition of noncontrolling interest			-				-				85,584				-				-				9,771				95,355				(95,355	)			-
Acquisition of noncontrolling interest			-				-				-				291,675				-				3,539				295,214				(295,214	)			-
Acquisition of subsidiary			-				-				(293,165	)			-				-				-				(293,165	)			-				(293,165	)
Statutory reserve			-				-				-				(498,813	)			536,977				717				38,881				(38,881	)			-
Balance at December 31, 2010			74,814,862			$	7,481			$	4,595,963			$	8,102,893			$	968,127			$	912,446			$	14,586,910			$	-			$	14,586,910
Effect of reverse merger			50,297,941				5,030				(5,030	)			-				-				-				-				-				-
Comprehensive income:
Net income			-				-				-				7,662,280				-				-				7,662,280				-				7,662,280
Other comprehensive income:
Foreign currency translation adjustment			-				-				-				-				-				883,187				883,187				-				883,187
Comprehensive income																											8,545,467				-				8,545,467
Statutory reserve			-				-				-				(793,915	)			793,915				-				-				-				-
Balance at December 31, 2011			125,112,803			$	12,511			$	4,590,933			$	14,971,258			$	1,762,042			$	1,795,633			$	23,132,377			$	-			$	23,132,377

 

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

 

 

GENERAL RED HOLDING, INC.

 

Consolidated Statements of Cash Flows

 

		For the Years Ended December 31,
		2011				2010
Cash flows from operating activities:
Net Income		$	7,662,280			$	4,836,794
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization			1,045,356				954,205
Changes in current assets and current liabilities:
Accounts receivable			1,319,501				(679,287	)
Inventory			820,632				(41,130	)
Advance payments			(345,683	)			(435,718	)
Prepaid leases			(13,740,662	)			-
Other current assets			127,012				(42,034	)
Accounts payable and accrued expenses			6,018,712				(1,908,061	)
Advances from customers			(607,987	)			580,444
Other current liabilities			(91,720	)			(71,157	)
Total adjustments			(5,454,839	)			(1,642,738	)
Net cash provided by operating activities			2,207,441				3,194,056
Cash flows from investing activities:
Acquisition of property and equipment			(621,386	)			(113,863	)
Addition to construction in progress			-				(179,839	)
Buyout of existing shareholder			-				(300,000	)
Net cash used in investing activities			(621,386	)			(593,702	)
Cash flows from financing activities:
Proceeds from short-term bank loans			2,479,360				443,820
Repayment of long-term bank loans			(1,549,600	)			(739,700	)
Due to related parties			(486,079	)			(2,466,538	)
Repayment of related party loans			-				(295,880	)
Net cash provided by (used in) financing activities			443,681				(3,058,298	)
Effect of foreign currency translation			264,122				42,135
Net increase (decrease) in cash and cash equivalents			2,293,858				(415,809	)
Cash and cash equivalents – beginning of period			971,321				1,387,130
Cash and cash equivalents – ending of period		$	3,265,179			$	971,321
Supplemental disclosure of cash flow information:
Cash paid for interest		$	214,597			$	220,161
Cash paid for income taxes		$	72,142			$	910,317
Supplemental schedule of non-cash activities
Outstanding obligation for acquisition of subsidiary		$	-			$	295,880
Additional paid in capital – acquisition of noncontrolling interest		$	-			$	102,625
Transfer from construction in progress to fixed assets		$	347,172			$	-

 

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

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

 

Note 1 – Organization and Nature of Business

 

General Red Holding, Inc. (“GRH”) was established under the laws of the State of Delaware on January 18, 2011. The accompanying consolidated financial statements include the financial statements of GRH. and its subsidiaries (collectively, the “Company”). The Company is primarily engaged in growing, preserving and marketing navel oranges.

 

On September 30, 2011, GRH entered into a Share Transfer and Issuance Agreement (the “Agreement”) with Han Glory International Investment Limited (“Han Glory International”), a company incorporated on April 28, 2011 under the laws of British Virgin Islands and Hua Mei Investments Limited (“Hua Mei”), a company incorporated on April 26, 2011 under the laws of the British Virgin Islands. Under the Agreement, GRH issued 74,814,862 shares to Hua Mei, the sole stockholder of Han Glory International, in exchange for all shares and beneficial interest of Han Glory International. This transaction is treated as a reverse merger, and therefore, after the share exchange, Han Glory International became the wholly owned subsidiary of GRH.

 

On May 18, 2011, Han Glory International purchased all shares of Greater China International Investment Limited (“Greater China International”), a company incorporated on December 4, 2009 under the laws of Hong Kong, from Zhihao Zhang, the sole stockholder of Greater China International, for $1,290 (HK$10,000). As a result, Greater China International became the wholly owned subsidiary of Han Glory International.

 

On January 13, 2010, Greater China International formed Nanchang Hanxin Agriculture Technology Co., Ltd (“WFOE”) in the city of Nanchang, Jiangxi Province, the People’s Republic of China (“PRC”).

 

On February 5, 2010, WFOE purchased all shares of Xingguo General Fruit Industry Development Co., Ltd (“General Fruit”) from Jiangjun Hong Group Co., Ltd., Xingping Hou and Jiefeng Ren for $293,400. As a result, WFOE acquired 100% interest in General Fruit. This transaction was a capital transaction in substance. That is, the transaction was a reverse recapitalization, equivalent to the issuance of stock by General Fruit for the net monetary assets of WFOE accompanied by a recapitalization.

 

General Fruit was formed in Xingguo County, Jiangxi Province, under the corporate laws of PRC On March 5, 2003. The primary business of General Fruits is to grow and sell navel oranges. On July 14, 2008, after a series of equity transfer agreements, General Fruits acquired 90% interest in Xingguo General Red Navel Orange Preservation Company, Ltd. (“Xingguo”). On July 25, 2010, General Fruits purchased the remaining 10% interest in Xingguo from Xingping Hou, the minority stockholder, for $295,000 (RMB 2,000,000) and owns 100% of Xingguo thereafter.

 

Xingguo, a citrus fruits company primarily engaged in preserving, packaging and marketing premium navel oranges, was formed as a limited liability company in Xingguo County, Jiangxi Province under PRC laws on November 22, 2005. Xingguo provides wholesale, retail, and institutional customers in China and several other countries with premium navel orange fruits under the trademark of “General Red”.

 

On September 26, 2011, GRH purchased all shares of Sheng Da Holding Limited (“Sheng Da BVI”), a company incorporated on May 18, 2011 under the laws of the British Virgin Islands, from General Red Company, Ltd (“General Red BVI”), a limited liability company incorporated on August 28, 2008 under the laws of British Virgin Islands, for $23,000. As a result, Sheng Da BVI became the wholly owned subsidiary of GRH. On September 29, 2011, Sheng Da BVI entered into a series of new agreements to terminate the old agreements with Xingguo, which were originally signed between General Red BVI and Xingguo on November 17, 2008, amended on June 10, 2011, and transferred to Sheng Da BVI by General Red BVI on June 30, 2011. The old agreements included a Consultation Agreement, an Operating Agreement, a Share Pledge Agreement, a Proxy Agreement and an Option Agreement. Upon the entry of these new agreements, Xingguo is no longer the Variable Interest Entity of Sheng Da BVI.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis Of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“US GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

Basis Of Presentation (continued)

 

In preparing the accompanying consolidated financial statements, the Company evaluated the period from December 31, 2011 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure.

 

Use of Estimates

 

The preparation of financial statements in accordance with US GAAP 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. Significant estimates include intangible assets, useful lives, and income taxes. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

In accordance with FASB ASC Topic 230, "Statement of Cash Flows", the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents.

 

Accounts Receivable

 

Accounts receivable are recorded net of allowance for doubtful accounts. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. Periodically, management assesses customer credit history and relationships as well as performs accounts receivable aging analysis. Based on the results, management determines whether certain balances are deemed uncollectible at the end of each period. Using its past collection experience, the Company reserves 0.3% of accounts receivable balances outstanding between six months and twelve months, 3% of accounts receivable outstanding for more than one year but less than two years, and 100% of accounts receivable balances outstanding for more than two years. As of December 31, 2011 and 2010, no allowance was deemed necessary as all receivables were aged less than six months.

 

Inventory

 

Inventory is stated at the lower of cost or market. Cost is determined using the weighted-average cost method. Provisions are made for excess, slow moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable values, if any. Management continually evaluates the recoverability based on assumptions about customer demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves or write-downs may be required that could negatively impact our gross margin and operating results. As of December 31, 2011 and 2010, no provisions were deemed necessary as no obsolete and slow-moving inventories were observed.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is calculated based on the straight-line method over the estimated useful lives of the assets as follows:

 

		Estimated Useful Life
	Electronic equipment	5 years
	Vehicles	10 years
	Machinery and equipment	10 years
	Buildings and improvements	5 to 20 years
	Navel orange orchards	30 years

 

Construction in progress primarily represents the construction costs of buildings, machinery and equipment. Costs incurred are capitalized and transferred to property and equipment upon completion, at which time depreciation commences.

 

Navel orange orchards consist of orchards we planted and acquired from local farmers. The planting cost includes cost related to land leveling, saplings, fertilizer, labor and facility on orchard lands. The planting cost was recorded as the property cost. In 2008, the Company directly acquired certain navel oranges trees from local farmers and recorded the purchase cost as property cost.

 

Cost of repairs and maintenance is expensed as incurred. Gain or loss on disposal of property and equipment, if any, is recognized in the statements of operations and comprehensive income.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

Long-Lived Assets

 

In accordance with FASB ASC Topic 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews the recoverability of its long-lived assets on a periodic basis in order to identify business conditions, which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If the total of the expected future undiscounted cash flows is less than the total carrying value of the assets, a loss is recognized for the difference between the fair value (computed based upon the expected future discounted cash flows) and the carrying value of the assets.

 

Intangible Assets

 

Intangible assets are stated at cost. Intangible assets with finite life are amortized over their estimated useful life using the straight-line method. Intangible assets with infinite life are not subject to amortization and are tested for impairment at a minimum once a year to determine possible impairment loss. Land use rights with a finite useful life are amortized on a straight-line basis over its estimated useful life of 50 years and included in general and administrative expenses.

 

Revenue Recognition

 

The Company derives its revenue primarily from sale of navel oranges. Revenue is recognized in accordance with the provisions of ASC Topic 605, which provides that revenue is recognized when products are shipped, title and risk of loss is passed to the customers and collection is reasonably assured. Payments received before the above criteria are satisfied are recorded as advances from customers. As of December 31, 2011 and 2010, advances from customers amounted to $-0- and $595,196, respectively.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

A valuation allowance is provided to reduce the carrying amount of deferred tax assets if it is considered more likely than not that some portion, or all, of the deferred tax assets will not be realized. For the years ended December 31, 2011 and 2010, no differences were noted between the book and tax bases of the Company’s assets and liabilities, and therefore no deferred tax assets or liabilities were recorded.

 

The newly enacted PRC Corporate Income Tax (“CIT”) law provides tax exemption to enterprises that are engaged in agricultural businesses. General Fruit has been approved for tax exemption since its formation. The exemption is expected to be permanent unless the applicable provisions of the CIT law change.

 

Xingguo was approved for such exemption on April 19, 2011, but was retroactively effective from January 1, 2011 through December 31, 2011. The tax exemption privilege is valid for one year and renewable each year upon inspection by local tax authorities.

 

Value Added Taxes

 

Under the Provisional Regulations of the PRC’s Value Added Tax (“VAT”) law, the Company is responsible for collecting VAT on sales of products and to pay VAT on purchases of raw materials. Sales and cost of sales are reported net of VAT. At the end of each month, a net amount in favor of sales VAT will be remitted to the central government while a net amount in favor of purchase VAT will be carried forward to offset future sales VAT.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

  

Note 2 – Summary of Significant Accounting Policies (continued)

 

Fair Value of Financial Instruments

 

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other obligations, approximate their fair value due to the short-term maturities of the related instruments.

 

Foreign Currency Translation and Transactions

 

The Company has evaluated the determination of its functional currency based on the guidance in ASC Topic, “Foreign Currency Matters,” which provides that an entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash.

 

On its own, the Company raises financing in the U.S. dollar, pays its own operating expenses primarily in the U.S. dollar, paid dividends to its stockholders of common stock and expects to receive any dividends that may be declared by its subsidiaries in U.S. dollars.

 

Therefore, it has been determined that the Company’s functional currency is the U.S. dollar based on the expense and financing indicators, in accordance with the guidance in ASC 830-10-85-5.

 

The Company uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The subsidiaries within the Company maintain their books and records in Renminbi (“RMB”), the currency of China, the economic environment in which the Company’s primary subsidiaries conduct their operations. Assets and liabilities of the subsidiaries in RMB are translated into U.S. Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of operations and comprehensive income and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income.

 

The exchange rates used to translate amounts in RMB into US Dollars for the purposes of preparing the condensed combined financial statements were as follows:

 

	December 31, 2011	December 31, 2010
Balance sheet items, except for stockholders’
equity items	RMB 1: US$0.15740	RMB 1: US$0.15170
	December 31, 2011	December 31, 2010
Amounts included in the statements of operations
and comprehensive income, and statements of
cash flows for the years then ended	RMB 1: US$0.15496	RMB 1: US$0.14794
Stockholders’ equity items	Historical rate	Historical rate

 

Comprehensive Income

 

The Company has adopted FASB ASC Topic 220, “Reporting Comprehensive Income”, which establishes rules for the reporting and display of comprehensive income, its components and accumulated balances. ASC 220 defines comprehensive income to include all changes in equity, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on available-for-sale marketable securities, except those resulting from investments by owners and distributions to owners.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

Recent Accounting Pronouncements

 

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-12, Comprehensive Income (Topic 220) (“ASU 2011-12”). ASU 2011-12 allows deferral of the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in ASU No. 2011-05. This update is effective at the same time as the amendments in ASU No. 2011-05. The adoption of this ASU will not have a material impact on the Company’s financial statements.

 

In December 2011, FASB issued ASU No. 2011-11, Balance Sheet (Topic 210) (“ASU 2011-11). ASU 2011-11 provides enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The objective of this update is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. generally accepted accounting principles (“GAAP”) and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (“IFRS”). ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU will not have a material impact on the Company’s financial statements.

 

In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) (“ASU 2011-05). ASU 2011-05 provides guidance on presentation of comprehensive income with an objective to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of GAAP and IFRS, FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in ASU 2011-05. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU will not have a material impact on the Company’s financial statements.

 

In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) (“ASU 2011-04). ASU 2011-04 provides amendments to achieve common fair value measurement and disclosure requirements in GAAP and IFRS. The amendments are effective for public entities for interim and annual periods beginning after December 15, 2011, and should be applied prospectively. Early adoption is not permitted for public entities. The adoption of this ASU will not have a material impact on the Company’s financial statements.

 

In April 2010, FASB issued ASU No. 2010-17, Revenue Recognition—Milestone Method (Topic 605) (“ASU 2010-17”). ASU 2010-17 provides guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research or development transactions is appropriate. It provides criteria for evaluating if the milestone is substantive and clarifies that a vendor can recognize consideration that is contingent upon achievement of a milestone as revenue in the period in which the milestone is achieved, if the milestone meets all the criteria to be considered substantive. ASU 2010-17 is effective for us in fiscal 2012 and should be applied prospectively. The adoption of this ASU will not have a material impact on the Company’s financial statements.

 

In January 2010, FASB expanded the disclosure requirements for fair value measurements relating to the transfers in and out of Level 2 measurements and amended the disclosure for the Level 3 activity reconciliation to be presented on a gross basis. In addition, valuation techniques and inputs should be disclosed for both Levels 2 and 3 recurring and nonrecurring measurements. The new requirements are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about the Level 3 activity reconciliation which are effective for fiscal years beginning after December 15, 2010. The Company adopted the new disclosure requirements on January 1, 2010 except for the disclosure related to the Level 3 reconciliation, which will be adopted on January 1, 2011. The adoption will not have an impact on the Company’s financial condition, results of operations or cash flows.

 

  

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

 

Note 3 – Inventory

 

Inventories as of December 31, 2011 and 2010 by major categories are summarized as follows:

 

		December 31, 2011				December 31, 2010
Raw materials		$	5,802			$	920,030
Packing materials			233,199				375,505
Finished goods			1,819,466				1,491,755
Total		$	2,058,467			$	2,787,290

 

NOTE 4 – Advance Payments

 

		December 31, 2011				December 31, 2010
Advances to suppliers*		$	1,810,863				$
Others			40,025
Total		$	1,850,888			$	1,445,451

 

* Upon execution of purchase contracts with local farmer collectives, as a measure to secure title in the naval oranges to be purchased, the company usually makes an advance payment equivalent to approximately 10% to 20% of the total contract price when executing purchase contracts with local farmer collectives. Between the signing dates and the navel orange delivery dates, the Company usually makes additional advances to encourage prompt delivery from local farmers. Upon receipt of navel oranges, these advance payments will be applied against related invoices. As of December 31, 2011 and 2010, approximately $1,810,000 (11,504,849 RMB) and $1,326,932 (8,773,406 RMB) has been advanced to local farmer collectives, respectively. As of June 30, 2012, the Company had made no advance payments or purchases of navel oranges as the Company's operating cycle starts from October to March of the following year.

  

Note 5 – Property and Equipment

 

Property and equipment as of December 31, 2011 and 2010 consist of the following:

 

		December 31, 2011				December 31, 2010
Electronic equipment		$	92,820			$	76,567
Vehicles			314,381				292,939
Machinery and equipment			1,836,565				1,764,320
Buildings and improvements			7,274,145				6,430,157
Navel orange orchards			10,258,057				9,547,646
Subtotal			19,775,968				18,111,629
Less: Accumulated depreciation			4,031,181				2,865,313
			15,744,787				15,246,316
Add: Construction in progress			308,336				637,038
Total		$	16,053,123			$	15,883,354

 

Depreciation expense for the years ended December 31, 2011 and 2010 was $1,041,801 and $950,810, respectively.

 

Note 6 – Intangible Assets

 

Intangible assets as of as of December 31, 2011 and 2010 consist of the following:

 

		December 31, 2011				December 31, 2010
Land use rights		$	180,581			$	174,041
Less: Accumulated amortization			21,670				17,404
Total		$	158,911			$	156,637

 

Amortization expense for the years ended December 31, 2011 and 2010 was $3,555 and $3,395, respectively.

 

Note 7 – Prepaid Leases

 

On April 1, 2011, General Fruit entered into lease contracts with a group of individual orchard owners, pursuant to which General Fruit were authorized to operate the orchards for 10 years starting January 1, 2011. These leases are accounted for as operating leases. The lease terms are effective from January 1, 2011 through December 31, 2020. The aggregate lease amount of $15,507,803 (RMB 98,524,800) will be amortized over ten years. Amortized lease amount for the year ended December 31, 2011 was $1,526,740.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

 

Note 8 – Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses as of December 31, 2011 and 2010 consist of the following:

 

		December 31, 2011				December 31, 2010
Accounts payable		$	9,603,870			$	3,354,398
Accrued expenses			131,203				138,052
Total		$	9,735,073			$	3,492,450

 

The carrying value of accounts payable and accrued expenses approximates fair value due to the short-term nature of these obligations.

 

Note 9 – Short-Term Bank Loan

 

Short-term bank loans as of December 31, 2011 and 2010 consist of the following:

 

		December 31				December 31
		2011				2010
On November 12, 2010, the Company obtained a loan from Agricultural
Development Bank of China, the principal of which was repaid in full by
November 11, 2011. The interest was calculated using an annual fixed
interest rate of 5.56% and paid monthly. The loan was secured by the
Company’s property.		$	-			$	1,896,250
On December 8, 2010, the Company obtained a loan from Agricultural
Development Bank of China, the principal of which was repaid in full by
July 1, 2011. The interest was calculated using an annual fixed
interest rate of 5.56% and paid monthly. The loan was secured by the
Company’s inventory.		$	-			$	834,350
On November 17, 2011, the Company obtained a loan from Agricultural
Development Bank of China, the principal of which will be paid in full by
November 16, 2012. The interest was calculated using an annual fixed
interest rate of 6.56% and paid monthly. The loan was secured by the
Company’s property.		$	4,139,620			$	-
On November 25, 2011, the Company obtained a loan from Agricultural
Development Bank of China, the principal of which will be paid in full by
November 16, 2012. The interest was calculated using an annual fixed
interest rate of 6.56% and paid monthly. The loan was secured by the
Company’s inventory.		$	1,211,980			$	-
Total		$	5,351,600			$	2,730,600

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

 

Note 10 – long-term bank loan

 

Long-term bank loans as of December 31, 2011 and 2010 consist of the following:

 

		December 31				December 31
		2011				2010
On August 31, 2007, the Company entered into a Loan Agreement with the Agricultural Development Bank of China (“ADB”) pursuant to which the Company borrowed RMB 20,000,000 (approximately $2,654,000) from ADB (the “Loan”). The term of the Loan was five years, with a maturity date of August 31, 2012. The interest rate was 7.38% pursuant to the five years base interest promulgated by the People’s Bank of China. The Loan was designated to finance the purchase of production equipment used to produce 7,000 tons of navel oranges and was secured by the Company’s building property. The loan was paid in full by November 15, 2011.		$	-			$	1,517,000
Total		$	-			$	1,517,000
Less: Current portion			-				758,500
Non-current portion		$	-			$	758,500

 

Note 11 – Due to Related Parties

 

As of December 31, 2011 and 2010, the Company had outstanding loans from related parties of $328,434 and $803,254, respectively. The balances consist of the following:

 

		December 31				December 31
		2011				2010
Due to entity under common control		$	-			$	501,751
Due to stockholder			328,434				301,503
Total		$	328,434			$	803,254

 

These loans are non-interest bearing and payable on demand. The proceeds of these loans were utilized as working capital.

 

Note 12 – Stock Authorization and Issuance

 

On September 30, 2011, Han Glory International and its shareholders, Hua Mei, entered into a Share Exchange Agreement with General Red Holding, Inc. Pursuant to the terms of the Share Exchange Agreement, General Red Holding, Inc. agreed to acquire all of the issued and outstanding shares of Han Glory International from Hua Mei in exchange for General Red Holding, Inc. to issue an aggregate of 74,814,862 shares of common stock to Hua Mei, at $0.0001 par value per share (the “Share Exchange”), which, upon completion of the transactions contemplated by the Share Exchange Agreement, constitutes a controlling majority of General Red Holding, Inc.’s issued and outstanding shares of common stock. Upon consummation of the Share Exchange, Han Glory International became a wholly-owned subsidiary of General Red Holding, Inc.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements 

 

Note 13 – Income Taxes

 

The Company is a Delaware corporation and conducts all of its business through its Chinese subsidiaries, which operate in the PRC only. The Company’s U.S. holding company does not generate any U.S. income and accordingly there is no provision or benefit for U.S. income tax purposes.

 

Han Glory International is not subject to tax on income or capital gains under the laws of British Virgin Islands.

 

Under the Corporate Income Tax Law of the PRC, the corporate income tax rate is 25%. For the years ended December 31, 2011 and 2010, the income taxes provision for the Company was $-0- and $838,162, respectively.

 

Note 14 – Risk Factors

 

As the Company's operations are carried out in the PRC, the Company's business, financial condition and results of operations may be influenced by the PRC’s political, economic and legal conditions. The Company's business may also be influenced by the PRC’s changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

Note 15 – Concentration and Credit Risks

 

For the year ended December 31, 2011, five vendors accounted for approximately 98% of the Company’s raw materials, while for the year ended December 31, 2010, five vendors accounted for approximately 72% of the Company’s raw materials. Purchases from these vendors were $716,329 and $4,767,129 for the years ended December 31, 2011 and 2010, respectively.

 

For the year ended December 31, 2011, five customers accounted for $4,119,677 in sales, or approximately 24% of the Company’s total sales. For the year ended December 31, 2010, five customers accounted for $5,177,017 in sales, or approximately 37% of the Company’s total sales.

 

Financial instruments which potentially subject the Company to credit risk consist principally of cash on deposit with financial institutions. Management believes that the financial institutions where the Company maintains its cash and cash equivalents are financially sound and credit risk is minimal with respect to these investments.

 

Note 16 – Subsequent Events

 

None

 

   

GENERAL RED HOLDING, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

JUNE 30, 2012 AND 2011

 

(UNAUDITED)

 

GENERAL RED HOLDING, INC.

Consolidated Financial Statements

June 30, 2012 and 2011

(Unaudited)

 

Table of Contents

 

	Page
Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets	2
Consolidated Statements of Operations and Comprehensive Income	3
Consolidated Statements of Cash Flows	4
Notes to Consolidated Financial Statements	5

 

 

Patrizio & Zhao, LLC
Certified Public Accountants and Consultants		322 Route 46 West
Member of		Parsippany, NJ 07054 Tel:  (973) 882-8810 Fax: (973) 882-0788
Alliance of worldwide accounting firms		www.pzcpa.com

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders

General Red Holding, Inc.

 

We have reviewed the accompanying consolidated balance sheet of General Red Holding, Inc. (the “Company”) as of June 30, 2012, and the related consolidated statements of operations and comprehensive income for the three months and six months ended June 30, 2012 and 2011, and cash flows for the six months ended June 30, 2012 and 2011. These consolidated interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of General Red Holding, Inc. as of December 31, 2011, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 27, 2012, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2011, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

 

/s/ Patrizio & Zhao LLC

Parsippany, New Jersey

August 14, 2012

 

 

GENERAL RED HOLDING, INC.

 

Consolidated Balance Sheets

 

		June 30,				December 31,
		2012				2011
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	1,266,853			$	2,989,729
Restricted cash			277,375				275,450
Accounts receivable			763,122				1,436,890
Inventory			2,460,588				2,058,467
Advance payments			234,199				1,850,888
Prepaid leases - current			1,562,075				1,550,780
Other current assets			35,463				14,731
Total current assets			6,599,675				10,176,935
Property and equipment, net			15,670,878				16,053,123
Other assets:
Intangibles, net			158,203				158,911
Prepaid leases – non current			11,715,559				12,406,243
Total other assets			11,873,762				12,565,154
Total assets		$	34,144,315			$	38,795,212
Liabilities
Current liabilities:
Accounts payable and accrued expenses		$	1,546,885			$	9,735,073
Short-term bank loans			5,389,000				5,351,600
Due to related parties			355,778				328,434
Other current liabilities			133,066				247,728
Total current liabilities			7,424,729				15,662,835
Total liabilities			7,424,729				15,662,835
Stockholders’ Equity
Common stock, $0.0001 par value, 200,000,000 shares authorized 125,112,803 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively.			12,511				12,511
Additional paid-in capital			4,590,933				4,590,933
Statutory reserve			1,762,042				1,762,042
Retained earnings			18,397,554				14,971,258
Accumulated other comprehensive income			1,956,546				1,795,633
Total stockholders’ equity			26,719,586				23,132,377
Total liabilities and stockholders’ equity		$	34,144,315			$	38,795,212

 

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

 

 

GENERAL RED HOLDING, INC.

 

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2012				2011				2012				2011
Sales		$	1,260,760			$	1,777,365			$	8,911,048			$	9,239,144
Cost of sales			826,504				857,227				4,341,545				4,023,680
Gross profit			434,256				920,138				4,569,503				5,215,464
Operating expenses
Selling expenses			309,728				63,147				739,548				219,537
General and administrative expenses			130,337				109,509				309,968				271,431
Total operating expenses			440,065				172,656				1,049,516				490,968
Income (loss) from operations			(5,809	)			747,482				3,519,987				4,724,496
Other income (expenses):
Interest income			1,459				3,618				4,023				5,525
Interest expense			(90,356	)			(62,064	)			(179,887	)			(122,053	)
Other income, net			62,577				8,399				82,173				58,138
Total other expenses			(26,320	)			(50,047	)			(93,691	)			(58,390	)
Income (loss) before provision for income taxes			(32,129	)			697,435				3,426,296				4,666,106
Provision for income taxes			-				-				-				-
Net income (loss)			(32,129	)			697,435				3,426,296				4,666,106
Other comprehensive income
Foreign currency translation adjustment			20,011				230,946				160,913				342,884
Total comprehensive income (loss)		$	(12,118	)		$	928,381			$	3,587,209			$	5,008,990

 

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

 

 

GENERAL RED HOLDING, INC.

 

Consolidated Statements of Cash Flows

(Unaudited)

 

		For the Six Months Ended June 30,
		2012				2011
Cash flows from operating activities:
Net Income		$	3,426,296			$	4,666,106
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			529,954				474,868
Amortization of prepaid leases			777,713				762,089
Changes in assets and liabilities:			-
Accounts receivable			684,499				2,160,510
Inventory			(388,127	)			167,183
Advance payments			1,631,270				315,669
Prepaid leases			-				(15,098,612	)
Other current assets			(20,650	)			(47,297	)
Accounts payable and accrued expenses			(8,263,657	)			10,191,827
Advances from customers			-				(600,728	)
Other current liabilities			(116,511	)			(103,584	)
Total adjustments			(5,165,509	)			(1,778,075	)
Net cash provided by (used in) operating activities			(1,739,213	)			2,888,031
Cash flows from investing activities:
Acquisition of property and equipment			(33,201	)			(437,435	)
Due from related party			-				10,718
Net cash used in investing activities			(33,201	)			(426,717	)
Cash flows from financing activities:
Due to related parties			26,894				(398,868	)
Net cash provided by (used in) financing activities			26,894				(398,868	)
Effect of foreign currency translation			22,644				40,588
Net increase (decrease) in cash and cash equivalents			(1,722,876	)			2,103,034
Cash and cash equivalents – beginning			2,989,729				971,321
Cash and cash equivalents – ending		$	1,266,853			$	3,074,355
Supplemental disclosure of cash flow information:
Cash paid for interest		$	179,887			$	122,053
Cash paid for income taxes		$	-			$	71,281

 

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

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization and Nature of Business

 

General Red Holding, Inc. (“GRH”) was established under the laws of the State of Delaware on January 18, 2011. The accompanying consolidated financial statements include the financial statements of GRH and its subsidiaries (collectively, the “Company”). The Company is primarily engaged in growing, preserving and marketing navel oranges.

 

On September 30, 2011, GRH entered into a Share Transfer and Issuance Agreement (the “Agreement”) with Han Glory International Investment Limited (“Han Glory International”), a company incorporated on April 28, 2011 under the laws of British Virgin Islands and Hua Mei Investments Limited (“Hua Mei”), a company incorporated on April 26, 2011 under the laws of the British Virgin Islands. Under the Agreement, GRH issued 74,814,862 shares to Hua Mei, the sole stockholder of Han Glory International, in exchange for all shares and beneficial interest of Han Glory International. This transaction is treated as a reverse merger, and therefore, after the share exchange, Han Glory International became the wholly owned subsidiary of GRH.

 

On May 18, 2011, Han Glory International purchased all shares of Greater China International Investment Limited (“Greater China International”), a company incorporated on December 4, 2009 under the laws of Hong Kong, from Zhihao Zhang, the sole stockholder of Greater China International, for $1,290 (HK$10,000). As a result, Greater China International became the wholly owned subsidiary of Han Glory International.

 

On January 13, 2010, Greater China International formed Nanchang Hanxin Agriculture Technology Co., Ltd (“WFOE”) in the city of Nanchang, Jiangxi Province, the People’s Republic of China (“PRC”).

 

On February 5, 2010, WFOE purchased all shares of Xingguo General Fruit Industry Development Co., Ltd (“General Fruit”) from Jiangjun Hong Group Co., Ltd., Xingping Hou and Jiefeng Ren for $293,400. As a result, WFOE acquired 100% interest in General Fruit. This transaction was a capital transaction in substance. That is, the transaction was a reverse recapitalization, equivalent to the issuance of stock by General Fruit for the net monetary assets of WFOE accompanied by a recapitalization.

 

General Fruit was formed in Xingguo County, Jiangxi Province, under the corporate laws of PRC On March 5, 2003. The primary business of General Fruits is to grow and sell navel oranges. On July 14, 2008, after a series of equity transfer agreements, General Fruits acquired 90% interest in Xingguo General Red Navel Orange Preservation Company, Ltd. (“Xingguo”). On July 25, 2010, General Fruits purchased the remaining 10% interest in Xingguo from Xingping Hou, the minority stockholder, for $295,000 (RMB 2,000,000) and owns 100% of Xingguo thereafter.

 

Xingguo, a citrus fruits company primarily engaged in preserving, packaging and marketing premium navel oranges, was formed as a limited liability company in Xingguo County, Jiangxi Province under PRC laws on November 22, 2005. Xingguo provides wholesale, retail, and institutional customers in China and several other countries with premium navel orange fruits under the trademark of “General Red”.

 

On September 26, 2011, GRH purchased all shares of Sheng Da Holding Limited (“Sheng Da BVI”), a company incorporated on May 18, 2011 under the laws of the British Virgin Islands, from General Red Company, Ltd (“General Red BVI”), a limited liability company incorporated on August 28, 2008 under the laws of British Virgin Islands, for $23,000. As a result, Sheng Da BVI became the wholly owned subsidiary of GRH. On September 29, 2011, Sheng Da BVI entered into a series of new agreements to terminate the old agreements with Xingguo, which were originally signed between General Red BVI and Xingguo on November 17, 2008, amended on June 10, 2011, and transferred to Sheng Da BVI by General Red BVI on June 30, 2011. The old agreements included a Consultation Agreement, an Operating Agreement, a Share Pledge Agreement, a Proxy Agreement and an Option Agreement. Upon the entry of these new agreements, Xingguo is no longer the Variable Interest Entity of Sheng Da BVI.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 2 – Summary of Significant Accounting Policies

 

Basis Of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“US GAAP”). The consolidated financial statements include the accounts of General Red Holding, Inc. and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with US GAAP applicable to interim financial information. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

 

In preparing the accompanying unaudited consolidated financial statements, the Company evaluated the period from June 30, 2012 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure (see Note 14).

 

Interim Financial Statements

 

These interim financial statements should be read in conjunction with the audited consolidated financial statements for the years ended December 31, 2011, as not all disclosures required by US GAAP for annual financial statements are presented. The consolidated interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the year ended December 31, 2011.

 

Seasonal Nature of Operations

 

The first and fourth quarters of the year are better in terms of profitability because of the maturity stage of the Company's products, which usually begins with the month of October.

 

Reclassification

 

Certain amounts as of June 30, 2011 and December 31, 2011 were reclassified for presentation purpose. These reclassifications had no effect on previously reported results of operations or retained earnings.

 

Note 3 – Cash and cash equivalents

 

As of June 30, 2012 and December 31, 2011, the Company had restricted cash of $277,375 and $275,450, respectively. These restricted cash balances are reserved for settlement of interest payable for short term bank loans. The cash is held in custody by a bank issuing loans and is restricted as to withdrawal or use, and is currently earning interest.

 

Note 4 – Accounts Receivable

 

Trade accounts receivable are stated at original invoice amount less allowance for doubtful receivables based on management’s periodic review of aging of outstanding balances and customer credit history. As of June 30, 2012 and December 31, 2011, no allowance was deemed necessary as all receivables were aged less than six months.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 5 – Inventory

 

Inventory as of June 30, 2012 and December 31, 2011 by major categories is summarized as follows:

 

		June 30, 2012				December 31, 2011
Raw materials		$	-			$	5,802
Packing materials			168,661				233,199
Finished goods			2,291,927				1,819,466
Total		$	2,460,588			$	2,058,467

 

NOTE 6 – Advance Payments

 

		December 31, 2011				December 31, 2010
Advances to suppliers*		$	1,810,863			$	920,030
Others			40,025				375,505
Total		$	1,850,888			$	2,787,290

 

* Upon execution of purchase contracts with local farmer collectives, as a measure to secure title in the navel oranges to be purchased, the Company usually makes an advance payment equivalent to approximately 10% to 20% of the contract price. Between the signing dates and navel oranges delivery dates, the Company usually makes additional advances to encourage prompt delivery from local farmers. Upon receipt of navel oranges, these advance payments will be applied against related invoices. As of December 31, 2011, approximately $1,810,000 (RMB 11,504,849) has been advanced to local farmer collectives. As of June 30, 2012, the Company had made no advance payments or purchases of navel oranges as the Company's operating cycle runs from October to March of the following year.

 

Note 7 – Property and Equipment

 

Property and equipment as of June 30, 2012 and December 31, 2011 consist of the following:

 

		June 30, 2012				December 31, 2011
Electronic equipment		$	103,026			$	92,820
Vehicles			322,332				314,381
Machinery and equipment			1,860,124				1,836,565
Buildings and improvements			7,324,980				7,274,145
Producing orchards			10,329,746				10,258,057
Subtotal			19,940,208				19,775,968
Less: Accumulated depreciation			4,586,953				4,031,181
			15,353,255				15,744,787
Add: Construction in progress			317,623				308,336
Total		$	15,670,878			$	16,053,123

 

Depreciation expenses for the three months ended June 30, 2012 and 2011 were $263,079 and $ 240,837, respectively. Depreciation expenses for the six months ended June 30, 2012 and 2011 were $528,133 and $473,112, respectively.

 

Note 8 – Intangible Assets

 

Intangible assets as of June 30, 2012 and December 31, 2011 consist of the following:

 

		June 30, 2012				December 31, 2011
Land use rights		$	181,843			$	180,581
Less: Accumulated amortization			23,640				21,670
Total		$	158,203			$	158,911

 

Amortization expense for the three months ended June 30, 2012 and 2011 was $909 and $884, respectively. Amortization expense for the six months ended June 30, 2012 and 2011 was $1,821 and $1,756, respectively.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 9 –Prepaid Leases

 

Prepaid leases as of June 30, 2012 and December 31, 2011 consist of the following:

 

		June 30, 2012				December 31, 2011
Current		$	1,562,075			$	1,550,780
Non current			11,715,559				12,406,243
Total		$	13,277,634			$	13,957,023

 

On April 1, 2011, General Fruit entered into lease contracts with a group of individual orchard owners, pursuant to which General Fruit were authorized to operate the orchards for 10 years starting January 1, 2011. These leases are accounted for as operating leases. The lease terms are effective from January 1, 2011 through December 31, 2020. The aggregate lease amount of $15,507,803 (RMB 98,524,800) is being amortized over ten years. Amortized lease amount for the six months ended June 30, 2012 and 2011 was $777,713 and $762,089, respectively.

 

Note 10 –Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses as of June 30, 2012 and December 31, 2011 consist of the following:

 

		June 30, 2012				December 31, 2011
Accounts payable		$	1,395,683			$	9,603,870
Accrued expenses			151,202				131,203
Total		$	1,546,885			$	9,735,073

 

The carrying value of accounts payable and accrued expenses approximates their fair value due to the short-term nature of these obligations.

 

Note 11 – Short-Term Bank Loans

 

Short-term bank loans as of June 30, 2012 and December 31, 2011 consist of the following:

 

		June 30				December 31
		2012				2011
On November 17, 2011, the Company obtained a loan from Agricultural  Development Bank of China, the principal of which will be paid in full by  November 16, 2012. The interest was calculated using an annual fixed  interest rate of 6.56% and paid monthly. The loan was secured by the  Company’s property.		$	4,168,550			$	4,139,620
On November 25, 2011, the Company obtained a loan from Agricultural  Development Bank of China, the principal of which will be paid in full by  November 16, 2012. The interest was calculated using an annual fixed  interest rate of 6.56% and paid monthly. The loan was secured by the  Company’s inventory.			1,220,450				1,211,980
Total		$	5,389,000			$	5,351,600

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 12 – Income Taxes

 

The Company is a Delaware corporation and conducts all of its business through its Chinese subsidiaries. The Company’s business is conducted solely in the PRC. As the Company is a U.S. holding company, it has not recorded any U.S. income for the six months ended June 30, 2012 and 2011, and there was no provision or benefit for U.S. income tax purposes.

 

Han Glory International was incorporated in the British Virgin Islands. Under the laws of British Virgin Islands, the Company is not subject to tax on income or capital gains.

 

Under the Corporate Income Tax Law of the PRC, the corporate income tax rate is 25%. The Company did not make any provision for income tax for the six months ended June 30, 2012 and 2011.

 

General Fruit has been exempt from paying income tax since its formation as it produces products which fall into the tax exemption list set out in the the Chinese Income Tax (“CIT”) law. This exemption is expected to last as long as the applicable provisions of the CIT law do not change.

 

Xingguo is primarily engaged in preserving, packaging and marketing premium navel oranges. In accordance with the CIT Law of PRC, an enterprise that is engaged in processing agricultural commodities is eligible for income tax exemption. The Company was approved for such preferred tax treatment on April 19, 2011, and the tax exemption was retroactively effective from January 1, 2011. This exemption is expected to last as long as the applicable provisions of the CIT law do not change.

 

Note 13 – Risk Factors

 

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal conditions in the PRC. The Company's business may also be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

Note14– Risk of Concentration and Credit Risk

 

During the six months ended June 30, 2012, five vendors accounted for approximately 76% of the Company’s purchases of raw materials, while during the six months ended June 30, 2011, five major vendors accounted for approximately 84% of the Company’s purchases of raw materials. Total purchases from these vendors were $2,607,312 and $1,600,324 for the six months ended June 30, 2012 and 2011, respectively.

 

During the six months ended June 30, 2012, one customer accounted for approximately 12% of the Company’s sales. Total sales to this customer were $1,026,168. For the six months ended June 30, 2011, no single customer accounted for more than 10% of the Company’s sales.

 

Financial instruments which potentially subject the Company to credit risk consist principally of cash on deposit with financial institutions. Management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially sound and minimal credit risk exists with respect to these investments.

 

 

GENERAL RED HOLDING, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 15– Subsequent Events

 

The Company entered into a Share Exchange Agreement with Geltology, Inc (“Gelt”) on July 11, 2012. Pursuant to the terms of the Exchange Agreement, the shareholders of the Company transferred to Gelt all of the outstanding shares of common stock of the Company. In return, Gelt issued, in the aggregate, 125,112,803 shares of the common stock, par value $0.0001 per share (“Common Stock”) (such transaction is hereinafter referred to as the “Share Exchange”). This transaction is treated as a reverse merger, and therefore, after the share exchange, the Company became the wholly owned subsidiary of Gelt. As a result, Gelt cancelled an aggregate of 4,513,252 shares of restricted common stock.