GME INNOTAINMENT, INC. - Quarter Report: 2008 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: September 30, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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 small business issuer as specified in its charter)

FLORIDA		59-2318378
(State or other jurisdiction of incorporation or organization)		(I.R.S. Tax. I.D. No.)

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

(Address of Principal Executive Offices)

852-2192-4805

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange. (Check one):

Large Accelerated Filer ¨

Accelerated Filer ¨

Non-Accelerated Filer ¨

Smaller Reporting Company x

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

As of November 19, 2008, there were 40,000,000 shares of the issuer’s common stock outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheet as at September 30, 2008	2

	Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2007 and 2008 (Unaudited)	3

	Condensed Consolidated Statements Of Cash Flows for the Nine Months Ended September 30, 2007 and 2008 (Unaudited)	4

	Notes To Condensed Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	11

Item 3.	Quantitative And Qualitative Disclosures About Market Risk	15

Item 4.	Controls And Procedures	17

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	18

Item 1A.	Risk Factors	18

Item 2	Unregistered Sales Of Equity Securities And Use Of Proceeds	23

Item 3	Defaults Upon Senior Securities	23

Item 4	Submission Of Matters To A Vote Of Security Holders	23

Item 5	Other Information	23

Item 6	Exhibits.	23

SIGNATURES		24

GREAT EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

	September 30, 2008
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalent	$	293,629
Pledged deposits		4,525,167
Accounts receivable, net		4,106,631
Inventories		1,920,207
Deposits, prepaid expenses and other receivables		1,553,201
Total current assets		12,398,835

PROPERTY, PLANT & EQUIPMENT, NET		19,361,467
LAND USE RIGHT, NET		347,855

TOTAL ASSETS	$	32,108,157

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
CURRENT LIABILITIES
Bank loans	$	3,949,700
Accounts payable		1,826,444
Notes payables		2,315,631
Due to a related party		788,195
Accrued expenses and other payables		640,680
VAT payable		403,715
Income tax payable		492,017
Total current liabilities		10,416,382

LONG-TERM BANK LOAN		3,535,319
TOTAL LIABILITIES	$	13,951,701

MINORITY INTERESTS		119,734
STOCKHOLDERS’ EQUITY
Common stock, Par value $0.01; 375,000,000 shares authorized; $0.01 par value; 40,000,000 shares issued and outstanding on September 30, 2008	$	400,000
Additional paid in capital		9,795,277
Capital reserves		2,179,865
Retained earnings		2,178,456
Other comprehensive income		3,483,124
TOTAL STOCKHOLDERS’ EQUITY	$	18,036,722

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	32,108,157

See accompanying notes to the condensed consolidated financial statements

GREAT EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007

REVENUE	$	9,754,226		$	8,447,485		$	24,134,317		$	20,276,742

COST OF SALES		7,335,468			6,429,656			18,311,915			15,996,244

GROSS MARGIN		2,418,758			2,017,829			5,822,402			4,280,498

EXPENSES
Selling and distribution		16,736			13,885			38,011			36,676
General and administrative		371,235			436,100			1,203,465			1,154,328
TOTAL OPERATING EXPENSES		387,971			449,985			1,241,476			1,191,004
INCOME FROM CONTINUING OPERATIONS		2,030,787			1,567,849			4,580,926			3,089,494

OTHER INCOME/(EXPENSES)
Other income		58,731			51,271			176,250			167,492
Interest Income		18,617			22,841			176,002			68,365
Bank loan interest		(137,005	)		(219,095	)		(496,573	)		(358,753	)
Other interest expense		(138,364	)		(29,277	)		(295,177	)		(257,115	)
TOTAL OTHER INCOME/(EXPENSES)		(198,021	)		(174,260	)		(439,498	)		(380,011	)

INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTERESTS		1,832,766			1,393,584			4,141,428			2,709,483

PROVISION FOR INCOME TAXES		416,492			330,552			887,238			587,687

INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS	$	1,416,274		$	1,063,032		$	3,254,190		$	2,121,796

MINORITY INTERESTS		3,224			-			11,005			-

INCOME FROM CONTINUING OPERATIONS	$	1,413,050		$	1,063,032		$	3,243,185		$	2,121,796

DISCONTINUED OPERATIONS
Income from discontinued operations	$	-		$	-		$	1,311			-
Loss on disposal of subsidiary		-			-			(31,405	)		-
LOSS FROM DISCONTINUED OPERATIONS	$	-		$	-		$	(30,094	)	$	-

NET INCOME	$	1,413,050		$	1,063,032		$	3,213,091		$	2,121,796

OTHER COMPREHENSIVE INCOME
Gain/(loss) on foreign exchange translation		(170,561	)		128,726			1,263,735			648,167

COMPREHENSIVE INCOME	$	1,242,489		$	1,191,758		$	4,476,826		$	2,769,963

NET INCOME PER SHARE, BASIC & DILUTED	$	0.035		$	0.027		$	0.080		$	0.053

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED		40,000,000			40,000,000			40,000,000			40,000,000

See accompanying notes to the condensed consolidated financial statements

GREAT EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Nine Months Ended September 30,
	2008			2007
Cash Flows From Operating Activities:
Net income	$	3,213,091		$	2,121,796
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation		1,256,217			1,625,177
Amortization of land use rights		6,864			6,265
Minority interests		11,005			-
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable		(1,680,065	)		77,056
Increase in inventories		78,754			544,011
Increase in prepaid expenses and other receivable		(1,075,321	)		(62,650	)
Increase/(decrease) in accounts payable		406,459			(133,360	)
Increase in accrued expenses and other payables		537,089			245,666
Increase in notes payable		1,229,675			993,108
Increase in taxes payable		174,110			439,758
Net cash provided from operating activities		4,157,878			5,856,827

Cash Flows From Investing Activities:
Purchase of property, plant and equipment		(5,218,181	)		(1,318,538	)
Net cash used in investing activities		(5,218,181	)		(1,318,538	)

Cash Flows From Financing Activities:
Proceeds from bank loans		7,485,019			7,160,538
Repayment of bank loans		(6,923,104	)		(6,900,231	)
Increase in amount due to a related party		783,115			(6,567,216	)
(Increase)/decrease in pledged deposits		(418,909	)		2,100,321
Net cash provided from/(used in) financing activities		926,121			(4,206,588	)

Net (decrease)/increase in cash and cash equivalents		(134,182	)		331,701

Effect of foreign exchange rate changes		306,237			132,093

Cash and cash equivalents, at Beginning of Period		121,574			648,810

Cash and cash equivalents, at the End of Period	$	293,629		$	1,112,604

Supplementary disclosures:
Cash paid for interest expense	$	791,750		$	615,868
Cash paid for income tax	$	799,280		$	388,326

See accompanying notes to the condensed consolidated financial statements

GREAT EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

NOTE 1 - BASIS OF PRESENTATION

The unaudited interim financial statements of Great East Bottles & Drinks (China) Holdings, Inc. (“GEBD” or the “Company”), and subsidiaries for the three months and nine months ended September 30, 2008 and 2007 are prepared in accordance with requirements for unaudited interim periods, and consequently do not include all disclosures required to be in conformity with accounting principles generally accepted in the United States of America.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of September 30, 2008 and the results of its operations for the three months and nine months ended September 30, 2008 and 2007 and cash flows for the nine months ended September 30, 2008 and 2007.

The results of operations for the three months and nine months ended September 30, 2008 are not necessarily indicative of the results for a full year period.

All material inter-company accounts and transactions have been eliminated in consolidation.

NOTE 2 - 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.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)	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.

(b)	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 overheads. Inventory costs are calculated using a weighted average, first in first out (FIFO) method of accounting.

(c)	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.

(d)	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 September 30, 2008 and 2007, there were no dilutive securities outstanding.

(e)	Recent Accounting Pronouncements

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

NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash and cash equivalents, accounts receivable, prepayments, other receivables, taxes payable, accounts payable, notes payables, accrued expenses, debt, customer deposits and other payables. Management has estimated that the carrying amount approximates their fair value due to their short-term nature.

NOTE 5 - FOREIGN CURRENCY TRANSLATION

The accompanying condensed 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:

	September 30, 2008		December 31, 2007		September 30, 2007

Period/year end RMB : US$ exchange rate		0.1454		0.1370		0.1326
Average RMB : US$ exchange rate for the year/period		0.1431		0.1315		0.1307

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.

NOTE 6 - PLEDGED DEPOSITS

Pledged deposits represented bank deposits pledged to banks for the issuance of notes payable to suppliers.

NOTE 7 - INVENTORIES

Inventories consisting of raw materials, work-in-progress, goods-in-transit and finished goods are stated at the lower of weighted average cost or market value. Inventories included “PET CSD bottles”, and “PET”, a raw material to manufacture “PET CSD bottles”.

Inventories as of September 30, 2008 and December 31, 2007 are summarized as follows:

	September 30, 2008		December 31, 2007

Raw materials	$	1,005,493	$	850,545
Work-in-progress		519,472		796,190
Finished goods		306,900		352,010
Goods-in-transit		88,342		216

Total	$	1,920,207	$	1,998,961

NOTE 8 - DUE TO A RELATED COMPANY

Due to a related company consists of advances from Great East Packaging Holdings Limited (“GEPH”) to the Company. GEPH is related to the Company because of the common ownership with the sole shareholder of the Company.

NOTE 9 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment of the Company consist primarily of manufacturing facilities and equipment owned and operated by the Company’s wholly owned subsidiaries in China. Property, plant and equipment as of September 30, 2008 and December 31, 2007 are summarized as follows:

	September 30, 2008			December 31, 2007

At cost:
Buildings	$	2,271,293		$	2,140,326
Machinery		32,821,214			26,217,279
Leasehold improvement		392,275			373,156
Office equipment		1,267,565			1,143,358
Transportation vehicles		744,517			595,193
Construction in progress		5,653			-
		37,502,517			30,469,312

Less: Accumulated depreciation		(18,141,050	)		(16,011,888	)

Property, plant and equipment, net	$	19,361,467		$	14,457,424

Depreciation expense for the nine months ended September 30, 2008 and 2007 were $1,256,217 and $1,625,177, respectively.

NOTE 10 - BANK LOANS

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 September 30, 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 sets for the amounts owed by the Company to these banks along with the stated interest rate charged by these banks.

The Company has also entered into an arrangement with several banks to borrow funds on a long term basis to finance the operations of the Company.

Bank loans of the Company as of September 30, 2008 and December 31, 2007 were summarized as follows:

	Interest rate						Bank loans balance
	As of						As of
Name of banks	September 30, 2008			December 31, 2007			September 30, 2008			December 31, 2007

China Construction Bank		7.470	%		6.757	%	$	872,462		$	2,740,513
Industrial and Commercial Bank of China		8.219	%		8.019	%		1,279,610			1,205,826
Bank of Communications		5.115	%		5.115	%		1,163,282			1,096,205
DBS Bank (Hong Kong) Limited		9.288	%		7.320	%		1,760,623			1,878,369
Hang Seng Bank Limited		7.750	%		-			2,409,042			-
Others								-			2,191
							$	7,485,019		$	6,923,104
Less:
Repayable after one year but within two years								(656,692	)		(347,754	)
Repayable after two years but within five years								(2,178,997	)		(1,228,789	)
Repayable after five years								(699,630	)		-
Current portion							$	3,949,700		$	5,346,561

The maturity of the above bank loans are summarized as follows:

			Bank loans balance
			As of
Name of banks	Drawn down currency	Due date		September 30, 2008		December 31, 2007

China Construction Bank	RMB	March 2008	$	-	$	685,128
China Construction Bank	RMB	April 2008		-		685,128
China Construction Bank	RMB	June 2008		-		1,370,257
China Construction Bank	RMB	Apr 2009		872,462		-
Industrial and Commercial Bank of China	RMB	September 2009		1,279,610		1,205,826
Bank of Communications	RMB	June 2009		1,163,282		1,096,205
DBS Bank (Hong Kong) Limited	RMB	November 2012		1,760,623		1,878,369
Hang Seng Bank Limited	HKD	February 2015		1,210,619		-
Hang Seng Bank Limited	HKD	March 2015		1,198,423		-
Others				-		2,191
			$	7,485,019	$	6,923,104

All bank loans were secured and guaranteed by the followings:

Secured by:	Building and land use rights of the Company
	Building and land use rights of Nanjing Crystal Pines Beverages & Packaging Co. Ltd., a related company

Guaranteed by:	Directors
	Mr. Guy Chung
	Mr. Stetson Chung
	Related companies
	Shanghai Great East Packaging Co. Ltd.
	Shenyang Great East Packaging Co. Ltd.
	Great East Packaging Holdings Ltd.
	Janwise Limited
	Great East Packaging (Hong Kong) Limited

Interest expense for the bank loans were $496,573 and $358,753 for the nine months ended September 30, 2008 and 2007, respectively.

NOTE 11 - INCOME TAX

(a) Corporation Income Tax ("CIT")

In accordance with the relevant tax laws and regulations of the British Virgin Islands (the “BVI”) and the PRC, the statutory corporate income tax rates are 0% in BVI and 25% (2007: 27% to 33%) in the PRC. The corporate income tax rates applicable to the Company and its subsidiaries for the periods ended September 30, 2008 and 2007 were as follows:

	Place of incorporation		September 30, 2008			September 30, 2007

Citysky		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	%		27	%
Nanjing Great East Packaging Co., Limited		PRC		25	%		27	%
Xian Great East Packaging Co., Limited		PRC		25	%		33	%

The actual and effective corporate income tax was 21.4% and 21.7% for the periods ended September 30, 2008 and 2007, respectively. The PRC subsidiaries of the Company are registered as foreign investment enterprises.

	For the period ended September 30,
	2008			2007

Net income before provision for income taxes	$	4,141,428		$	2,709,483

Tax at the applicable rate: 25% (2007: 27% to 33%)		1,034,735			842,390
Tax effect of income not subject to tax		(147,497	)		(254,703	)

TOTAL	$	887,238		$	587,687

The provisions for income taxes for each of the two periods ended September 30, 2008 and 2007 are summarized as follows:

	As of September 30,
	2008		2007

Current	$	887,238	$	587,687
Deferred		-		-

TOTAL	$	887,238	$	587,687

The permanent difference originated from mainly comprised of tax exemption enjoyed by the subsidiaries of the Company for the periods ended September 30, 2008 and 2007 under the PRC tax regulations.

There are no other significant 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.

(b) Value Added Tax ("VAT")

There is no VAT under current tax laws in the BVI.

In accordance with the current tax laws in the PRC, the VAT rate for export sales is 0% and domestic sales is 17%. VAT 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 net payable amount of $403,715 at September 30, 2008 has been accrued and reflected as VAT payable in the accompanying condensed consolidated balance sheets.

NOTE 11 - COMMON STOCK

The Company authorized 375,000,000 shares $0.01 par value of common stock as of September 30, 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 outstanding.

NOTE 12 – CONTINGENCIES AND COMMITMENTS

As of September 30, 2008, 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:

	September 30, 2008
For the period ended September 30,
2009		74,142
2010		74,142
2011		49,427

TOTAL	$	197,711

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Note regarding forward – looking statements

This quarterly report contains forward-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 base the forward-looking statements on information currently available to us, and we assume no obligation to update them.

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-Q to “ “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 in accordance 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.

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 of SAB 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 Ended September 30, 2008 as Compared to Three Months Ended September 30, 2007

The following table summarizes the results of our operations during the three-month period ended September 30, 2008 and 2007, and provides information regarding the dollar and percentage increase or (decrease) from the three-month period ended September 30, 2008 to the three-month period ended September 30, 2007.

	Three months ended Sept 30,
	2008			2007			Increase			% Increase
Revenue	$	9,754,226		$	8,447,485		$	1,306,741			15.5	%
Cost of sales		7,335,468			6,429,656			905,812			14.1	%
Gross profit		2,418,758			2,017,829			400,929			19.9	%
General & administrative		371,235			436,100			(64,865	)		(14.9	)%
Sales & marketing		16,736			13,885			2,851			20.5	%
Income from operations		2,030,787			1,567,844			462,943			29.5	%
Other income (expense)		(198,021	)		(174,260	)		(23,761	)		(13.6	)%
Provision for taxation		416,492			330,552			85,940			26.0	%
Minority interests		3,224			-			3,224			N/A
Discontinued operations		-			-			-			N/A
Net income		1,413,050			1,063,032			350,018			32.9	%

Revenues

Sales revenue increased from $8,447,485 in the third quarter of 2007 to $9,754,226 in the same period in 2008, representing a 15.5% 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.

Cost of sales and gross margin

Cost of sales increased from $6,429,656 in the third quarter of 2007 to $7,335,468 in the same period in 2008, representing a 14.1% increase. The increase was due to the increase in sales in the third quarter of 2008 as compared to the same period last year. We recorded a gross margin of 24.8% in the third quarter of 2008, an increase of nearly 19.9% as compared to 23.9% in the same period last year. The increase was mainly due to the increase in production volume, which lowered the per unit fixed costs.

Sales and marketing

Sales and marketing expenses increased by $2,851 or 20.5% from $13,885 in third quarter 2007 to $16,736 in the same period 2008. The increase was mainly due to and in line with the increase in sales.

General and administrative

General and administrative expenses increased from $436,100 in the third quarter of 2007 to $371,235 for the same period 2008, representing a decrease of $64,865 or 14.9%. The decrease was mainly a result of implementation of cost reduction.

Net income

Net income for the third quarter ended 2008 was $1,413,050 as compared to $1,063,032 in the same period 2007. The material increase was mainly attributable to the increase in sales and the improved in gross margin during the period.

Results of Operations – Nine Months Ended September 30, 2008 as Compared to Nine Months Ended September 30, 2007

The following table summarizes the results of our operations during the nine-month period ended September 30, 2008 and 2007, and provides information regarding the dollar and percentage increase or (decrease) from the nine-month period ended September 30, 2008 to the nine-month period ended September 30, 2007.

	Six months ended September 30,
	2008			2007			Increase			% Increase
Revenue	$	24,134,317		$	20,276,742		$	3,857,575			19.0	%
Cost of sales		18,311,915			15,996,244			2,315,671			14.5	%
Gross profit		5,822,402			4,280,498			1,541,904			36.0	%
General & administrative		1,203,465			1,154,328			49,137			4.3	%
Sales & marketing		38,011			36,676			1,335			3.6	%
Income from operations		4,580,926			3,089,494			1,491,432			48.3	%
Other income (expense)		(439,498	)		(380,011	)		(59,487	)		15.7	%
Provision for taxation		887,238			587,687			299,551			51.0	%
Minority interests		11,005			-			11,005			N/A
Discontinued operations		-			-			-			N/A
Net income		3,213,091			2,121,796			1,091,295			51.4	%

Revenues

Sales revenue increased from $20,276,742 in the first nine months of 2007 to $24,134,317 in the same period in 2008, representing a 19.0% 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.

Cost of sales and gross margin

Cost of sales increased from $15,996,244 in the first nine months of 2007 to $18,311,915 in the same period in 2008, representing a 14.5% increase. The increase was due to the increase in sales in the first nine months of 2008 as compared to the same period last year. We recorded a gross margin of 24.1% in the first nine months of 2008, an increase of 36.0% as compared to 21.1% in the same period last year. The increase was mainly due to the increase in production volume, which lowered the per unit fixed costs.

Sales and marketing

Sales and marketing expenses increased by $1,335 or 3.6% from $36,676 in first nine months of 2007 to $38,011 in the same period 2008. The increase was mainly due to sales increase.

General and administrative

General and administrative expenses increased from $1,154,328 in the first nine months of 2007 to $1,203,465 for the same period 2008, representing an increase of $49,137 or 4.3%. 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.

Net income

Net income for the first nine months ended 2008 was $3,243,185 as compared to $2,121,796 in 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 at September 30, 2008 was $293,629, representing a decrease of $818,975, compared with our cash balance of $1,112,604 as at September 30, 2007. The cash was mainly used to fund our operations.

Cash flow

Operating Activities

Net cash inflows from operating activities during the nine months ended September 30, 2008 amounted to $4,157,878, representing a decrease in inflow of $1,698,949 compared with net cash outflows from operating activities of $5,856,827 in the same period of 2007. The decrease in cash inflow was mainly due to increase in accounts receivables and other receivables as at September 30, 2008.

Investing Activities

Net cash outflow from investing activities increased from $1,318,538 for the first nine months ended 2007 to $5,218,181 for the same period of 2008, representing an increase of $3,899,643. 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 $926,121 for the first nine months of 2008, representing a decrease of $5,132,709 over the net cash outflow of $4,206,588 recorded in the same period of 2007. The change was due to the decrease in amount due to related party for the period ended September 30, 2008.

Working capital

Our working capital increased by $1,558,955 to $1,982,453 at September 30, 2008 from $423,498 at December 31, 2007, mainly due to increase in net cash inflow from operating activities as well as increase in long term bank loan during the first nine months of 2008.

We currently generate our cash flow through production and sales of PET bottles and PET performs 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 of September 30, 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 the nine months ended September 30, 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 in currency hedging.

ITEM 3. 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 not enter 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 the period ended September 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 our operating 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 foreign currency 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 price our 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.

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 period result 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's Bank 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 managed band 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, its Currency 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 expectation for a larger appreciation range is shrinking. The Company has never engaged in currency hedging operations and has no present intention to do so.

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:

The Company's business is characterized by new product and service development and evolving industry 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 additional capital.

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, financially disruptive effect on the normal operations of the Company.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our Chief Executive Officer and acting Chief Financial Officer ("Certifying Officers") maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. Under the supervision and with the participation of management, our Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) within 90 days prior to the filing date of this report. Based upon that evaluation, our Certifying Officers concluded that our disclosure controls and procedures are effective in timely alerting them to material information relative to our Company required to be disclosed in our periodic filings with the SEC.

Changes in internal controls

There were no changes in our internal controls over financial reporting identified in connection with the evaluation that occurred during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Sarbanes – Oxley Act 404 compliance

The Company anticipates that it will be fully compliant with Section 404 of the Sarbanes-Oxley Act of 2002 by the required date for smaller reporting companies and it is in the process of reviewing its internal control systems in order to be compliant with Section 404 of the Sarbanes-Oxley Act. However, at this time the Company makes no representation that its systems of internal control comply with Section 404 of the Sarbanes-Oxley Act.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company may from time to time be involved in various claims, lawsuits, and disputes with third parties, actions involving allegations of discrimination, or breach of contract actions incidental to the operation of its business. The Company is not currently involved in any such litigation that it believes could have a materially adverse effect on its financial condition or results of operations.

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

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.

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 quarter of the year when the weather is hot and dry, and lower in the fourth and first quarter 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.

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.

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.

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 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. Chung A San Guy. Since then, Mr. Stetson Chung, the son of Mr. Chung A San Guy 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 concentrated ownership of our common stock may have the effect of delaying or preventing a change in control of our Company.

Our directors, officers, key personnel and their affiliates as a group beneficially own a majority of our outstanding common stock. As a result, these stockholders 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.

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.

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.

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.

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.

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.

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 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.

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.

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.

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.

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.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Chief Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

	GREAT EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC.

Dated: November 19, 2008	By: /s/ Stetson Chung
	Stetson Chung
	Chief Executive Officer, acting Chief Financial Officer; and Director