10-K 1 genred10k123108.txt 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 EXCHANGE ACT OF 1934 For the fiscal years ended December 31, 2007, 2006 and 2005 Commission file number 000-50471 General Red International, Inc. (Exact name of registrant as specified in its charter) Suite 1501, Plaza B, Jianwai SOHU No. 39, Eastern Three Ring Middle Road Chaoyang District, Beijing, China Postal Code: 100020 (Address of principal executive offices, including zip code) 86-10-58699681 (Registrant's telephone number, including area code) 86-10-58699621 (Registrant's facsimile number, including area code) Copy of Communication to: Bernard & Yam, LLP Attention: Man Yam, Esq. 401 Broadway Suite 1708 New York, NY 10013 Phone: 212-219-7783 Fax: 212-219-3604 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: [X] Yes No [ ] Indicate by check mark whether the registrant(1) has filed all reports required 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 day. [ ] Yes [ X ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 if the Exchange Act. Large Accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) Page 1 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [ X] No State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity: As of December 31, 2007, 23,384,114 shares of common stock and 135,998 shares of preferred stock. TABLE OF CONTENTS Special Note Regarding Forward Looking Statements PART I Item 1. Business. Item 1A. Risk Factors. Item 1B. Unresolved Staff Comments. Item 2. Properties. Item 3. Legal Proceedings. Item 4. Submission of Matters to a Vote of Security Holders. PART II Item 5. Market For Common Stock and Related Stockholder Matters. Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition or Plan of Operation. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Item 8. Financial Statements and Supplementary Data. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services. Item 15. Exhibits, Financial Statement Schedules. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS Except for statements of historical fact, certain information contained herein constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements are usually identified by our use of certain terminology, including "will", "believes", "may", "expects", "should", "seeks", "anticipates" or "intends" or by discussions of strategy or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Such factors include, among others, our history of operating losses and uncertainty of future profitability; our lack of working capital and uncertainty Page 2 regarding our ability to continue as a going concern; uncertainty of access to additional capital; risks inherent in mineral exploration; environmental liability claims and insurance; dependence on consultants and third parties as well as those factors discussed in the section entitled "Risk Factors", "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Forward looking statements in this document are not a prediction of future events or circumstances, and those future events or circumstances may not occur. Given these uncertainties, users of the information included herein, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not assume responsibility for the accuracy and completeness of these statements. All references in this Report on Form 10-K to the terms "we", "our", "us", and "the Company" refer to General Red International, Inc. (formerly known as "Paradise Tan, Inc."). PART I ITEM 1. BUSINESS Overview General Red International, Inc. (formerly "Paradise Tan, Inc." for the periods reported on this Form 10K) (the "Company" or "Paradise Tan") developed, marketed, franchised, licensed, and operated retail locations offering indoor tanning services and related products to the general public under the Paradise Tan ? name. "Indoor tanning" refers to the use of specially designed fluorescent lamps emitting specific wavelengths of ultraviolet light to cause a customer's skin to develop a tan in response. The Company is a Texas corporation formed in 1994. The Company opened its first tanning center in 1994. During the first two years of operations, the Company opened three more tanning centers in the Dallas/Fort Worth, Texas area, bringing the total to four. In 1997, the Company opened its first concept indoor tanning center that would become the prototype for future locations. With the prototype center, the Company started its franchising program under Paradise Franchising International, Inc. (the "Franchise Company"), a wholly owned subsidiary of the Company. Franchised locations pay the Company an initial franchise fee of $24,000 and monthly fees ranging from $250 to $350, based on gross revenues. Franchisees receive training, assistance in maintaining profitable operations and join in cooperative advertising programs. In 2001, the Company also started a licensing program. Licensees pay a flat monthly fee of $350; in return licensees are allowed to use the Paradise Tan ? name and logo and are part of the cooperative advertising program. Licensees do not receive training or operational assistance unless they pay additional consulting fees on a fee-for-service basis. Most of the Company's revenues are from sales of memberships in its indoor tanning centers. The Company also earned revenue from the sales of lotions and apparel, franchise fees and license fees. There are many levels of memberships and each entitles the member to use the Company's facilities as often as desired, commensurate with safety considerations and level of the membership. See "Government Regulations." Memberships are sold on a pre-paid basis with a monthly payment option, but terms and conditions of memberships can be modified from time to time to reflect special offers, new store promotions and other discounts. On November 14, 2007, the company sold its remaining tanning salon operations to a former Director of the company. The details of the transaction included the assumption of the book value of assets and all liabilities. The acquiring private corporation also signed an indemnification agreement, for the benefit of the company. The company recognized a gain on the transaction as a result of the extinguishment of debt. During 2007, The Company recognized a contingent liability of $100,000 for any potential future liabilities that may arise as a result of the transaction. The company has been operating as a shell since that date. Industry Overview Page 3 The U.S. indoor tanning industry began in 1979. According to industry sources, the total U.S. indoor tanning industry is estimated to have annual revenues of over $5 billion in 2003, with an estimated 20,000 to 25,000 locations that concentrate strictly on tanning. The three largest segments of the indoor tanning industry are tanning sessions (services), the manufacture of tanning devices and the manufacture and sale of tanning lotions specifically designed for indoor tanning. Industry sources estimate that approximately 10,000 tanning beds are sold annually in the United States to retail indoor tanning locations, with a total installed base of approximately 178,000 units, at an average price of $7,000 per bed. These sales do not include home sales or other equipment and accessories. Currently, there are approximately 32 to 42 tanning lotion manufacturers, although that number varies. According to industry sources, the largest manufacturer of tanning products, ETS, Inc., produces revenues in excess of $40 million annually. The Company has targeted the largest segment of the indoor tanning industry, tanning services, as its primary business and the retail sale of indoor tanning lotions as its secondary objective. Small independent operators currently dominate the indoor tanning service industry, the average operator having one or two locations in a single metropolitan area. These operators are traditionally undercapitalized and rely primarily upon their personal financial resources. Independently operated tanning centers usually offer limited choices to customers as to hours of operation and tanning devices and do not have standardized operating or marketing procedures. Most marketing by such operators is by word of mouth, local print advertising and couponing. After research, the Company has been unable to identify any single entity that accounts for more than 1% of the national indoor tanning services market. The Company believes the growing number of tanning centers, together with greater consumer acceptance of indoor tanning, has resulted in significant increases in industry sales, with steady revenue growth over the past three years. Business Strategy The Company's business strategy is designed to achieve further growth in the indoor tanning services industry, to utilize its concept store to dominate any market area it enters, to establish a national corporate presence and to develop consumer recognition of the Paradise Tan and Paradise Tanning Centers names. The tanning services segment of the market consists almost exclusively of small independently owned indoor tanning centers that offer limited hours of access with two to ten tanning beds. Management believes that the current state of the indoor tanning industry is comparable to the videotape rental industry approximately ten years ago. During the early 1980's, independent videotape rental stores dominated that industry and offered a limited number of movie titles from small shops during limited operating hours. Since that time, the videotape rental industry has become dominated by a small number of large companies offering larger stores, substantially larger product inventories and increased hours of operation, along with a wide variety of related products and services (videotape sales, used tape sales, equipment, popcorn, candy and the like). These larger and better capitalized operators have eliminated much of the independent competition and captured significant market share. The Company's plan is to become a dominant force in the tanning services industry by adopting business strategies similar to those of the larger corporate chains that now dominate the videotape rental industry. The Company has already developed a standard concept for providing indoor tanning services. Since the Company opened its first indoor tanning center in 1994, we have refined the concept through a number of evolutionary changes. These refinements have included more sophisticated management and operational control systems than found in typical tanning stores, distinctive interior and exterior designs, standardized color schemes, uniform store layouts and facilities. The Company is confident that the concept store has been sufficiently refined for introduction into new markets. The concept store is an integrated marketing approach evident in both the exterior and interior of the stores. Each new Paradise Tan ? indoor tanning center has a standardized design and color scheme that combine to give each store a consistent architectural look. Each 1,600 to 2,600 square foot concept store is equipped with eleven to twenty state of the art tanning beds and booths. With average tanning sessions of ten to twenty minutes, members have continuous access and availability of equipment to fit individual tanning needs and schedules. A typical Paradise Tan indoor tanning center will operate somewhat longer hours than a typical family owned tanning center. Location hours vary by season. The Company believes that implementation of the concept store Page 4 will force competitors within a market area to compete on a similar level, requiring them to raise significant capital within a short period of time or withdraw from the market. Along with a standardized interior design, color scheme and upscale atmosphere, our Paradise Tan ? locations use a consistent set of management and financial information and control systems that the Company has developed. These control systems include the use of a computerized database to ensure that customers are tanning within safe limits for their age and skin type. The Company also requires training of its employees and managers and those of its franchisees. The Company has the right to require its management, employees and those of its franchisees to attend continuing training if necessary. The use of management and financial control systems allows the Company to monitor the financial health of its Company-owned locations and those of its franchisees; these controls include daily and weekly gross sales reports, monthly and quarterly profit and loss statements and annual financial statements for each Paradise Tan Company-owned and franchised location. The next phase of the Company's strategy is to rapidly expand the number of indoor tanning centers in existing markets to increase market penetration and expand its market areas. Within the next eighteen months, the Company plans to open or acquire, on average, approximately one Company-owned and operated store per quarter for the next six quarters, for a total of up to six new stores. Further expansion beyond this period will depend upon (i) the Company's ability to generate sufficient cash flow from its operations to open additional stores, (ii) the use of franchising, (iii) successfully obtaining additional debt or equity capital through institutional borrowings or additional offerings or (iv) a combination of the above. The Company has recently implemented a strategy to acquire all of the franchised and licensed locations in the Dallas/Ft. Worth area and operate them as Company-owned locations. As part of this strategy, the Company has acquired one location in the second quarter of 2004 from a licensee, acquiring all of the location's equipment for under market price. The Company is currently operating an additional licensed location and intends to acquire the location and its equipment by taking over existing financing. This transaction has not yet been finalized. The Company currently estimates that the cost to construct and equip a Paradise Tan ? concept store is approximately $150,000 to $175,000. Of this amount, approximately $65,000 is required for leasehold improvements and equipment meeting the Company's specifications and $85,000 to purchase tanning beds, booths and related equipment, inventory and miscellaneous expenses. The cost of acquisition of an existing indoor tanning center from a competitor and refurbishing it as a Paradise Tan indoor tanning center will vary from location to location. One of the latest innovations in the tanning industry is UV Free Tanning. UV Free Tanning allows a person to get a tan with the application of a mist sprayed onto the skin to produce a tan. The Company is in talks with a manufacturer to utilize their equipment to supply our Paradise Tanning Centers ? locations. We currently operate seven UV Free Tanning units with plans to expand this to all of our current and future locations. The Company also plans to capitalize on growing consumer awareness of the Paradise Tan ? brand by offering a full line of tanning products, including lotions and accelerators. The Company does not currently plan to manufacture its own product lines, but intends to utilize contract manufacturers that will private label the Company's formulations. The Company believes that offering its own tanning products on a national basis will promote brand recognition and benefit sales of its indoor tanning services. Seasonality The indoor tanning business is seasonal, with most memberships sold in the period from January through June. Paradise Tan ? uses an "autodraft" system, which automatically deducts monthly payments from a customer's bank account. This allows for cash flow throughout the year, but also allows the customer to cancel at any time. Customers may also put memberships "on hold," which allows the customer to remain as a member without having fees deducted for a set period of time. Advertising and Promotion Page 5 The Company currently uses several methods of advertising and promotion, including print and broadcast media in the two markets that it serves. Franchisees are required to participate in chain-wide advertising and local advertising. Most of the Company's advertising dollars are spent in the local area through direct mail coupon offers. Each mailing is targeted by zones containing several postal zip codes that coincide with the market area of a particular store or group of stores. The Company places its direct mail advertising primarily with national direct mail advertising companies. As the Company expands, we can benefit from price reductions and preferential bookings offered by its advertising companies for larger mass mailings. The Company also uses billboards to target specific demographic market areas and as a general promotion to increase brand recognition with the general public. The Company has used television advertising on a seasonal basis. The main chain-wide advertising today consists of the expenses for developing and maintaining the Company's website and related efforts to gain wider recognition of the Paradise Tan ? brand name in the industry and with consumers. As the number of Paradise Tan ? indoor tanning centers in a market area becomes sufficient to justify an increase in the amount of the advertising budget devoted to broadcast advertising, the Company intends to expand its use of radio and television advertising. The Company also offers referral promotions to existing members, which has proven to be an effective low-cost marketing tool. Trademarks The Company has filed trademark applications with the United States Patent and Trademark Office (the "PTO") to obtain exclusive use of its trademarks Paradise Tan ? and Paradise Tanning Centers ? and associated artwork. The Company regards its trademarks as valuable assets and believes they have significant value in the marketing of its services and associated products. The Company intends to protect its intellectual property vigorously against infringement. Since, however, the Company has yet received approval of its applications from the PTO, there can be no assurance that the Company will obtain the right of exclusive use of its trademarks. If the PTO fails to grant such trademark registrations, it could have a material adverse effect on the Company's business, financial condition and results of operations. Competition Competition within the tanning services industry is extremely high, with an estimated 20,000 to 25,000 tanning centers nationwide. The indoor tanning services market is highly fragmented, with no one company having a national presence. When the Company opens a Paradise Tanning Center ? in a new market area, it must compete against established local operators that have gained name recognition with local consumers. Because the Company competes against numerous operators, there is a substantial likelihood that competitors in some markets will have significantly greater financial, advertising and marketing resources than the Company. The Company competes on the basis of convenience, variety and quality of services offered, price, value, name recognition, advertising and marketing. In addition, the Company believes that its concept, which sets the Company apart from other competitors, will be an important factor in its ability to compete on a regional and national basis. Although significant new competitors may enter a market in which the Company operates, the Company believes this risk is somewhat mitigated by barriers to entry, such as high start up costs and lead times necessary to develop management systems and to adequately train managerial personnel. The Company believes that its most significant competitive limitation has been the lack of capital necessary to implement its business strategy. The Company's limited capital has affected the scope of its advertising and promotional activities and the ability to expand its business through the opening of new locations within its current markets and to open centers in new markets. Employees As of October 19, 2008, the Company had zero employees. The Company had not entered into any collective bargaining agreements with its former employees. The Company believes that its relations with its former employees are excellent. Governmental Regulation Page 6 Both state and federal laws and regulations affect the indoor tanning services industry. The applicable federal laws and regulations do not affect the Company directly, but are primarily targeted at manufacturers of tanning booths, beds and other devices used by the Company in its day-to-day operations. The principal federal laws regulating the manufacture of indoor tanning devices are the Federal Food, Drug and Cosmetic Act administered by the Federal Food and Drug Administration (the "FDA"), the Public Health Service Act and the Radiation Control for Health and Safety Act. Because of the potential for injury and misuse of tanning devices, the FDA has issued stringent rules and regulations governing the manufacture and use of indoor tanning devices. These regulations include limits on the ultraviolet light emitted by indoor tanning devices, safe operation of such devices, timers, warning labels and the like. The Company believes that the laws governing the manufacture and use of tanning devices are both necessary and appropriate. The Company purchases only indoor tanning devices that meet or exceed the standards required by the FDA. For the personal safety of its customers, the Company's employees monitor the use of its tanning beds and booths to assure compliance with the FDA guidelines. The Company's tanning beds and booths are installed, maintained and repaired by qualified employees or contractors in accordance with manufacturer's specifications. State regulation of the indoor tanning industry varies from state to state. Many states have no laws or regulations regarding indoor tanning. As of the date of this registration statement, twenty-eight states have either adopted or are in the process of adopting laws and regulations dealing with the indoor tanning industry. State laws primarily regulate the health and safety aspects of indoor tanning operations rather than regulating the indoor tanning devices used. Both Texas and Arizona have adopted the FDA rules regarding indoor tanning devices. Typically, states require a minimum customer age of 13 (with parental consent and supervision), use of protective eyewear during any tanning session, maintenance of proper exposure distance and maximum exposure time as recommended by the manufacturer and availability of suitable physical aids such as handrails. Texas requires a minimum age of 13 years, with parental consent. Arizona does not have an age limit. The Company's internal policies require that customers be at least 14 years old. Customers aged 14 and 15 years must be accompanied by a parent and have written parental consent. Customers that are 16 or 17 years old require written parental consent. Violation of the federal or state laws or regulations could result in criminal or civil penalties. The Company's internal controls allow the Company to monitor the compliance of its Company-owned, franchised and licensed locations with the existing state regulations. We currently operate in the states of Texas and Arizona, both of which have adopted laws and regulations regarding the indoor tanning industry. Both states require the licensing of indoor tanning facilities. In Texas, the indoor tanning regulations are administered by the Texas Department of Health. The Arizona Radiation Regulatory Agency enforces Arizona's indoor tanning regulations. The Company's locations meet or exceed the regulatory standards required by the Texas and Arizona laws and regulations. The Company has designed its Paradise Tanning Center concept, including management controls and operating systems, to comply with applicable federal and state regulations and to monitor each location's compliance. Management believes that the Company's operations meet or exceed the requirements of all applicable or proposed statutes and regulations. Management We heavily rely on the skills, abilities and expertise of our management members and executives to carry out our operations. For the fiscal years ended December 31, 2007 (till November 14, 2007), 2006 and 2005, Ron Schaefer was the Company's President. Mr. Dan Sturdivant was the Company's Vice President. Dan Broder, Ronald Schaefer, and Daniel Sturdivant were members of Board of Directors. On November 14, 2007, Dan Broder, Ronald Schaefer, and Daniel Sturdivant resigned from all their positions on the Board of Directors of Company, as well as the executive offices of the Company. Xingping Hou, Jiefeng Ren and Yuming Ma became the new directors of the Board of Directors of the Company. Xingping Hou became the President and Chairman of the Board. Jiefeng Ren became Secretary of Page 7 the Board and the Chief Executive Officer. Yuming Ma became the Treasurer of the Board and Chief Financial Officer. None of our management members has been involved in any of the following proceeding during the past five years: 1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); 3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or 4. being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. ITEM 1A. RISK FACTORS For Fiscal Year ended December 31, 2007, 2006, and 2005, our business was subject to numerous risk factors. We believe that the following are the material risk factors that impact our business. General Risk Factors -------------------- Economic and Seasonal Conditions The Company's business is seasonal in nature and is also subject to economic fluctuations. Purchases of the Company's tanning services and related products are discretionary and tend to decline during periods of recession when discretionary or disposable income is lower. Any significant decline in general economic conditions or uncertainties regarding future economic prospects affecting consumer spending habits could have a material adverse effect on the Company's business, financial condition and results of operations. Use of the Company's indoor tanning services declines during the summer months (June, July and August) when natural sunlight is available for outdoor tanning. The Company's Autodraft program does even out the seasonality, since this program provides cash flow throughout the year, but it is still a challenge to the business. Seasonal variations in consumer use of indoor tanning facilities can materially affect the Company's ability to sell its services resulting in uneven membership sales and operational cash flow among fiscal quarters. See Item 2, "Management's Discussion and Analysis of Financial or Plan of Operations--Liquidity and Capital Resources." Accumulated Deficit and Operating Losses The Company has a substantial retained deficit as of December 31, 2007 of ($4,568,597) and had net income of approximately $1.6 million in the year ending December 31, 2007, of which approximately $1.9 million of the income related to the forgiveness of debt. We can give no assurances that the Company will show an operating profit at any time in the future. If the historical losses continue, the Company may be unable to continue as a going concern. The Company has funded its operating losses by raising additional capital from private investors or through debt. The Company has also been actively reducing expenses and streamlining its operations, while simultaneously increasing sales . In the past year, the Company sold one Company-owned location to a licensee as a way to increase the Company's liquidity and capital resources. (See Item 2, "Management's Discussion and Analysis"). The Company is also actively seeking new investors and possibly new lines of business to generate revenues and profitability. We can give no assurances that we will be able to achieve these goals and become profitable in the short or long-term. Page 8 Limited Capital; Need for Significant Additional Financing The Company has met its capital and operating requirements to date through private sales of securities, borrowings from officers and unaffiliated third parties, and from operational cash flow. Based upon the Company's business strategy and current financing plans, we believe that the Company will be able to meet its cash requirements for approximately one year. The Company's continued operations and expansion plans thereafter will depend upon revenues, if any, from operations and the availability of significant future equity and/or debt financing. The Company has no commitments for additional financing, except as described below in Item 2, "Management's Discussion and Analysis." We can give no assurance that the Company will have sufficient revenues or be able to obtain additional financing on satisfactory terms or that it will be able to maintain profitable operations. See Item 2, "Management's Discussion and Analysis." Uncertain Return of Investment An investment in our common stock is subject to a very high degree of risk. No one should purchase our common stock who is not able to risk the loss of their entire investment. This uncertainty is related to our history of operating losses and need for additional capital. Dependence on Key Personnel The Company is dependent upon the services and business expertise of its executive officers and certain key employees. The loss of any one of these individuals could have a material adverse effect on the Company. Since the Company's inception in 1994, it had been under the management of Ron Schaefer, who was the Company's President. On November 14, 2007, the company sold its remaining tanning salon operations to Ron Schaefer. The details of the transaction included the assumption of the book value of assets and all liabilities. The acquiring private corporation also signed an indemnification agreement, for the benefit of the company. The company recognized a gain on the transaction as a result of the extinguishment of debt. During 2007, The Company recognized a contingent liability of $100,000 for any potential future liabilities that may arise as a result of the transaction. As a result of this transaction, Xingping Hou was elected Chairman and CEO of the company. The Company believes that its future success will depend upon its ability to attract and retain skilled and knowledgeable management, marketing and operations personnel. We can give no assurance that the Company will be successful in retaining key employees or in securing the services of other qualified personnel. See Item 5, "Directors and Executive Officers, Promoters and Control Persons." Control by Principal Stockholders The Company's principal stockholders (the "Principal Stockholders") directly own a total of 15,213,329 shares of Common Stock of the Company, representing approximately 65% of the outstanding shares of Common Stock. This does not include shares subject to immediately exercisable options. Each director was issued options to purchase up to 5,000,000 shares of common stock at an exercise price of $.10 per share, for total shares owned, on a fully diluted basis, of 35,213,329, or 81% of the fully-diluted shares of common stock. As a result, the Principal Stockholders will be in a position to control the Company through their ability to determine the outcome of elections of the Company's directors, adopt, amend, or repeal the Bylaws and take certain other actions requiring the vote or consent of the stockholders of the Company. See Item 4, "Security Ownership of Certain Beneficial Owners and Management." Risks Related to Business Expansion During the last ten years, the Company has expanded within its initial trade area of metropolitan Dallas/Fort Worth, Texas and has expanded to Phoenix, Arizona. The Company's ability to accomplish its goals is dependent upon implementation of its aggressive expansion plans as part of its business strategy. However, the Company's business is subject to a number of risks related to expansion, any one of which could have a material adverse effect on its business, financial condition and results of operations. Page 9 The Company also believes that UV-free tanning will continue to be popular with its customers. The Company intends to purchase two UV-free tanning machines in the coming year, at the cost of approximately $35,000 per unit. The Company's strategy is to have at least one UV-free tanning booth at each Paradise Tan TM location. The Company's business strategy and expansion plans may place significant strain on the Company's management, working capital, financial and management control systems, and staff. The failure of the Company to properly respond to these needs by failing to maintain or upgrade financial and management control systems, failing to recruit additional staff or failing to respond effectively to difficulties encountered during expansion could adversely affect the Company's business, financial condition and results of operations. Although the Company has taken steps to ensure that its management and financial systems and controls are adequate to address its current needs and is attempting to recruit and train additional staff, there can be no assurance that the Company's systems, controls or staff will be adequate to sustain future growth. The key aspect of the Company's business strategy is to expand the number of indoor tanning centers it operates and the trade areas (cities/states) in which the new or acquired locations, (both Company owned and franchisees/licensees) will be located. There is no assurance that the Company will be able to continue to secure attractive site locations on economic terms that are acceptable to the Company in a timely fashion and achieve the Company's expansion objectives. In addition, there can be no assurance that the Company's plans to expand will be successful, that new or acquired stores will be profitable. See Item 1, "Description of Business - Business Strategy" and " - Competition." Franchising and Licensing The Company's growth strategy includes increasing the number of franchised or licensed locations. This is a new area for the Company and we have limited experience in franchising and licensing. There can be no assurance of that the Company will succeed in increasing the number of franchised or licensed locations, or that increasing such franchised or licensed locations will outweigh the costs of implementing and increased franchising and licensing strategy. If a Company owned location is sold to a franchisee/licensee, the Company will experience a loss of revenues, outside of the franchise or license fees, until another location can be added to replace the revenues. Competition The indoor tanning services industry is extremely competitive. The Company competes with numerous competitors offering indoor tanning services within any given trade area. Competition occurs not only from other tanning locations but also from health clubs that offer tanning services or facilities to their members as part of their existing services. The Company will compete against numerous competitors, most of whom may have significantly greater financial, advertising and marketing resources than the Company. The Company's future success will depend to a significant degree upon (i) its ability to rapidly expand and establish itself as a dominant competitor within a given trade area thereby discouraging additional competitors from entering the market, and (ii) the constraints imposed by the Company's financial resources. See Item 1, "Description of Business - Competition." Marketing The success of the Company is likely to be dependent on adequate marketing and support resources, both of which are difficult to predict accurately. Marketing includes advertising and promotional materials and advertising campaigns in both print and broadcast media. There is no assurance that the marketing efforts of the Company will be successful or that the Paradise Tan ? indoor tanning centers can obtain or maintain an adequate attendance base. There is also a risk that tanning salons may be a passing fad and will peak in a few years and then not grow sufficiently to meet the Company's expectations. Uncertainty of Expansion Strategy The Company plans to expand its number of locations. Any such expansion will Page 10 depend on, among other things, the Company's capital resources, the availability of suitable indoor tanning center sites or potential acquisitions, the timely development and construction of locations, the ability to hire skilled management and other personnel, management's ability to successfully manage growth (including monitoring individual locations, controlling costs, implementing marketing and advertising, maintaining effective quality and financial controls), and the availability of sufficient cash flow from operations. The Company can give no assurance that such cash flow will be available or that the Company will be able to open all its planned new locations or, if opened, that these locations can be operated profitably. See Item 1, "Description of Business - Business Strategy." Lack of Market Analysis The Company has performed, to date, no scientific, empirical or other form of detailed market analysis or study to demonstrate the level of local or regional consumer acceptance of the Paradise Tanning Center ? concept other than its subjective observations regarding customers of the Company's current tanning centers. The Company can give no assurance that consumer acceptance of the Company's services and products will be sufficient to sustain the Company's ongoing operations. No Dividends The Company has never paid any dividends on the common stock and does not anticipate paying dividends for the foreseeable future. The Company intends to use any income received from operations for the Company's future operations and growth. Payment of dividends in the future would depend upon the Company's profitability at the time, cash available for dividends and other factors. See Item 8, "Description of Securities." No Cumulative Voting There is no cumulative voting for the election of directors of the Company. Accordingly, the holders of a majority of the Company's outstanding voting stock may elect all the directors of the Company, if they choose to do so, and the holders of the remaining shares will not be able to elect any directors. Currently, the Principal Stockholders own 65% of the shares of common stock issued and outstanding and are in a position to control the affairs of the Company, including the election of the board of directors. See Item 8, "Description of Securities." Dependence on Single Business; Lack of Diversification The Company is engaged solely in the business of offering indoor tanning services and related products to its customers and has no plans to enter into any other unrelated business. As a result, the financial success of the Company is completely dependent upon the Company's ability to successfully market its indoor tanning services to potential customers, the success of its business strategy and the continued existence/viability of the indoor tanning industry. Management does not believe that its current or future tanning locations can be readily adapted to other businesses without significant cost and expense and there can be no assurance that the Company would be successful in locating or operating any alternative business or that it would have sufficient financial resources to implement any significant change in its business. See Item 1, "Description of Business - Business Strategy." Dependence on Trade and Service Marks The Company has filed trademark applications with the PTO to obtain exclusive use of its trade and service marks. The Company regards its trade and service marks as valuable assets that have significant value in the marketing of its services. The Company intends to protect its trade and service marks vigorously against infringement. Since the PTO has not yet approved the applications, the Company can give no assurance that any of its applications will be granted and that it will obtain the right of exclusive use of its trade and service marks. Failure of the PTO to grant such trade and service mark registrations could have a material adverse effect on the Company's business, financial condition and results of operations. In particular, the lack of a registered trademark could have a material adverse effect on our ability to either franchise or license our business and related marks. Indemnification Page 11 The Company's bylaws provide for the indemnification of, and the advancement of expenses to, the directors and officers of the Company in connection with proceedings and claims arising out of their status as such to the fullest extent permitted by the Texas Business Corporations Act, as amended (the "Texas Act"). These provisions require the Company to fund litigation expenses of indemnified officers and directors. To the extent that the Company funds such expenses and the indemnified officer or director loses such suit or proceeding, the Company may be unable to obtain a refund of the funds it advanced. In addition, the bylaws contain certain provisions intended to facilitate receipt of such benefits. The Company also intends to purchase customary directors' and officer liability insurance policies for its directors and officers, if such insurance is available at a cost that the Board of Directors deems prudent; however, the Company has yet to purchase such coverage and would be required to fund any request for indemnification from its operating revenues, loans or sales of securities. Risks Associated with the Indoor Tanning Industry ------------------------------------------------- Health Risks and Implications Associated with Tanning The success of the Company's business is significantly dependent upon the consuming public sustaining a belief that the benefits of indoor tanning outweigh the risks of exposure to ultraviolet light. Any significant change in public perception of indoor tanning caused by scientific studies, government reports, rumors or otherwise that link tanning (indoor or outdoor) to a significant increase in the likelihood of skin cancer or other skin diseases, could have a material adverse effect on the Company's business, financial condition and results of operations. In December 1994, the American Medical Association ("AMA") House of Delegates, a physician industry group, adopted Resolution 217 in which the AMA reaffirmed its current policy concerning indoor tanning facilities that encourages implementation of state and local indoor tanning facility regulations and urges the FDA to ban the sale and use of tanning equipment for non-medical purposes. See Item 1, "Description of Business - Government Regulation." Lifestyle Trends The Company's success depends upon the consuming public's continued perception that having a tan is desirable. A change in the public's perception or desire to be tan could cause a substantial decline in membership sales and usage of the Company's facilities, which could adversely affect the Company's business, financial condition and results of operations. This adverse effect could be material given the Company's aggressive expansion plans and the Company's dependence on lengthy commercial leases for its stores. A significant reduction in revenues due to changes in consumer lifestyles could result in operating income becoming insufficient to cover operating expenses. See Item 1, "Description of Business - Business Strategy." Lotions The Company is planning to expand its lotion line, but we can give no assurance that the Company will generate sufficient revenues to offset the cost of expanding its lotion line. The lotion business is very competitive. Further, although we believe we sell the best lotions available, we can give no assurance that a customer will not burn themselves while using a lotion or have an allergic reaction to a lotion and bring suit against the Company for damages. UV Free Tanning This is a new and upcoming business area, emerging onto the scene about four years ago, but without consistent historical results. Although today's spray-on tanning equipment features advanced technology that provides an even, all-over tan to customers and offers indoor tanning centers a new revenue source (without the possible effects of ultraviolet light exposure), the technology and cosmetic results do not have a long-term history. Manufacturers of this equipment are attempting to patent their equipment, so we are opting to use existing manufacturers instead of developing our own proprietary equipment at this time. Also UV Free Tanning is new and unforeseen problems could develop, which could include limited consumer acceptance, allergic reactions, burns, product liability lawsuits and the like. To date, we are not aware of any product liability litigation involving UV Free Tanning. Changes in Government Regulations Page 12 Both federal and state laws and regulations affect the indoor tanning industry and the Company. While federal laws currently are directed towards the manufacturers of tanning devices and not at providers of indoor tanning services, we can give no assurance that the federal government will not introduce laws and/or regulations which may have a substantial impact on the Company, its operations and profitability. In addition, the state laws and regulations of Texas and Arizona currently affect the Company as they set minimum consumer safety standards for operation of indoor tanning equipment. These laws and regulations require minimum operating standards, employee education, methods of operation and licensing. Due to the potential for injury to consumers, the possibility of governmental reports containing findings that are detrimental to the indoor tanning industry in general, and the Company in particular, and possible misuse of the tanning devices by customers or store personnel, the Company can give no assurance that the states in which it currently operates (or intends to operate in the future) will not introduce new laws and regulations effecting the indoor tanning industry or modify existing ones, which may have a substantial impact on the Company, its operations and profitability. See Item 1, "Description of Business." Technological Obsolescence; New Technologies Development of new or improved tanning devices, processes or technologies may make the Company's inventory of tanning devices and related products obsolete or less competitive requiring substantial capital outlays by the Company to purchase new devices or related products to replace those that become obsolete. We can give no assurance that we will have or be able to obtain the necessary capital resources to purchase new equipment and products to replace those that have become obsolete. In addition, medical research is constantly creating new technologies, drugs, skin creams, lotions and chemical compounds. There can be no assurance that the indoor tanning industry in general and the Company in particular will not be replaced by new medical technologies, including but not limited to, drugs, skin creams, lotions or other chemical compounds that will make the services offered by the Company unnecessary or obsolete. Safety and Health Risks The Company maintains numerous tanning devices at its various Paradise Tanning Centers. All of its tanning devices have a timing mechanism and contain multiple light bulbs that emit ultraviolet radiation. These devices are regulated by the FDA as medical devices and are potentially dangerous if misused or abused. We can give no assurance that one or more of our customers will not be seriously or fatally injured due to overexposure to ultraviolet radiation as a result of improper or negligent operation of a tanning device, a failure or malfunction of a tanning device, its control or timing mechanism or ultraviolet light bulbs. Although we currently maintain liability insurance for Company-owned locations, and require franchisees and licensees to carry such insurance, we can give no assurance that we will be able to maintain such insurance in the future or that such insurance will have sufficient limits to adequately cover our costs and expenses of litigation and our possible liability for damages sustained by one or more of our customers. A significant damage award or settlement, over and above the Company's insurance policy limits, if any, will have a substantial impact on the Company's profitability or cause the Company to cease as an operating concern. See Item 1, "Description of Business - Governmental Regulation." Risks Related to Corporate and Stock Matters -------------------------------------------- Risks related to our common stock The market price for our common stock may be volatile. The market price for our common stock is likely to be highly volatile and subject to wide fluctuations in response to factors including the following: actual or anticipated fluctuations in our quarterly operating results, announcements of new services by us or our competitors, changes in financial estimates by securities analysts, conditions in the energy recycling and saving services market, changes in the economic performance or market valuations of other companies involved in the same industry, announcements by our competitors Page 13 of significant acquisitions, strategic partnerships, joint ventures or capital commitments, additions or departures of key personnel, potential litigation, or conditions in the market. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. Shareholders could experience substantial dilution We may issue additional shares of our capital stock to raise additional cash for working capital. If we issue additional shares of our capital stock, our shareholders will experience dilution in their respective percentage ownership in the company. We have no present intention to pay dividends Neither during the preceding two fiscal years nor during the year ended December 31, 2007 did we pay dividends or make other cash distributions on our common stock, and we do not expect to declare or pay any dividends in the foreseeable future. We intend to retain any future earnings for working capital and to finance current operations and expansion of our business. A large portion of our common stock is controlled by a small number of shareholders. A large portion of our common stock is held by a small number of shareholders. As a result, these shareholders are able to influence the outcome of shareholder votes on various matters, including the election of directors and extraordinary corporate transactions including business combinations. In addition, the occurrence of sales of a large number of shares of our common stock, or the perception that these sales could occur, may affect our stock price and could impair our ability to obtain capital through an offering of equity securities. Furthermore, the current ratios of ownership of our common stock reduce the public float and liquidity of our common stock which can in turn affect the market price of our common stock. We may be subject to "penny stock" regulations The Securities and Exchange Commission, or SEC, has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer, and our sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for stock that becomes subject to those penny stock rules. These additional sales practice and disclosure requirements could impede the sale of our securities. Whenever any of our securities become subject to the penny stock rules, holders of those securities may have difficulty in selling those securities. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES For the periods reported on this Form 10K, we leased office space from third Page 14 parties under various operating leases at various monthly rental payments. From November 14, 2007 to December 31, 2007, we did not lease any office space and we receive correspondence at the office of its Counsel Bernard & Yam, LLP. ITEM 3. LEGAL PROCEEDINGS For the fiscal years ended December 31, 2007, 2006 and 2005, we were not a party to any litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter, there were no matters submitted to a vote of our shareholders. PART II ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our common stock is not quoted on any stock exchange or over the counter board. As of January XX, 2009, the market price of our stock was $ 2.20. Unregistered Sales of Securities On October 19, 2007, a group of our major shareholder, Ronald Schafer, Daniel Sturdivant, and David Rutkoske, entered a Securities Purchase Agreement ("Purchase Agreement") with a group of individual purchasers Xingping Hou, Jiefeng Ren, Yuming Ma, Yongjun Zeng and Zikun Wang. Under the terms of the Purchase Agreement, Ronald Schafer, Daniel Sturdivant, and David Rutkoske sold in total 7,951,329 shares of common stock of the Company to Xingping Hou, Jiefeng Ren, Yuming Ma, Yongjun Zeng and Zikun Wang for a total price of $ 100,000. The said Purchase Agreement was consummated on November 14, 2007. On November 14, 2007, the Company sold its remaining tanning salon operations to a RAAP Enterprises, the company owned by Ronald Schaefer under an Asset Sale and Purchase Agreement ("Asset Sale Agreement"). Under the Asset Sale Agreement, RAAP Enterprises assumed all of the book value of assets and all liabilities of the Company as of November 14, 2007. RAAP Enterprises also signed an indemnification agreement, for the benefit of the Company. The Company recognized a gain on the transaction as a result of the extinguishment of debts as of November 14, 2007. During the year 2007, The Company recognized a contingent liability of $100,000 for any potential future liabilities that may arise as a result of the transaction. Dividends We have not declared any cash dividends, nor do we intend to do so. We are not subject to any legal restrictions respecting the payment of dividends, except that they may not be paid to render us insolvent. Dividend policy will be based on our cash resources and needs and it is anticipated that all available cash will be needed for our operations in the foreseeable future. Section Rule 15(g) of the Securities Exchange Act of 1934 Our shares are covered by section 15(g) of the Securities Exchange Act of 1934, as amended, and Rules 15g-1 through 15g-6, and 15g-9 promulgated thereunder. They impose additional sales practice requirements on broker/dealers who sell our securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). Rule 15g-1 exempts a number of specific transactions from the scope of the penny stock rules. Page 15 Rule 15g-2 declares unlawful broker/dealer transactions in penny stocks unless the broker/dealer has first provided to the customer a standardized disclosure document. Rule 15g-3 provides that it is unlawful for a broker/dealer to engage in a penny stock transaction unless the broker/dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question. Rule 15g-4 prohibits broker/dealers from completing penny stock transactions for a customer unless the broker/dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction. Rule 15g-5 requires that a broker/dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the salesperson's compensation. Rule 15g-6 requires broker/dealers selling penny stocks to provide their customers with monthly account statements. Rule 15g-9 requires broker/dealers to approve the transaction for the customer's account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding his investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination; notify the customer of his rights and remedies in cases of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons. The application of the penny stock rules may affect your ability to resell your shares. Securities authorized for issuance under equity compensation plans For the years ended December 31, 2007, 2006 and 2005, We do not have any equity compensation plans and accordingly we have no securities authorized for issuance thereunder. ITEM 6. SELECTED FINANCIAL DATA We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is a discussion of the financial condition and results of operations of the Company for the years ended December 31, 2007, 2006 and 2005. This discussion should be read in conjunction with the Financial Statements of the Company and the related notes thereto appearing in this report on Form 10-K. Overview The Company was founded in 1994 and opened its first tanning location in that same year. Since then, the Company has experienced significant growth in sales within its current market area of Dallas/Fort Worth, Texas. The Company's revenues were$948,949, in the year ended December 31, 2005; $517,618 in the year ended December 31, 2006 and $407,524 in the year ended December 31, 2007. We can give no assurance that the Company's revenues will not decline in future periods. The Company experienced net income/( losses) of $1,648,368, $(206,374) and ($665,953) in the years ended December 31, 2007 , 2006, and 2005, respectively. The Company's recognition of revenue for tanning membership sales lags the cash receipts from the membership contracts, resulting in significant deferred revenue at any point in time. Revenue from membership sales is recognized on a straight line basis over the appropriate membership period. Page 16 The Company recognizes that part of its future business strategy consists of raising capital from new investors and possibly seeking a different line of business. Results of Operations The table on the following page sets forth, for the periods presented, the percentage relationship of certain line items from the Company's statements of operations to revenues for such periods. As the Company seeks to expand into new lines of business, we anticipate lower general and administrative expenses, until the new business strategy is implemented. Note that the Company is in the process of reorganizing its business direction. Revenues . Revenues for the year ended December 31, 2007 decreased 21% to $407,524 from $517,618 in the year ended December 31, 2006 and 57% from $948,949 in the year ended December 31, 2005. Costs and Expenses . Costs and expenses of operations for the year ended December 31, 2007 increased $19,652, or 4% from the year ended December 31, 2006 and decreased $666,110 or 55% from year ended December 31, 2005. The increase from year ended 2006 was the result of an additional administrative position added to assist with the disposition of some of the company's assets during 2007. The decrease in costs and expenses from year ended 2005 was primarily the result of decreased salaries, and marketing and promotion activities. This decrease was inline with the Company's asset disposition efforts . Depreciation . Depreciation expenses were $23,735 in the year ended December 31, 2007, as compared with $25,893 for the year ended December 31, 2006 and $204,602 for the year ended December 31, 2005. The decrease in depreciation is a result of asset sales and asset dispostions during the years ended 2006 and 2007 by the Company. Liquidity and Capital Resources Cash on hand for the Company at the year ended December 31, 2007 was $475,717, of which $475,717 is restricted, as compared with the year ended December 31, 2006, where unrestricted cash was $(16,691) and restricted cash was $475,717. The Company's increase in cash for the year ended December 31, 2007 was the result of the sale of company assets. Cash on hand for the Company at the year ended December 31, 2006 was $459,026, of which $475,717 is restricted, as compared with the year ended December 31, 2005, where unrestricted cash was $27,447 and restricted cash was $475,717. The Company's decrease in cash for the year ended December 31, 2006 was the result of lower revenues and no asset sales during the year ended 2006. The Company is considering various forms of debt financing and debt restructuring, either with its current creditors or new lenders. In addition, the company is considering various forms of capital financing either through a private placement or outright sale of the company's assets. Seasonality The Company's business is seasonal in nature in that the most active fiscal quarters for taxing activities and in new membership sales are the first quarter (January-March), which is the strongest, and the second quarter (April-June). The impact on liquidity and capital resources of the seasonal nature of tanning activity in a reduction in the generation of cash from sales of memberships, tanning products and other tanning services during the last two quarters of the Company's fiscal year. The first two quarters historically have accounted for approximately 60% of sales. Although membership sales volume in the tanning stores is seasonal, the impact of such seasonality on the Company's Financial Statements is partially mitigated by the Company employing a monthly autodraft on the memberships to keep the seasonality fluctuations in cash flow less dramatic and more consistent. Page 17 Inflation The Company has generally been able to offset cost increases with increases in the prices for its services. Accordingly, the Company does not believe that inflation has had a material effect on its results of operations to date. However, there can be no assurance that the Company's business will not be adversely affected by inflation in the future. Critical Accounting Policies The Company, together with its auditors, has identified certain critical accounting policies that effect the Company. In particular, the Company's method for revenue recognition is critical, since it impacts the Company's entire financial statement, taken as a whole. It is also important in light of the Staff Accounting Bulletins published by the Securities and Exchange Commission over the past several years. The Company recognizes revenue from tanning services and products at the time the services are rendered or the product sold. Revenues from membership fees are recognized monthly on a straight-line basis, even for pre-paid membership fees. Revenues from initial franchise fees are recognized upon the opening of a tanning center location, with monthly franchise and license fees recognized on a monthly basis when paid. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. Page 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. POLLARD - KELLEY AUDITING SERVICES To the Board of Directors and Stockholders: Paradise Tan, Inc. 15851 Dallas Parkway - Suite 600 Addison TX 75001 We have audited the accompanying consolidated balance sheet of Paradise Tan, Inc. (a Texas corporation) and it's wholly owned subsidiary as of December 31, 2007 and the related consolidated statements of operations, stockholders' deficit, and cash flows For the Years Ended December 31, 2007, 2006, and 2005. These 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 audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated balance sheet referred to above presents fairly, in all material respects, the consolidated financial position of Paradise Tan, Inc. and it's wholly owned subsidiary as of December 31, 2007, and the consolidated results of its operations and its cash flows For the Years Ended December 31, 2007, 2006, and 2005 in conformity with U.S. generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses, has negative working capital, has a stockholders' deficit, has material restrictions on its cash, and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note G. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ Pollard-Kelley Auditing Services, Inc. Pollard-Kelley Auditing Services, Inc. August 18, 2008 Independence, OH 44131 Page 19

See notes to audited financial statements and auditors' report Page 26 GENERAL RED INTERNATIONAL, INC. (FORMERLY "PARADISE TAN, INC.") AND WHOLLY OWNED SUBSIDIARY Notes To Consolidated Financial Statements For the Years Ended December 31, 2007, 2006, and 2005 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --------------------------------------------------- Background - General Red International, Inc. (formerly "Paradise Tan, Inc.") (the Company) was organized under the laws of the State of Texas on February 14, 1994 as a corporation. On August 10, 1999, the Company legally entered into an Agreement and Plan of Merger with S. Joseph & Associates, Inc. and QT Products, Inc. (Texas corporations), companies related through common ownership and maintained the name of Paradise Tan, Inc. as of that date simultaneously with the merger. It was the surviving corporation. The terminating corporations exchanged their issued common shares with the Company whereby each said common share which was issued and outstanding immediately prior to the effective time of the merger were converted in to the common shares of the Company afterwards. The transaction was accounted for as a merger of entities under common control in accordance with Appendix D of Statement of Financial Accountings Standards Statement No. 141 wherein the stockholders of the Company retained the outstanding common stock of the terminating corporations after the merger. Accordingly, the transaction was accounted for as a reverse merger under SEC guidelines. The primary reason for the acquisition was to achieve the Company's objective of capitalizing on acquisitions in this industry. On November 14, 2007, the company sold its remaining tanning salon operations to a former Director of the company. The details of the transaction included the assumption of the book value of assets and all liabilities. The acquiring private corporation also signed an indemnification agreement, for the benefit of the company. The company recognized a gain on the transaction as a result of the extinguishment of debt. During 2007, The Company recognized a contingent liability of $100,000 for any potential future liabilities that may arise as a result of the transaction. The Company operated tanning salons in and around the Dallas/Fort Worth, Texas metropolitan area and in Arizona until November of 2007. All salons are operated by the Company, or under the terms of franchise and license agreements, by franchisees who are independent entrepreneurs or by licensees operating under license agreements between the Company and local business people. Since November of 2007, the Company has been operating as a shell. Basis of Presentation - The consolidated financial statements included herein include the accounts of Paradise Tan, Inc. and its wholly owned subsidiary prepared under the accrual basis of accounting. All significant inter-company accounts have been eliminated in consolidation. Management's Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities, disclosures 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 could differ from those estimates. Fair Value of Financial Instruments - The carrying amounts of financial instruments including inventory, notes receivable, accounts payable and accrued expenses approximated fair value because of the immediate short-term maturity of these instruments. Income Taxes - Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and tax reporting and net operating loss-carry forwards. Deferred taxes represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The income tax benefit consists of taxes currently refundable due to net operating loss carry back provisions less the effects of accelerated depreciation for the federal government. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. Page 27 Earnings (Loss) Per Share - The Company reports earnings (loss) per share in accordance with Statement of Financial Accounting Standard (SFAS) No.128. This statement requires dual presentation of basic and diluted earnings (loss) with a reconciliation of the numerator and denominator of the loss per share computations. Basic earnings per share amounts are based on the weighted average shares of common outstanding. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Accordingly, this presentation has been adopted for the periods presented. There were no adjustments required to net loss for the period presented in the computation of diluted earnings per share. There were 5,739,995 common stock equivalents (CSE) excluded from the computation of diluted loss per share. (Please provide me supporting documentation for these items). Notes Receivable - Notes receivable are charged to bad debt expense as they are deemed uncollectible based upon a periodic review of the accounts. At December 31, 2005, no allowance for doubtful accounts was deemed necessary. Stock-Based Compensation - The Company accounts for stock-based compensation using the fair value method of Financial Accounting Standard No. 123. Shares issued for services rendered by a third party are recorded at the fair value of the shares issued or services rendered, whichever is more readily determinable. The Company accounts for options and warrants under the same authoritative guidance using the Black-Scholes Option Pricing Model. Fixed Assets - Fixed assets are recorded at cost and include expenditures that substantially increase the productive lives of the existing assets. Maintenance and repair costs are expensed as incurred. Depreciation is provided using the straight-line method. Depreciation of property and equipment is calculated over the management prescribed recovery periods, which range from 5 years for equipment to 7 years for tanning beds. When a fixed asset is disposed of, its cost and related accumulated depreciation are removed from the accounts. The difference between undepreciated cost and proceeds from disposition is recorded as a gain or loss. Advertising Costs - Advertising costs are expensed as incurred. The Company does not incur any direct-response advertising costs. Advertising expense totaled approximately $11,000, $10,000 and $58,000 For the Years Ended December 31, 2007, 2006, and 2005, respectively. Revenue Recognition - Revenue is recognized when products at point-of-sale are sold and earned and when tanning services are performed. Revenues from franchised and licensed salons include initial fees received. Initial fees are recognized upon opening of a salon, which is when the Company has performed substantially all initial services required by the franchise or license arrangements. Comprehensive Income (Loss) - The Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" , which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. There were no items of comprehensive income (loss) applicable to the Company during the years covered in the consolidated financial statements. Long-Lived Assets - In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standard No.121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" , the carrying value of long-lived assets is reviewed by management on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. To date, no such impairment has been indicated. Should there be impairment in the future; the Company will recognize the amount of the impairment based on discounted expected consolidated future cash flows from the impaired assets. Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents. Inventory - Inventory, consisting of tanning lotions and related products, is valued at the lower of cost or market using the first-in, first-out (FIFO) method. Page 28 Uninsured Deposits - At various times during the year, the Company maintained a bank account balance that exceeded federally insured limits. Recent Accounting Pronouncements - In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities". FIN No. 46 requires the consolidation of entities that cannot finance their activities without the support of other parties and that lack certain characteristics of a controlling interest, such as the ability to make decisions about the entity's activities via voting rights or similar rights. The entity that consolidates the variable interest entity is the primary beneficiary of the entity's activities. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and must be applied in the first period beginning after June 15, 2003 for entities in which an enterprise holds a variable interest entity that it acquired before February 1, 2003. The adoption of this standard did not have an impact on the Company's financial statements. In January 2003, the EITF released Issue No. 00-21, ("EITF 00-21"), "Revenue Arrangements with Multiple Deliveries", which addressed certain aspects of the accounting by a vendor for arrangement under which it will perform multiple revenue-generating activities. Specifically, EITF 00-21 addresses whether an arrangement contains more than one unit of accounting and the measurement and allocation to the separate units of accounting in the arrangement. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of this standard did not have an impact on the Company's financial statements. In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this standard did not have an impact on the Company's financial statements. Recent Accounting Pronouncements - In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how companies classify and measure certain financial instruments with characteristics of both liabilities and equity. It requires companies to classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003. The standard did not impact the Company's financial statements. In December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based Compensation". SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SGAS 123(R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were required. SFAS 123(R) shall be effective for the Company as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The adoption of this new accounting pronouncement is expected to have a material impact on the financial statements of the Company commencing with the third quarter of the year ending September 30, 2006. Small business issuers need not comply with the new standard until fiscal periods beginning after December 15, 2005. The Company already records the expense of employee stock options for annual and quarterly periods on fair value calculation according to SFAS No.123. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" (SFAS 151). This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 are effective for inventory costs incurred in fiscal years beginning after June 15, 2005. Page 29

NOTE D - SEGMENT REPORTING -------------------------- Page 30 Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires companies to report information about operating segments in interim and annual financial statements. It also requires segment disclosures about products and services, geographic areas and major customers. The Company determined that it did not have any material, separately reportable operating segments as of December 31, 2007, 2006 and 2005. NOTE E - STOCKHOLDERS' DEFICIT ------------------------------ The Company has the authority to divide its preferred shares into classes, determine rights, limitations, and preferences of such class of stock and its preferred stock carries 8% cumulative annualized interest. The preferred shares may be turned into the Company's treasury for cash at $10 par value per share plus cumulative interest. During the fiscal year 2006, the shareholders authorized deferral of interest payments of approximately $600,000 indefinitely. On June 18, 2004, the Company legally amended its Articles of Incorporation to increase its authorized common shares to 100,000,000 shares with a par value of $.01 per share. NOTE F - STOCK WARRANTS ----------------------- In prior years, the Company issued 100,000 stock warrants to a party related through directorship. The stock warrants allow the related party to purchase shares of the Company's stock at $2.50 per share per the individual warrant agreement. During the year ended December 31, 2003, the Company reduced the price from $2.50 per share to $2.00 per share. The warrants allow the party to purchase one common share of the Company's common stock for each warrant. The warrants expire in September 2006 per the individual warrant agreement. The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the warrants. During the year ended December 31, 2003, the Company issued 100,000 stock warrants to a corporate entity owned by the Company's director. The stock warrants allow the related party to purchase shares of the Company's stock at $2.00 per share per the individual warrant agreement. The warrants allow the related party to purchase one common share of the Company's common stock for each warrant. The warrants expire in January 2008 per the individual warrant agreement. The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the warrants. The Company recorded an expense of $111,509 equal to the estimated fair value of the options at the date of grants. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 5.15% risk-free interest, 0% dividend yield, 60% volatility, $2.00 per share strike price, and a life of five years. Also during the year ended December 31, 2003, the Company issued an additional 239,995 stock warrants collectively to four related party entities or individuals and one unrelated individual. The stock warrants allow the related parties and other individual to purchase shares of the Company's stock at $2.00 per share per the individual warrant agreements. The warrants allow the related parties and other unrelated individual to each purchase one common share of the Company's common stock for each warrant. The warrants expire in April 2006 per the individual warrant agreements. The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the warrants. The Company recorded an expense for these warrants equal to the estimated fair value of the options at the date of grants, or $2,906. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 5.15% risk-free interest, 0% dividend yield, 60% volatility, $2.00 per share strike price, and a life of three years. Also during the year ended December 31, 2003, the Company issued 300,000 stock warrants to an unrelated entity. The stock warrants allow the entity to purchase shares of the Company's stock at $2.00 per share per the warrant agreement. The warrants allow the entity to purchase one common share of the Company's common stock for each warrant. The warrants expire in August 2006 per the warrant agreement. The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the warrants. The Company recorded an expense of $7,625 equal to the estimated fair value of the options at the date of grants. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 5% risk-free interest, 0% dividend yield, 60% volatility, $2.00 per share strike price, and a life of three years. Page 31 Also during the year ended December 31, 2003, the Company issued an additional 20,000,000 stock warrants, collectively, to four related parties, at 5,000,000 warrants for each party. The stock warrants allow the related parties to purchase shares of the Company's stock at $.10 per share per the individual warrant agreements. The warrants allow the related parties to each purchase one common share of the Company's common stock for each warrant. The warrants expire in September 2013 per the individual warrant agreements. The Company did not grant any registration rights with respect to any shares of common stock issuable upon exercise of the warrants. The Company recorded an expense for these warrants equal to the estimated fair value of the options at the date of grants, or $1,660,490. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 5% risk-free interest, 0% dividend yield, 60% volatility, $2.00 per share strike price, and a life of ten years. Stock warrants outstanding and exercisable on December 31, 2007 are as follows: Exercise Price per Share Shares Under Remaining Life Outstanding: Option In Years ------------ ------ -------- $0.10 20,000,000 5.75 Exercisable: $0.10 20,000,000 5.75 NOTE G - GOING CONCERN ---------------------- The Company has suffered recurring losses from operations, has negative working capital, has a stockholders' deficit, and has material restrictions on its cash as of December 31, 2007. In addition, the Company has yet to generate an internal cash flow from its business operations and has generated operating losses since its inception. These factors raise substantial doubt as to the ability of the Company to continue as a going concern. Management's plans with regard to these matters encompass the following actions: 1) obtain funding from new investors to alleviate the Company's working deficiency, and 2) implement a plan to increase cash flows. The Company's continued existence is dependent upon its ability to resolve it liquidity problems and increase profitability in its current business operations. However, the outcome of management's plans cannot be ascertained with any degree of certainty. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties. NOTE H - RELATED PARTY TRANSACTIONS ----------------------------------- In prior years, the Company issued 135,998 shares of its $10 par value preferred stock to four shareholders of the Company in lieu of debt. These shareholders are related to the Company through affiliation as officers and directors. The shareholders each previously contributed tanning salons to the Company in prior years and this resulted in the issuances thereof. Pursuant to a Board of Directors' approval, the preferred stock carries with it an annual cumulative interest rate of 8% per annum. As of December 31, 2004, this amount for the past three full years is unpaid and has a scheduled payment date of January 15, 2006. An amount of $435,193 is included in the accompanying balance sheet at December 31, 2005 as a long-term liability. NOTE I - COMMITMENTS -------------------- The Company leases its executive offices in Texas and tanning salons throughout the South West under non-cancelable operating leases that expire from varying dates through September 2009. Future minimum rental payments as of December 31, 2005 in the aggregate and for each of the five succeeding years are as follows: Page 32

NOTE K - FRANCHISE ARRANGEMENTS ------------------------------- Individual franchise arrangements generally include a lease and a license and provide for payment of initial fees. The Company's franchisees are granted the right to operate a salon using its' name and system for a period of 20 years. Franchisees pay their own related occupancy costs including property taxes, insurance and maintenance. Page 34 The results of operations of salon businesses purchased and sold in transactions with franchisees and others were not material to the consolidated financial statements for periods prior to purchase and sale. NOTE L - LITIGATION ------------------- In prior years, the Company received a notice from the National Association of Securities Dealers requesting certain information about the Company. In the opinion of the Company's management, the effects of any negative ramifications to the Company are remote and immaterial. NOTE M - SALE OF SALONS ----------------------- During the year ended December 31, 2005, the Company sold one of its company-owned salons to an unrelated third party individual. The Company sold all equipment and inventory in the particular location along with the limited right to its name and phone number, existing Yellow Pages advertisement, and all tanning related contracts. Pursuant to the agreement, $383,571 in cash was collected, resulting in a loss on the sale of assets. On November 14, 2007, the company sold its remaining tanning salon operations to a former Director of the company. The details of the transaction included the assumption of the book value of assets and all liabilities. The acquiring private corporation also signed an indemnification agreement, for the benefit of the company. The company recognized a gain on the transaction as a result of the extinguishment of debt. During 2007, The Company recognized a contingent liability of $100,000 for any potential future liabilities that may arise as a result of the transaction. NOTE N - CONTENGENCIES ---------------------- On November 14, 2007, the company sold its remaining tanning salon operations to a former Director of the company. The details of the transaction included the assumption of the book value of assets and all liabilities. The acquiring private corporation also signed an indemnification agreement, for the benefit of the company. Included in the indemnification agreement was the assumption of approximately $1.1 million in debt by the acquiring corporation. The company believes at this time, that any future material claims against the company are remote. Therefore, the company recognized a contingent liability of only $100,000, at year end 2007, for any potential future liabilities that may arise as a result of the transaction. The Company remains primarily liable on approximately $1.8 million in liabilities assumed in that transaction. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Pollard & Kelley Auditing Services, Inc conducted audits on our financial statements for the fiscal year ended December 31, 2007, 2006 and 2005. There have been no disagreements on accounting and financial disclosures as to the audited financial statements for year ended December 31, 2007, 2006 and 2005 reported on this Form 10K ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed 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 Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the "Evaluation"), under the supervision and with the participation of our Chief Executive Officer ("CEO") and President, of the effectiveness of Page 35 the design and operation of our disclosure controls and procedures ("Disclosure Controls") as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our President and CFO concluded that our Disclosure Controls were effective as of the end of the period covered by this report. Changes in Internal Controls We have also evaluated our internal controls for financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. Limitations on the Effectiveness of Controls Our management, including our President and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. President and CFO Certifications Appearing immediately following the Signatures section of this report there are Certifications of the President and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented. 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 Rule 13a-15(f). The Company's internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company"s assets that could have a material effect on the financial statements. Page 36 Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of December 31, 2007, the Company's internal control over financial reporting was effective based on those criteria. 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. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. For the fiscal years ended December 31, 2007 (till November 14, 2007), 2006 and 2005, Ronald Schaefer was the Company's President. Mr. Dan Sturdivant was the Company's Vice President. Dan Broder, Ronald Schaefer, and Daniel Sturdivant were members of Board of Directors. On November 14, 2007, Dan Broder, Ronald Schaefer, and Daniel Sturdivant resigned from all their positions on the Board of Directors of Company, as well as the executive offices of the Company. Xingping Hou, Jiefeng Ren and Yuming Ma became the new directors of the Board of Directors of the Company. Xingping Hou became the President and Chairman of the Board. Jiefeng Ren became Secretary of the Board and the Chief Executive Officer. Yuming Ma became the Treasurer of the Board and Chief Financial Officer. None of our management members has been involved in any of the following proceeding during the past five years: 1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); 3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or 4. being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. Audit Committee and Charter We have not established an Audit Committee. Page 37 Section 16(a) of the Securities Exchange Act of 1934 As of the date of this report, we are not subject to section 16(a) of the Securities Exchange Act of 1934. Item 11. Executive Compensation. Executive Compensation. For years ended December 31, 2007, 2006 and 2005, Ron Schaefer was being paid a salary of $ 75,000 as the Company's President, Treasurer, Secretary and Chief Executive Officer. On November 14, 2007, Dan Broder, Ronald Schaefer, and Daniel Sturdivant resigned from all their positions on the Board of Directors of Company, as well as the executive offices of the Company. Xingping Hou, Jiefeng Ren and Yuming Ma became the new directors of the Board of Directors of the Company. Xingping Hou became the President and Chairman of the Board. Jiefeng Ren became Secretary of the Board and the Chief Executive Officer. Yuming Ma became the Treasurer of the Board and Chief Financial Officer. The directors of the Company have not received compensation for their services as directors nor have they been reimbursed for expenses incurred in attending board meetings. Indemnification Under our Articles of Incorporation and Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a law suit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the office or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada. Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable. Ownership Structure and Principal Shareholders The following table sets forth certain information as of December 31 2007, with respect to the beneficial ownership of our Common Stock, the sole outstanding class of our voting securities, by (i) any person or group owning more than 5% of each class of voting securities, (ii) each director, (iii) each executive officer named in the Summary Compensation Table in the section entitled "Executive Compensation" below and (iv) all executive officers and directors as a group. As of December 31, 2007, upon the consummation of the Transactions described under Item 1.01, an aggregate of 23,384,114 shares of our Common Stock are issued and outstanding. In determining the percent of Common Stock owned by a person on December 31, 2007, we divided (a) the number of shares of Common Stock beneficially owned by such person, by (b) the sum of the total shares of Common Stock outstanding on December 31, 2007. Name and Address of Beneficial Amount and Nature of Percent of Owners (1)(2) Beneficial Ownership Class Directors and Executive Officers Xingping Hou 2,782,963 11.90% Jiefeng Ren 1,590,266 6.80% Yuming Ma 1,192,700 5.1% Page 38 Greater than 5% Shareholders Yongjun Zeng 1,192,700 5.10% Zikun Wang 1,192,700 5.10% Elco Bank Trust and Holding Company 3,750,000 16.04% All officers and directors as a group 5,565,929 23.80% (3 persons) (1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial ownership of any securities as to which such person, directly or indirectly, through any contract, arrangement, undertaking, relationship or otherwise has or shares voting power and/or investment power or as to which such person has the right to acquire such voting and/or investment power within 60 days. (2) Unless otherwise stated, each beneficial owner has sole power to vote and dispose of the shares. Related Person Transactions. There is none for year ended December 31, 2007, 2006 and 2005. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES (1) Audit Fees The aggregate fees billed for each of years ended December 31, 2007, 2006 and 2005 for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was: 2005 $ 10,000 Pollard & Kelley Auditing Services, Inc. 2006 $ 13,000 Pollard & Kelley Auditing Services, Inc. 2007 $ 13,000 Pollard & Kelley Auditing Services, Inc. (2) Audit-Related Fees None. (3) Tax Fees None. (4) All Other Fees None. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. Incorporated by reference Filed Exhibit Document Description Form Date Number herewith 3.1 Articles of Incorporation. 10SB-12G/A 11/13/2003 3.1 3.2 Bylaws. 10SB-12G/A 11/13/2003 3.2 Page 39 31.1 Certification of Principal Executive Officer pursuant to 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended. X 31.2 Certification of Principal Financial Officer pursuant to 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended. X 32.1 Certification pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (President). X 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Office). X SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on January 27, 2009. General Red International, Inc. By: /s/ Xingping Hou --------------------------------------------- Xingping Hou President, Chairman of the Board Page 40

GENERAL RED INTERNATIONAL, INC. 10-K