UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K




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




For the
fiscal year ended December 31, 2008




or




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




For the
transition period from _______ to _______




Commission
File No.: 333-139008




GREAT
EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC


(Exact
Name of Registrant as Specified in Its Charter)




Florida
            59-2318378(State
      or Other Jurisdiction of
            (I.R.S.
      EmployerIncorporation
      or Organization)
            Identification
      No.)




203 Hankow Center, 5-15
Hankow Road, Tsimshatsui, Kowloon, Hong Kong


(Address
of Principal Executive Offices) (Zip Code)




Registrant’s
telephone number, including area code: 852-2192-4805




Securities
registered pursuant to Section 12(b) of the Act:  None




Securities
registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01
per share




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x




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 o




Indicate
by check mark if disclosure of delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.


Large
accelerated filer o      Accelerated
filer o      Non-accelerated
filer o      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 oNo x




State the
aggregate market value of the common stock held by non-affiliates of the Issuer
on June 30, 2008: $18,850,000




Indicate
the number of shares outstanding of each of the Registrant’s classes of common
stock, as of the latest practicable date: 40,000,000 at April 22,
2009.




Documents
incorporated by reference: None









TABLE
OF CONTENTS




PageITEM
      1.
              BUSINESS
              2ITEM
      1A.
              RISK
      FACTORS
              17ITEM
      1B.
              UNRESOLVED
      STAFF COMMENTS
              26ITEM
      2.
              PROPERTIES
              27ITEM
      3.
              LEGAL
      PROCEEDINGS
              27ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
              27ITEM
      5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
              28ITEM
      6.
              SELECTED
      FINANCIAL DATA
              29ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              29ITEM
      7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              35ITEM
      8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
              37ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
              37ITEM
      9A.(T)
              CONTROLS
      AND PROCEDURES
              37ITEM
      9B.
              OTHER
      INFORMATION
              38ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
              39ITEM
      11.
              EXECUTIVE
      COMPENSATION
              40ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
              42ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
              42ITEM
      14.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
              43ITEM
      15.
              EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
              44









Item
      1.
            Business




Introduction





As used
herein, unless the context otherwise requires, “Registrant” and the “Company”
(and “we”, “our” and similar expressions) refer to the business of Great East
Bottles & Drinks (China) Holdings, Inc. (formerly named Jomar Specialities,
Inc.) before the Share Exchange (as hereinafter defined) and Citysky after the
Share Exchange.





We were
incorporated on July 8, 1983 in the business of providing specialty printing
services to the commercial printing industry.  Until consummation of
the Share Exchange, our revenue was derived from providing printing services to
other printing businesses.





On March
10, 2008, we entered into a Share Exchange Agreement (the “Share Exchange
Agreement”) with Citysky Investment Holdings, Inc, a British Virgin Islands
company (“Citysky”) and Guy A-Tsan Chung (formerly known as Chung A. San Guy),
the sole shareholder of Citysky ( the “Shareholder”) to acquire 100% of the
outstanding equity of Citysky from the Shareholder in consideration for
6,492,000 shares of our common stock (the “Share Exchange”).  The
Share Exchange was consummated on March 10, 2008.





Citysky
is the owner of 100% of each of the following companies (i) Great East Packaging
International Limited, a British Virgin Island company, which owns 100% of
Hangzhou Great East Packaging Company Limited, a wholly owned foreign enterprise
incorporated in China on September 29, 1995 (“GEHZ”), (ii)  Great East
Packaging (Nanjing) Limited, a British Virgin Island company, which owns 100% of
Nanjing Great East Packaging Company Limited, a wholly owned foreign enterprise
incorporated in China on January 18, 2001 (“GENJ”) and (iii) Great East
Packaging (Xian) Limited, a British Virgin Island company, which owns 100% of
Xian Great East Packaging Company Limited, a wholly owned foreign enterprise
incorporated in China on August 16, 1996 (“GEXN”).  Citysky acquired
the equity of Great East Packaging International Limited, Great East Packaging
(Nanjing) Limited and Great East Packaging (Xian) Limited on February 28, 2008
from World Parade Group Limited and Gloria Success International Limited, who
were also the owners of Citysky prior to the transfer.





Citysky
and its subsidiaries are a group of manufacturers producing beverage bottle
which mainly is made of PET, a type of plastic with desirable characteristic for
packaging including clear and wide range of color and shape, tough, good
resistance to heat, moisture and dilute acid. Beverage bottles are manufactured
and sold in China for bottling of Carbonated Soft Drinks (“CSD”) for world
brands including Coca-Cola and Pepsi.  Subsequent to the completion of
the Share Exchange Agreement, Citysky’s business became our major business and
the Shareholder became our majority shareholder





General
Description of Business





Business
Overview





We
produce and market PET CSD bottles and PET CSD preforms through our ownership in
Citysky.  We own and operate the following three manufacturing
facilities in China:





1.
            GEHZ
      - Located in Hangzhou City in Zhejiang province, GEHZ produces both PET
      CSD bottles and PET CSD preforms for Coca-Cola to support its productions
      for its market in Zhejiang province.  GEHZ’s facilities occupy a
      landmass of 163,977 square feet.  GEHZ is comprised of two
      buildings and operates one production line of PET CSD bottles and 4
      production lines of PET CSD
preforms.


2.
            GENJ
      - Located in Nanjiang City in Jiangsu province, GENJ produces PET CSD
      bottles for Coca-Cola to support its productions for its market in Jiangsu
      province.  GENJ’s facilities occupy a landmass of 133,515 square
      feet.  GENJ is comprised of two buildings and operates one
      in-line production line of PET CSD bottles, two production lines of PET
      CSD bottles and three production lines of PET CSD
  preforms.


3.
            GEXA
      - Located in Xian City in Shanxi province, GEXA produces PET CSD bottles
      for Pepsi to support its productions for its market in Shanxi province.
      GEXA operates one in-line production line of PET CSD bottles and one
      production line of PET CSD bottles.




2




Corporate
milestones





Milestone
            
            DateGEHZ
      manufacturing facilities construction completed
            
            1994GEHZ
      commences production in Hangzhou City
            
            1995GEHZ
      commences serving Coca – Cola in Hangzhou City
            
            1995GEXN
      manufacturing facilities construction completed
            
            1996GENJ
      commences production in Nanjing City
            
            2001GENJ
      commences serving Coca – Cola in Nanjing City
            
            2004GEXN
      commences serving Pepsi in Xian City
            
            2004GEXN
      signs five years contract extension with Pepsi up to 2013
            
            2008GENJ
      signs four years contract extension with Coca Cola up to
    2012
            
            2008





INDUSTRY
AND MARKET ENVIRONMENT





Our
company is part of the plastic packing case and container manufacturing industry
in China. Our existing market is the market for PET-plastic bottles for
beverages in China.





The
Chinese market for our industry has been expanding steadily at double-digit
growth rates for the last several years. While there are no official statistical
data on our industry’s growth, we believe that the market size and market growth
of our industry has increased due to the unit volume sales growth experienced in
these industries that we supply.  In particular, we believe that
higher volume growth in plastic-bottled beverages would likely imply a
corresponding similar volume growth in plastic bottles
manufacturing.





The
average annual growth rate in bottled water consumption was 17.5% in China in
2003-2007, vs. just 7.6% globally (estimates by Beverage Marketing Corporation).
The Chinese market for carbonated soft drinks grew 12.6% annually in revenue in
2007, and is expected to grow at 25.8% in 2008 (ACMR-IBISWorld report on
01/31/2008). In particular, Coca-Cola’s (our major customer, holding 43% market
share in Chinese soft drinks market in 2006 and expanding rapidly into still
beverages such as bottled water and orange juice) unit case volume growth in
China was 34% in 2007, vs. India’s 14%, Russia’s 19%, and Brazil’s 25%
(Coca-Cola’s Annual Review 2007 and Form 10-K, 02/28/2008). Pepsi Cola (our
second major customer, holding 16.5% of market share in Chinese soft drinks
market in 2006) also reported double-digit volume growth in its beverage
business in China in 2006-2007 (PepsiCo Annual Report 2007). As such, a number
of published statistics help to project that our industry has been enjoying
healthy double-digit growth in China. Our industry is expected to remain
positively related (pro-cyclical) to the overall economic cycle  of China,
where GDP growth has hovered around 10% per annum in recent years.





We have
also witnessed consumers’ increasing use of bottled beverages instead of
non-bottled beverages such as tap water and freshly squeezed fruit juice. Over
the past decade, bottled beverage consumption has grown exponentially,
particularly in the developed world such as North America and Europe. According
to a 2001 World Wildlife Fund (WWF) survey, global consumption of bottled water
was 89 billion liters per year, worth roughly $22 million. The bottled beverage
industry has become a culture in developed countries, especially at outdoors.
Branded beverages including branded water are listed on menus of restaurants.
The WWF study also confirmed that consumers associate bottled drinks with social
status and healthy living. In the emerging markets such as China where public
tap water may not be safe to drink, this bottled beverage culture is growing
fast, as a result of individuals’ increasing awareness of wealth and
health.  According to Chinese NPC official Sheng Huaren some 300
million of Chinese population have not had access to safe water sources, and 5
of 7 China’s major rivers are seriously polluted. The Chinese government has had
to distribute bottled water to victims of contaminated rivers and wells on a
number of occasions  For example, last year, China’s third largest
lake Taikhu was so contaminated that 100,000 boxes of bottled water had to be
sent to meet the water needs of 7 million residents.




3





The
prevailing macroeconomic policy of the Chinese government promotes consumption
spending. Consumer products are among the fastest growing sectors in the GDP of
China, leading to economists’ comments that China is going to become one of the
largest markets for domestic demand in the next decade. High-quality packaging
is necessary and increasingly important for successful distribution of consumer
products. Our industry is a necessary contributor to China’s next consumption
boom.





RECENT
BUSINESS DEVELOPMENT





Our
company will install new production machinery in Nanjing and Hangzhou production
facilities with a view to improving and enhancing the existing production
capacity to cope with the extended contracts requirements with Coca Cola and
Pesi in 2009. GEBD’s market share increased to over 80% for Xian Pepsi in 2008
and is expected to achieve our target of 100% market share in Xian in
2009.





OUR
PRODUCTS





We mainly
produce 2 types of products: PET CSD bottles and PET CSD preforms for CSD
bottles. PET (Polyethylene terephthalate) is a thermoplastic polymer resin of
the polyester family.  It is widely used as raw material for synthetic
fibers, beverage /food / liquid containers, thermoforming applications and as
engineering resins.  PET CSD bottles are completed bottles ready for
CSD bottling while PET CSD preforms are pre-production tubes made from PET resin
that are used in a stretch-blow-molding machine to produce the final PET
bottle





PET CSD
bottles





PET CSD
bottles are transformed from PET CSD preforms through a stretch-blow-molding
manufacturing process.  PET CSD bottles are popular containers for the
CSD bottling process.





Unlike
aluminum cans and glass bottles, PET CSD bottles are applied to medium to large
volume CSD products, i.e., over 500ml.  Volume of PET CSD bottles
ranges from 500ml to 2,500ml with PET CSD preforms weights ranging from 25g to
56g, respectively.  The shapes of the CSD bottle are designed by the
customers.





Newly
produced PET CSD bottles are stored in warehouses for scheduled CSD bottling
process. The expiry period of PET CSD preforms varies from 15 days to 3 months
from the date produced, depending on the storing conditions such as room
temperature and relative humidity





PET CSD
preforms





PET CSD
preforms are pre-production tubes made from PET resin that are used in a
stretch-blow-molding machine to produce the final PET bottle.  PET CSD
preforms can be colored green or blue according to customers’ requirements. The
weight of PET CSD preforms determines the volume of the final PET CSD
bottle.  Heavier PET performs are used to produce larger PET CSD
bottles.  Sizes of our PET CSD preforms range from 25g to 56g, which
is our customers’ required weight range.





Newly
produced PET CSD preforms are stored in warehouses for scheduled PET CSD bottle
blowing process. PET performs expire three months from their production
date.





TARGET
CUSTOMERS





PET
bottles are suitable for various applications including water, tea drinks, CSD
and other beverages bottling.  However, our PET CSD bottles and PET
CSD preforms are targeted to CSD application only.  CSD contains
instable carbonate components and it demands higher quality requirements on PET
bottles and PET preforms compared to those applied to water and tea
drinks.  Thus, CSD applications represent a higher margin segment in
the PET bottles and PET preforms market as it demands a higher quality
standard.  We are qualified to produce higher quality PET bottles and
PET preforms that are susceptible for CSD applications and therefore, we
position ourselves in the higher margin CSD segment of the bottling industry
instead of the lower end water and tea drinks applications.




4





PET CSD
bottles





Our PET
CSD bottles target CSD producers and CSD bottlers in China.





1.
            CSD producers in China -
      Currently there are international and local CSD producers in
      China.  Compared to local CSD producers, international CSD
      producers usually demand higher quality PET CSD bottles in terms of visual
      appearance, dimension, weight, perpendicularity, fill point capacity, wall
      thickness, sectional weights, burst resistance, thermal stability, stress
      crack, top load, drop impact and carbonation loss.  In addition
      to higher quality requirements international CSD producers can also afford
      a higher price for PET CSD bottles.  Our quality control
      department has designed a lot of internal guidelines and procedures so as
      to comply with all requirements from international CSD
      producers.  As a result, we consider international CSD producers
      are our target customers rather than local CSD
  producers.





2.
            CSD bottlers in China -
      CSD bottlers are vendors of CSD producers that bottle their CSD products.
      Swire Beverages and COFCO Coca-Cola Co. Limited are two of the most famous
      CSD bottlers in China.  There are approximately 10 CSD bottlers
      in China serving international and local CSD producers.  We also
      consider CSD bottlers who serve international CSD producers to be our
      target customers.





PET CSD
preforms





Our PET
CSD preforms target other PET CSD bottles manufacturers in China. Some of the
PET CSD bottles manufacturers in China purchase PET CSD preforms from PET CSD
preforms producers and stretch-blow-mold PET CSD performs into PET CSD
bottles.  Zhuhai Zhongfu and Shanghai Zijiang are 2 famous suppliers
of PET CSD bottles in China that purchase PET CSD preforms from PET CSD preforms
from PET CSD preforms producers.  We consider these PET CSD bottles
manufacturers who purchase PET CSD preforms to be our target
customers.  Usually these CSD bottles manufacturers who purchase PET
CSD performs from us serve international CSD producers in China, since our PET
CSD performs are of a sufficiently high quality to meet the requirements of
international CSD producers.





OUR MAJOR
CUSTOMERS





Our major
customers are Coca-Cola and Pepsi, the two leading worldwide brands in the CSD
industry. Our company continues to keep good customer relationship with
Coca-Cola and Pepsi and they renewed the contracts with us in 2008.




Coca-Cola





We serve
Coca-Cola through our GEHZ and GENJ production facilities. GEHZ signed a
Coordinated Supply Agreement to serve Coca–Cola through Hangzhou BC Foods
Company Limited (“HZBC”) and GENJ signed a Coordinated Supply Agreement to serve
Coca–Cola through Nanjing BC Foods Company Limited (“NJBC”).  HZBC and
NJBC are subsidiaries of Swire Pacific Limited, which is the CSD bottler for
Coca-Cola in China.




5





Terms





HZBC and
NJBC signed four year contracts commencing June 1, 2004 with GEHZ and GENJ,
respectively.  Both HZBC and NJBC have indicated that they renewed
their contracts with GEHZ and GENJ, respectively, on June 1, 2008 on similar
terms and conditions. (Exhibit 10.2)





Volume
guarantee





We
produce PET CSD bottles for Coca–Cola with capacities ranging from 500ml to
2,500ml under certain performance criteria including visual inspection, section
weights, wall thickness distribution, base clearance, fill point, burst
pressure, acetaldehyde standard method, stress crack resistance, color
requirement, intrinsic viscosity and traceability.





HZBC has
provided GEHZ with a volume guarantee of not less than 20% of HZBC’s annual PET
CSD bottles requirements in Zhejiang province during the term of the
contract.  Pursuant to the terms of the contract, GEHZ has agreed to
guarantee a non interrupted supply of our PET CSD bottles to HZBC.





NJBC has
provided GENJ with a volume guarantee of not less than 90% of NJBC’s annual PET
CSD bottles requirements in Jiangsu province during the terms of the contract.
Pursuant to the terms of the contract, GENJ has agreed to guarantee a non
interrupted supply of our PET CSD bottles to NJBC.





In order
to ensure no disruption of the supply of PET CSD bottles to HZBC and NJBC will
occur, GEHZ and GENJ have each agreed to provide capacity for the other should
either of them face a surge in demand from HZBC or NJBC.  Either GEHZ
or GENJ will increase their production and transport the overflow volume to the
other in case either of them fails to provide a sufficient number of PET CSD
bottles to HZBC or NJBC





Raw
material





We are
not required to purchase PET resin under the contracts and Coca–Cola has agreed
to make special arrangement for us.  For instance, based on GEHZ’s
expected production volume, HZBC shall purchase an adequate amount of PET resin
from its approved suppliers, who will then deliver the PET resin directly to
GEHZ.  NJBC and GENJ have the same supply arrangement.





Pricing





We are
obliged to offer Coca-Cola whatever is the lowest price we offer PET CSD bottles
to our other customers with substantially equivalent quality we sold to
Coca-Cola under “the most favor customer” clause.  Moreover, we have
to meet the most competitive pricing from other competitors over the market, who
offer PET CSD bottles with substantially equivalent quality we sold to
Coca-Cola.





The price
of PET CSD bottles includes PET CSD bottles blowing, PET CSD preforms
conversion, all packaging materials and pallet, transportation to customers,
value added tax and colorant, but excludes PET resin and label
price.





Other
terms





We are
required to comply with all applicable laws and regulations governing labor,
wages, benefits, working hours, overtime, safety and environmental
protections.





Pepsi





We serve
Pepsi through our GEXN production facilities.  GEXN has signed an
Inline Mode Coordinated Supply Agreement (the “Pepsi Agreement”) to serve Pepsi
through Xian Pepsi-Cola Beverage Company Limited, which is a joint venture
company between PepsiCo Investment (China) Ltd. and local food and beverage
companies in Xian.





We
produce PET CSD bottles with capacities ranging from 600ml to 2,500ml with
certain performance criteria including appearance, dimension, weight, fill point
capacity, wall thickness & sectional weights, perpendicularity, burst
resistance, thermal stability, stress crack, top load test, drop impact and
carbonation loss.




6





The Pepsi
Agreement was renewed on March 18, 2008 and has a term of five years. If we
cannot reach a mutual consent for the renewal of this agreement, Pepsi has the
right to buy back our production line for a price to be determined by 15 years
depreciation without residual value. (Exhibit 10.1)





Pepsi has
committed a volume guarantee to us of not less than 70% of Pepsi’s annual PET
CSD bottles requirements in Xian province during the terms of the
contract.  Pursuant to the terms of the contract, we are obligated to
guarantee a non interrupted supply of our PET CSD bottles to Pepsi.





We must
offer the lowest competitive price to Pepsi. The price includes PET resin, the
tolling fee of PET CSD bottles blowing and value added tax,  but
excludes label price, the tolling fee of label and colorant.





OUR
PRODUCTION FACILITIES





We own
and operate 3 manufacturing facilities in China: GEHZ, GENJ and
GEXN.





GEHZ





GEHZ is
located at No. 1 Road, Economic & Technological Development Zone, Jiubao
Jianggan District, Hangzhou, China.  It is comprised of 2 buildings,
one of which serves as an administration office, production line factory and
warehouse and the other serves as a staff canteen and quality control office.
GEHZ operates one PET CSD bottle production line and four PET CSD preform
production lines.





The PET
CSD bottles production line produces PET CSD bottles with capacities ranging
from 0.5L to 2.5L  It consists of one stretch blow molding machine and
one basic robot labeling machine:





1.
            The
      stretch blow molding machine consists of 10 molds with a production
      capacity of 12,000 bottles per
hour.


2.
            The
      robot labeling machine model has a production capacity of 18,000 bottles
      per hour.





GEHZ’s
PET CSD bottles production line is operated as an offline production mode
(“Offline Mode”) Under Offline Mode, PET CSD bottles are blow-molded at GEHZ’s
own production line factory, packed and delivered to Coca–Cola’s manufacturing
plant for their bottle-filling process.  Coca–Cola’s manufacturing
plant is located adjacent to GEHZ’s production line factory to ensure timely
delivery of the PET CSD bottles supply and also to minimize transportation
costs.





The four
PET CSD preforms production lines produce PET preforms for CSD bottles with
weights ranging from 29g to 58g.  Each production line consists of one
injection molding machine and one PET CSD preforms mold:





·
            The
      injection molding machine manufactures PET CSD preforms through the
      injection molding process, which requires an injection unit and a clamping
      unit.


·
            PET
      CSD preforms molds determine the production capacity of a certain
      production line.  The size of the PET CSD preforms molds will be
      the key factor in such determination.  For instance, the PET CSD
      preforms molds for PET CSD preforms weight of 25g consists of 48 molds and
      produces 9,600 PET CSD preforms per hour, the PET CSD preforms molds for
      PET CSD preforms weight of 38g produces 8,640 PET CSD preforms per hour
      and the PET CSD preforms molds for PET CSD preforms weight of 52g produces
      6,520 PET CSD preforms per hour.




GENJ





GENJ is
located at 16 Nanjing New & High Technology Industry Development Zone,
Nanjing Jiangsu Province, China. It is comprised of two buildings, one of which
serves as an administration office and the other serves as a production line
factory and warehouse. GENJ operates three PET CSD bottles production lines and
three PET CSD preforms production lines.





The 3 PET
CSD bottles production lines produce PET CSD bottles with capacities ranging
from 500ml to 2,500ml.




7





One of
GENJ’s PET CSD bottles production lines is operated as an inline production mode
(“Inline Mode”). Under Inline Mode, PET CSD bottles are blow-molded at
Coca-Cola’s manufacturing plant and are then directly fed into Coca-Cola’s
manufacturing production lines via conveyor belts for bottle-filling
process.





Two of
GENJ’s PET CSD bottles production lines are operated under Offline Mode.
Coca-Cola’s manufacturing plant is located adjacent to GENJ’s production line
factory.





Each
production line consists of one stretch-blow-molding machine and one labeling
machine:





·
            The
      stretch-blow-molding machine consist of 16 molds, 16 molds and 6 molds
      with production capacities of 19,200 bottles (Inline Mode), 16,000 bottles
      and 7,200 bottles per hour
respectively.


·
            The
      labeling machines have production capacities of 24,000 bottles,18,000
      bottles and 12,000 bottles per hour
  respectively.





The three
PET CSD preforms production lines produce PET preforms for CSD bottles with
weights ranging from 25g to 56g.





GEXN





GEXN is
located at No. 36 Development Road, New Type Industrial Garden High–Tech
Industrial Development Zone, Xian, China. GEXN operates two PET CSD bottles
production lines.





The two
PET CSD bottles production lines produce PET CSD bottles with capacities ranging
from 600ml to 2,500ml. Each production line consists of one stretch-blow-molding
machine and one labeling machine:





·
            The
      stretch-blow-molding machines have with production capacities of 12,000
      bottles (Inline Mode) and 10,000 bottles per hour respectively. They
      consist of 10 molds each machine.


·
            The
      labeling machines have a production capacity of 18,000 bottles per hour
      each machine.





One of
GEXN’s PET CSD bottles production lines is operated under Inline Mode and the
other production line is under Offline Mode. Pepsi’s manufacturing plant is
located adjacent to GEXN’s production line factory.





PRODUCTION
PROCEDURES





We
operate a total of seven PET CSD preforms production lines and six PET CSD
bottles production lines (four under Offline Mode and two under Inline Mode)
through our three operating facilities.





PET CSD
preforms





PET CSD
preforms are produced through the injection molding manufacturing process
described below:





·
            PET
      CSD preforms molds and changed.


·
            PET
      resin is transferred from warehouse to the raw materials room
      .


·
            PET
      resin is drawn into the feed hopper through pipeline by
      suction.


·
            PET
      resin is heated, dried and moved into the Injection Molding
      machine.


·
            While
      PET resin enters the Injection Molding machine, it is heated above its
      transition temperature and move forward in the
  molds.


·
            PET
      resin undergoes extreme pressure and is molded into PET CSD
      preforms.


·
            The
      PET CSD preforms are automatically stripped through action of the mold
      after cooling.


·
            PET
      CSD preforms undergo quality check by production team and quality control
      department to ensure the quality to achieve customers’
      requirement.


·
            PET
      CSD preforms are packaged and sent to
storage.




8




PET CSD
bottles





PET CSD
bottles are produced through a stretch-blow-molding manufacturing process and
operated under two operations modes, Inline Mode and Offline Mode.





Offline
Mode





The
following are the procedures followed in the Offline Mode:





·
            PET
      CSD bottles molds are changed.


·
            PET
      CSD preforms are transferred from warehouse to a PET CSD preforms
      container.


·
            PET
      CSD preforms are sorted by a sorting machine, which is part of Stretch
      Blowing Machine.


·
            The
      sorting machine screens out those PET CSD preforms of poor
      quality.


·
            The
      PET CSD preforms are transferred to the main body of Stretch Blowing
      Machine and are heated (typically by infrared heaters) above their
      transition temperature.


·
            PET
      CSD preforms are blown into bottles using high pressure air and the metal
      blow molds.


·
            PET
      CSD bottles are transferred to the conveyor belt after
      cooling.


·
            Our
      production team and quality control department perform quality check to
      ensure the quality of the PET CSD bottles meet Coca-Cola’s or Pepsi’s
      quality requirements.


·
            PET
      CSD bottles are transferred to the labeling machine through conveyor belt
      for labeling.


·
            Our
      production team and quality control department perform quality check on
      the labeled PET CSD bottles to ensure the quality meets Coca-Cola’s or
      Pepsi’s requirements.


·
            Labeled
      PET CSD bottles are packed and
stored.





Inline
Mode





All
procedures are exactly the same as Offline Mode except: that instead of packing
the labeled PET CSD bottles for storage, the bottles are sent directly to
Coca-Cola’s production line or Pepsi’s production line through a conveyor
belt.





Under
Inline Mode, if we cannot meet the customers’ bottle-filling process schedule,
the labeled PET CSD bottles will not be sent to the customer’s production line
directly, but will be packaged and sent to our storage.





OUR
PRODUCTION TEAM





We have
dedicated production teams in each of our production facilities to be
responsible for different products: Preform Production Teams are responsible for
PET CSD preforms production and Bottle Blowing Teams are responsible for PET CSD
bottles production. Managers of our Perform Production Teams and our Bottle
Blowing Teams report directly to the general manager of each manufacturing
facility.




9





Structure





GEHZ





GEHZ has
four Preform Production Teams and 4 four Bottle Blowing Teams:





·
            Our
      Preform Production Teams have a total of 23
  employees


·
            Our
      Bottle Blowing Teams have a total of 60 employees divided into separate
      blowing and packaging sections.





The teams
operate on rosters in two shifts with 12 hours per shift.





GENJ





GENJ has
three Preform Production Teams and three Bottle Blowing Teams:





·
            Our
      Preform Production Teams have a total of 20 employees divided into
      separate preforms air compressor and electrical
  sections.


·
            Our
      Bottle Blowing Teams have a total of 118 employees divided into separate
      blowing and packaging sections.





The teams
operate on rosters in two shifts with 12 hours per shift. The shift arrangement
is designed to fit into Coca-Cola’s shift roster as we have Inline Mode
operations in GENJ.





GEXN





GENJ has
three Bottle Blowing Teams with a total of 64 employees divided into blowing,
electrical engineering and equipment maintenance sections.





The teams
operate on rosters in two shifts with 12 hours per shift. The shift arrangement
is designed to fit into Pepsi’s shift roster as we have Inline Mode operations
in GEXN.





Responsibilities





The
responsibilities of each production team are to:





·
            Structure
      production lines systematically and manage the production
    flow


·
            Plan
      for production schedules and costs associated with consumables and
      parts


·
            Set
      up operational procedures and monitor overall production
      performance


·
            Allocate
      resources effectively so as to achieve operational targets in terms of
      quality control, production volume and
safety


·
            Improve
      production efficiency and minimize
wastage


·
            Communicate
      with management on production related
issues





Reporting





To ensure
efficient production management we have clear reporting channels:





·
            Our
      workers report to team leaders


·
            Our
      team leaders report to department
managers


·
            Our
      department managers report to general
managers




10




We have a
comprehensive reporting system to ensure proper control:





·
            Product report: to
      record product lot number, production date & time, daily production
      volume and types of products.


·
            Shift report: to record
      types of modes, product quality status, any defect findings and any
      problems during production.


·
            Maintenance report: to
      record maintenance call details, reasons for maintenance and respective
      measures or solutions.


·
            Self check report: to
      record check data of 360 degree visual defect check on
      products.


·
            Cleaning report: to
      record details of production line
cleaning.


·
            Training report: to
      record training details, trainee names, date and time of training
      sessions.





OUR
PURCHASING PROCEDURES





The
purchasing departments of GEHZ, GENJ and GEXN each consist of one employee
coordinating all purchasing matters, among which the purchase of PET resin (raw
material for our production) is the top priority. We have special arrangements
with our international customers to ensure stable pricing and a sufficient
supply of PET resin to support our massive production.





GEHZ and
GENJ





Included
in the terms of our supply agreement with Coca-Cola is a list of Coca Cola’s
dedicated PET resin suppliers  that supply PET resin directly to our
GEHZ and GENJ manufacturing facilities.  PET resin cost is directly
borne by Coca-Cola.  Based on our projected production schedule,
Coca–Cola arranges the delivery of PET resin to our manufacturing
facilities.





GEXN





GEXN does
not produce PET CSD preforms, and therefore we purchase PET CSD preforms from
Pepsi’s authorized PET CSD preforms suppliers.





For
general purchases other than PET resin, our purchasing departments normally
obtain three price quotations from three suppliers with similar product quality
in order to determine the most competitive price before we place an order.
Therefore we maintain lists of suppliers for various production and office
supplies.  We perform annual production and office supplies planning
and budgeting.





QUALITY
CONTROL





We have
quality control departments (“QC”) in each of our GEHZ, GENJ and GEXN facilities
to monitor the quality of our products. GEHZ’s QC consists of one manager and 14
technicians. GENJ’s QC consists of one manager and 17 technicians. GEXN’s QC
consists of one manager and seven technicians. The QC manager of each QC reports
directly to the general manager of each facility.





The
responsibilities of a QC are to:





·
            Set
      up quality control procedures


·
            Monitor
      the work flow through statistical
analysis


·
            Improve
      staff quality through training and
examination


·
            Ensure
      that all products meet the quality standards of our
    customers





Each
product has its quality specifications as required by our customers and such
specifications may be modified from time to time.  We are obligated to
meet such requirements.




11





In order
to assure the quality of our products, the QC assigns responsibilities, provides
updated training and suggests improvement proposals to the respective production
staffs. The QC also sets up reporting systems to ensure quality:





·
            Technicians
      report quality related issues to team
leaders


·
            Team
      leaders summarize the issues into simple reports to department managers
      within two hours


·
            Department
      managers analyze and set up preventive procedures based on the quality
      reports.





EQUIPMENT
MAINTENANCE





Equipment
maintenance is an important element of our daily production operation. Our
maintenance teams work closely with our production teams to ensure that the
production equipment is capable of meeting the planned production volume. In
GEHZ, the maintenance team reports directly to the general manager of GEHZ. In
GENJ and GEXN, the maintenance teams are included in the production
teams.





The
responsibilities of equipment maintenance teams are as follows:





·
            Maintain
      all production equipment to cope with daily
  production


·
            Support
      our production teams on equipment failure
issues


·
            Handle
      urgent calls from production teams with respect to any kinds of production
      interruptions associated with production
  equipment


·
            Plan
      and conduct maintenance schedules for production
  equipment


·
            Improve
      maintenance techniques to increase production
  efficiency





Equipment
maintenance teams also conduct planned regular maintenance according to
schedules. This maintenance covers all production equipment, electrical systems
and air compressors. Regular maintenance schedules are conducted on daily,
weekly, monthly, quarterly and yearly bases depending on the degree of
complexity to conduct the maintenance, time required to conduct the maintenance,
production quantity, metal fatigue, staff arrangement and peak
season.  Regular maintenance for each production line consists of the
following:





·
            Daily
      maintenance – 60 minutes


·
            Weekly
      maintenance – 4 hours


·
            Monthly
      maintenance – 8 hours


·
            Yearly
      maintenance is conducted during non peak season for a duration ranging
      from 15 days to 20 days. Yearly maintenance is extremely importance
      because it ensures our operations in peak seasons will not be disrupted by
      any serious equipments failures.





Equipment
maintenance teams also provide training for our engineers and technicians to
enhance their relevant knowledge and skills. The scope of the training provided
includes technical specifications, updates from equipment vendors and internal
staff guidance materials.





SAFETY





We have
established dedicated safety committees (“SC”) in GEHZ, GENJ and GEXN. Each SC
consists of all department managers and the general manager of such facility.
There are quality control managers (“QC managers”) in each facility to provide
guidance and assistance to the SC. The responsibilities of the SC are as
follows:





·
            Conduct
      factory security, environment and hygiene
  inspections.


·
            Educate
      all department staffs on safety.


·
            Identify
      potential hazards and work out preventive measures against those potential
      hazards.


·
            Enforce
      compliance on safety procedures.


·
            Ensure
      that each department reports to the SC on safety related data and
      information in a format determined by the QC
  managers.


·
            Arrange
      regular safety meetings.




12




Each
department has its own specific safety procedures to suit its particular
needs.  However the all departments do the following:





·
            Conduct
      training to staff on occupational health and safety as well as risk
      control.


·
            Assess
      all identified potential hazards and formulate preventive
      measures.


·
            Enforce
      safety procedures.


·
            Conduct
      internal audit / assessment on safety issues on a regular
      basis.





There are
certain safety standards required by our customers. For example, Coca-Cola
requires working conditions of our facilities to be compliance with government
regulations and all applicable environmental laws. There are some costs to us
associated with safety compliance.





SALES AND
MARKETING





We have
one employee serving as a customer services coordinator in each of our GEHZ,
GENJ and GEXN manufacturing facilities.  The customer service
coordinator is responsible for the following:





·
            Meeting
      regularly with customers to plan the production
  schedule


·
            Informing
      the production and purchasing departments of the planned production
      schedule


·
            Arranging
      the delivery schedules of products


·
            Coordinating
      with relevant departments to handle
complaints


·
            Accommodating
      the production schedules of customers and otherwise satisfying their
      requirements





INTELLECTUAL
PROPERTY





We do not
hold, own or license any patents, trademarks or other intellectual
property.





RESEARCH
AND DEVELOPMENT





We do not
incur or pay any costs in relation to research and development in 2008 as our
products are able to satisfy the existing product specifications from our major
customers.





SEASONALITY





Our sales
are subject to seasonality.  In general, we believe our sales will be
higher in the second and third quarters of the year when the weather is hot and
dry and lower in the first and fourth quarters of the year when the weather is
cold and wet.  Sales peak during the months from June to
September.





COMPETITION





There are
a few PET CSD bottle producers that serve international CSD producers and a few
CSD bottlers serving international CSD producers. The demand for high quality
CSD bottles is expected to grow in line with the growth rate of the sales of
international CSD products, which is associated with the strong economic growth
of China.




13





We
believe that our current competitive environment is moderate. There are only two
PET CSD bottles producers that compete with our scale in an environment of high
industry growth rate. According to our customers (Coca-Cola in GENJ / GEHZ and
Pepsi in GEXN), their expected grow rates for 2008 are both at 10% level.
Coca-Cola is the official sponsor of the Beijing Olympic 2008 while Pepsi is the
official sponsor of the World Cup 2010.





Glass
bottles and aluminum cans are common substitutes for PET CSD bottles. We do not,
however believe that glass bottles and aluminum cans would be considered
desirable substitutes for PET CSD bottles by our customers for the following
reasons:





·
            Glass
      bottles and aluminum cans are for typically for low volume CSD packing
      (less than 500ml) while PET bottles are for 500ml up to
      2,500ml.


·
            Glass
      bottles are  heavier in weight and incur high transaction costs
      for delivery compared to PET CSD
bottles.


·
            Aluminum,
      the basic raw material for aluminum cans, has doubled its price in the
      past six years.  Current aluminum price levels  are
      around $3,100/MT which is more expensive than the PET price of around
      $1,250/MT.





We
believe that the threat of the entry of new competitors into our market is low
due to high barriers to entry which include the following:





·
            Production
      facilities have to be set up proximate to customers’ CSD bottling
      facilities. Because of high transaction costs, every PET CSD bottles
      producer has a limited perimeter of serving
  area.


·
            Highly
      specialized and expensive production equipment are designated by
      customers.


·
            International
      CSD producers, for example, Coca-Cola & Pepsi, have strict
      requirements on PET CSD bottles producer;  at this time there
      are only a few PET CSD bottles producers who are qualified and capable of
      serving the international CSD
producers.





Although
customer concentration rate is high in our industry, the switching cost for our
customers to change vendors is also high as there are only a few PET CSD bottle
producers in China qualified to produce high quality PET CSD bottles and PET CSD
preforms to meet international standards. In addition, there is no current
comparable substitute product for PET CSD bottles.





Due to
low level of competitive rivalry threat and substitute products threat, we
believe competition for our industry should continue to be moderate during the
next 3-5 years.





Competitive
factors





PET CSD
bottles producers, which serve international CSD producers and CSD bottlers
serving international CSD producers, mainly compete in terms of price, product
quality, flexibility to complement customers’ production schedule, possession of
customers’ designated production equipment, ability to grow in production
capacity, communication infrastructure and possession of experienced management
team with industry expertise.  The following is a more detailed
description of each of these factors:





Price: Only a few competitors
in the market, who have competitive pricing, can build up their market shares
directly.




Product quality: International
CSD producers and their bottlers require very high quality PET CSD bottles in
order to satisfy their quality standard requirements.




Flexibility to complement customers’
production schedule: For Inline Mode production, producers with more
flexibility to accommodate customers’ production schedule will be to generate
more business due to their ability to assist the customers to produce more
efficiently.




Possession of customers’ designated
production equipment: Production equipment designated by customers tend
to be expensive because of their higher quality and reliability at the product
level. New entrants to the market would have to purchase this designated
production equipment in order to enter the market and existing competitors would
have to be acquire additional equipment with these designated production
specifications in order to expand their production capacities.




14




Ability to grow in production
capacity: International CSD producers are expected to have strong sales
growth rates in China in the coming several years and the ability to grow in
production capacity (in terms of quantity of production, the number of new
production lines or the number of new production facilities).  This
growth potential is vital to the ability to capture this volume growth since
none of the current PET CSD bottles producers in the market can build up more
market shares solely through their existing production lines and
facilities.




Communication infrastructure:
International CSD producers in China consist of multinational expatriates and
local people. The ability to communicate effectively with the management of an
International CSD producer is important especially in dealing with new contracts
or contract renewals.




Possession of experienced management
team with industry expertise: To achieve the very high quality standards
required by international CSD producers, an experienced management team with
industry expertise is required in every production line / facility to plan,
manage and implement strict quality controls.





Major
competitors





We
consider international CSD producers and CSD bottlers serving international CSD
producers to be our target market. There are two major competitors in the China
market competing with us to serve the same market.  They are Zhuhai
Zhongfu Enterprise Co. Ltd. (“Zhongfu”) and Shanghai Zijiang Enterprise Co. Ltd.
(“Zijiang”).





Zhongfu
is a listed company on the Shenzhen Stock Exchange stock symbol 000659.sz.
Zhongfu manufactures and sells PET preforms, PET bottles, and film labels and
has an approximately  $282 million in annual revenue and 934
employees.  Zhongfu has 30 production facilities throughout China
including Shenzhen, Kunshan, Chengdu, Tianjin and Beijing.





Zijiang
is a listed company on the Shanghai Stock Exchange stock symbol 600210.ss.
Zijiang manufactures PET preforms, PET bottles, bottle caps, plastic bags and
other diversified businesses, including real estate and
hotels.  Zijiang has approximately $550 million in annual revenue and
683 employees. Zijiang has production facilities in 15 locations in
China.





Our competitive
advantages





We
believe that our competitive advantages are as follows:





Product quality - We are
qualified to produce higher quality PET CSD bottles and PET CSD preforms. Our
quality control department designs various internal guidelines and procedures to
comply with international CSD producers’ requirements. Our manufacturing
facilities are required to be periodically audited by our international CSD
producer customers for quality and hygiene standards compliance.





Flexibility to complement customers’
production schedule - Our experienced management teams are capable of
fulfilling our international customers’ needs on production planning, production
surge, product switching, equipment maintenance planning and logistics for CSD
bottles production.  Our management teams always work to ensure that
production for our international customers is done in the most efficient way
possible and that no disruptions in production take place





Possession of customers’ designated
production equipments - Serving international CSD producers and their
bottlers requires high quality standards compared to local CSD producers. All of
our production machines for PET CSD bottles and PET CSD preforms are customers
designated production equipment that can ensure high product quality with high
degree of reliability. Our existing designated production equipment (including
the molds for our customers’ respective tailor-made CSD bottles) adequately
fulfill our customers’ production requirements. The pricing of this designated
production equipment is much higher than that of the substitute machinery
produced locally and is normally not accessible by PET CSD bottle producers not
serving international customers.




15





Experienced management team with
industry expertise - Our local management teams have been serving us for
more than 5 to 10 years. Compared to our major competitors, whose management
teams are either recruited recently or new to the business in light of the rapid
geographical expansion in certain locations, our management teams are more
experienced in the PET CSD bottles business.





At
present, our major competitors are listed companies with stronger ability to
arrange for both external and internal resources.  In terms of the
ability to grow in production capacity, we believe that we may be at a
competitive disadvantage to our major competitors because we believe that the
relative costs of an internal or external financing would be higher than that of
our major competitors.





Pricing
is also one of the competitive factors in the industry.  Our
flexibility on pricing is less competitive to our major competitors due to their
stronger financial strength as listed companies.





REGULATION





Our
company has a policy to comply with all applicable laws and regulations not only
in China but also all countries throughout the world in which we do
business.





The
production in China of our company’s products is generally subject to
environmental protection regulations that require all manufacturing industries
to adopt measures to control the disposal of industrial waste, industrial
manufacturing licensing and company licensing laws that regulate the business
scope of companies, taxation laws that require income tax payable to the Chinese
government, and labor laws that restrict maximum work-hours.





Environmental
Protection Regulations





The
Environmental Protection Law of China has been developed and implemented by the
Ministry of Environment Protection (the “Ministry”).  Since 1984, the
Chinese government has attempted to mitigate its pollution problem amid the
industrialization process. The Ministry has set up subsidiary bureaus throughout
all provinces of China to implement fast-improving measures for environmental
protection. In particular, companies are required to adopt measures to control
pollution engendered by industrial waste, noise, radiation, and vibration. All
companies are required to report to the bureau in their county about the status
of pollutants and the measures adopted to deal with the pollutants. Penalty fees
are levied on companies whose pollutant discharge levels exceed the standards
set by the Ministry. The Ministry also often issues warning notices and fines,
and may mandate temporary suspension of production for installation of pollution
control facilities. In serious cases where the pollution causes physical or
personal damage, the Ministry may impose sanctions, demand compensation to
victims, coerce permanent termination of companies, or sue company owners for
criminal liability.





Our
Company only paid some minimal administrative costs with respect to submitting
environmental reports and other related documents to the Ministry of Environment
Protection in accordance with environmental laws in China. No other substantial
cost was paid relating to compliance with environmental protection laws in
China.





Company
Laws and Regulations





The
Chinese government has promulgated company laws and regulations through its
State Administration for Industry and Commerce. To operate a business in China,
a company has to apply for business and production licenses at the Enterprise
Registration Bureau and/or the Registration Bureau of Foreign-Invested
Enterprise. Such various licenses have to be obtained for companies
manufacturing important industrial products such as plastic bottles and
containers. Application for production licenses requires official tests and
inspections by the government be passed, and maintenance of the licenses require
subsequent regular periodic inspections. Production and product quality is also
monitored by government, through the General Administration of Quality
Supervision, Inspection, and Quarantine of PRC.





Corporate
Income Taxation





Income
taxes chargeable to companies in China may differ across industries and location
due to differences in preferential tax treatment or subsidies. In general, the
corporate income tax rate has a ceiling of 33%, but foreign-invested companies
shall enjoy preferential rates: full tax exemption applies to the first two
years when the company records profits, and thereafter there is a 50% tax
exemption for the subsequent third to fifth years. Our company belongs to this
foreign-invested category, hence our present and future subsidiaries shall enjoy
the same tax concessions.




16





Labor
Laws





According
to Chinese Labor Law, the maximum work hours for a labor are 40 hours per week.
Owing to the seasonality factor, the PET CSD bottle production industry has peak
and non-peak seasons throughout the year. During peak seasons, our employees may
have to work for more than 40 hours per week; but during non-peak seasons, our
employees may have to work for less than 40 hours per week. We have therefore
applied for and have been granted approvals from relevant government authorities
to count the work hours for a labor on yearly basis instead of weekly basis. As
a result, we have not violated the maximum work-hour requirement, but at the
same time have greatly improved flexibility of our labor force in coping with
the seasonality problem.




Employees





As of
April, 2009, the Company had 458 employees.





The
following table summarizes the employees of Citysky, GEHZ, GENJ,
GEXN.





Department
            Citysky
            GEHZ
            GENJ
            GEXN
            TotalCEO
            1
            -
            -
            -
            1COO
            1
            -
            -
            -
            1CFO
            1
            -
            -
            -
            1General
      manager
            -
            1
            1
            1
            3Human
      resources and administration
            -
            24
            14
            10
            48Storage
      and transportation
            -
            27
            32
            33
            92Quality
      control
            -
            15
            18
            8
            41Equipment
      maintenance
            -
            13
            -
            -
            13Bottle
      Blowing
            -
            60
            73
            68
            201Preforms
      Production
            -
            24
            18
            -
            42Sales
      & Marketing
            -
            1
            1
            1
            3Purchasing
            -
            1
            1
            -
            2Finance
            -
            3
            4
            3
            10Total
            3
            169
            162
            124
            458




Item
      1A.
            Risk
      Factors





Risks Related to Our
Business





Our
expansion strategy may not be proven successful.





One of
our key strategies to grow our business is to aggressively expand our production
capacity. We will need to engage in various forms of capacity expansion
activities at corporate level, and of production activities at operational level
in order to carry out our plans. Therefore, the Company’s proposed operations
are subject to all of the risks inherent in the unforeseen costs and expenses,
challenges, complications and delays frequently encountered in connection with
the formation of any new business, as well as those risks that are specific to
the bottled water industry in general. Despite our best efforts, we may never
overcome these obstacles to financial success. There can be no assurance that
the Company’s efforts will be successful or result in revenue or profit, or that
investors will not lose their entire investment.




17





Our
results of operations may fluctuate due to seasonality.





Our sales
are subject to seasonality. For example, we typically experience higher sales of
bottled water in summer time in coastal cities while the sales remain constant
through out the entire year in some inland cities. In general, we believe our
sales will be higher in the second and third quarters of the year when the
weather is hot and dry, and lower in the fourth and first quarters of the year
when the weather is cold and wet. Sales peak during the months from June to
September. Sales can also fluctuate during the course of a financial year for a
number of other reasons, including weather conditions and the timing of
advertising and promotional campaigns. As a result of these reasons, our
operating results may fluctuate. In addition, the seasonality of our results may
be affected by other unforeseen circumstances, such as production interruptions.
Due to these fluctuations, comparison of sales and operating results between the
same periods within a single year, or between different periods in different
financial years, are not necessarily meaningful and should not be relied on as
indicators of our performance.





Increases
in raw material prices that we are not able to pass on to our some of our
customers would reduce our profit margins





The
principal raw materials we use in our production, is subject to a high degree of
price volatility caused by external conditions like price fluctuations of PET
raw materials-the byproducts of oil, which account for a significant portion of
our product cost. We cannot guarantee that the price we pay for our raw
materials will be stable in the future. Price changes to our raw materials may
result in unexpected increases in production, packaging and distribution costs,
and we may be unable to increase the prices of our final products to offset
these increased costs to some of our customers for instance, Pepsi, and
therefore may suffer a reduction to our profit margins. We do not currently
hedge against changes in our raw material prices.





We
face increasing competition from both domestic and foreign companies, which may
affect our market share and profit margin.





The PET
bottles industry in China is highly competitive, and we expect it to continue to
become even more competitive. Our ability to compete against these enterprises
is, to a significant extent, dependent on our ability to distinguish our
products from those of our competitor by providing high quality products at
reasonable prices that appeal to consumers. Some of our competitors may have
been in business longer than we have, may have substantially greater financial
and other resources than we have and may be better established in their markets.
Our competitors in any particular market may also benefit from raw material
sources or production facilities that are closer to such markets, which provide
them with competitive advantages in terms of costs and proximity to
consumers.




18





We cannot
assure you that our current or potential competitors will not provide products
comparable or superior to those we provide or adapt more quickly than we do to
evolving industry trends or changing market requirements. It is also possible
that there will be significant consolidation in the PET bottle industry among
our competitors, alliances may develop among competitors and these alliances may
rapidly acquire significant market share. Furthermore, competition may lead
competitors to substantially increase their advertising expenditures and
promotional activities or to engage in irrational or predatory pricing behavior.
We also cannot assure you that third parties will not actively engage in
activities, whether legal or illegal, designed to undermine our brand name and
product quality or to influence consumer confidence in our product. Increased
competition may result in price reductions, reduced margins and loss of market
share, any of which could materially adversely affect our profit margin. We
cannot assure you that we will be able to compete effectively against current
and future competitors.





Our
inability to diversify our operations may subject us to economic fluctuations
within our industry.





Our
limited financial resources reduce the likelihood that we will be able to
diversify our operations. Our probable inability to diversify our activities
into more than one business area will subject us to economic fluctuations within
the bottled water industry and therefore increase the risks associated with our
operations.





We
are subject to environmental laws and regulations in the PRC. Changes in the
existing laws and regulations or additional or stricter laws and regulations on
environmental protection in China may cause us to incur significant capital
expenditures, and we cannot assure that we will be able to comply with any such
laws and regulations.





We carry
on our business in an industry that is subject to PRC environmental protection
laws and regulations. These laws and regulations require enterprises engaged in
manufacturing and construction that may cause environmental waste to adopt
effective measures to control and properly dispose of waste gases, waste water,
industrial waste, dust and other environmental waste materials, as well as fee
payments from producers discharging waste substances. Fines may be levied
against producers causing pollution. If failure to comply with such laws or
regulations results in environmental pollution, the administrative department
for environmental protection can levy fines. If the circumstances of the breach
are serious, it is at the discretion of the central government of the PRC
including all governmental subdivisions to cease or close any operation failing
to comply with such laws or regulations. There can also be no assurance that
operation will fail to comply with such laws or regulations. There can also be
no assurance that the PRC government will not change the exiting laws or
regulations or impose additional or stricter laws or regulations, compliance
with which may cause us to incur significant capital expenditure, which we may
be unable to pass on to our customers through higher prices for our products. In
addition, we cannot assure that we will be able to comply with any such laws and
regulations.




19





We
depend on a few key customers, the loss of any of which could cause a
significant decline in our revenues.





Coca-Cola
and Pepsi accounted for 79%
and 21%, respectively, of
our net revenue in 2008 and 80% and 20%, respectively, of our net
revenue in 2007.  The loss of either of these customers or a
significant reduction in sales to either of these customers would materially
adversely affect our profitability.





Supplying
PET bottles to beverage and service companies constitutes a major portion of our
revenue. Any delays in delivery may affect our sales, damage our long-term
relationship with our client, and even incur penalty.





Sales
made to beverage and service companies account for a large portion of our total
sales. Recently, our production capacity is at more than 95%. If we failed in
deliver the goods to those companies on time, we may run into a risk of damaging
our long-term relationship with the client.





We
may not successfully manage our growth.





Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and administrative, operational, and financial resources. To manage
this growth, we must expand our facilities, augment our operational, financial
and management systems, and hire and train additional qualified personnel. If we
are unable to manage our growth effectively, our business would be
harmed.





We
may experience material disruptions to our manufacturing operation.





We
operate our facilities in compliance with applicable rules and regulations and
take measures to minimize the risks of disruption at our
facilities.  A material disruption at one of our manufacturing
facilities could prevent us from meeting customer demand, reduce our sales
and/or negatively impact our financial results.  Any of our
manufacturing facilities, or any of our machines within an otherwise operational
facility, could cease operations unexpectedly due to a number of events
including:





·
            unscheduled
      maintenance outages;


·
            prolonged
      power failures;


·
            an
      equipment failure;


·
            disruptions
      in the transportation infrastructure, including roads, bridges and
      railroad tracks;


·
            fires,
      floods, earthquakes or other catastrophes;
and


·
            other
      operational problems




20




We
rely on key executive officers. Their knowledge of our business and technical
expertise would be difficult to replace.





We were
founded in 1994 by Mr. GuyA-Tsan Chung.  Since
then, Mr. Stetson Chung, the son of Guy A-Tsan Chung and our highly experienced
senior management team has developed us into a large scale PET bottle production
company. Stetson Chung, together with other senior management, has been the key
driver of our strategy and has been fundamental to our achievements to date. The
successful management of our business is, to a considerable extent, dependent on
the services of Stetson Chung and other senior management. The loss of the
services of any key management employee or failure to recruit a suitable or
comparable replacement could have a significant impact upon our ability to
manage our business effectively and our business and future growth may be
adversely affected.





The
ownership of our common stock is concentrated and one stockholder is able to
exercise significant influence over all matters requiring stockholder
approval.





Guy
A-Tsan Chung currently owns 74.25% of our outstanding common stock. As a result,
Guy A-Tsan Chung will be able to continue to exercise significant influence over
all matters requiring stockholder approval, including the election of directors
and approval of mergers, acquisitions and other significant corporate
transactions. In addition, this concentration of stock ownership may have the
effect of delaying or preventing a change in control of our
Company.





We are subject to the reporting
requirements of federal securities laws, which can be expensive.





We are a
public reporting company in the U.S. and, accordingly, subject to the
information and reporting requirements of the Exchange Act and other federal
securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The
costs of preparing and filing annual and quarterly reports, proxy statements and
other information with the SEC and furnishing audited reports to stockholders
will cause our expenses to be higher than they would be if we remained a
privately-held company.





Our
compliance with the Sarbanes-Oxley Act and SEC rules concerning internal
controls may be time consuming, difficult and costly.





It may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by
Sarbanes-Oxley.  We may need to hire additional financial reporting,
internal controls and other finance staff in order to develop and implement
appropriate internal controls and reporting procedures. If we are unable to
comply with Sarbanes-Oxley’s internal controls requirements, we may not be able
to obtain the independent accountant certifications that Sarbanes-Oxley Act
requires publicly-traded companies to obtain.





There
is not now, and there may not ever be, an active market for our common
stock.





There
currently is no market for our common stock. Further, although our common stock
may be quoted on the OTC Bulletin Board, trading of our common stock may be
extremely sporadic. For example, several days may pass before any shares may be
traded. There can be no assurance that a more active market for the common stock
will develop.




21





Because
we became public by means of a “reverse merger”, we may not be able to attract
the attention of major brokerage firms.





Additional
risks may exist since we will become public through a “reverse merger.”
Securities analysts of major brokerage firms may not provide coverage of us
since there is little incentive to brokerage firms to recommend the purchase of
our common stock. No assurance can be given that brokerage firms will want to
conduct any secondary offerings on behalf of our company in the
future.





We
cannot assure you that the common stock will become liquid or that it will be
listed on a securities exchange.





We plan
to list our common stock on the American Stock Exchange or the NASDAQ Capital
Market as soon as practicable. However, we cannot assure you that we will be
able to meet the initial listing standards of either of those or of any other
stock exchange, or that it will be able to maintain any such listing. Until the
common stock is listed on an exchange, we expect that it would be eligible to be
quoted on the OTC Bulletin Board, another over-the-counter quotation system, or
in the “pink sheets.” In those venues, however, an investor may find it
difficult to obtain accurate quotations as to the market value of the common
stock. In addition, if we failed to meet the criteria set forth in SEC
regulations, various requirements would be imposed by law on broker-dealers who
sell our securities to persons other than established customers and accredited
investors. Consequently, such regulations may deter broker-dealers from
recommending or selling the common stock, which may further affect its
liquidity. This would also make it more difficult for us to raise additional
capital.





There
may be issuances of shares of preferred stock in the future.





Although
we currently do not have preferred shares outstanding, the board of directors
could authorize the issuance of a series of preferred stock that would grant
holders preferred rights to our assets upon liquidation, the right to receive
dividends before dividends would be declared to common stockholders, and the
right to the redemption of such shares, possibly together with a premium, prior
to the redemption of the common stock. To the extent that we do issue preferred
stock, the rights of holders of common stock could be impaired thereby,
including without limitation, with respect to liquidation.





We
have never paid dividends.





We have
never paid cash dividends on our common stock and do not anticipate paying any
for the foreseeable future.





Our
common stock is considered a “penny stock.”





The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. The market price of our common stock is less than $5.00 per
share and therefore is a “penny stock.” Broker and dealers effecting
transactions in “penny stock” must disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may
restrict the ability of brokers or dealers to sell our common stock and may
affect your ability to sell shares. In addition, if our common stock is quoted
on the OTC Bulletin Board as anticipated, investors may find it difficult to
obtain accurate quotations of the stock, and may find few buyers to purchase
such stock and few market makers to support its price.




22





Risks relating to doing
business in China





Substantially
all of our business assets are located in China, and substantially all of our
sales is derived from China. Accordingly, our results of operations, financial
position and prospects are subject to a significant degree to the economic,
political and legal development in China.





We
derive a substantial portion of ours sales from China





Substantially
all of our sales are generated from China. We anticipated that sales of our
products in China will continue to represent a substantial proportion of our
total sales in the near future. Any significant decline in the condition of the
PRC economy could adversely affect consumer buying power and reduce consumption
of our products, among other things, which in turn would have a material adverse
effect on our business and financial condition.





Our
ability to implement our planned development is dependent on many factors,
including the ability to receive various governmental permits.





In
accordance with PRC laws and regulations, we are required to maintain various
licenses and permits in order to operate our business at each of our production
facilities including, without limitation, hygiene permits and industrial
products production permits. We are required to comply with applicable hygiene
and food safety standards in relation to our production processes. Failure to
pass these inspections, or the loss of or suspend some or all of our production
activities, could disrupt our operations and adversely affect our
business.





The
Company faces the risk that changes in the policies of the Chinese government
could have a significant impact upon our ability to sustain our growth and
expansion strategies.





Since
1978, the PRC government has promulgated various reforms of its economic system
and government structure. These reforms have resulted in significant economic
growth and social progress for China in the last two decades. Many of the
reforms are unprecedented or experimental, and such reforms are expected to be
modified from time to time. Although we can not predict whether changes in
China’s political, economic and social conditions, laws, regulations and
policies will have any materially adverse effect on our current or future
business, results of operation or financial condition.




23





Our
ability to continue to expand our business is dependent on a number of factors,
including general economic and capital market conditions in China and credit
availability from banks and other lenders in China. Recently, the PRC government
has implemented various measures to control the rate of economic growth and
tighten its monetary policies. Slower economic growth rate may in turn have an
adverse effect on our ability to sustain the growth rate we have historically
achieved due to the aggregate market demand for consumer goods like bottled
water.





Fluctuation
in the value of the RMB may have a material adverse effect on your
investment.





The value
of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic
conditions.  Our revenues and costs are mostly denominated in
RMB.  Any significant fluctuation in value of RMB may materially and
adversely affect our cash flows, revenues, earnings and financial position, and
the value of our stock in U.S. dollars.  For example, an appreciation
of RMB against the U.S. dollar would make any new RMB denominated investments or
expenditures more costly to us, to the extent that we need to convert U.S.
dollars into RMB for such purposes.  In addition, the depreciation of
significant U.S. dollar denominated assets could result in a charge to our
income statement and a reduction in the value of these assets.





We
must comply with the Foreign Corrupt Practices Act.





We are
required to comply with the United States Foreign Corrupt Practices Act, which
prohibits U.S. companies from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining
business.  Foreign companies, including some of our competitors, are
not subject to these prohibitions.  Corruption, extortion, bribery,
pay-offs, theft and other fraudulent practices occur from time-to-time in
mainland China.  If our competitors engage in these practices, they
may receive preferential treatment from personnel of some companies, giving our
competitors an advantage in securing business or from government officials who
might give them priority in obtaining new licenses, which would put us at a
disadvantage.  Although we inform our personnel that such practices
are illegal, we can not assure you that our employees or other agents will not
engage in such conduct for which we might be held responsible.  If our
employees or other agents are found to have engaged in such practices, we could
suffer severe penalties.





Failure
to comply with the State Administration of
Foreign Exchange regulations relating to the establishment of offshore special
purpose companies by PRC residents may adversely affect our business
operations.





On
October 21, 2005, the State Administration of Foreign Exchange issued a new
public notice which became effective on November 1, 2005. The notice requires
PRC residents to register with the local State Administration of Foreign
Exchange branch before establishing or controlling any company, referred to in
the notice as a “special purpose offshore company”, outside of China for the
purpose of capital financing. PRC residents who are shareholders of a special
purpose offshore company established before November 1, 2005 were required to
register with the local State Administration of Foreign Exchange Branch. Our
beneficial owners need to comply with the relevant the State Administration of
Foreign Exchange requirements in all material respects in connection with our
investments and financing activities. If such beneficial owners fail to comply
with the relevant the State Administration of Foreign Exchange requirements,
such failure may subject the beneficial owners to fines and legal sanctions and
may also adversely affect our business operations.




24





Because
our assets and operations are located outside the United States and a majority
of our officers and directors are non-United States citizens living outside of
the United States, investors may experience difficulties in attempting to
enforce judgments based upon United States federal securities laws against us
and our directors. United States laws and/or judgments might not be enforced
against us in foreign jurisdictions.





All of
our operations are conducted through a subsidiary corporation organized and
located outside of the United States, and all the assets of our subsidiary are
located outside the United States. In addition, all of our officers and
directors are foreign citizens. As a result, it may be difficult or impossible
for U.S. investors to enforce judgments made by U.S. courts for civil
liabilities against our operating entities or against any of our individual
directors or officers. In addition, U. S. investors should not assume that
courts in the countries in which our subsidiary is incorporated or where the
assets of our subsidiary are located (i) would enforce judgments of U.S. courts
obtained in actions against us or our subsidiary based upon the civil liability
provisions of applicable U.S. federal and state securities laws or (ii) would
enforce, in original actions, liabilities against us or our subsidiary based
upon these laws.





The
legal system in China has inherent uncertainties that may limit the legal
protections available in the event of any claims or disputes with third
parties.





The legal
system in China is based on written statutes. Prior court decisions may be cited
for reference but have limited precedential value. Since 1979, the central
government has promulgated laws and regulations dealing with economic matters
such as foreign investment, corporate organization and governance, commerce,
taxation and trade. As China’s foreign investment laws and regulations are
relatively new and the legal system is still evolving, the interpretation of
many laws, regulations and rules is not always uniform and enforcement of these
laws, regulations and rules involve uncertainties, which may limit the remedies
available in the event of any claims or disputes with third parties. In
addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention.





The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.





We are
dependent on our relationship with the local government in the province in which
we operate our business.  Chinese government has exercised and
continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership.  Our ability
to operate in China may be harmed by changes in its laws and regulations,
including those relating to taxation, environmental regulations, land use
rights, property and other matters.  We believe that our operations in
China are in material compliance with all applicable legal and regulatory
requirements. However, the central or local governments of these jurisdictions
may impose new, stricter regulations or interpretations of existing regulations
that would require additional expenditures and efforts on our part to ensure our
compliance with such regulations or interpretations.  Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties.




25





We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.





The PRC
historically has been deficient in Western style management and financial
reporting concepts and practices, as well as in modern banking, computer and
other control systems. We may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in the PRC. As a result of
these factors, we may experience difficulty in establishing management, legal
and financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet Western standards.





The
outbreak of any severe contagious diseases in China, if uncontrolled, could
adversely affect our results of operations.





The
outbreak of any server communicable disease in China, if uncontrolled, could
adversely affect the overall business sentiments and environment in China, which
in turn may lead to slower overall gross domestic product growth in China. As
our sales are currently derived from our Chinese operations, any contraction or
slow down in the growth of the gross domestic product of China may adversely
affect our financial condition, results of operations and future growth. In
addition, if any of our employees are infected or affected by any severe
communicable diseases outbreak, it could adversely affect or disrupt our
production at the relevant production facility and adversely affect our business
operations as we may be required to close our production facilities to prevent
the spread of the disease. The spread of any severe communicable disease in
China may also affect the operations of our distributors and suppliers, causing
delivery disruptions which could in turn adversely affect our operating results
and share price.





Our
production operations and capacity are likely to be adversely affected by the
earthquake in Xian that occurred in the middle of 2008 .





An
earthquake occurred in Xian, China in the middle of 2008.  The
earthquake could adversely affect GEXN production operations and capacity. It is
likely to take time to recover GEXN’s production operations and capacity
..




Item
      1B.
            Unresolved
      Staff Comments




Not
Applicable.




26




Item
      2.
            Properties




The
following table summarizes the real properties owned by Citysky.





Item
            Locations
      and addresses
            Areas1
            No.
      1 Road, Economic & Technological Development Zone, Jiubao Jianggan
      District, Hangzhou, China
            163,977
      square feet2
            16
      Nanjing New & High Technology Industry Development Zone, Nanjing
      Jiangsu Province, China
            133,515
      square feet





The land
use rights of item 1 and item 2 will expire on March 16, 2049 and July 21, 2053,
respectively.





The
following properties are leased by Citysky:


Item
            
            Locations
      and addresses
            
            Areas
            
            Rent
            
            Leasing
      period until
            
            Owner1
            
            No.
      36 Development Road, New Type Industrial Garden High-tech Industrial
      Develop Zone, Xian, China
            
            10,764
      square feet
            
            $1,428
      per month
            
            Oct.
      21, 2009
            
            Xian
      Pepsi2
            
            North-east
      corner of Development Road and Chuanghui Road, New Type Industrial Garden
      High-Tech Industrial Development Zone, Xian China
            
            40,545
      square feet
            
            $5,919
      per month
            
            June
      1, 2011
            
            Xian
      Yongxin Huanbao Equipment Co. Ltd.3
            
            No.
      8 Gaoxin Road, Nanjing New & High Technology Industry Development
      Zone, Nanjing Jiangsu Province, China
            
            69,965
      square feet
            
            $7,142
      per month
            
            Dec.
      31, 2008
            
            Nanjing
      Kingbrand Property Management Co.
Ltd.







Item
      3.
            Legal
      Proceedings





To the
knowledge of our management, there is no litigation currently pending or
contemplated against us or any of our officers or directors in their capacity as
such.




Item
      4.
            Submission
      of Matters to a Vote of Security
Holders




During
the fourth quarter of our fiscal year ended December 31, 2008, there were no
matters submitted to a vote of security holders.




27




PART
II




Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities




Our
common stock has been traded on the Over the Counter Bulletin Board (OTCBB)
under the symbol “GEBD,” since May 22, 2008.  The following table sets
forth the high and low bid information for our common stock from the
commencement of trading on May 22, 2008 through March 31, 2009 as reported by
OTCBB.


Period
            
            Low
      ($)
            
            
            High
      ($)2009
              First
      Quarter
            
            $
            0.25
            
            
            $
            1.012008
              Fourth
      Quarter
            
            $
            1.01
            
            
            $
            3.752008
              Third
      Quarter
            
            $
            1.50
            
            
            $
            3.492008
              Second
      Quarter (Beginning May 22, 2008) (1)(2)
            
            $
            2.25
            
            
            $
            2.652008
              First
      Quarter (1)
            
            
            N/A
            
            
            
            N/A2007
              Fourth
      Quarter (1)
            
            
            N/A
            
            
            
            N/A2007
              Third
      Quarter (1)
            
            
            N/A
            
            
            
            N/A2007
              Second
      Quarter (1)
            
            
            N/A
            
            
            
            N/A




(1) Our
common stock commenced trading on May 22, 2008.


(2) On
April 16, 2008, our board of directors approved a 1-for-5 forward stock split
(the “Forward Split”) of our common stock. The record date for the Forward Stock
split was April 26, 2008.  Pursuant to the Forward Split, every one
(1) share of our then  issued and outstanding Common Stock was
reclassified and divided into five (5) post-split shares of our Common
Stock.  The post-split shares began trading on the OTC Bulletin Board
on May 22, 2008.





Number
of Holders of Common Stock




The
number of holders of record of our common stock on April 22, 2009 was
63.




28




Dividends




There
were no cash dividends or other cash distributions made by us during the fiscal
year ended December 31, 2007 or the fiscal year ended December 31, 2008.
The payment of dividends in the future will be contingent upon our revenues and
earnings, if any, capital requirements and general financial
condition.  The payment of any dividends is within the discretion of
our  board of directors. It is the present intention of our board of
directors to retain all earnings, if any, for use in our business operations
and, accordingly, our board does not anticipate declaring any dividends in the
foreseeable future.




Recent
Sales of Unregistered Securities and Use of Proceeds





On March
10, 2008, we entered into a Share Exchange Agreement with Citysky Investment
Holdings, Inc, a British Virgin Islands company and Guy A-Tsan Chung, the sole
shareholder of Citysky to acquire 100% of the outstanding equity of Citysky from
the Shareholder in consideration for 6,492,000 shares of our common
stock.  The Share Exchange was consummated on March 10,
2008.  The shares of Common Stock were issued pursuant to Regulation S
in a transaction that was exempt from registration under the Securities Act of
1933, as amended.




Repurchases
of Equity Securities




None.




Equity
Compensation Plan Information




None.




Item
      6.
            Selected
      Financial Data




As a
smaller reporting company, we are not required to include this information in
our annual report on Form 10-K.




Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





Note
regarding forward–looking
statements





Thisannualreport containsforward-looking statements within the
meaning of the federal securities laws. These include statements about our
expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the
Company believes" "management believes" and similar language. The
forward-looking statements are based on the current expectations of the Company
and are subject to certain risks, uncertainties and assumptions,
including those set forth in the discussion
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in this report. The actual results may differ materially from
results anticipated in these forward-looking statements. We basethe forward-looking statements on
information currently available to us, and we assume no obligation to update
them.




29





Investors are also advised to refer to
the information in our filings with the Securities and Exchange Commission,
specifically Forms 10-K,
10-Q and 8-K, in which we discuss in more detail various important factors that
could cause actual results to differ from expected or historic results. It is
not possible to foresee or identify all such factors. As such, investors should
not consider any list of such factors to be an
exhaustive statement of all risks and uncertainties or potentially inaccurate
assumptions.





Except as otherwise indicated by the
context, references in this Form 10-Kto ““we,”“us,”“our,”“the Registrant”, “our Company,”or “the Company”are to Great East Bottles and Drinks (China) Holdings,
Inc., a Florida corporation and its consolidated subsidiaries. Unless the
context otherwise requires, all references to (i) “BVI”are to British Virgin Islands; (ii)
“PRC”and “China”are to the People’s Republic of China; (iii) “U.S. dollar,”“$”and “US$”are to United States dollars; (iv)
“RMB”are to Yuan Renminbi of China; (v)
“Securities
Act”are to the Securities
Act of 1933, as amended; and (vi) “Exchange Act”are to the Securities Exchange Act of 1934, as
amended.





Critical
Accounting Policies and Estimates





Our financial statements and related
public financial information are based on the application of accounting
principles generally accepted in the United States ("US GAAP").US GAAP requires the use of estimates;
assumptions, judgments and subjective interpretations of accounting principles
that have an impact on the assets, liabilities, revenues and expenses amounts
reported. These estimates can also affect supplemental information contained in our external
disclosures including information regarding contingencies, risk and financial
condition. We believe our use of estimates and underlying accounting assumptions
adhere to GAAP and are consistently and conservatively applied.We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ materially from these
estimates under different assumptions or conditions. We continue to
monitor significant estimates made during
the preparation of our financial statements.





We believe the following is among the
most critical accounting policies that impact our consolidated financial
statements. We suggest that our significant accounting policies, as described in our consolidated
financial statements in the Summary of Significant Accounting Policies, be read
in conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations.





We recognize revenue inaccordance with Staff Accounting
Bulletin ("SAB") No. 104. All of the following criteria must exist in order for
us to recognize revenue:





1. Persuasive evidence of an arrangement
exists;


2. Delivery has
occurred;


3. The seller's price to the buyer is
fixed or determinable;
and


4. Collectability is reasonably
assured.




30




The majority of the Company's revenue
results from sales contracts with direct customers and revenues are generated
upon the shipment of goods. The Company's pricing structure is fixed
and there are no rebate or
discount programs. Management conducts credit background checks for new
customers as a means to reduce the subjectivity of assuring collectability.
Based on these factors, the Company believes that it can apply the provisions ofSAB 104 with minimal
subjectivity.





Recent
Accounting Pronouncements





The Company does not expect that the
adoption of any recent accounting pronouncements will have any material impact
on its financial statements.





Results of
Operations–Three
Months EndedDecember
31, 2008 as
Compared to Three Months EndedDecember31,
2007





The following table summarizes the
results of our operations during the three-month period endedDecember31, 2008 and 2007, and provides
information regarding the dollar and percentage increase or (decrease) from the
three-month period endedDecember31, 2008 to the three-month period endedDecember31, 2007.





Three months ended Dec
      31,
            
            
            (Decrease)/
            
            
            (%Decrease)2008
            
            
            2007
            
            
            Increase
            
            
            % IncreaseRevenue
            
            $
            6,368,010
            
            
            $
            4,133,828
            
            
            $
            2,234,182
            
            
            
            54.0
            %Cost of
    sales
            
            
            5,300,420
            
            
            
            2,954,273
            
            
            
            2,346,147
            
            
            
            79.4
            %Gross
profit
            
            
            1,067,590
            
            
            
            1,179,555
            
            
            
            (111,965
            )
            
            
            (9.5
            %)General &
      administrative
            
            
            513,548
            
            
            
            276,453
            
            
            
            237,095
            
            
            
            85.8
            %Sales&
    marketing
            
            
            82,775
            
            
            
            15,667
            
            
            
            67,108
            
            
            
            428.3
            %Income from
      operations
            
            
            471,267
            
            
            
            887,435
            
            
            
            (416,168
            )
            
            
            (46.9
            %)Other income
      (expense)
            
            
            (119,709
            )
            
            
            199,754
            
            
            
            (319,463
            )
            
            
            (159.9
            %)Provision for
      taxation
            
            
            61,711
            
            
            
            195,596
            
            
            
            (133,885
            )
            
            
            (68.4
            %)Minority
      interests
            
            
            1,007
            
            
            
            7,226
            
            
            
            (6,219
            )
            
            
            (86.1
            %)Discontinued
      operations
            
            
            -
            
            
            
            9,968
            
            
            
            9,968
            
            
            
            (100
            %)Net income
            
            
            288,840
            
            
            
            874,399
            
            
            
            (585,559
            )
            
            
            (67.0
            %)





Revenues





Sales revenue increasedfrom $4,133,828in thelastquarter of 2007 to $6,368,010in the same period in 2008,
representing a54.0% increase. The increase in revenue was
mainly due to the increase in demand of PET bottles from Coca–Cola and Pepsi, which are our major
customers.




31





Cost of sales and gross
margin





Cost of sales increased from
$2,954,273in thelastquarter of 2007 to $5,300,420in the same period in 2008,
representing a79.42% increase. The increase was due to the
increase in sales in thelastquarter of 2008 as compared to the same period last year. We
recorded a gross margin of16.8% in thelastquarter of 2008, adecrease of nearly11.7% as compared to 28.5% in the same period last year. Thedecrease was mainly due to the increase in
productioncosts, which lowered thegross profits.





Sales and marketing





Sales and marketing expenses increased
by $67,108or428.3% from $15,667inlastquarter 2007 to $82,775in the same period 2008. The increase
was mainly due to the increase inselling expenses.





General and administrative





General and administrative expenses
increased from $276,453in thelastquarter of 2007 to $513,548for the same period 2008, representing
aincrease of $237,095or85.8%. Theincrease was mainly a result ofincrease in staff costs,
including socialinsurancecosts for staff.




Net income





Net income for thelastquarter ended 2008 was $288,840as compared to $874,399in the same period 2007. The materialdecreasewas mainly attributable to the increase
in selling
expendituresand staff costsduring the period.





Results of
Operations–TwelveMonths
EndedDecember31, 2008 as
Compared toTwelveMonths
EndedDecember31,
2007





The following table summarizes the
results of our operations during thetwelve-month period endedDecember31, 2008 and 2007, and provides information regarding
the dollar and percentage increase or (decrease) from thetwelve-month period endedDecember31, 2008 to thetwelve-month period endedDecember31, 2007.





Twelvemonths endedDecember31,2008
            
            
            2007
            
            
            Increase
            
            
            % IncreaseRevenue
            
            $
            30,502,327
            
            
            $
            24,410,570
            
            
            $
            6,091,757
            
            
            
            24.96
            %Cost of
    sales
            
            
            23,612,335
            
            
            
            18,950,517
            
            
            
            4,661,818
            
            
            
            24.60
            %Gross
profit
            
            
            6,889,992
            
            
            
            5,460,053
            
            
            
            1,429,939
            
            
            
            26.2
            %General &
      administrative
            
            
            1,717,013
            
            
            
            1,430,781
            
            
            
            286,232
            
            
            
            20.0
            %Sales &
      marketing
            
            
            120,786
            
            
            
            52,343
            
            
            
            68,443
            
            
            
            130.8
            %Income from
      operations
            
            
            5,052,193
            
            
            
            3,976,929
            
            
            
            1,075,264
            
            
            
            27.0
            %Other income
      (expense)
            
            
            (559,207
            )
            
            
            (180,257
            )
            
            
            (378,950
            )
            
            
            210.2
            %Provision for
      taxation
            
            
            948,949
            
            
            
            783,283
            
            
            
            165,666
            
            
            
            21.2
            %Minority
      interests
            
            
            12,012
            
            
            
            7,226-
            
            
            
            4,786
            
            
            
            66.2
            %Discontinued
      operations
            
            
            30,094
            
            
            
            9,968-
            
            
            
            20,126
            
            
            
            201.9
            %Net income
            
            
            3,501,931
            
            
            
            2,996,195
            
            
            
            505,736
            
            
            
            16.9
            %





32





Revenues





Sales revenue increased from
$24,410,570in thetwelvemonths of 2007 to $30,502,327in the same period in 2008,
representing a24.96% increase. The increase in revenue was
mainly due to the increase in demand of PETbottles from Coca–Cola and Pepsi, which are our major
customers.





Cost of sales and gross
margin





Cost of sales increased from
$18,950,517in thetwelvemonths of 2007 to $23,612,335in the same period in 2008,
representing a24.6% increase. The increase was due to the increase in sales in
thetwelvemonths of 2008 as compared to the same
period last year. We recorded a gross margin of 22.59% in thetwelvemonths of 2008, an increase of26.2% as compared to 22.4% in the same period last year. The
increase was mainly due to
the increase in productioncosts, which loweredgross profits.





Sales and marketing





Sales and marketing expenses increased
by $68,443or130.8% from $52,343intwelvemonths of 2007 to $120,786in the same period 2008. The increase
wasmainly due toselling
expenses.





General and
administrative





General and administrative expenses
increased from $1,430,781in thetwelvemonths of 2007 to $1,717,013for the same period 2008, representing
an increase of $286,232or20.0%. The increase was mainly due to significant increase in
staff costs, including salary and insurance costs as a result of the
implementation of the PRC Labor Contract Law commencing January 1,
2008.




33




Net income





Net income for thetwelvemonths ended 2008 was $3,501,931as compared to $2,996,195in the same period 2007. The material increase was mainly attributable to the
increase in sales and the improved in gross margin during the
period.





Liquidity
and Capital Resources





Cash





Our cash balance atDecember31, 2008 was$69,958, representing a decrease of
$51,616, compared with our cash balance of
$121,574as atDecember31, 2007. The cash was mainly used to fund
our operations.





Cash flow





Operating Activities





Net cash inflows from operating
activities during thetwelvemonths endedDecember31, 2008 amounted to $6,078,451, representing aincrease in inflow of $1,706,241compared with net cashinflows from operating activities of
$4,372,210in the same period of 2007. Theincreasein cash inflow was mainly due todecreaseintradereceivables andinventory and increase in notes
payableas atDecember31, 2008.





Investing Activities





Net cash outflow from investing
activities increased from $1,482,236for thetwelvemonths ended 2007 to $7,625,282for the same period of 2008, representing an increase of
$6,143,046. The net cash outflows for both periods
were mainly attributable to payments made for purchases of imported and domestic
production equipments.




Financing Activities





Net cash inflow for financing activities
was$397,408for thetwelvemonths of 2008, representing aincrease of $4,344,015over the net cash outflow of
$3,946,607recorded in the same period of 2007.
The change was due to the decrease in amount due to related party for the period
endedDecember31, 2008.





Working capital





Our working capital increased by
$72,088to $520,257atDecember31, 2008 from $448,169at December 31, 2007, mainly due to
increase in net cash inflow from operating activities as well as increase in
long term bank loan during thetwelvemonths of 2008.




34





We currently generate our cash flow
through production and sales of PET bottles and PET preforms in China. We believe that our cash
flow generated from operations will be sufficient to sustain operations for at
least the next 12 months.
There is no identifiable expansion plan as ofDecember31, 2008, but from time to time, we may
identify new expansion opportunities for which there will be a need for use of
cash.





Off-Balance
Sheet Arrangements





We do not have any off balance sheet
arrangements





Inflation





Inflation has not had a material impact
on our business and we do not expect inflation to have an impact on our business
in the near future





Currency
Exchange Fluctuations





All of the Company’s revenues and a majority of its
expenses in thetwelvemonths endedDecember31, 2008 were denominated in Renminbi
(“RMB”), the currency of China, and were
converted into US dollars at the exchange rate of 7.766 to 1. In the third
quarter of 2005, the Renminbi began to rise against the US dollar. There can be no assurance that
RMB-to-U.S. dollar exchange rates will remain stable. A devaluation of RMB
relative to the U.S. dollar would adversely affect our business, consolidated
financial condition and results of operations. We do not engage incurrency hedging.




Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market
Risk




We are exposed to various market risks
arising from adverse changes in market rates and prices, such as
foreign exchange fluctuations and interest rates, which could impact our results
of operations and financial position. We do not currently engage in any hedging
or other market risk management tools, and we do notenter into derivatives or other financial
instruments for trading or speculative purposes.




Foreign
Currency Exchange Rate Risk




Fluctuations in the rate of exchange
between the U.S. dollar and foreign currencies, primarily the Chinese Renminbi,
could adversely affect our
financial results. During theperiodendedSeptember 30, 2008, approximately all of our sales
are denominated in foreign currencies. We expect that foreign currencies will
continue to represent a similarly significant percentage of our sales in the future. Selling, marketing and
administrative costs related to these sales are largely denominated in the same
respective currency, thereby mitigating our transaction risk exposure. We
therefore believe that the risk of a significant impact on ouroperating income from foreign currency
fluctuations is not substantial. However, for sales not denominated in U.S.
dollars, if there is an increase in the rate at which a foreign currency is
exchanged for U.S. dollars, it will require more of the foreigncurrency to equal a specified amount of
U.S. dollars than before the rate increase. In such cases and if we price our
products in the foreign currency, we will receive less in U.S. dollars than we
did before the rate increase went into effect. If we priceour products in U.S. dollars and
competitors price their products in local currency, an increase in the relative
strength of the U.S. dollar could result in our price not being competitive in a
market where business is transacted in the local currency.




35




All of our sales denominated in foreign
currencies are denominated in the Chinese Renminbi. Our principal exchange rate
risk therefore exists between the U.S. dollar and this currency. Fluctuations
from the beginning to the end of any given reporting periodresult in the re-measurement of our
foreign currency-denominated receivables and payables, generating currency
transaction gains or losses that impact our non-operating income/expense levels
in the respective period and are reported in other (income) expense, net in our combined consolidated
financial statements. We do not currently hedge our exposure to foreign currency
exchange rate fluctuations. We may, however, hedge such exposure to foreign
currency exchange rate fluctuations in the future.




Interest
Rate
Risk




Changes in interest rates may affect the
interest paid (or earned) and therefore affect our cash flows and results of
operations. However, we do not believe that this interest rate change risk is
significant.




Inflation




Inflation has not had a material impact on the Company's business
in recent years.




Currency
Exchange Fluctuations




All of the Company's revenues are
denominated in Chinese Renminbi, while its expenses are denominated primarily in
Chinese Renminbi ("RMB"). The value of the RMB-to-U.S.dollar and other currencies may
fluctuate and is affected by, among other things, changes in political and
economic conditions. Since 1994, the conversion of RMB into foreign currencies,
including U.S. dollars, has been based on rates set by the People'sBank of China, which are set daily based
on the previous day's inter-bank foreign exchange market rates and current
exchange rates on the world financial markets. Since 1994, the official exchange
rate for the conversion of RMB to U.S. dollars had generally been stable and RMB had appreciated
slightly against the U.S. dollar. However, on July 21, 2005, the Chinese
government changed its policy of pegging the value of RMB to the U.S. dollar.
Under the new policy, RMB may fluctuate within a narrow and managedband against a basket of certain
foreign currencies. Recently there has been increased political pressure on the
Chinese government to decouple the RMB from the United States dollar. At the
recent quarterly regular meeting of People's Bank of China, itsCurrency Policy Committee affirmed the
effects of the reform on RMB exchange rate. Since February 2006, the new
currency rate system has been operated; the currency rate of RMB has become more
flexible while basically maintaining stable and the expectationfor a larger appreciation range is
shrinking. The Company has never engaged in currency hedging operations and has
no present intention to do so.




36




Concentration
of Credit Risk




Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit risk (whether on
or off balance sheet) that arise from financial instruments exist for groups of
customers or counterparties when they have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly affected by changes in
economic or other conditions as described below:




1.
            The Company's business is
      characterized by new product and service development and evolvingindustry standards
      and regulations. Inherent in the Company's business are various risks and
      uncertainties, including the impact from the volatility of the stock
      market, limited operating history, uncertain profitability and the ability
      to raise additionalcapital.




2.
            Approximately 100% of the
      Company's revenue is derived from China. Changes in laws and regulations,
      or their interpretation, or the imposition of confiscatory taxation,
      restrictions on currency conversion, devaluations of currency or the
      nationalization or
      other expropriation of private enterprises could have a material adverse
      effect on our business, results of operations and financial
      condition.




3.
            If the Company is unable to derive
      any revenues from China, it would have a significant, financiallydisruptive effect on
      the normal operations of the
Company.




Item
      8.
            Financial
      Statements and Supplementary Data





The
response to this item is included in a separate section of this Annual Report.
See “Index to Consolidated Financial Statements” on Page F-1.




Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure





Not
Applicable.




Item
      9A.
            (T)
      Controls and Procedures Evaluation of Disclosure Controls and
      Procedures




Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation as of December 31, 2008 of our disclosure controls and procedures, as
such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Based on this evaluation, our principal executive officer and principal
financial officer has concluded that during the period covered by this report,
the Company’s disclosure controls and procedures were effective as of such date
to ensure that information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosures.




37





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f).  Under the supervision and with
the participation of our management, including our principal executive officer
and principal financial officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the framework in Internal Control – Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. In connection with management's assessment of our internal
control over financial reporting as required under Section 404 of the
Sarbanes-Oxley Act of 2002, we identified the following material weakness in our
internal control over financial reporting as of December 31, 2008:




1.
            Insufficient
      accounting personnel with the appropriate level of accounting knowledge,
      experience and training in the application of accounting principles
      generally accepted in the United States commensurate with financial
      statement reporting requirements.




As a
result, we have concluded that our internal controls over financial reporting
are not effective as of December 31, 2008.




All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can only
provide reasonable assurances with respect to financial statement preparation
and presentation. In addition, any evaluation of effectiveness for future
periods is subject to the risk that controls may become inadequate because of
changes in conditions in the future.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.





Changes
in Internal Control over Financial Reporting




There
have been no changes in our internal controls over financial reporting that
occurred during the year ended December 31, 2008 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.







Item
      9B.
            Other
      Information




None.




38




PART
III




Item
      10.
            Directors,
      Executive Officers and Corporate
Governance




Our
current directors and executive officers are as follows:




Name
            
            Age
            
            PositionStetson
      Chung
            
            42
            
            Chief
      Executive Officer, President and Director
              (Acting
      Chief Financial Officer)




Stetson
Chung, aged 42, is the Chief Executive Officer, Acting Chief Financial Officer
and Director of GEBD. Stetson assumed his current role of the company in 1996.
Prior to GEBD, he worked for the IT industry and was the youngest recipient of
the prestigious Governor’s Award for Industry Grand Prize (Consumer product
design – video conferencing) in Hong Kong. Stetson is responsible for the
overall management of the company. Stetson graduated from Dartmouth College in
the United States with a degree in Economics and Computer Science.




On March
10, 2008, Joseph Flad, resigned from his positions as President, Chief Financial
Officer and as a member of the board of directors of the Company.  On
March 10, 2008, Mary Flad, resigned from her positions as Secretary, Treasurer
and as a member of the board of directors of the Company.




CORPORATE
GOVERANCE




Number
and Term of Directors




The
Company’s sole director is Stetson Chung. Mr. Chung shall serve as a director
until his successor has been duly elected and is qualified.





Audit
Committee





Our board
of directors will establish an audit committee within the twelve months after
the year end of 2008 in accordance with Sarbanes Oxley Act 404. Currently, our
entire board of directors serves as our audit committee in 2008. We will appoint
a financial expert on our Board of Directors within the twelve months after the
year end of 2008.





Other
Committees





We will
establish compensation, nominating committees of the Board of Directors within
the twelve months after the year end of 2008 in order to comply with the
Sarbanes Oxley Act 404.




39





Family
Relationships





Stetson
Chung, our sole officer and director is the son of Guy A-Tsan Chung, our 74.25%
shareholder.





Code
of Ethics





We have
adopted a Code of Business Conduct and Ethics (the “Code”) that applies to our
directors and employees, including our principal executive officer, principal
financial officer, principal accounting officer and controller, or persons
performing similar functions in accordance with applicable federal securities
laws. The Code was filed as Exhibit 14 to our Registration Statement on Form
SB-2 (Registration No. 333-139008).




Changes
in Director Nomination Process for Stockholders




None.




Beneficial
Ownership Reporting Compliance




Section
16(a) of the Securities Exchange Act requires our directors, executive officer
and persons who own more than 10% of our common stock to file reports of
ownership and changes in ownership of our common stock with the Securities and
Exchange Commission. Our directors, executive officer and persons who own more
than 10% of our common stock are required by Securities and Exchange Commission
regulations to furnish to us copies of all Section 16(a) forms they file. To our
knowledge, based solely upon a review of Forms 3, 4 and 5 and amendments to
these forms furnished to the Company, none of our  directors,
executive officer or persons who own more than 10% of our common stock filed
Forms 3, 4 and 5 on a timely basis during the year ended December 31,
2008.




Item
      11.
            Executive
      Compensation





The
following table sets forth all cash compensation paid or to be paid by the
Company, as well as certain other compensation paid or accrued, during each of
the Company’s last two fiscal years to each of the following named executive
officers (the “Named Executive Officers”):




SUMMARY
COMPENSATION TABLE


Name &
              Principal
              Position
            
            Year
            
            Salary
              ($)
            
            
            Bonus
              ($)
            
            
            Stock
              Awards
              ($)
            
            
            Option
              Awards
              ($)
            
            
            Non-Equity
              Incentive Plan
              Compensation
              ($)
            
            
            Change in
              Pension value
              and
              Nonqualified
              deferred
              compensation
              earnings
              ($)
            
            
            All other
              Compensation
              ($)
            
            
            Total
              ($)Stetson
      Chung
            
            2008
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0CEO,
      President,
            
            2007
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0(Acting
      CFO)Joseph
      Flad
            
            2008
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Former
      President and CFO
            
            2007
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            12,000
            
            
            
            12,000




40


Employment
Agreements





None.





Equity
Compensation Plans




We do not
maintain any equity compensation plans and we have not granted any stock options
or stock appreciation rights or any awards under long-term incentive
plans.





Pension
Benefits





We do not
sponsor any qualified or non-qualified defined benefit plans.





Nonqualified
Deferred Compensation





We do not
maintain any non-qualified defined contribution or deferred compensation
plans.





DIRECTOR
COMPENSATION





The
following table summarizes compensation that our directors earned during 2008
for services as members of our Board.





Name
            
            Fees Earned or
              Paid
      in Cash
              ($)
            
            
            Options
              Awards
              ($)
      (1)
            
            
            All
      Other
              Compensation
              ($)
      (2)
            
            
            Total
              ($)Stetson
      Chung
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0




41




Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters




The
following table sets forth, as of April 22, 2009, certain information regarding
beneficial ownership of our common stock by each person who is known by us to
beneficially own more than 5% of our common stock. The table also identifies the
stock ownership of each of our directors, our officer, and all directors and our
officer as a group. Except as otherwise indicated, the stockholders listed in
the table have sole voting and investment powers with respect to the shares
indicated.




Shares of
common stock which an individual or group has a right to acquire within 60 days
pursuant to the exercise or conversion of options, warrants or other similar
convertible or derivative securities are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.





Name
      and Address of Beneficial Owner
            
            Amount
      and Nature of Beneficial Ownership
            
            
            Percentage
      of Outstanding Common StockGuy
      A-Tsan Chung
            
            
            29,700,000
            
            
            
            74.25
            %Stetson
      Chung
            
            
            0
            
            
            
            0All
      directors and executive officers as a group (one (1)
      individual)
            
            
            0
            
            
            
            0




(1)
            Based
      on 40,000,000 outstanding shares of common stock on April 22,
      2009




(2)
            The
      business address for each of our sole director and officer is c/o Great
      East Bottles & Drinks (China) Holdings, Inc, 203 Hankow Center, 5-15
      Hankow Road, Tsimshatsui, Kowloon, Hong
Kong




Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence





There has
not been since January 1, 2008 nor is there currently pending any transaction or
series of similar transactions to which we were or are to be a party in which
the amount involved exceeded $120,000 and in which any director, executive
officer, holder of more than 5% of our Common Stock or any member of the
immediate family of any of these persons had or will have a direct or indirect
material interest other than the following.:





On March
10, 2008, we entered into a Share Exchange Agreement with Citysky and Guy A-Tsan
Chung, the sole shareholder of Citysky to acquire 100% of the outstanding equity
of Citysky from the Shareholder in consideration for 6,492,000 pre-split shares
of our common stock.  The Share Exchange was consummated on March 10,
2008.





We had
amounts of $1,094,679
due to GEBD from Great East Packing Holdings Limited (“GEPH”), a related
company, consisting of short term borrowing. GEPH is considered as a related
company because of common ownership with Guy A-Tsan Chung. These short term
borrowing and advances bears 9% interest per annum. Interest income accrued
for the year ended December 31,2008 is included in our audited financial
statements.




42




Director
Independence




The
Company’s sole director is not an “independent director” within the meaning of
Rule 121(A) of the American Stock Exchange Company Guide and Rule 10A-3
promulgated under the Securities Act of 1934, as amended.




Item
      14.
            Principal
      Accountant Fees and Services





On April
18, 2008, the Company dismissed itsprincipalindependent accountants,Randall N. Drake CPA, PA (“Drake”). The decision todismiss Drakeas the Company’s principal independent accountantwas approved by theCompany’s Board of Directorson April 18, 2008.Drake’s report on the Company’s financial statements for the fiscal
years ended December 31, 2006 and 2007 contained no adverse opinion or
disclaimer ofopinion, nor
was it qualified or modified as to uncertainty, audit scope or accounting
principles.





During the periodfrom January 1, 2006 through the date of
Drake’s dismissal, there were no disagreements withDrakeon any matter of accounting principlesor practices, financial
statement disclosure, or auditing scope or procedure,which disagreements, if not resolved to
the satisfaction ofDrake, would have causedDraketo make reference to the subject matter
of the disagreementsin connection with its report on the financial statements for such
period. None of the “reportable events”described underItem 304(a)(1)(iv) of Regulation
S-Koccurred within the
period from January 1, 2006 through April 18, 2008.





On
January 14, 2008, the Company engaged Madsen & Associates CPA Inc.
(“Madsen”) as its new principal independent accountants, effective immediately
upon the dismissal of Drake. The decision to engage Madsen as the Company’s
principal independent accountants was approved by the Company’s Board of
Directors on April 18, 2008.




During
the Company’s most two  fiscal years ended December 31, 2007 and 2006
and through January 14, 2008, the Company did not consult with Madsen on (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that may be rendered on the
Company’s financial statements, and Madsen did not provide either a written
report or oral advice to the Company that was an important factor considered by
the Company in reaching a decision as to any accounting, auditing, or financial
reporting issue; or (ii) the subject of any disagreement, as defined in Item 304
(a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event
within the meaning set forth in Item 304(a)(1)(v) of Regulation
S-K.




The
Company paid the following fees to its auditors during its fiscal years ended
December 31, 2008 and 2007:





Fee
      Category
            
            2008
            
            
            2007Audit
      fees – Madsen
            
            $
            42,730
            
            
            $
            0Audit
      Fees –Drake
            
            $
            0
            
            
            $
            5,000




43




Audit
Fees




Audit
fees consist of fees for professional services rendered for the audit of the
Company’s financial statements and review of the final financial statements
included in our annual reports on Form 10-K.




Audit
Related Fees




We did
not incur any audit-related fees with Madsen or Drake for the years ended
December 31, 2008 and 2007.




Tax
Fees




We did
not incur any tax fees with Madsen or Drake for the years ended December 31,
2008 and 2007.




All
Other Fees




We did
not incur any fees with Madsen or Drake for other professional services rendered
for the years ended December 31, 2008 or 2007.




Pre-Approval Of
Services







The Board
of Director’s policy is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. The Board may
also pre-approve particular services on a case-by-case basis.




Item
      15.
            Exhibits,
      Financial Statement Schedules




(a)(1)
Financial Statements




An index
to Consolidated Financial Statements appears on page F-1.




(b)
Exhibits




The
following Exhibits are filed as part of this report:




Exhibit
      No.
            
            Description2.1
            
            Agreement
      for Share Exchange, dated as of March 10, 2008 by and among Jomar
      Specialties Inc., Citysky Investment Holdings Inc. and Guy A-Tsan Chung –
      filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated
      March 10, 20083.1
            
            Amended
      and Restated Articles of Incorporation – filed as Exhibit 3 to the
      Company’s Registration Statement on Form SB-2 (Registration No.
      333-139008)3.2
            
            Amendment
      to Amended and Restated Articles of Incorporation – filed as Exhibit 3.1
      to the Company’s Current Report on Form 8-K dated April 16,
      20083.3
            
            By-Laws
      -  filed as Exhibit 3 to the Company’s Registration Statement on
      Form SB-2 (Registration No. 333-139008)14.1
            
            Code
      of Ethics – filed as Exhibit 14 to the Company’s Registration Statement on
      Form SB-2 (Registration No. 333-139008)21.1
            
            List
      of Subsidiaries.31.1
            
            Certification
      of the Principal Executive Officer and Principal Financial Officer
      pursuant to Rule 13-14(a) of the Securities Exchange of
    193432.1
            
            Certificate
      of the Principal Executive Officer and Principal Financial Officer
      pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002




44




SIGNATURES




In
accordance with the requirements of the Securities and Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





GREAT
      EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INCApril
      21, 2009
            By:
            /s/
      Stetson ChungName:
            Stetson
      ChungTitle:
            Chief
      Executive Officer, President, Director and Acting Chief Financial
      Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.




April
      21, 2009
            By:
            /s/
      Stetson
      ChungName:
            Stetson
      ChungTitle:
            Chief
      Executive Officer, President, Director and Acting Chief Financial Officer
      (Principal Executive Officer and Principal Financial
    Officer)




45


Board of
Directors
 Great
East Bottles and Drinks (China) Holdings, Inc.
 Hong
Kong
 
 REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 We have
audited the accompanying condensed consolidated balance sheets of Great East
Bottles and Drinks (China) Holdings, Inc.  (the Company) as of
December 31, 2008 and 2007 and the condensed consolidated statements of
operations, stockholders’ equity and cash flows for the years then
ended.  These condensed consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (“PCAOB”).  Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting.  Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used, significant estimates made by
management and evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, these condensed consolidated financial statements referred to above
present fairly, in all material aspects, the condensed consolidated financial
position of the Company as of December 31, 2008 and 2007, and the condensed
consolidated results of its operations and cash flows for the years then ended
in conformity with accounting principles generally accepted in the United States
of America.
 
 s/Madsen &
Associates CPA’s, Inc.
 Madsen
& Associates CPA’s, Inc.
 April 13,
2009
 Salt Lake
City, Utah







GREAT
EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 As
of December 31, 2008 and 2007
 
 2008
              
              
              2007ASSETSCURRENT
      ASSETSCash
      and cash equivalent
              
              $
              69,958
              
              
              $
              121,574Pledged
      deposits
              
              
              3,704,253
              
              
              
              4,106,258Accounts
      receivable, net
              
              
              2,016,545
              
              
              
              2,426,566Inventories,
      net
              
              
              1,555,782
              
              
              
              1,998,961Amount
      due from a related party
              
              
              1,094,679
              
              
              
              -Prepaid
      expenses and other receivables
              
              
              830,471
              
              
              
              477,605Total current
      assets
              
              
              9,271,688
              
              
              
              9,130,964PROPERTY,
      PLANT & EQUIPMENT, NET
              
              
              21,322,104
              
              
              
              14,457,424LAND
      USE RIGHT, NET OF AMORTIZATION
              
              
              346,544
              
              
              
              334,367OTHER
      ASSETS
              
              
              -
              
              
              
              275TOTAL
      ASSETS
              
              $
              30,940,336
              
              
              $
              23,923,030
 LIABILITIES
      AND STOCKHOLDERS’ EQUITYLIABILITIESCURRENT
      LIABILITIESBank
      loans
              
              $
              4,006,774
              
              
              $
              5,346,561Accounts
      payable
              
              
              1,647,176
              
              
              
              1,419,985Notes
      payables
              
              
              2,303,646
              
              
              
              1,085,956Accrued
      expenses and other payables
              
              
              101,288
              
              
              
              103,591VAT
      payables
              
              
              429,237
              
              
              
              342,178Income
      tax payables
              
              
              263,310
              
              
              
              379,444Due
      to related party
              
              
              -
              
              
              
              5,080Total current
      liabilities
              
              
              8,751,431
              
              
              
              8,682,795LONG-TERM BANK
    LOAN
              
              
              3,334,646
              
              
              
              1,576,543TOTAL
      LIABILITIES
              
              
              12,086,077
              
              
              
              10,259,338MINORITY
      INTERESTS
              
              
              113,984
              
              
              
              101,874STOCKHOLDERS’
      EQUITYCommon
      stock, Par value $0.01; 375,000,000 shares authorized; $0.01 par value;
      40,000,000 shares and 8,000,000 shares issued and outstanding on December
      31, 2008 and 2007, respectively
              
              
              400,000
              
              
              
              80,000Additional
      paid in capital
              
              
              9,795,277
              
              
              
              10,115,277Capital
      reserves
              
              
              2,410,701
              
              
              
              2,124,040Retained
      earnings/(accumulated deficits)
              
              
              2,234,341
              
              
              
              (976,888
              )Other
      comprehensive income
              
              
              3,899,956
              
              
              
              2,219,389TOTAL
      STOCKHOLDERS’ EQUITY
              
              
              18,740,275
              
              
              
              13,561,818TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              30,940,336
              
              
              $
              23,923,030
  See
accompanying notes to consolidated financial statements
  F-1
  GREAT
EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF
INCOME
 For
the Years Ended December 31, 2008 and 2007
 
 2008
              
              
              2007REVENUE
              
              $
              30,502,327
              
              
              $
              24,410,570COST
      OF SALES
              
              
              23,612,335
              
              
              
              18,950,517GROSS
      MARGIN
              
              
              6,889,992
              
              
              
              5,460,053EXPENSESSelling and
      distribution
              
              
              120,786
              
              
              
              52,343General and
      administrative
              
              
              1,717,013
              
              
              
              1,430,781OPERATING
      INCOME
              
              
              5,052,193
              
              
              
              3,976,929OTHER
      INCOME/(EXPENSE)Other
      income
              
              
              266,621
              
              
              
              306,793Interest income
              
              
              269,011
              
              
              
              300,624Bank loan
    interest
              
              
              (619,172
              )
              
              
              (467,867
              )Other interest
      expense
              
              
              (475,667
              )
              
              
              (319,807
              )TOTAL
      OTHER INCOME (EXPENSE)
              
              
              (559,207
              )
              
              
              (180,257
              )INCOME
      FROM CONTINUING OPERATIONS
                BEFORE
      PROVISION FOR INCOME TAXES
                AND
      MINORITY INTEREST
              
              
              4,492,986
              
              
              
              3,796,672PROVISION
      FOR INCOME TAXES
              
              
              948,949
              
              
              
              783,283INCOME
      FROM CONTINUING OPERATIONS
                BEFORE
      MINORITY INTERESTS
              
              
              3,544,037
              
              
              
              3,013,389MINORITY
      INTEREST
              
              
              12,012
              
              
              
              7,226INCOME
      FROM CONTINUING OPERATIONS
              
              $
              3,532,025
              
              
              $
              3,006,163DISCONTINUED
      OPERATIONSRevenue
              
              
              1,311
              
              
              
              127,271General and administrative
      expenses
              
              
              (31,405
              )
              
              
              (137,239
              )LOSS
      FROM DISCONTINUED OPERATIONS
              
              
              (30,094
              )
              
              
              (9,968
              )NET
      INCOME
              
              
              3,501,931
              
              
              
              2,996,195OTHER
      COMPREHENSIVE INCOMEGain
      on foreign exchange translation
              
              
              1,680,567
              
              
              
              1,324,933COMPREHENSIVE
      INCOME
              
              $
              5,182,498
              
              
              $
              4,321,128NET
      INCOME PER SHARE, BASIC AND DILUTED
              
              $
              40,000,000
              
              
              $
              40,000,000WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
              
              
              0.13
              
              
              
              0.11
 
 See
accompanying notes to consolidated financial statements
  F-2
  GREAT
EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
 AND
COMPREHENSIVE INCOME
 For
the Years Ended December 31, 2008 and 2007
  Common
      stockNumber
      of shares
              
              
              Amount
              
              
              Additional
      paid in capital
              
              
              Capital
                reserves
              
              
              Retained
      earnings/
                (accumulated
      deficits)
              
              
              Other
                comprehensive
      income
              
              
              Total
      equityBalance
      at January 1, 2007
              
              
              8,000,000
              
              
              $
              80,000
              
              
              $
              7,562,483
              
              
              $
              1,923,865
              
              
              $
              (3,769,401
              )
              
              $
              894,456
              
              
              $
              6,691,403Net
      income for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,996,195
              
              
              
              -
              
              
              
              2,996,195Capital
      contribution during the year
              
              
              -
              
              
              
              -
              
              
              
              2,552,794
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,552,794Utilization
      during the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,507
              )
              
              
              -
              
              
              
              -
              
              
              
              (3,507
              )Transfer
      from accumulated deficits to capital reserves
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              203,682
              
              
              
              (203,682
              )
              
              
              -
              
              
              
              -Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,324,933
              
              
              
              1,324,933Balance
      at December 31, 2007 andJanuary
      1, 2008
              
              
              8,000,000
              
              
              $
              80,000
              
              
              $
              10,115,277
              
              
              $
              2,124,040
              
              
              $
              (976,888
              )
              
              $
              2,219,389
              
              
              $
              13,561,8181
      for 5 forward split
              
              
              32,000,000
              
              
              
              320,000
              
              
              
              (320,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,501,931
              
              
              
              -
              
              
              
              3,501,931Utilization
      during the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,041
              )
              
              
              -
              
              
              
              -
              
              
              
              (4,041
              )Transfer
      from retained earnings to capital reserves
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              290,702
              
              
              
              (290,702
              )
              
              
              -
              
              
              
              -Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,680,567
              
              
              
              1,680,567Balance
      at December 31, 2008
              
              
              40,000,000
              
              
              $
              400,000
              
              
              $
              9,795,277
              
              
              $
              2,410,701
              
              
              $
              2,234,341
              
              
              $
              3,899,956
              
              
              $
              18,740,275
  See
accompanying notes to consolidated financial statements
  F-3
  GREAT
EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 For
the Years Ended December 31, 2008 and 2007
 
 2008
              
              
              2007Cash
      flow from operating activitiesNet
      income
              
              $
              3,501,931
              
              
              $
              2,996,195Adjustments
      for:Depreciation
              
              
              1,735,831
              
              
              
              2,019,790Amortization
      of land use rights
              
              
              9,244
              
              
              
              8,410Allowance
      for doubtful accounts
              
              
              -
              
              
              
              55,082Provision
      for slow moving inventories
              
              
              93,768
              
              
              
              -Other
      non cash (income) losses
              
              
              -
              
              
              
              (23,922
              )Minority
      interests
              
              
              12,012
              
              
              
              7,226Operating
      profit before changes in working capital
              
              
              5,352,786
              
              
              
              5,062,781Decrease/(increase)
      in trade receivables
              
              
              410,021
              
              
              
              (454,379
              )Decrease/(increase)
      in inventory
              
              
              349,411
              
              
              
              (29,423
              )Increase
      in amount due from a related party
              
              
              (1,094,679
              )
              
              
              -Increase
      in deposits, prepayments and other receivables
              
              
              (352,866
              )
              
              
              (118,074
              )Decrease/(increase)
      in other assets
              
              
              275
              
              
              
              (275
              )Increase/(decrease)
      in trade payables
              
              
              227,191
              
              
              
              (167,948
              )Increase/(decrease)
      in notes payable
              
              
              1,217,690
              
              
              
              (142,029
              )Increase
      in VAT payables
              
              
              87,059
              
              
              
              124,485(Decrease)/increase
      in income tax payables
              
              
              (116,134
              )
              
              
              210,678Decrease
      in other payables and accruals
              
              
              (2,303
              )
              
              
              (113,606
              )Net
      cash inflow from operating activities
              
              
              6,078,451
              
              
              
              4,372,210Investing
      activitiesPurchase
      of plant and equipment
              
              
              (7,625,282
              )
              
              
              (1,482,236
              )Net
      cash outflow from investing activities
              
              
              (7,625,282
              )
              
              
              (1,482,236
              )Financing
      activitiesProceeds
      from bank loans
              
              
              5,876,497
              
              
              
              6,920,913Repayment
      of bank loans
              
              
              (5,871,973
              )
              
              
              (6,900,231
              )Decrease
      in pledged deposits
              
              
              402,005
              
              
              
              1,337,769Decrease
      in amount due to a related party
              
              
              (5,080
              )
              
              
              (5,301,551
              )Decrease
      in capital reserves
              
              
              (4,041
              )
              
              
              (3,507
              )Net
      cash inflow/(outflow) from financing activities
              
              
              397,408
              
              
              
              (3,946,607
              )Net
      decrease in cash and cash equivalents
              
              
              (1,149,423
              )
              
              
              (1,056,633
              )Effect
      of foreign exchange rate changes
              
              
              1,097,807
              
              
              
              529,397Cash
      and cash equivalents at beginning of year
              
              
              121,574
              
              
              
              648,810Cash
      and cash equivalents at end of year
              
              $
              69,958
              
              
              $
              121,574Analysis
      of cash and cash equivalentsCash and cash
      equivalents
              
              $
              69,958
              
              
              $
              121,574Cash
      paid for interest
              
              $
              1,094,839
              
              
              $
              787,674Cash
      paid for income taxes
              
              $
              1,065,083
              
              
              $
              572,605
 
 See
accompanying notes to consolidated financial statements
  F-4
  GREAT
EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2007
  NOTE 1–ORGANIZATION AND PRINCIPAL ACTIVITIES
 
 Great
East Bottles & Drinks (China) Holdings, Inc. and subsidiaries (the
“Company”) are a group of manufacturers producing beverage bottles which mainly
is made of PET, a type of plastic with desirable characteristic for packaging
including clear and wide range of color and shape, tough, good resistance to
heat, moisture and dilute acid. Beverage bottles are manufactured and sold in
the People’s Republic of China (“PRC” or “China”) for bottling of Carbonated
Soft Drinks (“CSD”) for world brands and these beverage bottles are referred to
as PET CSD bottles.
 
 At
December 31, 2008, details of the Company’s subsidiaries are as
follows:
 
 Name
              
              Place
      of
                incorporation
              
              Effective
                Ownership
              
              Principal
      activitiesCitysky
      Investment Holding Inc (“Citysky”)
              
              the
      British Virgin Islands (“BVI”)
              
              100%
              
              Investment
      holdingsGreat
      East Packaging International Limited
              
              BVI
              
              100%
              
              Investment
      holdingGreat
      East Packaging (Nanjing) Limited
              
              BVI
              
              100%
              
              Investment
      holdingGreat
      East Packaging (Xian) Limited
              
              BVI
              
              100%
              
              Investment
      holdingHangzhou
      Great East Packaging Co., Limited
              
              PRC
              
              99%
              
              Production
      of beverage bottlesNanjing
      Great East Packaging Co., Limited
              
              PRC
              
              100%
              
              Production
      of beverage bottlesXian
      Great East Packaging Co., Limited
              
              PRC
              
              100%
              
              Production
      of beverage bottles
  NOTE 2–RECAPITALIZATION
AND REORGANIZATION
 
 On March 10, 2008, the Company entered
into a Share Exchange Agreement (the “Share Exchange Agreement”) with Cityskyand the sole shareholder of Citysky.
 Pursuant to the terms of the Share Exchange Agreement,the Companyacquired 100% ownership of Citysky from
the Shareholder.  Consideration bythe Companywas the issuance of 6,492,000 shares of
its common stock to Citysky (the “Exchange Shares”) in exchange for 100% ownership of
Citysky. Immediately upon completion of theshare exchange transaction through
issuance of the Exchange Shares,the Companyhad a total of approximately 8,000,000
shares of its common stock issued and outstanding. The Share Exchange
Agreement closed subject to the provisions and conditions of the Share Exchange Agreement and the
discretion of the parties.  The transaction set forth in the Share Exchange
Agreement closed on March10,
2008.
 
 The above
stock exchange transaction resulted in the sole shareholder of Citysky obtaining
a majority voting interest in the Company. Generally accepted accounting
principles in the United States of America require that the Company whose
shareholders retain the majority interest in a combined business be treated as
the acquirer for accounting purposes. Consequently, the stock exchange
transaction has been accounted for as a recapitalization of Citysky as Citysky
acquired a controlling equity interest in the Company as of March 10, 2008. The
reverse acquisition process utilizes the capital structure of the Company and
the assets and liabilities of Citysky recorded at historical cost.
 
 Citysky
is the continuing operating entity for financial reporting purposes, and the
financial statements prior to March 10, 2008 represent Citysky’s financial
position and results of operations. Although Citysky is deemed to be the
acquiring corporation for financial accounting and reporting purposes, the legal
status of the Company as the surviving corporation did not change.
  F-5
 
 Subsequent to completion of the
reverse takeover
transaction,the Companychanged its name toGreat East Bottles & Drinks (China)
Holdings, Inc..
 
 
 NOTE3–PRINCIPLES
OF CONSOLIDATION
 
 The
accompanying consolidated financial statements include the accounts of the
Company and the Company’s subsidiaries(see Note1).The consolidated financial
statements are prepared in accordance with generally accepted accounting
principles used in the United States of America, and all significant intercompany balances and
transactions have been eliminated. The functional currency for the majority of the
Company’s operations is the Renminbi
(“RMB”), while the reporting currency is the US
Dollar.
 
 
 NOTE4–SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
 
 (a) Economic
and Political Risk
 
 The
Company’s major operations are conducted in the People’s Republic of China
(“China” or “PRC”). Accordingly, the political, economic, and legal environments
in the PRC, as well as the general state of the PRC’s economy may influence the
Company’s business, financial condition, and results of operations.
 
 The
Company’s major operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic, and legal environment. The Company’s results may be
adversely affected by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, and rates and methods of taxation,
among other things.
 
 (b) Cash and
Cash Equivalents
 
 The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.  The
Company maintains bank accounts in Hong Kong and China through its wholly-owned
subsidiaries.
 
 (c) Accounts
Receivable
 
 Trade
receivables are recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. An estimate for doubtful accounts is
made when collection of the full amount is no longer probable. Bad debts are
written off as incurred. The Company has recorded an allowance for doubtful
accounts of $55,082 at December 31, 2007. The allowance was charged off against
gross receivable during the year ended December 31, 2008 as the amount is
determined to be uncollectible. There were no additional bad debts incurred for
accounts receivable during the year ended December 31, 2008.
 
 (d) Inventories
 
 Inventories
consisting of raw materials, work-in-progress, goods in transit and finished
goods are stated at the lower of cost or net realizable value. Finished goods
are comprised of direct materials, direct labor and a portion of overhead.
Inventory costs are calculated using a weighted average, first in first out
(FIFO) method of accounting.The
Company has recorded a provision for slow moving inventories of $93,768 during
the year ended December 31, 2008.
 
 (e) Property,
Plant and Equipment, Net
 
 Property,
plant and equipment are carried at cost less accumulated depreciation. The cost
of maintenance and repairs is charged to the statement of income as incurred,
whereas significant renewals and betterments are capitalized. The cost and the
related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income.
 
 (f) Land Use
Rights
 
 According
to the law of PRC, the government owns all the land in the PRC. Companies or
individuals are authorized to possess and use the land only through land use
rights granted by the PRC government for 40 to 50 years.
  F-6
 
 Land use
rights represent the cost for purchasing the rights to use the leasehold land
for the production facilities of Hangzhou Great East Packaging Co., Limited and
Nanjing Great East Packaging Co., Limited.  It is stated at cost less
amortization. Land use rights are being amortized using the straight-line method
over the lease term of 50 years.
 
 Amortization
expenses for the years ended December 31, 2008 and 2007 were $9,244 and $8,410,
respectively.
 
 (g) Depreciation
and Amortization
 
 The
Company provides for depreciation of plant and equipment principally by use of
the straight-line method for financial reporting purposes. Plant and equipment
are depreciated over the following estimated useful lives:
 
 Building
              20
      yearsLeasehold
      improvement
              5
      yearsOffice
      equipment
              5
      yearsMachinery
      and equipment
              5 –
      15 yearsTransportation
      equipment
              5
      years
 
 The
depreciation expense for the year ended December 31, 2008 and 2007 amounted to
$1,735,831 and $2,019,790, respectively.
 
 (h) Accounting
for the Impairment of Long-Lived Assets
 
 The
long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. It is reasonably possible that these assets could
become impaired as a result of technology or other industry changes.
Determination of recoverability of assets to be held and used is by comparing
the carrying amount of an asset to future net undiscounted cash flows to be
generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. There were no impairments of long-lived assets for the years ended
December 31, 2008 and 2007.
 
 (i) Income
Tax
 
 The
Company has adopted the provisions of statements of Financial Accounting
Standards No. 109, “Accounting for Income Taxes,” which incorporates the use of
the asset and liability approach of accounting for income taxes. The Company
allows for recognition of deferred tax benefits in future years. Under the asset
and liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future realization is uncertain.
 
 In
accordance with the relevant tax laws and regulations of PRC, the applicable
corporation income tax rate was 25% for the year ended December 31, 2008 and
ranges from 27% to 33% for the year ended December 31, 2007.  At times
generally accepted accounting principles requires the Company to recognize
certain income and expenses that do not conform to the timing and conditions
allowed by the PRC. The Company’s provision for income taxes for the years ended
December 31, 2008 and 2007 were $948,949 and $783,283 respectively.
 
 (j) Fair
Value of Financial Instruments
 
 The
Company values its financial instruments as required by SFAS No. 157,
Disclosures about Fair Value of Financial Instruments . The estimated fair value
amounts have been determined by the Company, using available market information
or other appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop estimates of fair value.
Consequently, the estimates are not necessarily indicative of the amounts that
could be realized or would be paid in a current market exchange.
  The
Company’s financial instruments primarily consist of cash and cash equivalents,
accounts receivable, other deposits and prepayments, amount due from a related
party, accounts payable, short-term bank loans, other payables and accruals,
taxes payable, and amount due to a related party.
  As of the
balance sheet dates, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented, due to the
short maturities of these instruments and the fact that the interest rates on
the borrowings approximate those that would have been available for loans of
similar remaining maturity and risk profiles at respective year
ends.
  F-7
 
 (k) Revenue
Recognition
 
 Revenue
represents the invoiced value of goods sold recognized upon the shipment of
goods to customers. Revenue is recognized when all of the following criteria are
met:
 
 a)
              Persuasive
      evidence of an arrangement exists,
 b)
              Delivery
      has occurred,
 c)
              The
      seller’s price to the buyer is fixed or determinable,
  and
 d)
              Collectibility
      is reasonably assured.
 
 (l) Earnings
Per Share
 
 Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive.  As of December 31, 2008 and December 31, 2007, there were
no dilutive securities outstanding.
 
 (m) Use of
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
 
 (n) Retirement
Benefits
 
 The
country of PRC mandates companies to contribute funds into the national
retirement system, which benefits qualified employees based on where they were
born within the country. The Company pays the required payment for qualified
employees of the Company as a payroll tax expense. Very few employees in the
Company fall under the mandatory conditions requiring the Company to pay as a
payroll tax expense into the retirement system of the PRC.
 
 The
Company’s PRC subsidiaries are required to make appropriations to staff welfare
fund, based on after-tax net income determined in accordance with generally
accepted accounting principles of the People’s Republic of China (the “PRC
GAAP”). Appropriations to the staff welfare fund are made at the discretion of
the Board of Directors. The staff welfare fund is established for the purpose of
providing employee facilities and other collective benefits to the employees and
is non-distributable other than in liquidation.
 
 The
Company provides no other retirement benefits to its employees.
 
 (o) Comprehensive
Income
 
 Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, all
items that are required to be recognized under current accounting standards as
components of comprehensive income are required to be reported in a financial
statement that is presented with the same prominence as other financial
statements.  Comprehensive income includes net income and the foreign
currency translation gain, net of tax.
 
 (p) Foreign
Currency Translation
 
 The
accompanying consolidated financial statements are presented in United States
Dollars (US$). The functional currency of the Company is the Renminbi (RMB).
Capital accounts of the consolidated financial statements are translated into
United States dollars from RMB at their historical exchange rates when the
capital transactions occurred. Assets and liabilities are translated at the
exchange rates as of balance sheet date. Income and expenditures are translated
at the average exchange rate of the year.  The translation rates are
as follows:
 
 2008
              
              
              2007Year
      end RMB : US$ exchange rate
              
              
              0.1458
              
              
              
              0.1370Average
      yearly RMB : US$ exchange rate
              
              
              0.1446
              
              
              
              0.1315
  F-8
  On July
21, 2005, the PRC changed its foreign currency exchange policy from a fixed
RMB/US$ exchange rate into a flexible rate under the control of the PRC’s
government.
 
 The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions.  No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at the rates used in translation.
 
 (q) Recent
Accounting Pronouncements
 
 Below is
a listing of the most recent accounting standards and their effect on the
Company.
  In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51”, which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. SFAS 160 is effective
for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 is
not expected to have any effect on the Company’s consolidated financial
statements.
  In
December 2007, the FASB issued SFAS 141®, “Business Combinations”, which
replaces SFAS 141, “Business Combinations”. SFAS 141R retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting (which SFAS
141 called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. SFAS 141R requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the cquire at the acquisition date, measured at their
fair values as of that date, with limited exceptions. This replaces SFAS 141’s
cost-allocation process, which required the cost of an acquisition to be
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values. SFAS 141R also requires the acquirer in a business
combination achieved in stages (sometimes referred to as a step acquisition) to
recognize the identifiable assets and liabilities, as well as the noncontrolling
interest in the cquire, at the full amounts of their fair values (or other
amounts determined in accordance with SFAS 141R). SFAS 141R applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. An entity may not apply it before that date. The Company
believes that there would be no material impact on our financial statements upon
adoption of this standard.
 
 In April
2008, the FASB issued FSP FAS 142-3 “Determination of the useful life of
Intangible Assets”, which amends the factors a company should consider when
developing renewal assumptions used to determine the useful life of an
intangible asset under SFAS142. This FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. SFAS 142 requires companies to consider whether
renewal can be completed without substantial cost or material modification of
the existing terms and conditions associated with the asset. FSP FAS 142-3
replaces the previous useful life criteria with a new requirement—that an entity
consider its own historical experience in renewing similar arrangements. If
historical experience does not exist, then the Company would consider market
participant assumptions regarding renewal including 1) highest and best use of
the asset by a market participant, and 2) adjustments for other entity-specific
factors included in SFAS 142.
 
 In
September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans — an amendment of
FASB Statements No. 87, 88, 106, and 132®”. SFAS 158 requires plan
sponsors of defined benefit pension and other postretirement benefit plans
(collectively, “postretirement benefit plans”) to fully recognize the funded
status of their postretirement benefit plans in the statement of financial
position, measure the fair value of plan assets and benefit obligations as of
the date of the fiscal year-end statement of financial position and provide
additional disclosures.  The Company believes that implementation of
SFAS 158 will have little or no impact on our consolidated financial
statements since we have no applicable plans.
 
 In May
2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
Principles.” This Statement identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles (GAAP) in the United
States.
 
 In
considering all recent accounting pronouncements issued by the FASB, EITF, AICPA
or SEC, the Company does not expect that the adoption of any of these accounting
pronouncements will have a material effect on the Company’s future reported
financial position or results of operations.
  F-9
 
 NOTE5–ACCOUNTS
RECEIVABLE, NET
 
 As
      of December 31,2008
              
              
              2007Accounts
      receivable
              
              $
              2,016,545
              
              
              $
              2,481,648Less:
      Allowance for doubtful accounts
              
              
              -
              
              
              
              (55,082
              )Accounts
      receivable, net
              
              $
              2,016,545
              
              
              $
              2,426,566
  Allowance for doubtful accounts for the
yearsended December 31,
2007 was $55,082.Theallowancewaschargedoff againstgrossreceivableduring the year ended December 31, 2008as theamount is determined to be
uncollectible.
 
 
 NOTE6–INVENTORIES,
NET
 
 Inventories
consisting of raw materials and finished goods are stated at the lower of
weighted average cost or market value. Inventories are PET CSD bottles and its
raw material, PET, that is used to manufacture the PET CSD bottles.
 
 Inventories
as of December 31, 2008 and 2007 are summarized as follows:
 
 As
      of December 31,2008
              
              
              2007Raw
      materials
              
              $
              592,281
              
              
              $
              850,545Work-in-progress
              
              
              725,482
              
              
              
              796,190Finished
      goods
              
              
              331,787
              
              
              
              352,010Goods-in-transit
              
              
              -
              
              
              
              216Less:
      Provision for slow moving inventories
              
              
              (93,768
              )
              
              
              -Inventories,
      net
              
              $
              1,555,782
              
              
              $
              1,998,961
  Provision
for slow moving inventories for the years ended December 31, 2008 and 2007 was
$93,768 and nil, respectively.
  NOTE7–AMOUNT DUE
FROM A RELATEDPARTY
 
 Due from
a related party consists of short term borrowing to Great East Packaging
Holdings Limited (“GEPH”). GEPH is considered as a related party because of the
common ownership with the sole shareholder of the Company. These short term
borrowing and advances bears a 9% interest per annum, calculating on an accrual
basis using the effective interest method by applying the rates to the net
carrying amount of the assets.  Interest income accrued for the years
ended December 31, 2008 and 2007 were$108,277and nil,
respectively.
  NOTE8–PREPAID
EXPENSES AND OTHER
RECEIVABLES
 
 Prepaid
expenses consists of payments and deposits made by the Company to third parties
in the normal course of business operations with no interest being charged and
no fixed terms of repayment. These payments are made for the purchase of goods
and services that are used by the Company for its current
operations.
 
 The
Company evaluates the amounts recorded as prepaid expenses and other receivables
on a periodic basis and records a charge to the current operations of the
Company when the related expense has been incurred or when the amounts reported
as other receivables is no longer deemed to be collectible by the
Company.
  F-10
 
 Prepaid
expenses and other receivables as of December 31, 2008 and 2007 are summarized
as follows:
 
 As
      of December 31,2008
              
              
              2007Prepaid
      expenses
              
              $
              654,327
              
              
              $
              298,421Other
      receivables
              
              
              176,144
              
              
              
              179,184Total
              
              $
              830,471
              
              
              $
              477,605
  NOTE9–PROPERTY,
PLANT AND EQUIPMENT,
NET
 
 Property,
plant and equipment of the Company consist primarily of manufacturing facilities
and equipment owned and operated by the Company’s wholly-owned subsidiaries in
China. Property, plant and equipment as of December 31, 2008 and 2007 are
summarized as follows:
 
 As
      of December 31,2008
              
              
              2007At
      cost:Building
              
              $
              2,311,935
              
              
              $
              2,140,326Machinery
              
              
              33,405,303
              
              
              
              26,217,279Leasehold
      improvement
              
              
              393,426
              
              
              
              373,156Office
equipment
              
              
              1,134,841
              
              
              
              1,143,358Transportation
      vehicles
              
              
              746,700
              
              
              
              595,193Construction in
      progress
              
              
              1,995,134
              
              
              
              -39,987,339
              
              
              
              30,469,312Less:
      Accumulated depreciation
              
              $
              (18,665,235
              )
              
              $
              (16,011,888
              )Property,
      plant and equipment, net
              
              $
              21,322,104
              
              
              $
              14,457,424
  Depreciation
expense for the years ended December 31, 2008 and 2007 was $1,735,831 and
$2,019,790, respectively.
 
 NOTE 10 – LAND USE
RIGHTS
 
 Land use
rights as of December 31, 2008 and 2007 are summarized as follows:
 
 As
      of December 31,2008
              
              
              2007At
      cost:Land use rights
              
              $
              466,203
              
              
              $
              438,036Less:
      Accumulated amortization
              
              
              (119,659
              )
              
              
              (103,669
              )Total
              
              $
              346,544
              
              
              $
              334,367
 
 NOTE11–ACCRUED
EXPENSES AND OTHER PAYABLES
 
 As
      of December 31,2008
                
                
                2007Accrued
      expenses
                
                
                36,861
                
                
                
                16,213Other
      payables
                
                $
                64,427
                
                
                $
                87,378Total
                
                $
                101,288
                
                
                $
                103,591
 Other
payables consist of amounts owed by the Company to various entities that are
incurred by the Company outside of the normal course of business
operations.  These liabilities and accrued expenses are non interest
bearing and are payable within a year.
  F-11
 
 
 NOTE
12–BANKLOANS
 
 The
Company has entered into an arrangement with several banks to borrow funds on a
short term basis to purchase raw materials or finance the business operations of
the Company. Bank loans as of December 31, 2008 included Hong Kong Dollar
(“HKD”) and RMB bank loans whereas bank loans as of December 31, 2007 included
RMB bank loans only. The table below shows the amounts owed by the Company to
these banks along with the stated interest rate charged by these
banks.
 
 Bank
loans of the Company as of December 31, 2008 and 2007 were summarized as
follows:
 
 Interest
      rate
              
              
              Bank
      loans balanceAs
      of December 31,
              
              
              As
      of December 31,Name
      of banks
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007Hang
      Seng Bank
              
              
              7.750
              %
              
              
              -
              
              
              
              2,338,544
              
              
              
              -China
      Construction Bank
              
              
              7.470
              %
              
              
              6.757
              %
              
              $
              875,020
              
              
              $
              2,740,513Industrial
      and Commercial Bank of China
              
              7.920%
      to
                8.217%
              
              
              
              8.019
              %
              
              
              1,283,363
              
              
              
              1,205,826Bank
      of Communications
              
              
              7.330
              %
              
              
              5.115
              %
              
              
              1,166,694
              
              
              
              1,096,205DBS
      Bank (Hong Kong) Limited
              
              
              9.180
              %
              
              
              7.320
              %
              
              
              1,677,799
              
              
              
              1,878,369Others
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,1917,341,420
              
              
              
              6,923,104Less:Repayable
      after one year but within two years
              
              
              
              
              
              
              
              
              
              
              (740,304
              )
              
              
              (347,754
              )Repayable
      after two years but within five years
              
              
              
              
              
              
              
              
              
              
              (2,056,504
              )
              
              
              (1,228,789
              )Repayable
      after five year
              
              
              
              
              
              
              
              
              
              
              (537,838
              )
              
              
              -Current
      portion
              
              
              
              
              
              
              
              
              
              $
              4,066,774
              
              
              $
              5,346,561
  The
maturity dates for the above bank loans are summarized as follows:
  Bank
      loans balanceAs
      of December 31,Name
      of banks
              Drawn
      down currency
              Due
      date
              
              2008
              
              
              2007Hang
      Seng Bank
              HKD
              February
      2015
              
              
              1,163,054
              
              
              
              -Hang
      Seng Bank
              HKD
              March
      2015
              
              
              1,175,490
              
              
              
              -China
      Construction Bank
              RMB
              April
      2009
              
              
              875,020
              
              
              
              -China
      Construction Bank
              RMB
              March
      2008
              
              
              -
              
              
              
              685,128China
      Construction Bank
              RMB
              April
      2008
              
              
              -
              
              
              
              685,128China
      Construction Bank
              RMB
              June
      2008
              
              
              -
              
              
              
              1,370,257Industrial
      and Commercial Bank of China
              RMB
              September
      2009
              
              
              845,853
              
              
              
              -Industrial
      and Commercial Bank of China
              RMB
              September
      2009
              
              
              437,510
              
              
              
              -Industrial
      and Commercial Bank of China
              RMB
              September
      2008
              
              
              -
              
              
              
              1,205,826Bank
      of Communications
              RMB
              June
      2009
              
              
              1,166,694
              
              
              
              -Bank
      of Communications
              RMB
              June
      2008
              
              
              -
              
              
              
              1,096,205DBS
      Bank (Hong Kong) Limited
              RMB
              November
      2012
              
              
              1,677,799
              
              
              
              1,878,369Others
              
              
              
              
              -
              
              
              
              2,191$
              7,341,420
              
              
              $
              6,923,104
  F-12
  All bank
loans were secured and guaranteed by the following:
 
 Secured
      by:
              Building
      and land use rights of the CompanyBuilding
      and land use rights of Nanjing Crystal Pines Beverages & Packaging Co.
      Ltd., a related partyGuaranteed
      by:
              DirectorsMr.
      Guy ChungMr.
      Stetson ChungRelated
      companiesShanghai
      Great East Packaging Co. Ltd.Shenyang
      Great East Packaging Co. Ltd.Great
      East Packaging Holdings Ltd.Janwise
      LimitedGreat
      East Packaging (Hong Kong) Limited
  Interest
expenses for the bank loan for the years ended December 31, 2008 and 2007 were
$619,172 and $467,867, respectively.
  NOTE
13–INCOME TAX
AND DEFERRED TAX LIABILITIES
 
 (a) Corporation
Income Tax
 
 Provision
for PRC corporate income tax is calculated at the prevailing rate based on the
estimated assessable profits.  On March 1, 2007, the Fifth Plenary
Session of the Tenth National People’s Congress passed the new Corporate Income
Tax Law.   Pursuant to the new tax law, the statutory rate of
corporate income tax will change to 25% with effect from January 1,
2008.
 
 BVI
companies are not subjected to tax in accordance with the relevant tax laws and
regulations of the BVI.
 
 The
corporate income tax rates applicable to the Company and its subsidiaries for
the year ended December 31, 2008 and 2007 were as follows:
 
 Place
      of incorporation
              
              2008
              
              
              2007Citysky
      Investment Holdings, Inc
              BVI
              
              
              0
              %
              
              
              0
              %Great
      East Packaging (Nanjing) Limited
              BVI
              
              
              0
              %
              
              
              0
              %Great
      East Packaging International Limited
              BVI
              
              
              0
              %
              
              
              0
              %Great
      East Packaging (Xian) Limited
              BVI
              
              
              0
              %
              
              
              0
              %Hangzhou
      Great East Packaging Co., Limited
              PRC
              
              
              25.0
              %
              
              
              27.0
              %Nanjing
      Great East Packaging Co., Limited
              PRC
              
              
              25.0
              %
              
              
              27.0
              %Xian
      Great East Packaging Co., Limited
              PRC
              
              
              25.0
              %
              
              
              33.0
              %
 The
actual and effective corporate income tax was 21.1% and 20.6% for the years
ended December 31, 2008 and 2007, respectively.  The PRC subsidiaries
of the Company are registered as foreign investment enterprises.
 
 For
      the year ended December 31,2008
              
              
              2007Amount
              
              
              %
              
              
              Amount
              
              
              %Net
      income before provision for income taxes
              
              $
              4,492,986
              
              
              
              
              
              $
              3,796,672Tax
      at the applicable rate
              
              
              1,123,500
              
              
              
              25.0
              
              
              
              1,023,691
              
              
              
              27.0Tax
      effect of tax exemption
              
              
              -
              
              
              
              -
              
              
              
              (55,843
              )
              
              
              (1.5
              )Tax
      loss utilized from previous periods
              
              
              (67,041
              )
              
              
              (1.5
              )
              
              
              -
              
              
              
              -Underprovision
      in prior year
              
              
              28,309
              
              
              
              0.6
              
              
              
              -
              
              
              
              -Tax
      effect of income not subject to tax
              
              
              (135,819
              )
              
              
              (3.0
              )
              
              
              (184,565
              )
              
              
              (4.9
              )TOTAL
              
              $
              948,949
              
              
              
              21.1
              
              
              $
              783,283
              
              
              
              20.6
 
 The
provisions for income taxes for each of the two years ended December 31 are
summarized as follows:
 
 2008
              
              
              2007Current
              
              $
              920,640
              
              
              $
              783,283Underprovision
      in prior year
              
              
              28,309
              
              
              
              -948,949
              
              
              
              783,283Deferred
              
              
              -
              
              
              
              -TOTAL
              
              $
              948,949
              
              
              $
              783,283
  There are
no timing differences between reported book or financial income and income
computed for income tax purposes.  Therefore, the Company has made no
adjustment for deferred tax assets or liabilities.
  F-13
 
 (b) Value
Added Tax ("VAT")
 
 In
accordance with the current tax laws in the PRC, the VAT for domestic sales is
levied at 17% on the invoiced value of sales and is payable by the purchaser.
The PRC subsidiaries of the Company are required to remit the VAT they collects
to the tax authority, but may offset these tax liabilities from the VAT for the
taxes that they have paid on eligible purchases. The VAT payable balance of
$429,237 and $342,178 at December 31, 2008 and 2007, respectively has been
accrued and reflected as taxes payable in the accompanying consolidated balance
sheets.
 
 There is
no VAT under current tax laws in the BVI.
 
 NOTE
14–COMMON
STOCK
 
 The
Company authorized 375,000,000 shares $0.01 par value of common stock as of
December 31, 2008.
 
 On March
10, 2008, the Company entered into and completed the Share Exchange Agreement
with Citysky and the Shareholder. Pursuant to the terms of the Share Exchange
Agreement, the Company acquired 100% ownership of Citysky from the Shareholder.
Consideration by the Company was the issuance of 6,492,000 shares of its common
stock to the Shareholder. Subsequent to the completion of the Share Exchange
Agreement, Citysky became a wholly owned subsidiary of the Company and the
Company had a total of 8,000,000 shares of its common stock issued and
outstanding.
 
 On April
16, 2008, our Board of Directors approved a 1 for 5 forward stock split of our
common stock. The record date for the stock split was April 26, 2008. Upon the
completion of forward split, the Company has a total of 40,000,000 shares of
common stock issued and outstanding.
 
 NOTE 15 – CAPITAL
RESERVES
 
 In
accordance with the PRC Companies Law, the Company’s PRC subsidiaries were
required to transfer 10% of their profit after tax, as determined in accordance
with accounting standards and regulations of the PRC, to the statutory surplus
reserve and a percentage of not less than 5%, as determined by management, of
the profit after tax to the public welfare fund. With the amendment of the PRC
Companies Law which was effective January 1, 2006, enterprises in the PRC are no
longer required to transfer any profit to the public welfare fund. Any balance
of public welfare fund brought forward from December 31, 2005 should be
transferred to the statutory surplus reserve. The statutory surplus reserve is
non-distributable.
 
 NOTE 16 – RELATED PARTY
TRANSACTIONS
 
 In
addition to the transactions detailed elsewhere in these financial statements,
the Company entered into the following material transactions with GEPH for the
years ended December 31, 2008 and 2007:
 
 2008
              
              
              2007Sale
      of PET CSD bottles and materials
              
              $
              11,528,164
              
              
              $
              9,077,259Purchase
      of PET CSD bottles and materials
              
              
              7,294,589
              
              
              
              5,128,117
 
 In our
opinion, the above transactions were entered into by the Company in the normal
course of business.
 
 NOTE
17–CONTINGENCIES AND COMMITMENTS
 
 As of
December 31, 2008 and 2007, Nanjing Great East Packaging Co., Limited and Xian
Great East Packaging Co., Limited, the subsidiaries of the Company, had arranged
three non-cancelable operating leases with three third parties for their
production plants.   The expected annual lease payments under
these operating leases are as follows:
 
 As
      of December 31,2008
              
              
              2007For
      the year ended December 31,2008
              
              
              -
              
              
              
              153,8462009
              
              
              107,570
              
              
              
              68,1322010
              
              
              20,820
              
              
              
              68,1322011
              
              
              20,820
              
              
              
              28,3882012
              
              
              20,820
              
              
              
              -TOTAL
              
              $
              170,030
              
              
              $
              318,498
  F-14