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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)

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

 

For the quarterly period ended: December 31, 2012

 

or

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

 

For the transition period from ____________ to____________

 

Commission File Number: 333-174874

 

GELTOLOGY INC.

(Exact name of the registrant as specified in its charter)

Delaware

 

35-2379917

(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     

Room 2903, Unit B

Jianwai SOHO East District

39 East Third Ring Road Central
Chaoyang District, Beijing City, China

 

N/A

(Address of principal executive offices)   (Zip Code)

 

+86-10-5869-4611

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

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

Large accelerated filer ¨   Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company x

 

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

 

Number of shares of common stock outstanding as of February 1, 2013: 127,349,551

 

 
 

 

Table of Contents

 

  Page
 
PART I – FINANCIAL INFORMATION 2
   
ITEM 1. FINANCIAL STATEMENTS 2
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 4
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
   
ITEM 4. CONTROLS AND PROCEDURES 11
   
PART II – OTHER INFORMATION 11
   
ITEM 1. LEGAL PROCEEDINGS 11
   
ITEM 1A. RISK FACTORS 12
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 12
   
ITEM 3. DEFAULT UPON SENIOR SECURITIES 12
   
ITEM 4. MINE SAFETY DISCLOSURES 12
   
ITEM 5. OTHER INFORMATION 12
   
ITEM 6. EXHIBITS 12

 

 
 

 

PART I– FINANCIAL INFORMATION

 

ITEM 1.                        FINANCIAL STATEMENTS

 

GELTOLOGY INC. 

 

Consolidated Balance Sheets

 

   December 31,   September 30, 
   2012   2012 
   (Unaudited)     
Assets          
Current assets:          
Cash and cash equivalents  $1,067,667   $351,045 
Restricted cash   -    277,025 
Accounts receivable   3,564,976    - 
Inventory   2,151,000    3,592,468 
Advance payments   3,386,860    37,699 
Prepaid leases - current   1,563,589    1,559,648 
Other current assets   23,084    20,679 
Total current assets   11,757,176    5,838,564 
           
Property and equipment, net   15,415,051    15,586,175 
           
Other assets:          
Intangibles, net   156,582    157,096 
Prepaid leases – non current   10,948,776    11,311,206 
Total other assets   11,105,358    11,468,302 
           
Total assets  $38,277,585   $32,893,041 
           
Liabilities          
Current liabilities:          
Accounts payable and accrued expenses  $710,647   $559,646 
Short-term bank loans   5,395,800    4,163,290 
Due to related party   241,042    151,994 
Customer deposits   1,682,220    1,393,040 
Other current liabilities   104,743    45,709 
Total current liabilities   8,134,452    6,313,679 
           
Total liabilities   8,134,452    6,313,679 
           
Stockholders’ Equity          

Common stock, $0.0001 par value, 200,000,000 shares authorized 127,349,551 shares issued and outstanding at December 31, 2012 and September 30, 2012, respectively

   12,735    12,735 
Additional paid-in capital   4,898,429    4,898,429 
Statutory reserve   2,459,263    2,079,158 
Retained earnings   20,786,741    17,663,566 
Accumulated other comprehensive income   1,985,965    1,925,474 
Total stockholders’ equity   30,143,133    26,579,362 
           
Total liabilities and stockholders’ equity  $38,277,585   $32,893,041 

 

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

 

2
 

 

GELTOLOGY INC.

 

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

 

   For the Three Months 
   Ended December 31, 
   2012   2011 
         
Sales  $7,440,677   $7,905,216 
           
Cost of sales   3,400,608    4,069,119 
           
Gross profit   4,040,069    3,836,097 
           
Operating expenses          
Selling expenses   396,403    379,892 
General and administrative expenses   212,003    356,926 
Total operating expenses   608,406    736,818 
           
Income from operations   3,431,663    3,099,279 
           
Other income (expenses):          
Government subsidy   111,321    51,152 
Interest income   1,092    1,988 
Interest expense   (52,777)   (48,475)
Other income, net   11,981    11,993 
Total other income   71,617    16,658 
           
Income before provision for income taxes   3,503,280    3,115,937 
           
Provision for income taxes   -    - 
           
Net income   3,503,280    3,115,937 
           
Other comprehensive income          
Foreign currency translation adjustment   60,491    171,687 
           
Total comprehensive income  $3,563,771   $3,287,624 
           
Earnings per share:          
Basic and diluted  $0.03   $0.02 
           
Weighted average number of shares outstanding:          
Basic and diluted   127,349,551    125,112,803 

 

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

 

3
 

 

GELTOLOGY INC.

 

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the Three Months 
   Ended December 31, 
   2012   2011 
         
Cash flows from operating activities:          
Net Income  $3,503,280   $3,115,937 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   274,967    329,032 
Long-term advance payments amortized in current period   391,824    387,670 
Changes in assets and liabilities:          
Accounts receivable   (3,572,389)   (1,435,222)
Inventory   1,453,562    1,801,219 
Advance payments   (3,356,031)   (1,639,413)
Prepaid leases   -    (3,407,300)
Other current assets   (2,357)   21,156 
Accounts payable and accrued expenses   150,572    247,746 
Customer deposits   286,254    (472,170)
Other current liabilities   59,043    137,231 
Total adjustments   (4,314,555)   (4,030,051)
           
Net cash provided by (used in) operating activities   (811,275)   (914,114)
           
Cash flows from investing activities:          
Acquisition of property and equipment   (18,988)   (5,938)
Addition to construction in progress   (44,121)   (67,150)
           
Net cash used in investing activities   (63,109)   (73,088)
           
Cash flows from financing activities:          
Restricted cash   278,303    (133,782)
Proceeds from short-term bank loans   1,224,531    3,352,407 
Due to related parties   88,779    - 
Repayment of related party loans   -    (23,768)
           
Net cash provided by (used in) financing activities   1,591,613    3,194,857 
           
Effect of foreign currency translation   (607)   11,807 
           
Net increase (decrease) in cash and cash equivalents   716,622    2,219,462 
           
Cash and cash equivalents – beginning   351,045    770,267 
           
Cash and cash equivalents – ending  $1,067,667   $2,989,729 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $52,777    $48,475 
Cash paid for income taxes  $-   $72,142 
           
Supplemental schedule of non-cash activities          
Transfer from construction in progress to fixed assets  $59,294   $535,114  

 

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

 

4
 

 

GELTOLOGY INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization and Nature of Business

 

Geltology Inc. (“Gelt”) was established under the laws of the State of Delaware on March 24, 2010. The accompanying consolidated financial statements include the financial statements of Geltology Inc. and its subsidiaries (collectively, the “Company”). The Company is primarily engaged in planting, preserving, packaging and marketing premium navel oranges for distribution and sale throughout the People’s Republic of China (“PRC”).

 

On July 11, 2012, Gelt completed a reverse acquisition of General Red Holding, Inc. (“GRH”), which was established under the laws of the State of Delaware on January 18, 2011. To accomplish the Share Exchange Agreement, Gelt issued to GRH an aggregate of 125,112,803 shares of the common stock of Gelt, at par value of $0.0001 per share. Gelt was delivered with zero assets and zero liabilities at time of closing. Immediately prior to the Share Exchange, Gelt had 6,750,000 shares of Common Stock issued and outstanding. Simultaneously with the transaction, the two principal shareholders of Gelt surrendered for cancellation an aggregate of 4,513,252 shares of Common Stock beneficially owned by them. The transaction was regarded as a reverse merger whereby GRH was considered to be the accounting acquirer. Although the Company is the legal parent company, the share exchange was treated as a recapitalization of GRH. Thus, GRH is the continuing entity for financial reporting purposes. The financial statements have been prepared as if GRH had always been the reporting company and then on the share exchange date, had reorganized its capital stock.

 

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, a wholly foreign-owned enterprise (“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. (“General Preservation”). On July 25, 2010, General Fruits purchased the remaining 10% interest in General Preservation from Xingping Hou, the minority stockholder, for $295,000 (RMB 2,000,000) and owns 100% of General Preservation thereafter.

 

General Preservation, 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. General Preservation provides wholesale, retail, and institutional customers in China and several other countries with premium navel orange fruits under the trademark of “General Red”.

 

 

5
 

 

GELTOLOGY INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization and Nature of Business (continued)

 

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 General Preservation, which were originally signed between General Red BVI and General Preservation 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, General Preservation is no longer the Variable Interest Entity of Sheng Da BVI.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis Of Presentation and Consolidation

 

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 Gelt and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with US GAAP applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by US GAAP for complete financial statements. 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 consolidated financial statements, the Company evaluated the period from December 31, 2012 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for this period.

 

Interim Financial Statements

 

These interim financial statements should be read in conjunction with the audited consolidated financial statements for the transition period ended September 30, 2012, as not all disclosure required by US GAAP for transition period financial statements are presented. The consolidated interim financial statements follow the same accounting policies and method of computations as the audited financial statements for the transition period ended September 30, 2012.

 

Change In Fiscal Year

 

On September 28, 2012, the Company’s board of directors approved a change in fiscal year-end from December 31 to September 30. The fiscal year-end change became effective September 30, 2012 and thus resulted in a nine months transition period from December 31, 2011 through September 30, 2012. Accordingly, the financial statements and financial comparisons included in this Form 10-Q relate to the three months ended December 31, 2012 and 2011 and the financial results for the three months ended December 31, 2011 have been recast to allow for comparison based on the new fiscal periods.

 

Seasonal Nature of Operations

 

The Company’s operations are seasonal based on the maturity stage of its products. Sales are concentrated during the months from October through December and from January through March, corresponding to the Company’s product maturity cycle which begins in the month of October when the products are mature and ready for sale.

 

 

 

6
 

 

GELTOLOGY INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 3 – 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 December 31, 2012 and September 30, 2012, no allowance was deemed necessary as all receivables were aged less than six months.

 

Note 4 – Inventory

 

Inventories as of December 31, 2012 and September 30, 2012 by major categories are summarized as follows:

 

   December 31,
2012
   September 30, 2012 
Raw materials  $197,844   $143,651 
Work in process   505,361    3,448,817 
Finished goods   1,447,795    - 
Total  $2,151,000   $3,592,468 

 

Work in process consists of depreciation of navel orange orchards, rental, salary, fertilizer, utility, labor spent in cultivating and producing navel oranges. Work in process is posted to finished goods after the navel oranges are harvested. The harvest season of navel oranges usually started in October.

 

Note 5 – Advance Payments

 

Advance payments as of December 31, 2012 and September 30, 2012 consist of the following:

 

   December 31,
2012
   September 30, 2012 
         
Advances to suppliers  $1,792,139   $- 
Advances to secure lease   1,388,625    - 
Others   206,096    37,699 
Total  $3,386,860   $37,699 

 

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 total contract price. 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 are applied against related invoices. As of December 31, 2012, approximately RMB 11,292,624 ($1,792,139) has been advanced to local farmer collectives. As of September 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.

 

On December 30, 2012, the Company entered into an agreement with a local orchard farmer. Pursuant to the agreement, the Company will lease a total of five hundred Chinese acres orchards (approximately 25,000 orchard trees) from January 1, 2013 to December 31, 2022, at a price of RMB 8,750,000 ($1,388,625). As of December 31, 2012, the Company has made full advance payments.

 

Note 6 – Property and Equipment

 

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

 

   December 31,
2012
   September 30, 2012 
         
Electronic equipment  $110,982   $110,100 
Vehicles   316,977    316,178 
Machinery and equipment   2,009,513    2,004,449 
Buildings and improvements   7,558,656    7,462,284 
Navel orange orchards   10,342,780    10,316,711 
Subtotal   20,338,908    20,209,722 
Less: Accumulated depreciation   5,190,328    4,904,449 
    15,148,580    15,305,273 
Add: Construction in progress   266,471    280,902 
Total  $15,415,051   $15,586,175 

 

Depreciation expense for the three months ended December 31, 2012 and 2011 was $274,055 and $328,129, respectively 

 

7
 

 

GELTOLOGY INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 7 – Intangible Assets

 

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

 

   December 31,
2012
   September 30, 2012 
         
Land use rights  $182,072   $181,613 
Less: Accumulated amortization   25,490    24,517 
Total  $156,582   $157,096 

 

Amortization expense for the three months ended December 31, 2012 and 2011 was $912 and $903, respectively.

 

Note 8 – Prepaid Leases

 

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

 

   December 31,
2012
   September 30, 2012 
         
Current  $1,563,589   $1,559,648 
Non current   10,948,776    11,311,206 
Total  $12,512,365   $12,870,854 

 

On April 1, 2011, General Fruit entered into lease contracts with a group of individual orchard owners, pursuant to which General Fruit was authorized to operate the orchards for 10 years starting January 1, 2011. The lease terms are effective from January 1, 2011 through December 31, 2020. The aggregate lease amount is approximately RMB 98,524,800 ($15,507,803) and pursuant to the contract terms, as of September 30, 2012, the Company paid off the entire lease amount using cash generated from operations. These leases are accounted for as operating leases in accordance with FASB ASC 840-20 and the aggregate lease amounts will be expensed each year on a straight-line basis over the lease terms. Lease expense for the three months ended December 31, 2012 and 2011 was approximately RMB 2,463,840 ($391,824) and RMB 2,463,120 ($387,670), respectively.

 

Lease expense attributable to future periods is as follows:

 

Twelve months ended December 31:     
 2013   $1,566,840 
 2014    1,566,840 
 2015    1,566,840 
 2016    1,566,840 
 2017    1,566,840 
 Thereafter    4,678,165 
     $12,512,365 

 

Note 9 – Accounts Payable and Accrued Expenses

 

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

 

   December 31,
2012
   September 30, 2012 
         
Accounts payable  $533,241   $333,444 
Accrued expenses   177,406    226,202 
Total  $710,647   $559,646 

 

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

 

 

8
 

 

GELTOLOGY INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 10 – Customer Deposits

 

As of December 31, 2012 and September 30, 2012, the Company had customer deposits of $1,682,220 and $1,393,040, respectively. Based on the sales contract, the Company’s sales distributors are required to make security deposits, which should be returned by April 30, 2013 upon execution of the contracts.

 

Note 11 – Short-Term Bank Loans

 

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

 

  December 31,
2012
   September 30,
2012
On November 17, 2011, the Company obtained a loan from Agricultural Development Bank of China, the principal of which was repaid in full on 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.  $-   $4,163,290 
           
On November 30, 2012 and December 21, 2012, the Company obtained a loan from Agricultural Development Bank of China, the principal of which will be repaid on November 19, 2013. The interest was calculated using an annual fixed interest rate of 6.00% and paid monthly. The loan was secured by the Company’s property and equipment and guaranteed by the CEO.  $5,395,800   $- 
           
Total  $5,395,800   $4,163,290 

 

Note 12 – Due to Related Party

 

As of December 31, 2012 and September 30, 2012, the Company had outstanding debts from a related party, Hua Mei Investments Limited (“Hua Mei”), of $241,042 and $151,994, respectively.

 

These debts are non-interest bearing and payable on demand. The proceeds of these debts were utilized as working capital. During the nine months period ended September 30, 2012, Hua Mei and the Company entered into an agreement to convert a debt in the amount of $307,720, owed to Greater China International to equity. Pursuant to the agreement, the additional paid in capital of the Company increased to $4,898,429 after the conversion.

 

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%. However, as an agricultural company engaged in cultivation, General Fruit has been approved for tax exemption since its formation. General Preservation was also approved for such exemption from income tax for the years 2011 and 2012. As a result, for the three months ended December 31, 2012 and 2011, there was no income tax provision for the Company.

  

9
 

 

GELTOLOGY INC.

Notes to Consolidated Financial Statements

(Unaudited)

  

Note 14 – Stock Authorization and Issuance

 

On July 11, 2012, the Company entered into a Share Exchange Agreement with General Red Holding, Inc., another Delaware company (“GRH”) and acquired all of the outstanding capital stock of GRH. In connection with the Share Exchange Agreement, the Company issued to GRH an aggregate of 125,112,803 shares of the common stock of the Company, at par value of $0.0001 per share. Immediately prior to the Share Exchange, the Company had 6,750,000 shares of Common Stock issued and outstanding. In connection with the transaction, the two principal shareholders of the Company surrendered for cancellation an aggregate of 4,513,252 shares of Common Stock beneficially owned by them.

 

Note 15 – Statutory Reserve

 

The Company is required to make appropriations to statutory reserve, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory surplus reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital. For the three months ended December 31, 2012, for the nine month ended September 30, 2012 and for the twelve months ended December 31, 2011 and 2010, statutory reserve activity is as follows:

 

Balance – December 31, 2010  $968,127 
Addition to statutory reserve   793,915 
Balance – December 31, 2011   1,762,042 
Addition to statutory reserve   317,116 
Balance – September 30, 2012   2,079,158 
Addition to statutory reserve   380,105 
Balance – December 31, 2012  $2,459,263 

 

Note 16 – Government Subsidy Income

 

The Company obtained government subsidy in cash from local governments, such as bank loan interest discount and eco-irrigation subsidy. The amount obtained each year differed. For the three months ended December 31, 2012 and 2011, the government subsidy received was $111,321 and $51,152, respectively.

 

Note 17 – Earnings Per Share

 

The Company reports earnings per share in accordance with the provisions of the FASB’s related accounting standard. This standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution, but includes vested restricted stocks and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

 

The following is a reconciliation of the basic and diluted earnings per share computation:

 

   Three Months Ended December 31, 
   2012   2011 
         
Net income  $3,503,280   $3,115,937 
           
Weighted average common shares   127,349,551    125,112,803 
(denominator for basic earnings per share)          
           
Effect of diluted securities:   -    - 
           
Weighted average common shares          
(denominator for diluted earnings per share)   127,349,551    125,112,803 
           
Basic earnings per share  $0.03   $0.02 
Diluted earnings per share  $0.03   $0.02 

 

10
 

 

GELTOLOGY INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 18 – 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 environments in the PRC as well as by the general state of the PRC’s economy. The Company's business may 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.

 

Note 19 – Risk of Concentration and Credit Risk

 

For the three months ended December 31, 2012, three vendors accounted for approximately 73% of the Company’s raw materials, while for the three months ended December 31, 2011, four vendors accounted for approximately 72% of the Company’s raw materials. Purchases from these vendors were $824,706 and $931,450 for the three months ended September 30, 2012 and 2011, respectively.

 

For the three months ended December 31, 2012, two customers accounted for $1,591,404 in sales, or approximately 21% of the Company’s total sales. For the three months ended December 31, 2011, no single customer accounted for more than 10% of the Company’s total sales.

 

 

11
 

 

ITEM 2.                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion of the financial condition and results of operation of Geltology Inc. for the three months ended December 31, 2012 and 2011 should be read in conjunction with the selected consolidated financial data, the financial statements and the notes to those statements that are included elsewhere in this Quarterly Report on Form 10-Q (the “ Report”). In addition to historical information, the following discussion contains certain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as “may”, “will”, “could”, “expect”, “anticipate”, “intend”, “believe”, “estimate”, “plan”, “predict”, and similar terms or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of the Company's Transition Report on Form 10-KT filed with the SEC on December 28, 2012. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.

 

Our financial statements are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States. See “Critical Accounting Policies and Estimates - Foreign currency translation” below for information concerning the exchanges rates at which Renminbi were translated into U.S. Dollars at various pertinent dates and for pertinent periods. In this Report, references to “we”, “our”, “us”, the “Company” or the “Registrant” refer to Geltology Inc., a Delaware corporation, and its subsidiaries and affiliated companies.

 

COMPANY OVERVIEW

 

Getlology Inc. (“GELT”) was incorporated under the laws of the State of Delaware on March 24, 2010. The accompanying consolidated financial statements include the financial statements of Geltology, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). The Company is primarily engaged in planting, preserving, packaging and marketing premium navel oranges for distribution and sale throughout the People’s Republic of China (“PRC”).

 

On July 11, 2012, GELT completed a reverse acquisition of General Red Holding, Inc. (“GRH”), which was established under the laws of the State of Delaware on January 18, 2011, entered into a share exchange agreement (the “Exchange Agreement”) with GRH and acquired all of the outstanding capital stock of GRH. Pursuant to the Exchange Agreement, GELT issued to GRH an aggregate of 125,112,803 shares of the common stock of GELT, at par value of $0.0001 per share (“Common Stock”) (such transaction is hereinafter referred to as the “Share Exchange”). GELT was delivered with zero assets and zero liabilities at time of closing.

 

Immediately prior to the Share Exchange, GELT had 6,750,000 shares of Common Stock issued and outstanding. Simultaneously with the transaction, the two principal shareholders of GELT surrendered for cancellation an aggregate of 4,513,252 shares of Common Stock beneficially owned by them. The transaction was regarded as a reverse merger whereby GRH was considered to be the accounting acquirer. Although the Company is the legal parent company, the share exchange was treated as a recapitalization of GRH. Thus, GRH is the continuing entity for financial reporting purposes. The financial statements have been prepared as if GRH had always been the reporting company and then on the share exchange date, had reorganized its capital stock.

 

Upon completion of the Share Exchange, the shareholders of GELT owned approximately 98.24% of the fully diluted outstanding shares of the Company prior to the issuance of the shares to the investors. Accordingly, GRH became the wholly owned subsidiary of GELT.

 

On September 30, 2011, GRH entered into an Agreement and Plan of Reorganization 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.

 

12
 

 

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

 

General Preservation, 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. General Preservation 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 General Preservation, which were originally signed between General Red BVI and General Preservation 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, General Preservation is no longer the Variable Interest Entity of Sheng Da BVI.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.

  

13
 

 

While our significant accounting policies are fully described in Note 2 to our consolidated financial statements for three months ended December 31, 2012 and 2011, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management’s discussion and analysis.

 

Variable interest entities

 

The accounting standards require a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity. On September 29, 2011, Sheng Da BVI entered into a series of new agreements to terminate the VIE agreements.

 

Seasonal nature of operations

 

Typically 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 is usually from the month of October to March in the next year.

 

Accounts receivable

 

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

As a basis for accurately estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties with which we have business were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

 

Inventories

 

Inventories, consisting of raw materials, work in process and finished goods related to our products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.

 

Property and equipment

 

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

 

14
 

 

  Estimated Useful Life
Electronic equipment 5 years
Vehicles 10 years
Machinery and equipment 5-15 years
Buildings and improvements 5-20 years
Navel orange orchards 11-30 years

   

Revenue recognition

 

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of navel oranges upon shipment and transfer of title.

 

Foreign currency translation

 

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 shareholders 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 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.

 

Results of Operations for the Three Months Ended December 31, 2012 Compared to the Three Months Ended December 31, 2011

 

Revenues. For the three months ended December 31, 2012, we had net revenues of $7,440,677, as compared to net revenues of $7,905,216 for the three months ended December 31, 2011, a decrease of approximately $464,359 or 5.9%. The decrease in net revenues was primarily attributable to a decrease in sales volume, offset by an increase in our sales prices. The navel orange harvest season usually starts in early October. However, due to a variety of factors such as local weather, the maturity dates of navel oranges in Jiangxi Province were delayed for approximately ten days in the 2012 harvest season. Correspondingly, our navel orange harvest dates and sales delivery dates were delayed for approximately ten days. As a result, the sales volume reflected in the three months ended December 31, 2012 declined by 9.2% as compared to the three months ended December 31, 2011. On the other hand, as Jiangxi navel oranges have gained brand recognition among Chinese consumers, the navel orange market has become more favorable. The sale price per kg increased from $0.74 to $0.77 period over period.

 

Our sales volume decreased by approximately 9.2% for the three months ended December 31, 2012, while the average sales price per kg increased by approximately 3.7%, as shown below:

 

Three months ended  Sales Volume
(in KG)
   Sale
Price
Per KG
(in US$)
   Total Sales
Revenue
 
December 31, 2011   10,682,985    0.74    7,905,216 
December 31, 2012   9,698,941    0.77    7,440,677 
Variance   (984,044)   0.03    (464,539)
% Variance   (9.2)%   4.1%   (5.9)%

 

15
 

 

Cost of sales. Cost of sales decreased by $668,511, or 16.4%, from $4,069,119 for the three months ended December 31, 2011 to $3,400,608 for the three months ended December 31, 2012, as a result of a 9.2% decrease in sales volume and cost reductions attributable to our increased cultivation of orange groves. Although the labor cost and prices we paid to our suppliers continued to increase, we were able to lower our costs by turning to more self-cultivation, which usually costs less than direct purchases of navel oranges. As a result, our unit costs decreased from $0.38 to $0.35 period over period.

 

Gross profit and gross margin. Our gross profit was $4,040,069 for the three months ended December 31, 2012 as compared to $3,836,097 for the three months ended December 31, 2011, representing a gross margin of 54.3% and 48.5%, respectively. The increase in our gross profit margin was mainly attributable to reduction in our cost per kg period over period and an increase in sales price per kg during the three months ended December 31, 2012.

 

Selling expenses. Selling expenses were $396,403 and $379,892 for the three months ended December 31, 2012 and 2011, respectively. Selling expenses consisted of the following:

 

   For the three
months ended
   For the three
months ended
     
   December
31, 2012
   December
31, 2011
   Increase/decrease 
Shipping and handling  $364,728   $356,853    2.2%
Compensations and related benefits   13,545    8,799    53.9%
Advertising and promotion   17,194    7,877    118.3%
Others   936    6,363    (85.3)%
Total  $396,403   $379,892    4.3%
Selling expense as % of revenues   5.3%   4.8%     

 

Shipping and handling expenses increased by $7,875 or 2.2%, as a result of fee inflation, offset by the decline in shipping volume period over period.

 

Compensation and related benefits increased by $4,746, or 53.9%, in the three months ended December 31, 2012 compared to the three months ended December 31, 2011, due to the increase in our sales force beginning in October 2012.

 

Advertising and promotion expense increased by $9,317 or 118.3%, as a result of our marketing campaign in 2012. In order to promote our brand name, General Red Navel Oranges, we spent more on advertisements in 2012.

 

Other expense mainly includes customer entertainment, vehicle maintenance and miscellaneous office expenses.

 

General and administrative expenses. General and administrative expenses amounted to $212,003 for the three months ended December 31, 2012, as compared to $356,926 for the same period in 2011, a decrease of $144,923 or 40.6%. General and administrative expenses consisted of the following:

 

   For the three
months ended
   For the three
months ended
     
   December
31, 2012
   December
31, 2011
   Increase/decrease 
Compensation and related benefits  $64,794   $82,948    (21.9)%
Depreciation   23,631    16,956    39.4%
Professional service   51,241    165,867    (69.1)%
Office expense   6,205    13,163    (52.9)%
Amortization of land use right   912    903    1.0%
Tax   21,267    21,048    1.0%
Other   43,953    56,041    (21.6)%
Total  $212,003   $356,926    (40.6)%
G&A expense as % of revenues   2.8%   4.5%     

 

16
 

 

Compensation and related benefits decreased by $18,154 or 21.9%, mainly because in October 2012, we laid off certain staff in our purchasing department and certain related supporting staff as a result of our increased focus on self-cultivation.

 

Depreciation expense increased by $6,675, or 39.4%, in the three months ended December 31, 2012, as compared to the same period in 2011. The increase was primarily due to the completion of construction of our Plastic Sorting Workshop worth approximately $132,000 and the addition of certain equipment in December 2011, for which we started to record depreciation of workshop and equipment in 2012.

 

Professional service fees decreased by $114,626 mainly due to 2011 year end audit and legal fees incurred in preparation for the Company’s reverse merger in July 2012.

 

Office expense decreased by $6,958, or 52.9%, in the three months ended December 31, 2012, as compared to the same period in 2011, as our Hanxin Agriculture, located in Nanchang, Jiangxi Province was able to cut down its expense.

 

Amortization of land use right increased by $9, or 1.0%, in the three months ended December 31, 2012, as compared to the same period in 2011, due to variance in the exchange rate of the U.S. dollar to RMB.

 

Tax expense mainly includes property tax and kept constant period over period.

 

Other general and administrative expenses mainly include customer entertainment, utilities, repairs, telecommunication, insurance and certain low-value miscellaneous items. Their amounts varied period over period due to different circumstances.

 

Income from operations. For the three months ended December 31, 2012, income from operations was $3,431,663, as compared to $3,099,279 for the three months ended December 31, 2011, a decrease of $332,384 or 10.7%.

 

Other income (expenses). For the three months ended December 31, 2012, other income amounted to $71,617 as compared to other income of $16,658 for the same period in 2011. For the three months ended December 31, 2012 and 2011, other income (expense) mainly included: (i) interest expense, which increased by $4,302 or 8.9% period over period due to an increase in the average balance of our bank loans, and (ii) certain government subsidies, such as bank loan interest discount and an eco-irrigation subsidy. In the three months ended December 31, 2012, we received government subsidies of approximately $111,321, as compared to $51,152 for the three months ended December 31, 2011. Government subsidies vary from time to time.

 

Income tax expense. For both the three months ended December 31, 2012 and 2011, income tax amounted to $0. We began enjoying an income tax exemption in January 2011 for processing agricultural commodities.

 

Net income. As a result of the factors described above, our net income for the three months ended December 31, 2012 was $3,503,280. For the three months ended December 31, 2011, we had net income of $3,115,937.

 

Foreign currency translation gain. The functional currency of our subsidiaries operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $60,491 for the three months ended December 31, 2012 as compared to $171,687 for the same period in 2011. This non-cash gain had the effect of increasing our reported comprehensive income.

 

17
 

 

Comprehensive income. For the three months ended December 31, 2012, comprehensive income of $3,563,771 is derived from the sum of our net income of $3,503,280 plus foreign currency translation gain of $60,491.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of December 31, 2012, our balance of cash and cash equivalents was $1,067,667. As of December 31, 2011, our balance of cash and cash equivalents was $351,045.

 

The following summarizes the key components of the Company’s cash flows for the three months ended December 31, 2012 and 2011:

 

 

   For the Three months Ended 
   December 31,   December 31, 
   2012   2011 
Net cash (used in) operating activities  $(811,275)  $(914,114)
Cash flows (used in) investing activities   (63,109)   (73,088)
Cash flows provided by financing activities   1,591,613    3,194,857 
Effect of foreign currency translation   (607)   11,807 
Net increase in cash and cash equivalents  $716,622   $2,219,462 

 

The Company currently generates its cash flow through operations, which it believes will be sufficient to sustain current level operations for at least the next twelve months.

 

In summary, our cash flows were:

 

Net cash used in operating activities decreased in the three months ended December 31, 2012 by $102,839 to $811,275, from net cash provided by operating activities of $914,114 for the three months ended December 31, 2011. These changes were mainly brought about by the following changes: an increase in net income of $387,343, an increase in cash provided by prepaid leases of $3,019,630, and an increase in cash provided by customer deposits of $758,424. This was offset by, an increase in cash used in accounts receivable of $2,137,167, an increase in cash used in advance payment of $1,716,618 and increase in cash used in inventory of $347,657.

 

Net cash used in investing activity decreased by $9,979 in the three months ended December 31, 2012 compared to the same period ended in 2011, which is mainly due to less cash expenditures on machinery and equipment.

 

Net cash provided by financing activities decreased by $1,603,244 to $1,591,613 in the three months ended December 31, 2012 compared to $3,194,857 used in financing activities at the same period ended in 2011. This was due to an increase in bank loans during the three months ended December 31, 2011 as compared to the three months ended December 31, 2012.

 

Working capital at December 31, 2012 increased by $4,097,839 to $3,622,724 from $(475,115) at December 31, 2011.  In order to stay cost competitive in the long-run, we plan to lease no more than 150,000 additional orange trees within the next twelve months. Based on the lease rate of approximately $51(RMB320) per tree in 2011, the total spending is estimated to be no more than $7,650,000 (RMB48 million).

 

As we are listed by the lending bank as a good credit customer, we believe that our short-term bank loans will be renewed at their maturity dates. On November 30 and December 21, 2012, as a replacement of an existing short-term bank loan that matured in November 16, 2012, the Company obtained a new bank loan of approximately $5,395,800 (RMB34,0000,000) from Agricultural Development Bank of China.

  

18
 

 

Although we will continue to invest in our business, with expected positive operating cash flow fueled by our profit, we believe our operating cash is sufficient to sustain current level operations for at least the next twelve months

 

Off-Balance Sheet Financing Arrangements

 

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial assets.

 

ITEM 3.                        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to respond to this Item.

 

ITEM 4.                        CONTROLS AND PROCEDURES

 

Disclosure controls and procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness, as of the end of the period covered by this report, of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective.

 

Changes in internal control over financial reporting

 

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II– OTHER INFORMATION

 

ITEM 1.                        LEGAL PROCEEDINGS

 

None.

 

ITEM 1A.                    RISK FACTORS

 

As a smaller reporting company, we are not required to respond to this Item.

 

ITEM 2.                        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.                        DEFAULT UPON SENIOR SECURITIES

 

None.

 

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ITEM 4.                        MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5.                        OTHER INFORMATION

 

None.

 

ITEM 6.                        EXHIBITS

 

Exhibit No.

Description

31.1 Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

 

20
 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  GELTOLOGY INC.
   
Date: February 1, 2013 By:

/s/ Xingping Hou

  Name: Xingping Hou
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
Date: February 1, 2013 By:

/s/ Shaokang Zeng

  Name: Shaokang Zeng
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

Exhibit No.

Description

31.1 Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

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