China Electronics Holdings, Inc. - FORM 10-K/A

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EX-31.1 - China Electronics Holdings, Inc.	e610939_ex31-1.htm
EX-32.1 - China Electronics Holdings, Inc.	e610939_ex32-1.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-K/A

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

For the fiscal year ended December 31, 2012

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

Commission File Number: 333-152535

CHINA ELECTRONICS HOLDINGS, INC.

(Exact Name of Registrant as specified in its Charter)

Nevada		98-0550385
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Nos.)

Building 3, Binhe District, Longhe East Road, Lu’an City, Anhui Province, PRC		237000
(Address of Principal Executive Offices)		(Zip code)

Registrants’ telephone number, including area code: 011-86-564-3224888

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes x No

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

x Yes o No

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

x Yes o No

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

Large Accelerated Filer o

Accelerated Filer o

Non-accelerated Filer o

Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

As of June 29, 2012, the number of outstanding shares of the registrant’s common stock held by non-affiliates (excluding shares held by directors, officers and other holding more than 5% of the outstanding shares of the class) was 5,218,825. The trading price as of June 29, 2012 was $0.12 and the market value of the voting and non-voting common equity held by non-affiliates was $626,259 as of June 29, 2012.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date 16,775,113 as of March 31, 2013.

Explanatory Note

We are filing this amendment to restate the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 to correct certain inaccuracies in the presentation of due to a related party and accumulated other comprehensive income in the statement of consolidated balance sheet, foreign currency translation adjustment and comprehensive income (loss) in the statement of consolidated statements of operations and comprehensive income (loss) and modify certain related disclosures set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the audited consolidated financial statements of the Company for the fiscal years ended December 31, 2012 and 2011, and should be read in conjunction with such consolidated financial statements and related notes included in this annual report. Those statements in the following discussion that are not historical in nature should be considered to be forward looking statements that are inherently uncertain. Actual results and the timing of the events may differ materially from those contained in these forward looking statements due to a number of factors, including those discussed in the “Cautionary Note on Forward Looking Statements” set forth elsewhere in this annual report.

Overview

China Electronics Holdings, Inc (the “Company”, “we”, “our”, “us”), formerly named Buyonate, Inc., was incorporated in the State of Nevada on July 9, 2007 to engage in developing user-friendly/child friendly interactive digital software for children. The Company was in the development stage through December 31, 2008. The year 2009was the first year the Company was considered an operating company, engaging in retail and wholesale distribution of consumer electronics and appliances in certain rural markets in the People’s Republic of China.

China Electronic Holdings, Inc. (“CEH Delaware”) was organized on November 15, 2007, as a Delaware corporation. Prior to February 10, 2010, CEH Delaware was a development stage company attempting to manufacture and sell carbon and graphite electrodes and planning to manufacture and sell electronic products in the People’s Republic of China through its own stores and franchise stores.

Lu’an Guoying Electronic Sales Co., Ltd., a PRC corporation, (“Guoying”) was established on January 4, 2002. Guoying sells electronic products in the PRC through its company-owned stores and to exclusive franchise stores and non-exclusive stores.

In August 2012, Guoying contributed $945,054 to the capital of Lu An Guoying Opto-Electronics Technology Co., Ltd. (“Opto-Electronics”) which is 99% owned by Guoying. Mr. Hailong Liu, the CFO and Chairman of Guoying, contributed $9,630 to the capital of and owns 1% of Opto-Electronics.

Pursuant to a Share Transfer Agreement entered into on December 26, 2008 (the “2008 Share Transfer Agreement”) between the shareholders of Guoying (the “Guoying Shareholders”) and CEH Delaware, CEH Delaware agreed to acquire 40% of the outstanding equity securities of Guoying (the “Guoying Shares”) from the Guoying Shareholders in consideration for RMB 400,000. Pursuant to a Share Transfer Agreement entered into on December 31, 2009 (the “2009 December Share Transfer Agreement”) between Guoying Shareholders and CEH Delaware, CEH Delaware agreed to acquire the remaining Guoying Shares from Guoying Shareholders in consideration for RMB 600,000. The amount of RMB400, 000 was paid in February 2010 by CEH Delaware and the amount of remaining RMB 600,000 was paid in July 2010 by CEH. As a result of the transaction, Guoying became a wholly foreign-owned subsidiary (“WFOE”) of CEH Delaware.

On July 9, 2010 we consummated a Share Exchange Agreement with certain Selling Stockholders. Pursuant to the Share Exchange Agreement, 10 former stockholders of our subsidiary, CEH Delaware, transferred to us 100% of the outstanding shares of common stock and preferred stock of CEH Delaware and 100% of the warrants to purchase common stock of CEH Delaware held by them, in exchange for an aggregate of 13,785,902 newly issued shares of our Common Stock and warrants to purchase an aggregate of 1,628,570 shares of our Common Stock. CEH Delaware’s outstanding Series A warrants were exchanged on a one-for-one basis for Series A warrants of the Company to purchase an aggregate of 314,285 shares of Common Stock, with an exercise price of $2.19 per share. CEH Delaware’s outstanding Series B warrants were exchanged on a one-for-one basis for Series B warrants of the Company to purchase an aggregate of 314,285 shares of Common Stock, with an exercise price of $2.63 per share. CEH Delaware’s outstanding $1.00 warrants were exchanged on a one-for-one basis for Series E warrants of the Company to purchase an aggregate of 1,000,000 shares of Common Stock, with an exercise price of $0.25 per share. Subsequent to the consummation of the Share Exchange through a merger with a wholly owned subsidiary, Buyonate, Inc. changed its name to China Electronics Holdings, Inc. The merger and name change were approved by the Financial Industry Regulatory Authority (“FINRA”) and the Common Stock began trading under the symbol “CEHD.OB” on August 23, 2010.

Results of Operations

Wholesale and Retail of Consumer Electronics Appliances

We operated 2 company-owned stores as of December 31, 2012. We opened our headquarters company-owned store located in Guangcai Big Market in the second quarter of 2011.

As of December 31, 2012, we have exclusive franchise agreements with 306 exclusive franchise stores operated under the Guoying brand name (the “Exclusive Franchise Stores”). We entered into franchise agreements with 247, 61, 93 and 91 new exclusive franchise stores in 2009, 2010, 2011 and 2012, respectively. We terminated our exclusive franchise agreement with 47, 0, 233 and 131 exclusive franchise stores in 2009, 2010, 2011 and 2012, respectively. Both our Company-owned stores and our exclusive franchise stores only sell merchandise that we provide as their exclusive wholesaler, and such merchandise includes Guoying branded products as well as products from major wholesalers and manufacturers, such as Sony, Samsung and LG.

As of December 31, 2012, we have non-exclusive franchise agreements with 176 stores (the “Non-Exclusive Franchise Stores”) to which we provide Guoying branded merchandise on a non-exclusive wholesale basis. We entered into franchise agreements with 111, 557, 1 and 20 non-exclusive franchise stores in 2009, 2010, 2011 and 2012, respectively. We terminated our non-exclusive franchise agreements with 15, 18, 362 and 198 non-exclusive franchise stores in 2009, 2010, 2011 and 2012, respectively.

We currently target customers in county, township and villages (the third, fourth and fifth tiers of markets) in rural areas in Anhui Province of China. Our distribution and sales network currently covers twelve districts and counties in Anhui province, namely Shou County, Shu City, Jin An, Yu An, Huo Shan, Jinn Sai, Huo Qiu, Gu Shi, Ye Ji, Fei West, Fei East, and Huai Nan Districts.

In August 2011, our Board decided to terminate our exclusive and non-exclusive franchise agreements with a number of stores in order to strengthen and grow the Company’s business after concluding that the rapid growth of the number of stores serviced by the Company and aggressive business expansion had caused deficiencies in the Company’s internal controls and management. The following criteria was used to determine which stores (“Disqualified Exclusive Stores” and “Disqualified Non-Exclusive Stores”) to close (i) exclusive franchise stores that sold merchandise supplied by other wholesalers in breach of the exclusive franchise agreement; (ii) exclusive and non-exclusive franchise stores that failed to obey the Company’s pricing and resulting in lower profit margins; and (iii) stores located remotely Lu An City that result in higher transportation and logistics expenses to us. During the year ended December 31, 2011 and the year ended December 31, 2012, we closed 2 company-owned stores, terminated our contracts with 364 exclusive franchise stores, and terminated our contracts with 560 non-exclusive franchise stores. We will continue to evaluate and decide if we need to terminate any more stores in 2013.

When we use the terms "open" or "opened" in referring to an exclusive or non exclusive franchise store, we mean that we had entered into a franchise agreement with such store and that it was in operation. When we use the terms "close," "closed" or "terminated" in reference to an exclusive or non-exclusive franchise store we mean that we had terminated our agreement with such store.

Logistics and Transportations

We entered into a Land Investment Agreement for 300 Chinese acres (164,983 square meters) land with Pingqiao Industrial Park. We originally planned to build our LED manufacturing facility on the land. We filed a proposal to obtain permission to enter into the LED manufacturing business with the Reform and Development Commission of Yu An District, Lu An City on May 13, 2011. We obtained a construction permit issued by the Housing and Urban-Rural Development Bureau of Yu An District, Lu An City on October 28, 2011 to build an LED manufacturing facility on the Pingqiao Land. Due to a change in the Company’s business plans, we determined to build logistic centers on 38,449 square meters of the land.Our plan was to construct four warehouses/logistics centers to provide distribution channels and logistics transportation services to deliver merchandise and Guoying branded products to counties, townships and villages in Hubei, Henan and Anhui provinces. We have started construction of four warehouses located on the Pingqiao land since October 2011. Each warehouse is 4,800 square meters. We currently stopped the construction of four logistics centers due to lack of sufficient capital.

The Company will continue focusing on becoming a significant retailer and wholesaler of consumer electronics and appliances to rural markets with a goal of having a national distribution network throughout China. The Company’s working capital will continue to be used to develop wholesale and retail business. The Company does not have sufficient capital to build an LED manufacturing and logistics centers at this time. Thus the Company will continue its electronics distribution business while it moves slowly on the development of its LED business and the construction of its logistics centers by seeking business opportunities, partners and financing.

Year Ended December 31, 2012 Compared with Year Ended December 31, 2011

Revenues

Our net revenue for the year ended December 31, 2012 was $58,082,897, a decrease of 44.3%, or $46,132,506, from $104,215,403 for the year ended December 31, 2011.

For the 2012 year, net revenue from exclusive franchise stores was $34,256,697, a decrease of 27.5%, or $12,965,105, from $47,221,802 for the year 2011. There were 306 exclusive franchise stores as of December 31, 2012, 40 or 12%, fewer than the 346 exclusive franchise stores as of December 31, 2011. The Company entered into franchise agreements with 91 exclusive stores and terminated its agreement with 131 exclusive stores in 2012.

For the 2012 year, net revenue from non-exclusive stores was $16,147,112, a decrease of 65.8%, or $31,025,160, from $47,172,272 for the year 2011. There were 176 non-exclusive stores as of December 31, 2012, 178 or 50% fewer than the 354 non-exclusive stores as of December 31, 2011. The Company entered into a non-exclusive franchise agreement with 20 non-exclusive stores and terminated its agreement with 198 non-exclusive stores in 2012.

For the 2012 year, net revenue from company owned stores was $7,679,088, a decrease of 21.8%, or $2,142,241, from $9,821,329 for the year, 2011. The decreased revenue from company-owned stores was mainly because the Company opened zero and closed zero store in the year ended December 31, 2012.

Revenue Classified by Store Type

Our disaggregation of revenue and cost of sales by each store type in the past two years as of December 31, 2012 and 2011 are as follows:

2011 Presentation	Non-Exclusive Franchise Stores		Exclusive Franchise Stores		Company-Owned Stores		Total
Revenue	$	47,172,272	$	47,221,802	$	9,821,329	$	104,215,403
Cost of Sales	$	40,051,142	$	40,356,299	$	8,115,988	$	88,523,429
Gross Profit	$	7,121,130	$	6,865,503	$	1,705,341	$	15,691,974

2012 Presentation	Non-Exclusive Franchise Stores		Exclusive Franchise Stores		Company-Owned Stores		Total
Revenue	$	16,147,112	$	34,256,697	$	7,679,088	$	58,082,897
Cost of Sales	$	14,940,751	$	31,656,380	$	6,883,229	$	53,480,360
Gross Profit	$	1,206,361	$	2,600,317	$	795,859	$	4,602,537

Sales and Average Per Store Sales of Same Stores

Same Stores are defined as stores that we opened or entered into franchise agreements with prior to 2011 and that have been in continuous operation as of December 31, 2012 and excludes stores that were newly opened or closed or with which we entered into or terminated franchise agreements in 2011 or 2012. Same Store Sales are defined as sales from the Same Stores.

Same Stores Sales in 2011 and 2012, and the increase or decrease experienced as a percentage of Same Store Sales are as follows:

Same Store Sales	2012 Sales		2011 Sales		Difference			Change
Non-Exclusive Franchise Stores	$	14,314,243	$	14,914,465	$	(600,222	)		(4	)%
Exclusive Franchise Stores	$	23,970,376	$	11,216,190	$	12,754,186			114	%
Company-Owned Stores	$	580,099	$	2,087,171	$	(1,507,072	)		(72	)%
Total	$	38,864,718	$	28,217,826	$	10,646,892			38	%

The primary reason for the increase in Same Stores Sales was the increase in sales from exclusive stores (“Same Exclusive Franchise Stores”) offset by the decrease in sales from non-exclusive franchise stores (“Same Non-Exclusive Franchise Stores”) and decrease in sales from company-owned stores (“Same Company-Owned Stores”). The increase in our sales in Same Exclusive Franchise stores is a result of the company’s many efforts in assisting such stores to increase their sales of Company supplied products. For example, the Company increased promotion and marketing for its brands in media with broader coverage, providing more support to such stores. The decrease in our sales in Same Non-Exclusive Franchise Stores is because of the decreased per store sales for Same Non-Exclusive Franchise Stores due to the decreased solar-powered products sales.

The number of Same Stores included in the calculation of average sales of per-store Same Stores is as follows:

Number of Same Stores	2012		2011
Non-Exclusive Franchise Stores		155		155
Exclusive Franchise Stores		161		161
Company-Owned Stores		1		1

The average sales per-store of Same Stores and its trend up or down are as follows:

Average Per-Store Same Store Sales	2012 Sales		2011Sales		Difference			Change
Non-Exclusive Franchise Stores	$	92,350	$	96,222	$	(3,872	)		(4	)%
Exclusive Franchise Stores	$	148,884	$	69,666	$	79,218			114	%
Company-Owned Stores	$	580,099	$	2,087,171	$	(1,507,072	)		(72	)%

Sales and Average Per Store Sales of New Stores

New Stores are defined as stores that were newly opened or with which we entered into a franchise agreement in either 2012 or 2011 that are in existence under normal business operations as of December 31, 2012 and excluding stores that closed in 2012 or 2011 (“New Stores”). New Store Sales are defined as sales from the New Stores. 2011 New Store Sales refer to the sales from New Stores opened or with which we entered into a franchise agreement in 2011 and not closed in 2012. 2012 New Store Sales refer to the sales generated in 2012 from both New Stores opened or with which we entered into a franchise agreement in 2011 and 2012 that have not closed as of the end of 2012.

New Stores Sales operating in both 2011 and 2012, and the increase experiences at a percentage are as follows:

New Store Sales	2012 Sales		2011 Sales		Difference			Change
Non-Exclusive Franchise Stores	$	1,832,869	$	114,215	$	1,718,654			1,505	%
Exclusive Franchise Stores	$	8,019,846	$	12,292,162	$	(4,272,316	)		(35	)%
Company-Owned Stores	$	7,098,989	$	5,386,411	$	1,712,578			32	%
Total	$	16,951,704	$	17,792,788	$	(841,084	)		(5	)%

The primary reason for the decrease in New Stores Sales was the decrease of sales from new exclusive franchise stores (the “New Exclusive Franchise Stores”), offset by the increase in sales from new Exclusive franchise stores (the “New Exclusive Franchise Stores) and increase in sales from company-owned stores (the “New Company-Owned Stores”). The increase of sales from New Non-Exclusive Stores is due to the fact that the Company entered into franchise agreements with 1 New Non-Exclusive Stores in 2011 and 20 in 2012. The decrease of sales from exclusive stores is because of the decreased per stores sales for new exclusive stores due to less successful marketing to new stores in 2012 compared to 2011. The increase in sales for the New Company Owned Stores is due to increased marketing and promotion in 2012 compared to 2011.. Further, the Company closed 0 Company-Owned Stores, 131 Exclusive Franchise Stores and 198 Non-Exclusive Franchise Stores, in 2012.

The number of new stores included in the calculation of average per store sales of New Stores is as follows:

Number of New Stores	2012		2011
Non-Exclusive Franchise Stores		21		1
Exclusive Franchise Stores		147		56
Company-Owned Stores		1		1

The average sales per-store of New Stores and its trend as a percentage of New Store Sales are as follows:

Average Per-Store New Store Sales	2012 Sales		2011 Sales		Difference			Change
Non-Exclusive Franchise Stores	$	87,279	$	114,215	$	(26,936	)		(24	)%
Exclusive Franchise Stores	$	54,557	$	219,503	$	(164,946	)		(75	)%
Company-Owned Stores	$	7,098,990	$	5,386,411	$	1,712,579			32	%

Sales and Average Per Store Sales of Closed Stores

Closed Stores are defined as stores that were closed or with which the Company terminated its agreement in either 2012 or 2011 (the “Closed Stores”). Closed Store Sales are defined as sales from the Closed Stores. 2011 Closed Store Sales refer to sales generated in 2011 from stores whose franchise agreements were terminated or which closed in 2011 or 2012. 2012 Closed Store Sales refer to sales generated in 2012 from stores whose franchise agreements were terminated or which closed in 2012.

Closed Store Sales in 2011 and 2012, and the change experienced as a percentage are as follows:

Closed Store Sales	2012 Sales		2011 Sales		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	32,143,592	$	(32,143,592	)		(100	)%
Exclusive Franchise Stores	$	2,266,475	$	23,713,451	$	(21,446,976	)		(90	)%
Company-Owned Stores	$	-	$	2,347,746	$	(2,347,746	)		(100	)%
Total	$	2,266,475	$	58,204,789	$	(55,938,314	)		(96	)%

The decrease in Closed Store Sales results from the fact that Stores whose franchise agreements were terminated or which closed in 2011generated no sales for the Company in 2012. The Company resolved to close (i) exclusive franchise stores that sold merchandise supplied by other wholesalers in breach of the exclusive franchise agreement; (ii) exclusive and non-exclusive franchise stores that failed to obey the Company’s pricing strategies, resulting in lower profit margins; (iii) stores located remotely from Lu An City that resulted in higher transportation and logistics expenses to us; and (iv) stores that sold brands of merchandise not supplied by us. The Company closed two Company-owned stores to concentrate its resources in managing Company-owned stores.

The number of closed stores included in the calculation of average per-store sales of Closed Stores is as follows:

Number of Closed Stores	2012		2011
Non-Exclusive Franchise Stores		198		560
Exclusive Franchise Stores		131		364
Company-Owned Stores		-		2

The average per-store sales of Closed Stores and its trend of increase or decrease are as follows:

Average Per-Store Closed Store Sales	2012 Sales		2011Sales		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	57,399	$	(57,399	)		(100	)%
Exclusive Franchise Stores	$	17,301	$	65,147	$	(47,846	)		(73	)%
Company-Owned Stores	$	-	$	1,173,873	$	(1,173,873	)		(100	)%

Other information

The following is a summary of revenue by product line for the years ended December 31, 2012 and 2011:

	2012 Sales		2011 Sales
Solar Power Products	$	8,010,810	$	52,819,154
Air Conditioner	$	21,816,999	$	9,885,963
Refrigerator	$	7,412,664	$	12,942,196
TV	$	17,044,581	$	24,613,695
DVD	$	-	$	58,207
Washer	$	2,911,735	$	2,981,337
Others	$	886,108	$	914,851
Total	$	58,082,897	$	104,215,403

The increased revenue from new product lines carried in 2012 was $14,984,747, of this amount our exclusive franchise stores, non-exclusive stores and company-owned stores increased revenue from new product lines by $8,278,487, $4,166,286 and $2,539,974, respectively. New products lines carried in the year ended December 31, 2012 but not in the same period last year includes Oulin appliances, Gree Air Conditioner, Skyworth TV and Meiling Washer.

The increased revenue in 2012 from new exclusive franchise stores whose franchise agreements were executed or which opened in 2012 was $8,018,846. The increased revenue in 2012 from new non-exclusive stores whose franchise agreements were executed or which opened in 2012 was $1,832,869. The increased revenue from new company-owned stores opened in 2012 was $0 for the year ended December 31, 2012.

The increase in sales of air conditioners is due to increased sales of Zhigao air conditioner (approximately $5.2 million), AUX Air Conditioner (approximately $5.3 million) and Gree Air Conditioner (approximately $7.3 million) offset by the decrease in sales of Haier Tongshuai Air Conditioner(approximately $3.2 million) in 2012 as compared to 2011.T Our sales of solar power products decreased in 2012 because of increased market competition and decreased market demands for solar power products.

Solar-powered products sales decreased by $44,808,344, or 84.8%, from $52,819,154, in 2011 to $8,010,810 in 2012. The decrease is mainly due to decreased solar-powered products sales of Huayang Brand. The decrease is due to increased market competition of solar-powered products and Huayang’s failure to increase its sales in the market.

Cost of Goods Sold

Our cost of goods sold for the year ended December 31, 2012 was $53,480,360, a decrease of $35,043,069, or 39.6%, compared to $88,523,429 for the year ended December 31, 2011. The decrease was mainly due to the decrease in sales.

	2012		2011

Cost of goods sold from non-exclusive stores	$	14,940,751	$	40,051,142
Cost of goods sold from exclusive franchise stores		31,656,380		40,356,299
Cost of goods sold from company-owned stores		6,883,229		8,115,988
Cost of goods sold	$	53,480,360	$	88,523,429

For the year 2012, cost of goods sold from non-exclusive stores was $14,940,751, a decrease of 62.7%, or $25,110,391, from $40,051,142for the year 2011. The decrease was in line with the decrease in revenue.

For the year 2012, cost of goods sold from company-owned stores was $6,883,229, a decrease of 15.2%, or $1,232,759, from $8,115,988 for the year 2011. The decrease was in line with the decrease in sales from company-owned stores.

For the year 2012, cost of goods sold from exclusive franchise stores was $31,656,380, a decrease of 21.6%, or $8,699,919, from $40,356,299 for the year 2011. The decrease was in line with the decrease in revenue.

Cost of goods sold and Average Per Store Cost of goods sold of Same Stores

Same Store Cost of Goods Sold	2012 Sales Cost		2011 Sales Cost		Difference			Change
Non-Exclusive Franchise Stores	$	13,249,508	$	12,219,504	$	1,030,004			8	%
Exclusive Franchise Stores	$	22,192,512	$	9,607,049	$	12,585,463			131	%
Company-Owned Stores	$	530,596	$	1,707,811	$	(1,177,215	)		(69	)%
Total	$	35,972,616	$	23,534,364	$	12,438,252			53	%

The average cost of goods sold per-store of same Stores and its trend as a percentage of Same Store Cost of goods sold are as follows:

Average Per-Store Same Store Cost of Goods Sold	2012 Sales Cost		2011 Sales Cost		Difference			Change
Non-Exclusive Franchise Stores	$	85,481	$	78,836	$	6,645			8	%
Exclusive Franchise Stores	$	137,842	$	59,671	$	78,171			131	%
Company-Owned Stores	$	530,596	$	1,707,811	$	(1,177,215	)		(69	)%

Cost of goods sold and Average Per Store Cost of goods sold of New Stores

New Store Cost of Goods Sold	2012 Sales Cost		2011 Sales Cost		Difference			Change
Non-Exclusive Franchise Stores	$	1,691,243	$	96,584	$	1,594,659			1,651	%
Exclusive Franchise Stores	$	7,358,519	$	10,694,942	$	(3,336,423	)		(31	)%
Company-Owned Stores	$	6,352,633	$	4,462,562	$	1,890,071			42	%
Total	$	15,402,395	$	15,254,088	$	148,307			1	%

The average cost of goods sold per-store of New Stores and its trend as a percentage of New Store cost of goods sold are as follows:

Average Per-Store New Store Cost of Goods Sold	2012 Sales Cost		2011 Sales Cost		Difference			Change
Non-Exclusive Franchise Stores	$	80,535	$	96,584	$	(16,049	)		(17	)%
Exclusive Franchise Stores	$	50,058	$	190,981	$	(140,923	)		(74	)%
Company-Owned Stores	$	6,352,633	$	4,462,562	$	1,890,071			42	%

Cost of goods sold and Average Per Store Cost of goods sold of Closed Stores

Closed Store Cost of Goods Sold	2012 Sales Cost		2011 Sales Cost		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	27,735,054	$	(27,735,054	)		(100	)%
Exclusive Franchise Stores	$	2,105,349	$	20,054,308	$	(17,948,959	)		(90	)%
Company-Owned Stores	$	-	$	1,945,615	$	(1,945,615	)		(100	)%
Total	$	2,105,349	$	49,734,977	$	(47,629,628	)		(96	)%

The average cost of goods sold per-store of Closed Stores and its trend as a percentage of Closed Store cost of goods sold are as follows:

Average Per-Store Closed Store Cost of Goods Sold	2012 Sales Cost		2011 Sales Cost		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	49,527	$	(49,527	)		(100	)%
Exclusive Franchise Stores	$	16,071	$	55,094	$	(39,023	)		(71	)%
Company-Owned Stores	$	-	$	972,807	$	(972,807	)		(100	)%

Other information

The increased cost of goods sold resulting from new product lines carried in 2012 was $13,725,646 For the year 2012, the increased cost of goods sold from new product lines carried by exclusive franchise stores, non-exclusive stores and company-owned stores was $7,603,835, $3,838,939 and $2,282,871, respectively.

The increased cost of goods sold resulting from new exclusive franchise stores opened in 2012 was $7,358,519. The increased cost of goods sold resulting from new non-exclusive stores opened in 2011 was $1,691,244. The increased cost of goods sold resulting from new company-owned stores opened in 2012 was $0.

Gross Profit

Gross profit for the year 2012 was $4,602,537, a decrease of $11,089,437, or approximately 70.7%, compared to $15,691,974 for the year 2011.

For the year 2012, gross profit for non-exclusive stores was $1,206,361, a decrease of 83.1%, or $5,914,769, from $7,121,131for the year 2011. The decrease was mainly due to the decreased sales from non-exclusive stores.

For the year 2012, gross profit for exclusive franchise stores was $2,600,317, a decrease of 62.1%, or $4,265,186, from $6,865,502 for the year ended December 31, 2011. The decrease was mainly due to the decreased sales from exclusive franchise stores.

For the year 2012, gross profit for company-owned stores was $795,859, a decrease of 53.3%, or $909,482, from $1,705,341 for the year 2011. The decrease was mainly due to decreased sales

Gross profit and Average Per Store Gross Profit of Same Stores

Same Store Gross Profit	2012 Gross Profit		2011 Gross Profit		Difference			Change
Non-Exclusive Franchise Stores	$	1,064,736	$	2,694,961	$	(1,630,225	)		(60	)%
Exclusive Franchise Stores	$	1,777,863	$	1,609,140	$	168,723			10	%
Company-Owned Stores	$	49,503	$	379,361	$	(329,857	)		(87	)%
Total	$	2,892,102	$	4,683,462	$	(1,791,360	)		(38	)%

The average gross profit per-store of same Stores and its trend as a percentage of Same Store gross profit are as follows:

Average Per-Store Same Store Gross Profit	2012 Gross Profit		2011 Gross Profit		Difference			Change
Non-Exclusive Franchise Stores	$	6,869	$	17,387	$	(10,518	)		(60	)%
Exclusive Franchise Stores	$	11,043	$	9,995	$	1,048			10	%
Company-Owned Stores	$	49,503	$	379,361	$	(329,857	)		(87	)%

Gross Profit and Average Per Store Gross Profit of New Stores

New Store Gross Profit	2012 Gross Profit		2011 Gross Profit		Difference			Change
Non-Exclusive Franchise Stores	$	141,625	$	17,632	$	123,993			703	%
Exclusive Franchise Stores	$	661,328	$	1,597,219	$	(935,891	)		(59	)%
Company-Owned Stores	$	746,357	$	923,849	$	(177,492	)		(19	)%
Total	$	1,549,310	$	2,538,700	$	(989,390	)		(39	)%

The average cost of gross profit per-store of New Stores and its trend as a percentage of New Store gross profit are as follows:

Average Per-Store New Store Gross Profit	2012 Gross Profit		2011 Gross Profit		Difference			Change
Non-Exclusive Franchise Stores	$	6,744	$	17,631	$	(10,887	)		(62	)%
Exclusive Franchise Stores	$	4,499	$	28,522	$	(24,023	)		(84	)%
Company-Owned Stores	$	746,357	$	923,849	$	(177,492	)		(19	)%

Gross Profit and Average Per Store Gross Profit of Closed Stores

Closed Store Gross Profit	2012 Gross Profit		2011 Gross Profit		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	4,408,538	$	(4,408,538	)		(100	)%
Exclusive Franchise Stores	$	161,126	$	3,659,143	$	(3,498,017	)		(96	)%
Company-Owned Stores	$	-	$	402,131	$	(402,131	)		(100	)%
Total	$	161,126	$	8,469,812	$	(8,308,686	)		(98	)%

The average gross profit per-store of Closed Stores and its trend as a percentage of Closed Store gross profit are as follows:

Average Per-Store Closed Store Gross Profit	2012 Gross Profit		2011 Gross Profit		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	7,872	$	(7,872	)		(100	)%
Exclusive Franchise Stores	$	1,230	$	10,053	$	(8,823	)		(-88	)%
Company-Owned Stores	$	-	$	201,066	$	(201,066	)		(100	)%

Other information

The increased gross profit from new product lines carried in 2012 was $1,259,102. For the year 2012, the increased gross profit from new product lines carried by exclusive franchise stores, non-exclusive stores and company-owned stores was$674,652, $327,347 and $257,103, respectively.

The increased gross profit for 2012 from products sold by new exclusive franchise stores opened or with which we entered into agreements in 2012 was $661,327. The increased gross profit for 2012 from products sold by new non-exclusive stores opened or with which we entered into an agreement in 2012 was $141,625. The increased gross profit for 2012 from products sold by new company-owned stores opened in 2012 was $0.

Gross Profit Rate

Gross profit rate for 2012 was 7.92%, a decrease of approximately 47.4%, compared to 15.06% for the year 2011 due to less market demand and strong industry competition.

For the year 2012, gross profit rate for exclusive franchise stores was 7.59%, a decrease of 47.8% compared to 14.54% for the year 2011. The decrease in gross profit rates was mainly due to the fact that in 2012, we sold more products with higher cost and lower markups compared to 2011. The Company continues to improve managing its sales network as well as products offered, which continuously requires us to review pricing on existing products and existing sales channels. We expect that our pricing strategies will continue to evolve to market conditions and expect improvements to have a marginalizing effect on the noted increase in gross profit rates at exclusive franchise stores as changes in product offerings mature along with their related pricing strategies.

For the year ended December 31, 2012, gross profit rate for non-exclusive stores was 7.47%, a decrease of 50.5%, compared to 15.10% for the year ended December 31, 2011. The decrease in gross profit rates was mainly due to the fact that in 2012, we sold more products with higher cost and lower markups compared to 2011.

For the year ended December 31, 2012, gross profit rate for company-owned stores was 10.36%, a decrease of 40.3%, compared to 17.36% for the year ended December 31, 2011. The decrease was due to the fact that in 2012, we sold more products with higher cost and lower markups compared to 2011.

Gross profit rate in 2012 from new product lines carried in 2012 was 8.4%. Gross profit rate in 2012 from new product lines carried in 2012 sold by exclusive franchise stores was 8.1%. Gross profit rate in 20121 from new product lines carried in 2012 sold by non-exclusive stores was approximately 7.9%. Gross profit rate in 2012 from new product lines carried in 2012 sold by company-owned stores was 10.1%.

Gross profit rate in 2012 from new stores opened in 2012 was 8.1%. Gross profit rate in 2012 from new exclusive franchise stores opened in 2012 was 8.2%. Gross profit rate in 2012from new non-exclusive stores opened in 2012 was 7.7% for the year ended December 31, 2012. Gross profit rate from new company-owned stores opened in 2012 was 0.0%.

Operating Expenses

Operating expenses for the year ended December 31, 2012 were $6,524,216, an increase of $6,978,126, or 1,537.3%, from $(453,910) for the year ended December 31, 2011.

Selling expenses for the year ended December 31, 2012 were $2,086,788, a decrease of $1,539,094, or 42.4%, from $3,625,882 for the year ended December 31, 2011. The decrease of selling expenses relates primarily to decreased sales commission and decreased advertising expenses due to decreased sales. The Company did not use TV commercial for the year ended December 31, 2012 and lowered the advertising expenses.

General and administrative expenses for the year ended December 31, 2012 were $2,969,909, an increase of $446,701, or 17.7%, from $2,523,208 for the year ended December 31, 2011. The increase is due to increased amortization expense, audit fees and attorneys’ fees.

Bad debt allowance expense- for other receivable were $2,214,245 and $0 for the year ended December 31, 2012 and 2011, respectively.

Bad debt allowance expense for due from a related party were $1,109,500 and $0 for the year ended December 31, 2012 and 2011, respectively.

During the year ended December 31, 2012 and 2011, recovery of debt expenses of $1,856,226 and $6,603,000 were recorded as a reduction of operating expenses. During the year ended December 31, 2011, we received $6,603,000 from the collection of a past due receivable from Pengpai that was written off in 2009 as we determined that the receivable was not collectible at that time.

Net Operating Income (Loss)

Our net operating loss for the year ended December 31, 2012 was $1,921,679, a decrease of $18,067,563, or 111.9%, from net operating income of $16,145,884 for the same period in 2011. The decrease was mainly due to decreased sales and gross profit and increased operating expenses.

Other Income (Expense)

Our net other income for the year ended December 31, 2012 was $820,626, an increase of $834,885, or 5,855.1%, from net other expense of $14,259 for the same period in 2011. The increase of other income was mainly due to increase in other income of $917,358 of gain from disposal of intangible and biological asset and offset by $203,865 paid to closed stores as compensation during the year ended December 31, 2012. The compensation serves the purpose to compensate the potential loss of future sales of those 2011 closed stores. As a result of terminating our franchise contracts with those 2011 closed stores that have affected their future sales and revenue after our termination, the Company agreed to pay to the 2011 closed stores a compensation for losses for previous investment by those stores and losing potential future sales. The compensation was given to stores that we closed in 2011 and therefore did not have transactions with the Company and we generated no revenue or incurred no operating expenses from those stores during the year ended December 31, 2012, thus the Company included the compensation in other expenses to clearly present the nature of the compensation.

Net Income (Loss)

Our net loss for the year ended December 31, 2012 was $1,101,341, a decrease of $17,231,711, or 106.8%, from net income of $16,130,370 for the same period in 2011. The decrease was mainly due to the decrease in sales, increased operating expenses, and decreased net other income for the reason set forth above.

Income Taxes Expense

Under the Income Tax Laws of the PRC, the Company’s subsidiaries are generally subject to an Enterprise Income Tax (EIT) at a standard rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The State Tax Bureau of Lu’An City, Anhui province issued an income tax benefit approval to Guoying on December 10, 2011 providing that Guoying is subject to income tax and VAT benefit treatment out of a reduced rate of RMB 7,500 tax payment per year (including income tax and VAT) valid from December 1, 2011 until December 31, 2013 subject to Guoying's option to pay more in taxes should it elect to do so. Therefore, currently, Guoying is charged at a fixed annual reduced tax rate no less than RMB7, 500 per year that changes every year to cover all types of taxes including income taxes. The income tax expenses for the years ended December 31, 2012 and 2011 are $288 and $1,255, respectively. There were no significant book and tax basis differences.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the year ended December 31, 2012 or during the year ended December 31, 2011 that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Liquidity and Capital Resources

As of December 31, 2012, we had cash and cash equivalents of $9,465, decreased from $171,838 as of December 31, 2011. We have historically funded our working capital needs with amounts from operations, advance payments from customers, bank borrowings, and capital from shareholders. Our working capital requirements are influenced by the level of our operations, and the timing of accounts receivable collections.

The following table sets forth a summary of our cash flows for the periods indicated:

	December 31, 2012			December 31, 2011
Net cash provided by operating activities	$	147,765		$	1,353,575
Net cash used in investing activities		(2,228,109	)		(5,388,620	)
Net cash provided by financing activities		1,904,771			2,902,172
Effect of rate changes on cash		13,200			78,610
Decrease in cash and cash equivalents		(162,373	)		(1,054,263	)
Cash and cash equivalents, beginning of period		171,838			1,226,101
Cash and cash equivalents, end of period	$	9,465		$	171,838

Net cash provided by operating activities was $147,765 for the year ended December 31, 2012, compared to net cash provided by operating activities was $1,353,575 for the year ended December 31, 2011, a decrease of $1,205,810. The decrease of net cash provided by operating activities was primarily due to decreased net income, increased other receivable, decreased other payable, offset by decrease in accounts receivable, decrease in advances made to suppliers, increase in customer deposit, increase in accounts payable and accrued expenses in 2012 compared to 2011.

The Company received a land use right certificate issued by People’s Government of Yu An District on April 16, 2012 with a validation term of 50 years until 2062 for 38,449 square meters, including 19,200 square meters where the four warehouses are built on. We are waiting to receive the land use right certificate for the remaining 126,534 square meters of Pingqiao land. The government may not remove our facilities from the land which we have obtained the land use right certificate but could remove any future constructions that we build on the land which we have not obtained land use right certificate. We are not obligated to pay to Pingqiao Committee approximately $3.7 million until People’s Government of Yu An District is ready to issue us the land use right certificate for the rest of land. Due to burdensome and repetitive approval procedures, we have not been granted land use right certificate for the rest of land. We are currently negotiating with the local government to obtain a Land Use Right Certificate for rest of the land but we are not certain when such land use right certificate will be granted to us. If we cannot generate sufficient cash from our operations to pay for the remaining balance of land purchase price in an immediate short term of time when Yu An District Government completes its approval procedures to issue us the land use right certificate for rest of the land, the PRC government may evict our personnel from the premises and remove our manufacturing facilities we built on the land which we have not obtained land use right certificate. Such action would have a very significant and negative impact on our operations and business. Please refer to risk factors on page 13.

Growth Strategies

We funded our growth strategy from our working capital and below are a summary of approximately how much we have spent in year 2012 to achieve our growth strategies:

Growth Strategies	Amount spent 2011		Amount Spent 2012
Develop new exclusive franchise stores in Anhui Province	$	355,123		629,600
Develop new company-owned stores in Anhui Province	$	391,538		472,200
Develop new non-exclusive stores in Anhui Province	$	3,738		1,574,000
Constructions for logistics centers	$	4,615,384		7,787,000

We purchased 300 Chinese acres land with Pingqiao Industrial Park. The land was originally to be used to build our LED manufactures and due to change of our business plan, portion of which was used to build our logistics centers located in Lu An City to establish distribution channels and logistics transportation services to deliver merchandise and Guoying branded products to counties, townships and villages in Hubei, Henan and Anhui provinces. We have started construction of four warehouses located on Pingqiao land since October 2011. Each logistics center is 4,800 square meters and total is 19,200 square meters. The Company currently stops construction of four logistic centers due to insufficiency of capital.

In August 2012, Guoying invested $945,054 to establish Opto-Electronics which is 99% owned by Guoying. Mr. Hailong Liu, the CEO and Chairman of Guoying, invested $9,630 and owned 1% of Opto-Electronics. We filed a proposal to seek approval to enter into the LED manufacturing business with the Reform and Development Commission of Yu An District, Lu An City on May 13, 2011 and we obtained planning permit for the project and land construction issued by Housing and Urban-Rural Development Bureau of Yu An District, Lu An City on October 28, 2011. We have obtained permits to build LED manufactures on Pingqiao land. We are seeking business partners and financing to further continue the LED manufacturing and wholesale business.

Investing Activities

Net cash used in investing activities was $2,228,109 for the year ended December 31, 2012, compared $5,388,620 used in investing activities for the year ended December 31, 2011, a decrease of $3,160,511, or 58.7%. The decrease of net cash used in investing activities was primarily due to less investment in construction in progress in the year ended December 31, 2012 compared to the same period 2011.

Financing Activities

Net cash provided by financing activities was $1,904,771 for the year ended December 31, 2012, compared to $2,902,172 for the year ended December 31, 2011. The decrease was mainly due to decreased related party payable offset by increased proceeds from short term loan in the year ended December 31, 2012 compared to the same period 2011.

Inflation and Changing Prices

While inflation has increased in China over the past two years, such inflation has not had a material effect on the Company’s net revenues because the Rural Consumer Electronics Plan grants a government-sponsored rebate to our rural customers. Pursuant to the terms of the policy, our prices are competitive with the prices of the same goods in urban areas, however our customers are not required to pay a market driven price. As a result of this rebate, the actual cost incurred by our customers has not materially increased despite inflation.

Contractual Obligations

Our significant contractual obligations as of March 29, 2013 are as follows:

The Company incurred rent expenses of $160,349 and $143,743 for the year ended December 31, 2012 and 2011 respectively.

The lease expenses for the next five years are estimated to be as follows:

2013	$	136,632
2014		41,083
2015		12,553
2016		12,553
2017		8,369
Thereafter		-
Total	$	211,191

Obligations for Land Use Rights

The Company entered into a Land Investment Agreement on October 28, 2010 and a supplemental Deposit Agreement on December 28, 2010 with the management committee of Pingqiao Industrial Park (the “Pingqiao Committee”), under which the Pingqiao Committee is obligated to assist the Company to obtain a land use right for 300 Chinese acres to be issued by local peoples government. At first we decided to use the land to build our LED manufacturing facility. Then due to the shrink of LED market and demand we decide to use the land to build our logistics centers located in Lu An City to establish distribution channels and logistics transportation services to deliver merchandise and Guoying branded products to counties, townships and villages in Hubei, Henan and Anhui provinces. We have started construction of four warehouses located on Pingqiao land since October 2011. Each logistics center is 4,800 square meters and total is 19,200 square meters. We currently do not have sufficient capital to continue the construction at this time and the Company will continue its electronics distribution business while it moves slowly on the development of construction of logistic center by seeking business partners and financing. The Company paid RMB 100 million (approximately $15.74 million) of the purchase price as of December 31, 2010. The Company is not obligated to pay the remaining $3.7 million until it receive the land use right certificate issued by relevant PRC government pursuant to the Land Investment. The Company received a land use right certificate issued by peoples government of Yu An District on April 16, 2012 with a validation term of 50 years until 2062 for 38,449 square meters where the four warehouses are built on. The Company has not received land use right certificate for the remaining parcel of land. The Company believes that if the land use right certificate is not granted to the Company by the local government, the Company will get a refund of the retainer from Pingqiao Committee pursuant to its contractual rights as set forth in Section 8 of Investment Agreement between Ping Bridge Industrial Park and Lu’an Guoying Electronics Sales Co.

Application of Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us include revenue recognition, contingencies, income taxes, and stock-based compensation.

See Note 2, Summary of Significant Accounting Policies, to the Notes to Consolidated Financial Statements for a complete discussion of related accounting policies.

Revenue Recognition – Product Sales

The Company receives revenue from sale of electronic products. The Company's revenue recognition policies are in compliance with ASC 605 (previously Staff Accounting Bulletin 104). The Company recognizes all product sales revenue at the date of shipment to customers, when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company recognizes product sales revenue from exclusive franchise stores and non-exclusive franchise stores when the products are delivered to the respective store. Product sales to all franchise stores are recorded at the gross amount billed to the store as we have determined that we are principal to the transaction because we are the primary obligor in the arrangement.

No return rights are granted to franchise stores if they are unable to sell purchased inventories to end users. Additionally, our product sales from company-owned stores are covered by the respective manufacturers’ return and warranty policies and we receive full reimbursement for any costs associated with returns and warranty payments. As such, we do not estimate deductions or allowance for sales returns.

Our sales are covered by the manufacturers’ return and warranty policies and we receive a full reimbursement for costs associated with returns and warranty payments. Therefore, we do not estimate deductions or allowance for sales returns. The Company’s revenue from sales is presented as gross revenue. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposit.

Our products delivered to customers are checked on site by the customers and, once the products are accepted by customers, they sign the acceptance notice. Rewards or incentives given to our customers are an adjustment of the selling prices of our products; therefore, the consideration is characterized as a reduction of revenue in our income statement.

The Company recognizes its revenues net of value-added taxes (“VAT”).

Revenue Recognition – Franchise Fees

Franchise fees, including area development and initial franchise fees, continuing fees, and royalties (collectively referred to as “franchise fees”) received from exclusive franchise stores and non-exclusive franchise stores for the right to establish new stores and royalties are charged to franchisees based on a percentage of a franchised store’s sales.

Franchise fees are accrued as unearned franchise revenue when received and are recognized as revenue when the respective franchised store opens, which is generally when we have fulfilled all significant obligations to the franchisee. Continuing fees and royalties are recognized in the period earned.

Currently, in connection with promotional efforts aimed at network growth, the Company has ceased charging franchise fees, continuing fees and royalties to our franchisees.

Legal and Other Contingencies

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial statements.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial statements.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating expected dividends. In addition, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be impacted.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, which requires entities to present information about significant items reclassified out of accumulated other comprehensive income (loss) by component either on the face of the statement where net income is presented or as a separate disclosure in the notes to the financial statements. This ASU is effective for the Company in the first quarter of fiscal 2014. We do not expect the adoption will have a significant impact on our consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, which amends how companies test for impairment of indefinite-lived intangible assets. The new guidance permits a company to assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the annual impairment test. The ASU is effective for the Company in the first quarter of fiscal 2014. We do not expect the adoption will have a significant impact on our consolidated financial statements.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)	The financial statements beginning on page F-1 are filed as a part of this report.

(b)	See the Exhibit Index attached hereto for a list of the exhibits filed or incorporated by reference as a part of this report.

CHINA ELECTRONICS HOLDINGS, INC AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as at December 31, 2012 and December 31, 2011		F-3

Consolidated Statements of Income for the years ended as at December 31, 2012 and 2011		F-4

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2012 and 2011		F-5

Consolidated Statements of Cash Flows for the years ended as at December 31, 2012 and 2011		F-6

Notes to Consolidated Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

China Electronics Holdings, Inc. and Subsidiaries

We have audited the accompanying balance sheets of China Electronics Holdings, Inc. and Subsidiaries as of December 31, 2012 and 2011, and the related statements of income, stockholders' equity, and cash flows for the two years period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Electronics Holdings, Inc. and Subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the two years period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

As discussed in note 21, the Company restated its financial statements for the year ended December 31, 2012.

/s/ Kabani & Company, Inc.

Certified Public Accountants

Los Angeles, California

April 16, 2013 except for note 6, 8 and 21 which are as of May 22, 2013

F-2

CHINA ELECTRONICS HOLDINGS, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2012 AND 2011

	DECEMBER 31,
	2012		2011

Assets
Current assets
Cash and cash equivalents	$	9,465	$	171,838
Trade accounts receivable, net of allowance for doubtful accounts of $362,016 and $2,198,376, respectively		2,331,713		9,431,556
Other receivable, net		593,850		4,753,480
Related party receivable, net		642,000		-
Advances		17,532,739		6,722,052
Inventories, net		956,779		1,804,870
Total current assets		22,066,546		22,883,796

Noncurrent assets
Property, plant and equipment, net		342,705		531,107
Construction in progress		8,196,005		5,704,347
Advances - Long term		13,954,191		13,464,311
Intangible assets		15,381,250		15,711,584
Total noncurrent assets		37,874,151		35,411,349

Total assets	$	59,940,697	$	58,295,145

Liabilities and Stockholders' Equity
Current liabilities :
Accounts payable and accrued expenses	$	224,884	$	237,482
Short term bank loans		1,605,000		-
Other payable		3,512,045		4,806,278
Due to Related Party (restated)		964,156
Customer deposit		430,833		-
Tax Payable		103		-
Total current liabilities (restated)		6,737,021		5,043,760

Total liabilities (restated)		6,737,021		5,043,760

Equity
Stockholders' equity
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2012 and December 31, 2011		-		-
Common stock, $0.0001 par value; 150,000,000 shares authorized; 16,775,113 shares and 16,775,113 issued and outstanding as of December 31, 2012 and December 31, 2011, respectively		1,678		1,678
Additional paid in capital		15,341,710		15,341,710
Retained earnings		29,609,970		30,602,014
Statutary reserve		3,849,684		3,958,981
Accumulated other comprehensive income (restated)		4,391,004		3,347,001
Total stockholders' equity (restated)		53,194,046		53,251,385

Non-controlling interest		9,630		-
Total equity (restated)		53,203,676		53,251,385
Total liabilities and stockholders' equity	$	59,940,697	$	58,295,145

The accompanying notes are an integral part of this consolidated financial statement.

F-3

CHINA ELECTRONICS HOLDINGS, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

	FOR THE YEARS ENDED DECEMBER 31,
	2012			2011

Net revenue from exclusive franchise stores	$	34,256,697		$	47,221,802
Net revenue from non-exclusive franchise stores		16,147,112			47,172,272
Net revenue from company owned stores		7,679,088			9,821,329
Net Revenue		58,082,897			104,215,403

Cost of goods sold from exclusive franchise stores		31,656,380			40,356,299
Cost of goods sold from non-exclusive franchise stores		14,940,751			40,051,142
Cost of goods sold from company owned stores		6,883,229			8,115,988
Cost of goods sold		53,480,360			88,523,429

Gross profit		4,602,537			15,691,974

Operating expenses:
Selling expense		2,086,788			3,625,882
General and administrative expenses		2,969,909			2,523,208
Bad debt allowance expense for other receivable		2,214,245
Bad debt allowance expense for due from related party		1,109,500
Bad debt recovery for accounts receivable		(1,856,226	)		(6,603,000	)
Total Operating Expenses		6,524,216			(453,910	)

Net operating (loss) income		(1,921,679	)		16,145,884

Other income (expense):
Financial income (expense)		107,132			(12,122	)
Other expense		(203,865	)		(2,137	)
Other income		917,359			-
Total other income (expense)		820,626			(14,259	)

Net (loss) income before provisions for income taxes		(1,101,054	)		16,131,625

Provision for income taxes		288			1,255

Net (loss) income		(1,101,341	)		16,130,370

Foreign currency translation adjustment (restated)		1,044,003			1,581,337

Comprehensive income (restated)	$	(57,338)		$	17,711,707

Earnings (loss) per share - basic	$	(0.07	)	$	0.96

Earnings (loss) per share - diluted	$	(0.07	)	$	0.92

Basic weighted average shares outstanding		16,775,113			16,775,113

Diluted weighted average shares outstanding		16,775,113			17,589,677

The accompanying notes are an integral part of this consolidated financial statement.

F-4

CHINA ELECTRONICS HOLDINGS, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

	Preferred Stock				Common Stock						Retained Earnings
	Number		Amount		Number		Amount		Additional Paid In Capital		Unrestricted			Statutory Reserve			Accumulated Other Comprehensive Income		Total Stockholders' equity (deficit)


Balance: December 31, 2010		0	$	-		16,775,113	$	1,678	$	15,341,710	$	16,128,307		$	2,302,318		$	1,765,664	$	35,539,678

Net income		-		-		-		-		-		16,130,370						-		16,130,370

Allocation to statutory reserve		-		-		-		-		-		(1,656,663	)		1,656,663			-		-

Foreign currency translation adjustment		-		-		-		-		-		-			-			1,581,337		1,581,337

Balance: December 31, 2011		0		-		16,775,113		1,678		15,341,710		30,602,014			3,958,981			3,347,001		53,251,385

Net loss		-		-		-		-		-		(1,101,341	)					-		(1,101,341	)

Allocation to statutory reserve		-		-		-		-		-		109,297			(109,297	)		-		-

Foreign currency translation adjustment (restated)		-		-		-		-		-		-			-			1,044,003		1,044,003

Balance: December 31, 2012 (restated)		0	$	-		16,775,113	$	1,678	$	15,341,710	$	29,609,970		$	3,849,684		$	4,391,004	$	53,194,046

The accompanying notes are an integral part of this consolidated financial statement.

F-5

CHINA ELECTRONICS HOLDINGS, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

	DECEMBER 31,
	2012			2011

Net income (loss)	$	(1,101,341	)	$	16,130,370
Adjustments to reconcile net income (loss) to net cash used in operations:
Amortization		631,802			1,161,901
Bad debt expense (recovery)		1,467,519			(6,603,000	)
Loss from disposal of property, plant and equipment		1,048			-
Depreciation		73,783			11,467
Changes in operating liabilities and assets:
Trade accounts receivable		9,051,037			(863,925	)
Advances		(10,767,133	)		(15,763,004	)
Inventories		868,626			(350,384	)
Other receivables		882,614			11,138,440
Other payables		(1,371,508	)		992,514
Customer deposit		425,465			(1,690,319	)
Accounts payable and accrued expenses		(14,148	)		(2,810,485	)
Net cash provided by operating activities		147,765			1,353,575

Cash flows from investing activities:
Property, plant and equipment additions		119,778			(490,838	)
Proceeds from disposal of property, plant and equipment		1,775			-
Construction in Progress		(2,349,662	)		(5,617,368	)
Restricted cash		-			77,500
Reduction of intangible assets		-			1,590,004
Acquisation of intangible assets		-			(947,918	)
Net cash used in investing activities		(2,228,109	)		(5,388,620	)

Cash flows from financing activities
Proceeds from short term loans		1,585,000			-
Related party receivable		(642,000	)		65,255
Related party payable		952,141			2,836,917
Contribution from non-controlling interests		9,630			-
Net cash provided by financing activities		1,904,771			2,902,172

Effect of rate changes on cash		13,200			78,610

Decrease in cash and cash equivalents		(162,373	)		(1,054,263	)
Cash and cash equivalents, beginning of period		171,838			1,226,101
Cash and cash equivalents, end of period	$	9,465		$	171,838

Supplemental disclosures of cash flow information:
Interest paid in cash	$	94,059		$	-
Income taxes paid in cash	$	288		$	1,255

SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES:
Refund due from purchase of land use rights (intangible asset) included in other receivables:	$	-		$	4,722,000
During the years ended December 31, 2012 and 2011, the Company made advanced construction payment by incurring other payable in the amount of:	$	-		$	3,100,000

The accompanying notes are an integral part of this consolidated financial statement.

F-6

CHINA ELECTRONIC HOLDINGS, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

1.	Nature of Operations

China Electronics Holdings, Inc (the “Company” or “CEHD Nevada”), formerly named Buyonate, Inc., was a development stage company incorporated in the State of Nevada on July 9, 2007. Upon consummation of Share Transfer and Share Exchange transactions, the Company currently engages in wholesale and retail business of consumer electronics and appliances in certain rural markets in the People’s Republic of China.

In August 2012, Guoying contributed $945,054 registered capital to Lu An Guoying Opto-Electronics Technology Co., Ltd. (“Opto-Electronics”) which is 99% owned by Guoying. Mr. Hailong Liu, the CEO and Chairman of the Company, contributed $9,546 registered capital in cash and owned 1% of Opto-Electronics.

2008 and 2009 Share Transfer Agreements

China Electronic Holdings, Inc (“CEH Delaware”) was organized on November 15, 2007 in Delaware as a development stage company.

Lu’an Guoying Electronic Sales Co., Ltd., a domestic PRC corporation, (“Guoying”) was established on January 4, 2002 to engage in wholesale and retail of electronics consumer products to rural areas in An Hui province. Mr. Hailong Liu is the CEO and Chairman of Guoying. Pursuant to the Share Transfer Agreement entered into on December 26, 2008 (the “2008 Share Transfer Agreement”) between the shareholders of Guoying (the “Guoying Shareholders”) and CEH Delaware, CEH Delaware agreed to acquire 40% of the outstanding equity securities of Guoying (the “Guoying Shares”) from Guoying Shareholders in consideration for RMB 400,000 contribution of registered capital from CEH Delaware to Guoying. Pursuant to the Share Transfer Agreement entered into on December 31, 2009 (the “2009 Share Transfer Agreement”) between Guoying Shareholders and CEH Delaware, CEH Delaware agreed to acquire the remaining 60% of Guoying Shares from Guoying Shareholders in consideration for RMB 600,000 contribution of registered capital from CEH Delaware to Guoying. The amount of RMB400, 000 was paid in February 2010 and the amount of RMB 600,000 was paid in July 2010 by CEH. As a result of the transactions, Guoying became a wholly foreign-owned subsidiary (“WFOE”) of CEH Delaware with registered capital of RMB 1,000,000 and subsequently increased its paid-in capital to $2,838,653 in 2010 subsequent to the 2010 PIPE financing. The transaction was approved by Ministry of Commerce of Anhui Province and registered with Administration and Industry of Commerce of Lu An City.

The exchange of shares pursuant to the 2008 and 2009 Share Transfers was accounted for as a reverse acquisition at historical costs since the Guoying Shareholders obtained control of CEH Delaware and the management of Guoying became the management of CEH Delaware with the appointment of Mr. Hailong Liu (Chief Executive Officer of Guoying) as CEH Delaware’s sole director and officer. Accordingly, the merger of Guoying into CEH Delaware was recorded as a recapitalization of Guoying, with Guoying being treated as the continuing entity. The historical financial statements presented are the financial statements of Guoying.

2008 and 2010 Bridge Financings

On January 30, 2008, CEH Delaware consummated a bridge financing in amount of $275,000 made pursuant to a Securities Purchase Agreement with a bridge investor, pursuant to which it sold 343,750 Series A Convertible Preferred Stock par value $0.00001 per share and common stock Warrant E to purchase one million shares of common stock (“CEH Delaware Shares”) at $1 per share. On January 5, 2010, CEH Delaware consummated a second bridge financing in amount of $550,000 made pursuant to Securities Purchase Agreements with four bridge investors (together collectively referred to as “Bridge Investors”), pursuant to which it sold 314,285 shares of CEH Delaware Shares, 314,285 common stock underlying Warrant A and 314,285 common stock underlying Warrant B. Upon consummation of 2008 and 2010 bridge financings, the Bridge Investors constitute 8.58% of issued and outstanding shares of CEH Delaware. Guoying Shareholders, Bridge Investors, China Financial Services and its affiliates are together referred to as CEH Delaware Shareholders.

F-7

2010 Share Exchange between CEH Delaware and CEHD Nevada

The Company entered into a Share Exchange Agreement, dated as of July 9, 2010 (the “Share Exchange Agreement”) with CEH Delaware and CEH Delaware Stockholders. Pursuant to the Share Exchange Agreement, on July 15, 2010, 10 CEH Delaware Stockholders transferred 100% of the outstanding shares of common stock and preferred stock and 100% of the warrants to purchase common stock of CEH Delaware held by them, in exchange for an aggregate of 13,785,902 newly issued shares of the Company’s Common Stock (including 13,665,902 shares of common stock issued pursuant to the Share Exchange Agreement dated July 22, 2010, and 120,000 shares of common stock issued to consultants related to their professional services) and warrants to purchase an aggregate of 1,628,570 shares of our Common Stock. The shares of the Company’s common stock acquired by the CEH Delaware Stockholders in such transactions constitute approximately 82.2% of the Company’s issued and outstanding Common Stock (including 68.9% owned by Guoying Shareholders through Ms. Sherry Li”) giving effect to the share and warrant exchange and the sale of the Company’s Common Stock pursuant to the Subscription Agreement, but not including any outstanding purchase warrants to purchase shares of the Company’s common stock, including the warrants issued pursuant to the Subscription Agreement. In connection with the closing of the Share Exchange Agreement, CEH Delaware purchased from the former principal stockholder of Buyonate an aggregate of 4 million shares of our common stock and then agreed to the cancellation of such shares.

The Share Exchange resulted in (i) a change in our control with a shareholder of CEH Delaware owning approximately 82.2% of issued and outstanding shares of the Company’s common stock, including the shares of common stock sold to PIPE investors pursuant to the Subscription Agreement, (ii) CEH Delaware becoming our wholly-owned subsidiary, and (iii) appointment of Mr. Hailong Liu as the Company’s sole director, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer.

2010 PIPE Transaction

On July 15, 2010 we consummated a Private Placement made pursuant to a Subscription Agreement dated as of July 9, 2010 (the “Purchase Agreement”) with certain of the Selling Stockholders, pursuant to which we sold units (the “Units”) to such Selling Stockholders. Each Unit consists of four shares of our Common Stock, a warrant to purchase one share of Common Stock at an exercise price of $3.70 per share (a “Series C Warrant”) and a warrant to purchase one share of Common Stock at an exercise price of $4.75 per share (a “Series D Warrant”). Additional Private Placements were consummated on July 26, 2010 and August 17, 2010. The aggregate gross proceeds from the sale of the Units was $5,251,548 and in such Private Placements, an aggregate of (a) 1,989,211 shares of our Common Stock, (b) Series C Warrants to purchase an aggregate of 497,303 shares of our Common Stock and (c) Series D Warrants to purchase an aggregate of 497,303 shares of our Common Stock was sold.

Call Option Agreement and Reverse Acquisition

Mr. Hailong Liu is the CEO and chairman of Guoying. Mr. Liu is also CEO and Chairman of CEH Delaware upon consummation of 2008 and 2009 Share Transfer and CEO and Chairman of CEHD Nevada upon consummation of 2010 Share Exchange. Ms. Sherry Li serves as nominee shareholder to hold our Common Stock on behalf of Mr. Hailong Liu who served as a nominee shareholder for Guoying Shareholders to be in compliance with the PRC M&A rules and regulations.

Mr. Hailong Liu entered into a call option agreement (the “2010 February Call Option Agreement”) and voting trust agreement (the “2010 February Voting Trust Agreement) with Sherry Li dated February 10, 2010. Pursuant to the 2010 February Call Option and Voting Trust Agreement, Ms. Sherry Li agreed to serve as nominee shareholder for Mr. Liu and grant Mr. Hailong Liu the voting power and call option to acquire 13,213,268 CEH Delaware shares held by Ms. Sherry Li. Mr. Hailong Liu served as nominee shareholder for Guoying Shareholders. In February 2010, CEHD Delaware issued 13,213,268 CEH Delaware Shares, constituting 96.6% of issued and outstanding shares of CEH Delaware to Mr. Hailong Liu under the name of Sherry Li concurrent with the 2008 and 2009 Shares Transfers. Mr. Hailong Liu entered into a call option agreement (the “2010 July Call Option Agreement”) and voting trust agreement (the “2010 July Voting Trust Agreement”) with Sherry Li, dated July 9, 2010. Pursuant to the 2010 July Call Option Agreements, Mr. Liu received two-year options exercisable for 11,556,288 shares of common stock (the Option Shares) from Sherry Li concurrent with the 2010 July Share Exchange and Mr. Liu shall have right and option to acquire 50% of Option Shares upon first filing of a quarterly report on Form 10-Q with the SEC on August 23, 2010 following the execution of the Share Exchange Agreement and 50% of the remaining Option Shares 2 years after such filing by August 23, 2012. The Voting Trust Agreements provide that Ms. Sherry Li shall not vote or dispose of the respective portion of the shares of common stock without Mr. Liu’s prior written consent and is obligated to transfer Option Shares to Mr. Liu at nominal consideration of $0.001 per share par value. The Voting Trust Agreements further provides that, Sherry Li, the nominee shareholder, has no decision power to vote or dispose of the Option Shares without Mr. Liu’s consent.

F-8

Pursuant to the terms of the Call Option Agreement, Mr. Liu received 5,778,144 shares in August 2010 and the remaining 5,778,144 shares in January 2013 from Ms. Sherry Liu pursuant to the vesting schedule set forth in the Call Option Agreement. Upon exercise of the options, Mr. Liu purchased each share for $0.001 and upon Mr. Liu’s exercises of all of his options, he owned a majority of the Company’s outstanding shares of Common Stock.

The 2008 and 2009 Share Transfer Transaction was accounted for as a reverse acquisition at historical costs since Guoying Shareholders obtained control of 96.6% of outstanding CEH Delaware Shares through Sherry Li as nominee shareholder and Guoying management, Mr. Hailong Liu, became the management of CEH Delaware. Accordingly, the merger of Guoying into CEH Delaware was recorded as a recapitalization of Guoying, with Guoying being treated as the continuing entity. The historical financial statements presented are the financial statements of Guoying.

The exchange of shares pursuant to the July 10, 2010 Share Exchange was accounted for as a reverse acquisition at historical cost since CEH Delaware Shareholders obtained control of 82.2% of outstanding shares of the Company, including 68.9% of outstanding shares of the Company owned by Guoying Shareholders, and the management of CEH Delaware, Mr. Hailong Liu, became the management of the Company. Mr, Liu, who maintained control of Guoying prior to the mergers and subsequently, obtained control of CEH Delaware pursuant to 2009 Share Transfer, effectively obtained control of the Company upon completion of 2010 Share Exchange subject to the Voting Trust Agreement and Call Option Agreement. Accordingly, the merger of CEH Delaware into the Company was recorded as a recapitalization of CEH Delaware, with CEH Delaware being treated as the continuing entity. The historical financial statements presented are the financial statements of CEH Delaware which are in essence the financial statements of Guoying.

2.	Summary of Significant Accounting Policies

Construction in Progress

Construction in progress at December 31, 2012 amounted to $8,196,005. During 2011, the Company started construction of four buildings, 4,800 square meters each and 19,200 square meters in total, on Pingqiao land to be used as warehouses to build the Company’s logistic center. The Company does not have sufficient capital to continue building the construction and will continue focusing on its electronics distribution business while it moves slowly on this construction by seeking business partners and financing.

Basis of Presentation

In the opinion of management, the accompanying balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant inter-company transactions and accounts have been eliminated in the consolidation. The functional currency is the Chinese Renminbi (“RMB”); however the accompanying financial statements have been translated and presented in United States Dollars (“USD”).

F-9

Economic and Political Risks

The Company faces a number of risks and challenges as a result of having primary operations and marketing in the PRC. Changing political climates in the PRC could have a significant effect on the Company’s business.

Principles of Consolidation

The consolidated financial statements include the financial statements of the company, its wholly owned subsidiary CEH Delaware, and its wholly owned subsidiary Guoying. The financial statements of co-operative stores (exclusive franchise stores and non-exclusive franchise stores) are not consolidated as these stores are independently managed and they have no right to return their purchased goods.

All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents includes cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. Deposits held in financial institutions in the PRC are not insured by any government entity or agency. The restricted cash of $0 represents amount deposited by the company against issuance of acceptance bill to its supplier. The Company issues acceptance bills to its suppliers through Chinese banks from time to time. Acceptance bills are in the form of notes payables that are written promises to pay stated sums of money at future dates. Standard practice in China requires Companies to maintain restricted deposits at those banks that issue acceptance bills to suppliers of the Company to ensure sufficient payment on demand.

Trade Accounts Receivable

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. Trade accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful accounts is established and determined based on management’s regular assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. These factors continuously change, and can have an impact on collections and the Company’s estimation process. These impacts may be material. Management reviews and maintains an allowance for doubtful accounts that reflects the management’s best estimate of potentially uncollectible trade receivables. Certain accounts receivable amounts are charged off against allowances after a designated period of collection efforts. Subsequent cash recoveries are recognized as income in the period when they occur. Allowance for doubtful debts amounted for accounts receivable to $362,016 and $2,198,376 as of December 31, 2012 and December 31, 2011, respectively. We do not set a specific date for payments from customers. The Company reviews the balance periodically and decides the collection time based on the market condition, the Company’s cash position, the potential purpose from the customers, the amount of the sales, and other conditions.

	Beginning balance		Cost charged to expense		Reduction from reverses		Ending balance
December 31, 2011	$	2,065,683	$	132,693	$	-	$	2,198,376
December 31, 2012	$	2,198,376	$	43,288	$	1,897,648	$	362,016

F-10

The follow table shows the composition of trade accounts receivable by exclusive and non-exclusive franchise stores as of December 31, 2012 and 2011:

	December 31,
	2012			2011
Exclusive franchise stores	$	2,693,729		$	8,484,086
Non-exclusive franchise stores		-			3,145,846
		2,693,729			11,629,932
Allowance for doubtful accounts		(362,016	)		(2,198,376	)
Accounts Receivable, net	$	2,331,713		$	9,431,556

Advances

As is customary in the PRC, the Company makes advances to its suppliers for inventory and property and equipment. Advances are classified as current assets when the advances relates to the purchase of inventory. The Company also makes advances to suppliers for construction of its property and equipment. Such advances are classified as long-term since the assets to which the advances relate are long-term assets. If the Company determines that the products for which it prepaid will not be delivered then an impairment charge is taken. Company transfers long term advances related to construction to construction in progress once used in construction.

Inventories

Inventories are stated at the lower of cost, determined on a weighted average basis, and net realizable value. The cost of the inventory includes that costs of acquiring electronic products sold plus freight in costs incurred acquiring the inventory. The freight costs are allocated to the individual products purchased. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. Inventories consist of the following:

		December 31, 2012				December 31, 2011
Electronic products		$	956,779			$	1,804,870

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the assets. Major renewals are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to manufacturing is reported in cost of revenues. Depreciation not related to manufacturing is reported in selling, general and administrative expenses. Property, plant and equipment are depreciated over their estimated useful lives as follows:

Furniture and office equipment	5 years
Motor vehicles	10 years

Impairment of Long-Lived and Intangible Assets

Long-lived assets of the Company are reviewed annually to assess whether the carrying value has become impaired according to the guidelines established in FASB Codification (ASC) 360. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of December 31, 2012, the Company expects these assets to be fully recoverable. No impairment of assets was recorded in the periods reported.

F-11

Revenue Recognition – Product Sales

The Company receives revenue from sale of electronic products. The Company's revenue recognition policies are in compliance with ASC 605 (previously Staff Accounting Bulletin 104). The Company recognizes all product sales revenue at the date of shipment to customers, when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company recognizes product sales revenue from our sales to exclusive franchise stores and non-exclusive franchise stores when the products are delivered to the respective store. Product sales to all co-operative stores are recorded at the gross amount billed to the store as we have determined that we are principal to the transaction because we are the primary obligor in the arrangement.

No return rights are granted to co-operative stores if they are unable to sell their purchased inventories to the end users. Additionally, our product sales from company-owned stores are covered by the respective manufacturers’ return and warranty policies and we receive full reimbursement for any costs associated with returns and warranty payments. As such, we do not estimate deductions or allowance for sales returns. The Company’s revenue from sales is presented as gross revenue. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue amounted to $0 as of December 31, 2012 and 2011.

Our products delivered to franchise stores would be checked on site by such stores and, once the products are accepted by such stores, they will sign the acceptance notice. Rewards or incentives given to our retail franchise stores are an adjustment of the selling prices of our products sold to our customers; therefore, the consideration is characterized as a reduction of revenue when recognized in our income statement.

The Company recognizes its revenues net of value-added taxes (“VAT”). Currently, the Company is subject to beneficial treatment of income tax and VAT approved by the local Government and hence, a reduced fixed annual tax rate in amount of no more than approximately $1,200 cover income tax and value added taxes.

Revenue Recognition – Franchise Fees

Franchise fees, including area development and initial franchise fees, continuing fees, and royalties (collectively referred to as “franchise fees”) received from co-operative stores (exclusive franchise stores and non-exclusive franchise stores) for the purpose of establishing new stores and royalties are charged to franchisees based on a percentage of a franchised store’s sales.

Currently, in connection with promotional efforts aimed at network growth, the Company has ceased charging franchise fees, continuing fees and royalties to our exclusive store. As such, total franchise fees for the years-ended December 31, 2012 and 2011 were 0.

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of the products sold, including freight in charges on those goods.

F-12

Selling Expenses

Selling expenses include costs incurred in connection with performing general selling activities, such as sales commissions, freight-out charges, marketing and advertisement costs, shipping and handling costs, and sales salaries.

General and Administrative Expenses

General and administrative expenses include the costs of non-selling related salaries and related employee benefits, professional service fees, rent and depreciation, warehousing costs, office supplies, bad debts expense, and amortization of intangible assets (land).

Shipping and Handling Costs

ASC 605-45-20 (formerly EITF No. 00-10, “Accounting for Shipping and Handling Fees and Costs” ) establishes standards for the classification of shipping and handling costs. Shipping and Handling costs include shipping and handling costs related to shipping and handling our products from our warehouses to buyers’ designated locations at our exclusive or non-exclusive franchise stores, and company owned stores (collectively referred to as the “Stores”). Shipping and handling costs that are billed to Stores are classified as revenue, while those costs not billed to Stores are classified as selling expenses. Shipping and handling costs billed to customers and included within revenue for the years ended December 31, 2012 and 2011 were $0 because the Company did not charge any shipping and handling expenses from Stores. Shipping and handling costs not billed to Stores and included within selling expenses for the years ended December 31, 2012 and 2011 were $863,798 and $849,850, respectively.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs of $107,323 and $654,410 are included in selling expenses for the years ended December 31, 2012 and 2011, respectively.

Foreign Currency and Comprehensive Income

The accompanying financial statements are presented in US dollars. The functional currency is the Renminbi (“RMB”) of the PRC. The financial statements are translated into US dollars from RMB at period-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation. At December 31, 2012 and 2011, the cumulative translation adjustment of $4,391,004 and $3,347,001, respectively, was classified as an item of other comprehensive income in the stockholders’ equity section of the consolidated balance sheet. For the years ended December 31, 2012 and 2011, translation adjustment was $1,044,003 and $1,581,337, respectively.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740 (formerly SFAS 109, “Accounting for Income Taxes.”) Under the asset and liability method as required by ASC 740, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under ASC 740, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. As of December 31, 2012 and 2011, the Company did not have any deferred tax assets or liabilities, and as such, no valuation allowances were recorded at December 31, 2012 and 2011.

F-13

ASC 740 clarifies the accounting and disclosure for uncertain tax positions and prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under ASC 740, evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The Company’s operations are subject to income and transaction taxes in the United States and the PRC jurisdictions. Significant estimates and judgments are required in determining the Company’s worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, and as a result the ultimate amount of tax liability may be uncertain. However, the Company does not anticipate any events that would lead to changes to these uncertainties.

Restrictions on Transfer of Assets Out of the PRC

Dividend payments by the Company are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. However, no such restrictions exist with respect to loans and advances.

Financial Instruments

ASC 825 (formerly SFAS 107, “Disclosures about Fair Value of Financial Instruments”) defines financial instruments and requires disclosure of the fair value of those instruments. ASC 820 (formerly SFAS 157, “Fair Value Measurements”), adopted July 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for current receivables and payables, including short-term loans, qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments, their expected realization and, if applicable, the stated rate of interest is equivalent to rates currently available. The three levels are defined as follows:

Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3: inputs to the valuation methodology are unobservable and significant to the fair value.

The Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 820.

F-14

Stock-Based Compensation

The Company records stock-based compensation expense pursuant to ASC 718 (formerly SFAS 123R, “Share Based Payment.”) The Company uses the Black-Scholes option pricing model which requires the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes option pricing model may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with ASC 718 using an option pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Stock-based compensation expense is recognized based on awards expected to vest, and there were no estimated forfeitures as the Company has a short history of issuing options. ASC 718 (formerly SFAS 123R) requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

There was no stock based compensation for the years ended December 31, 2012 and 2011.

Statement of Cash Flows

In accordance with ASC 230 (formerly SFAS No. 95 “Statement of Cash Flows”) cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

Segment Reporting

ASC 280 (formerly SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information”) requires use of the management approach model for segment reporting. The Company uses the management approach model for segment reporting, which is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company has determined that its operations consist of three reportable business segments as all revenue is derived from customers in the People’s Republic of China (PRC) and all of the Company’s assets are located in PRC.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

F-15

3.	Basic and Diluted Earnings Per Share

Basic and Diluted Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. At December 31, 2012 and 2011, the Company had 0 and 1,903,526 warrants outstanding that were anti-dilutive.

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

	For the year ended December 31,
	2012			2011
Net income (loss) for earnings per share	$	(1,101,341	)	$	16,130,370

Weighted average shares used in basic computation		16,775,113			16,775,113

Diluted effect of warrants		-			814,564

Weighted average shares used in diluted computation		16,775,113			17,589,677

Earnings (loss) per share, basic	$	(0.07	)	$	0.96

Earnings (loss) per share, diluted	$	(0.07	)	$	0.92

F-16

4.	Property and Equipment

Property and equipment consisted of the following:

	December 31, 2012			December 31, 2011
Vehicle	$	73,924		$	57,465
Furniture and office equipment		365,147			353,651
Other assets		-			143,458
Total property and equipment		439,071			554,574
Accumulated depreciation		(96,366	)		(23,467	)
Net property and equipment	$	342,705		$	531,107

Depreciation expense included in selling, general and administrative expenses for the years ended December 31, 2012 and 2011 was $15,783 and $11,467, respectively.

5.	Other Receivables

Other receivables consisted of the following:

	December 31, 2012			December 31, 2011
Youbang Pharmaceutical	$	-		$	4,722,000
Hongrong Real Estate Company		2,242,185			-
Deposit for office rent		32,100			31,480
Others		561,750			-
Subtotal		2,836,035			4,753,480
Allowance of other receivable		(2,242,185	)		-
Total	$	593,850		$	4,753,480

The Company loaned $2,242,185 to Hongrong Real Estate Company (“Hongrong”), an unrelated party, on August 20, 2012. The loan is due on August 19, 2013 and secured by a building owned by Hongrong as a collateral. An allowance of $2,242,185 was reserved due to the uncertainty of the collection as of December 31, 2012.

An allowance for loans receivable is recorded when circumstances indicate that collection of all or a portion of a specific balance is unrecoverable. The Company provides for allowances on other accounts receivable on a specific identification basis. Certain other loans receivable amounts are charged off against the allowance after a sufficient period of collection efforts. Subsequent cash recoveries are recognized as other income in the period when they occur. $2,242,185 and $0 were reserved as bad debt expenses for other receivable as of December 31, 2012 and 2011, respectively.

6.	Related parties

Related party receivable amounted to $642,000 and $0 as of December 31, 2012 and 2011, respectively. Related party receivable is fund lent to the CEO for operating advances and is with 10% interest rate, collateralized with the CEO's personal property, and are from August 28, 2012 to May 27, 2013. 

On January 3, 2011, the Company leased a land use right of 503 Chinese acres of land with twenty years term from Yumin Village, Sun Gang County, Jin An District (“Yumin Village”) for the company’s agricultural and forestry business at an annual rent of approximately $94,500. The Company paid approximately $94,500 and $94,500 rent for the years ended December 31, 2011 and 2012, respectively.

On January 1, 2011, the Company leased 5,006 Chinese acres of land from Yumin Village for thirty years at an annual rent of approximately $961,000 (RMB 6,007,200). The Company paid approximately $961,000 and $0 rent for the years ended December 31, 2011 and 2012, respectively.

On December 9, 2012, the Company transferred land use right of the 5,006 and 503 Chinese acres of land together with plants grown on the leased land to Lu’an Senyuan Ecological Park Ltd. (“Senyuan”), an affiliated company controlled and owned by the father and ex-wife of the CEO of Guoying, for approximately $1,123,500, due by October 2015. Guoying will make payment of the unpaid rent of $964,156 (RMB 6,007,200) of the 5,006 Chinese acres of land for year 2012 due to Yumin Village from the receivable due from Senyuan.

The Company has fully reserved bad debt expenses allowance for the related party receivable from Senyuan due to the uncertainty of the collection.

F-17

Advances

The current advances to suppliers amounted to $17,532,739 and $6,722,052 as of December 31, 2012 and 2011, respectively. The Company initially booked all advances for construction of property and equipment as construction in progress. The Company then adjusts the amount that has not been used in construction in progress to long term advances for construction of property and equipment based on percentage of completion. As of December 31, 2012, the Company advanced approximately $6.9 million to Zhong Zing trading Co. to obtain the authorization to sell Ge Li brand air conditioners and advanced approximately $3.4 million to Huang Ming solar Co.

Long term advances related to construction amounted to $13,954,191 and $13,464,311 as of December 31, 2012 and 2011, respectively. The advances to suppliers for construction of its property and equipment are classified as long-term since the assets to which the advances relate are long-term assets. If the Company determines that the products for which it prepaid will not be delivered then an impairment charge is taken. The Company transfers long term advances related to construction to construction in progress once used in construction.

8.	Intangible Assets

Intangible assets amounted to $15,381,250 and $15,711,584 as of December 31, 2012 and December 31, 2011, respectively. Intangible assets consisted of the following:

	December 31, 2012			December 31, 2011
Trade mark	$	1,348		$	1,322
Land use rights		17,215,013			16,890,153
Less accumulated amortization		(1,835,111	)		(1,179,891	)
Land use rights, net	$	15,381,250		$	15,711,584

The Chinese government owns all land in the PRC. However, the government grants "land use rights" for terms ranging from 20 to 50 years. The Company is amortizing the cost of land use rights over the usage terms of 30 years. Intangible assets are reviewed at least annually and more often if circumstances dictate, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of December 31, 2012, the Company determined that there had been no impairment.

Approximately $15,740,000 was paid to an unrelated party – Pingqiao Committee in Luan city, Anhui Province, China for acquiring land use rights. The Company intends to construct a factory, research and development center and a commercial center on this land.

Approximately $6,296,000 was paid to Youbang Pharmaceuticals Co., Ltd., an unrelated party for acquiring land use rights as of December 31, 2010. The Company intended to build a warehouse and distribution center on this land. $6,296,000 was returned to the Company as of December 31, 2012. The agreement was canceled due to the seller’s failure to provide land use right certificate.

On January 3, 2011, the Company leased a land use right of 503 Chinese acres of land with a twenty years term from Yumin Village, Sun Gang County, Jin An District (“Yumin Village”) for the company’s agricultural and forestry business at a annual rent of approximately $94,500. The Company paid approximately $94,500 and $94,500 rent for the years ended December 31, 2011, and 2012 respectively.

The Company has fully reserved bad debt expenses allowance for the related party receivable from Senyuan due to the uncertainty of the collection.

F-18

Amortization expenses amounted $631,802 and $1,161,901 for the years ended December 31, 2012 and 2011, respectively. The Company does not have amortization expenses for the year ended December 31, 2010 because in 2010 the land use right are advances for land use right for the year ended December 31, 2010.

The Company amortizes Pingqiao Industrial Park land use right over 30 years as the Company estimates that it will use the land use right for the construction purpose for a period of 30 years. The Company has amortized land use right for a portion of the Pingqiao land for the period before it received a land use right certificate because the Company has advanced a down payment for the land, built constructions on the land, and received the land use right for a parcel of the land. The Company will amortize land use right for the remaining parcel of Pingqiao land when the Company pays the remaining $3.7 million land use right and builds constructions on such land.

9.	Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	December 31, 2012		December 31, 2011
Accounts payable	$	-	$	-
Accrued payroll		79,576		94,482
Claimed unpaid legal fee in dispute		145,308		143,000
Total		224,884		237,482

10.	Short Term Bank Loan

As of December 31, 2012, the Company has a short term bank loans of $1,605,000 collaterized with land use right.

One loan is from Rural Credit Cooperatives Of Luan, amounting to $802,500 as of December 31, 2012, starting on April 28, 2012 and due on April 28, 2013, with an interest rate of 11.808% per annual, and collateralized with land use right.

The other loan is from Rural Credit Cooperatives Of Luan, amounting to $802,500 as of December 31, 2012, starting on August 17, 2012 and due on August 17, 2013, with an interest rate of 11.7% per annual, and guaranteed by Anhui Juneng Guarantee Company.

Additional loan might be obtained to fund operating activities by the Company in the future.

11.	Other Payables

Other payables at December 31, 2012 and 2011 consisted of the following:

	December 31, 2012		December 31, 2011
Hai Feng Trading Co.	$	3,274,200	$	3,210,960
Others		237,845		1,595,318
Total	$	3,512,045	$	4,806,278

F-19

12.	Stockholders’ Equity

Pursuant to Share Transfer Agreements dated December 2008 and 2009, Guoying Shareholders transferred 100% of shares of Guoying Electronic Group Co, Ltd. to CEH Delaware in exchange for an aggregate of 13,213,268 CEH Delaware Shares held by Sherry Li who served as nominee shareholder through 2010 February Voting Trust and Call Option Agreements for Mr. Hailong Liu who served as nominee shareholder for Guoying Shareholders , constituting 96.6% of issued and outstanding shares of CEH Delaware and for a consideration of RMB 1,000,000 (the “Purchase Price”). Guoying became a wholly foreign-owned subsidiary (“WFOE”) of CEH Delaware.

The Company entered into a Share Exchange Agreement, dated as of July 9, 2010 (the “Share Exchange Agreement”) with CEH Delaware and certain stockholders and warrant holders of CEH Delaware (the “CEH Delaware Stockholders”). Pursuant to the Share Exchange Agreement, on July 15, 2010, 10 CEH Delaware Stockholders transferred 100% of the outstanding shares of common stock and preferred stock and 100% of the warrants to purchase common stock of CEH Delaware held by them, in exchange for an aggregate of 13,785,902 newly issued shares of the Company’s Common Stock (including 13,665,902 shares of common stock issued pursuant to the Share Exchange Agreement dated July 22, 2010, and 120,000 shares of common stock issued to consultants related to their professional services) and warrants to purchase an aggregate of 1,628,570 shares of our Common Stock. The shares of the Company’s common stock acquired by the CEH Delaware Stockholders in such transactions constitute approximately 82.2% of the Company’s issued and outstanding Common Stock giving effect to the share and warrant exchange and the sale of the Company’s Common Stock pursuant to the Subscription Agreement, but not including any outstanding purchase warrants to purchase shares of the Company’s common stock, including the warrants issued pursuant to the Subscription Agreement. In connection with the closing of the Share Exchange Agreement, CEH Delaware purchased from the former principal stockholder of Buyonate an aggregate of 4 million shares of our common stock and then agreed to the cancellation of such shares.

The Share Exchange resulted in (i) a change in our control with a shareholder of CEH Delaware owning approximately 82.2%of issued and outstanding shares of the Company’s common stock, including the shares of common stock sold to PIPE investors pursuant to the Subscription Agreement, (ii) CEH Delaware becoming our wholly-owned subsidiary, and (iii) appointment of Mr. Hailong Liu as the Company’s sole director, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer.

The exchange of shares pursuant to the July 10, 2010 Share Exchange was accounted for as a reverse acquisition at historical cost since the controlling stockholder and beneficial owner of CEH Delaware obtained control of the Company and the management of CEH Delaware became the management of the Company. Mr., Liu, who maintained control of Guoying prior to the mergers and subsequently, obtained control of CEH Delaware pursuant to 2009 Share Transfer, effectively obtained control of the Company upon completion of Share Exchange subject to the Voting Trust Agreement and Call Option Agreement.

Shares issued for cash

There was no issuance of common stock for cash during the year ended December 31, 2012.

Warrants

On July 9, 2010, in connection with the Share Exchange Agreement between the Company and CEH Delaware, the Company issued 314,285 series A warrants to CEH Delaware shareholders. The series A warrants carry an exercise price of $2.19 and a 3-year term. The Company also issued 314,285 series B warrants to CEH Delaware shareholders. The series B warrants carry an exercise price of $2.63 and a 3-year term. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

F-20

On July 9, 2010, in connection with the Share Subscription, the Company issued 497,303 series C warrants with an exercise price of $3.70 and a 3-year term to investors. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

On July 9, 2010, in connection with the Share Purchase Agreement, the Company issued 497,303series D warrants with an exercise price of $4.75 and a 3-year term to a professional who held warrants with CEH Delaware. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

On July 9, 2010, in connection with the Share Exchange Agreement between the Company and CEH Delaware, the Company issued 1,000,000 series E warrants with an exercise price of $0.25. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

On July 13, 2010, in connection with the Share Subscription Agreement, the Company issued to Hunter Wise, a placement agent series F(i) warrants to purchase 31,429 shares of Common Stock exercisable for a period of five years at an exercise price of $1.75 per share and series F(ii) warrants to purchase 94,329 shares of Common Stock exercisable for a period of five years at an exercise price of $2.64 per share. In connection with the subscription, the Company issued to American Capital Partners, a placement agent series F(iii) warrants to purchase 104,592 shares of Common Stock exercisable for a period of five years at an exercise price $2.64 per share.

On July 9, 2010, in connection with share issuance, the Company issued 50,000 series G warrants with an exercise price of $2.64 and a 3-year term to a professional firm. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

The Company is not required to register the shares of Common Stock issuable upon exercise of our Series F and Series G warrants at this time and the Company cannot estimate when or whether it will be required to register such shares.

The fair value of the Series C and Series D warrants that were issued as part of the Company’s July 2010 private placements were $393,592 and $113,680, respectively. The fair value of the Series E and Series F warrants that were issued to the placement agent in July 2010 were $4,119,275 and $435,901, respectively. The fair value of the Series G warrants that were issued to a professional firm in July 2010 was $87,538. The total fair value of the warrant issued was $5,149,986, however, all of these warrants were issued to investors in the private placement, the placement agent or a professional firm that performed services directly related to the private placement. The recording of the value of these warrants had no impact in the financial statements as the entry was to debit and credit additional paid in capital for the value of the warrants of $5,149,986.

Warrants consisted of the following:

	Warrants Outstanding		Warrants Exercisable		Weighted Average Exercise Price		Average Remaining Contractual Life		Intrinsic Value
Outstanding, December 31, 2010		2,903,526		2,903,526	$	2.30		3.41	$	-
Granted		-		-		-		-		-
Forfeited		-		-		-		-		-
Exercised		-		-		-		-		-
Outstanding, December 31, 2011		2,903,526		2,903,526		2.30		2.41		-
Granted		-		-		-		-		-
Forfeited		-		-		-		-		-
Exercised		-		-		-		-		-
Outstanding, December 31, 2012		2,903,526		2,903,526	$	2.30		1.41	$	-

F-21

Warrants referred to in the preceding paragraphs do not trade in an active securities market, and as such, the Company estimates the fair value of these warrants using the Black-Scholes option pricing model using the following assumptions:

	December 31, 2012			December 31, 2011
Series A, B, C, D, G
Annual dividend yield		-			-
Expected life (years)		1.00			2.00
Risk-free interest rate		0.30	%		0.30	%
Expected volatility		12	%		12	%

	December 31, 2012			December 31, 2011
Series E, F
Annual dividend yield		-			-
Expected life (years)		3.00			4.00
Risk-free interest rate		0.30	%		0.30	%
Expected volatility		12	%		12	%

13.	Statutory Reserve Fund

The laws and regulations of the PRC require that before a Sino-foreign cooperative joint venture enterprise distributes profits to its partners, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions determined at the discretion of the board of directors, after the statutory reserves. The statutory reserves include the surplus reserve fund, the common welfare fund, and the enterprise fund. These statutory reserves represent restricted retained earnings.

The Company is required to transfer 10% of its net income, as determined in accordance with the PRC’s accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.

The transfer to this reserve must be made before distribution of any dividends to shareholders. For the years ended December 31, 2012 and 2011, the Company transferred $(109,297) and $1,656,663, respectively, to this reserve. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Enterprise fund

The enterprise fund may be used to acquire fixed assets or to increase the working capital to expand production and operations of the Company. No minimum contribution is required and the Company has not made any contribution to this fund. For the years ended December 31, 2012 and 2011, the Company transferred $0 and $0, respectively, to this reserve.

F-22

14.	Employee Welfare Plan

The Company has established its own employee welfare plan in accordance with Chinese law and regulations. The Company makes contributions to an employee welfare plan. The total expense for the above plan was $74,490 and $36,419 for the years ended December 31, 2012 and 2011, respectively.

15.	Other Income (Expense)

Other income for the year ended December 31, 2012 amounted to $820,626. Other expense for the year ended December 31, 2011 amounted to $14,259. Other income includes mainly $917,359 gain from disposal of intangible and Biological assets and $203,865 paid to closed stores. Other expense for the years ended December 31, 2012 and 2011 are as follows:

	For the years ended December 31,
	2012			2011
Other expense:
Financial expense	$	107,132		$	(12,122	)
Other income		917,359			-
Other expense		(203,865	)		(2,137	)
Total other income (expense)	$	820,626		$	(14,259)

16.	Income Tax

The Company is registered in the State of Nevada and has operations in primarily two tax jurisdictions – the People’s Republic of China and the United States. For operation in the US, the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of December 31, 2012. Accordingly, the Company has no net deferred tax assets.

Our effective tax rates were approximately 0% and 0% for the years ended December 31, 2012 and 2011, respectively. Currently the local government and central government tax benefit will expire on December 31, 2012 and December 31, 2013, respectively. Our effective tax rate was lower than the U.S. federal statutory rate due to the fact that our operations are carried out in foreign jurisdictions, which are subject to lower income tax rates.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2012 and 2011:

	2012			2011

U.S. Statutory rates		34.00	%		34.00	%

Foreign income not recognized in USA		(34.00	)		(34.00	)

China income taxes		25.00			25.00

China income tax exemption		(25.00	)		(25.00	)

Total provision for income taxes		0.00	%		0.00	%

F-23

The provision for income taxes from continuing operations on income consists of the following for the years ended December 31, 2012 and 2011:

	For the years ended December 31
	2012		2011
US current income tax expense (benefit)
Federal	$	—	$	—
State	$	—	$	—
PRC current income tax expense (benefit)	$	—	$	—
Total provision for income tax	$	—	$	—

United States of America

As of December 31, 2012, the Company in the United States had approximately $2,378,190 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. The deferred tax assets for the United States entities at December 31, 2012 consists mainly of net operating loss incurred in 2011 and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future.

The following table sets forth the significant components of the net deferred tax assets for operation in the US as of December 31, 2012 and December 31, 2011.

	As of December 31
	2012			2011
Net operation loss carry forward	$	(2,378,190	)	$	(1,754,741	)
Total deferred tax assets		784,803			579,065
Less: valuation allowance		(784,803	)		(579,065	)
Net deferred tax assets		—			—
Change in valuation allowance	$	—		$	—

People’s Republic of China (PRC)

Under the Income Tax Laws of the PRC, the Company’s subsidiaries are generally subject to an Enterprise Income Tax (EIT) at a standard rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The State Tax Bureau of Lu’An City, Anhui province issued an income tax benefit approval to Guoying on September 2, 2007 providing that Guoying is subject to income tax and VAT benefit treatment of reduced rate of RMB 7,500 tax payment per year (including income tax and VAT) valid from October 1, 2007 until December 31, 2010. The State Tax Bureau of Lu’An City, Anhui province issued an income tax benefit approval to Guoying on December 10, 2011 providing that Guoying is subject to income tax and VAT benefit treatment of reduced rate of RMB 7,500 tax payment per year (including income tax and VAT) valid from December 1, 2011 until December 31, 2013. However, according to the approval, Guoying has option to pay more tax per year at its discretion. Therefore, currently, Guoying is charged at a fixed annual amount of reduced tax rate of no less than RMB7, 500 per year that changes every year to cover all types of taxes including income taxes. The income tax expenses for the years ended December 31, 2012 and 2011 are $288 and $1,255, respectively. There were no significant book and tax basis differences.

F-24

17.	Concentration of Credit Risks and Uncertainties and Commitments and Contingencies

Credit Risk

The Company’s practical operations are all carried out in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Concentration of credit risk exists when changes in economic, industry or geographic factors similarly affect groups of counter parties whose aggregate credit exposure is material in relation to the Company’s total credit exposure.

For the years ended December 31, 2012 and 2011, there is no major customer that individually comprised more than 10% of the Company’s total sales.

There are five major vendors accounting for over 10% of the Company’s total purchases for the year ended December 31, 2012, with Shenzhen Tongfang Multimedia Technology Co. accounting for 12%, Guangdong Zhigao air conditioners Co. accounting for 14%, Lu’An Zhongxing Trade Co. accounting for 13%, Shenzhen Skyworth·RGB Electronics Co. Anhui Branch accounting for 12%, Shanghai Shangling Electric Appliance Manufacturing Co., Ltd. accounting for 12%. The accounts payable balance as of December 31, 2012 for these two vendors was $0. There are two major vendors each accounting for over 10% of the Company’s total purchases for the year ended December 31, 2011, with Shangdong Huangming Solar Power Sales Co. accounting for 45%, Hefei Ririshun Sales Co. accounting for 10%. T he accounts payable balance as of December 31, 2011 for these two vendors was $0.

The Company’s exposure to foreign currency exchange rate risk primarily relates to cash and cash equivalents and short-term investments, denominated in the U.S. dollar. Any significant revaluation of RMB may materially and adversely affect the cash flows, revenues, earnings and financial position of the Company.

Contingency

The Company is in litigation with its prior attorney, who commenced an action against the company in the Supreme Court of the State of New York County of New York on February 2011 for approximately $145,308.14 plus accrued interest for legal services provided to China Financial Services, a financial advisory firm, on behalf of the Company. The Company intends to contest this action and believes that there are defenses available to the Company. This amount has been accrued as of December 31, 2012 and is included in accrued expenses.

In connection with our private placement in July and August 2010, we entered into a Subscription Agreement with the investors which set forth the rights of the investors to have the registrable shares registered with the SEC for public resale. Pursuant to the registration rights provisions, we agreed to file the registration statement pursuant to the Subscription Agreement to be declared effective by the Securities and Exchange Commission (the “Commission”) by the date (the “Required Effectiveness Date”) which is not later than the earlier of (x) one hundred eighty (180) calendar days after the final closing date of the Offerings dated July 9, 2010, or (y) ten (10) business days after oral or written notice to the Company or its counsel from the Commission that it may be declared effective. The registration statement has not been declared effective before the Required Effectiveness Date (the “Required Effectiveness Failure”). As liquidated damages (“Liquidated Damages”), the Company shall deliver to the Subscribers, as on a pro-rata basis an amount equal to one-half percent (0.5%) of the aggregate Issue Price of the Purchased Securities owned of record by such Subscribers on the first business day after the Non-Registration Event and for each subsequent thirty (30) day period. The maximum aggregate Liquidated Damages payable to the Subscriber under this Agreement shall be five percent (5%) of the aggregate Issue Price paid by the Subscribers. The registration statement was not declared effective by Required Effectiveness Date, as such an Effectiveness Failure occurred and the Company made an estimate of the probable amount in year 2012 that it would pay in damages and accrued $262,500.

F-25

In connection with our private placement in July and August 2010, the Company entered into an Amended and Restated Settlement Agreement with investor representatives and certain investors dated July 18, 2012, wherein the Company has paid $179,020.51 as of June 30, 2012 and it agreed to pay additional $50,000 by July 31, 2012 and the remaining $33,479.49 by August 31, 2012. As of September 30, 2012, the Company has made payment of Liquidated Damages in full amount of $262,500. In consideration of full payment of liquidated damages, the investors forever releases and discharges the Company, its shareholders, subsidiaries, affiliates, successors, and assigns (collectively, the "Releasees") from any and all claims, demands, causes of action, and liabilities of any kind whatsoever arising out of or in connection with the Subscription Agreements and Share Exchange Agreement, and the failure of the Company to perform any of its obligations thereunder up to the execution date of the Amended Settlement Agreement. In particular, the investors agreed to waive their rights to claim any more liquidated damages and declare any future Event of Default under Section 7(o) “Further Registration Statements”, Section 7(r) “Uplisting” and Section 9(d) “Non-Registration Events” of their Subscription Agreements.

Further, pursuant to Section 7(d) of the Subscription Agreement, the Company has right to terminate or suspend registration statement or its reporting and filing obligations, unless relevant securities laws and regulations provide otherwise, until the later to occur of (i) two (2) years after the Final Closing Date by August 2012, or (ii) the Purchased Securities can be resold or transferred by the Subscribers pursuant to Rule 144(b)(1)(i) since August 2011.

Operating Leases

The Company leases various facilities under operating leases that terminate on various dates.

The Company incurred rent expenses of $160,349 and $143,743 for the years ended December 31, 2012 and 2011 respectively.

The lease expenses for the next five years are estimated to be as follows:

2013	$	136,632
2014		41,083
2015		12,553
2016		12,553
2017		8,369
Thereafter		-
Total	$	211,191

Obligations for Land Use Rights

The Company entered into a Land Investment Agreement on October 28, 2010 and a supplemental Deposit Agreement on December 28, 2010 with the management committee of Pingqiao Industrial Park (the “Pingqiao Committee”), under which the Pingqiao Committee is obligated to assist the Company to obtain a land use right for 164,983 square meters (approximately 300 Chinese acres) to be issued by local people's government where our construction and investment project will be built. The Land Use Right Certificate is to be approved and issued by People’s Government of Yu An District and Pingqiao Committee is the management committee in charge of project investment on this parcel of land. 120 Chinese acres of this land is for commercial use and 180 Chinese acres of this land is for industrial use. The Company paid RMB 100 million (approximately $15.74 million) of the purchase price as of December 31, 2010. The Company is not obligated to pay the remaining $3.7 million until it receives the land use right certificate issued by relevant PRC government pursuant to the Land Investment Agreement. The Company received a land use right certificate issued by Yu An people’s government on April 16, 2012 with a term of 50 years until 2062 for a 38,449 square meter portion of the land which has been collaterized for a loan of RMB 10 million to a bank, including the 19,200 square meters where the four warehouses are built. We are waiting to receive the land use right certificate for the remaining 126,534 square meters of Pingqiao land. The government may not remove our facilities from the land which we have obtained the land use right certificate but could remove any future constructions that we build on the land which we have not obtained land use right certificate. Due to burdensome and repetitive approval procedures, we have not been granted land use right certificate for the rest of land. We are currently negotiating with the local government to obtain a Land Use Right Certificate for rest of the land but we are not certain when such land use right certificate will be granted to us. The Company believes that if the land use right certificate is not granted to the Company by the local government, the Company will get a refund of the retainer from Pingqiao Committee pursuant to its contractual rights.

F-26

18.	China Electronics Holdings, Inc (Parent Company)

Under PRC regulations, the Company’s operating subsidiary, Guoying, may pay dividends only out of its accumulated profits, if any, determined in accordance with the accounting standards and regulations prevailing in the PRC (“PRC GAAP”). In addition, Guoying is required to set aside at least 10% of its accumulated profits each year, if any, to fund the statutory general reserve until the balance of the reserve reaches 50% of its registered capital. The amount in excess of 10% of income tax to be contributed to the statutory general reserve is at Guoying’s discretion. The statutory general reserve is not distributable in the form of cash dividends to the Company and can be used to make up cumulative prior year losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings, or by increasing the par value of the shares currently held by them, provided that the reserve balance after such issue is not less than 25% of the registered capital. Further, Guoying is also required to allocate 5% of the profit after tax, determined in accordance with PRC GAAP, to the statutory public welfare fund which is restricted to be used for capital expenditures for staff welfare facilities owned by the Company. The statutory public welfare fund is not available for distribution to equity owners (except in liquidation) and may not be transferred in the form of loans, advances, or cash dividends. As of December 31, 2012, an aggregate amount of $4,185,764 has been appropriated from retained earnings and set aside for statutory general reserve and public welfare fund, by Guoying.

As of December 31, 2012, the amount of restricted net assets of Guoying, which may not be transferred to the Company in the form of loans, advances or cash dividends by the subsidiaries without the consent of a third party, was approximately 7.43% of the Company’s consolidated net assets as discussed above. In addition, the current foreign exchange control policies applicable in the PRC also restrict the transfer of assets or dividends outside the PRC.

The following presents condensed unaudited unconsolidated financial information of the Parent Company only.

Condensed unaudited Balance Sheet as of December 31, 2012 and 2011

	December 31, 2012		December 31, 2011
Current assets	$	3,333,144	$	3,339,253

Current liabilities	$	145,308	$	143,000
Total stockholders' equity		3,187,836		3,196,253
Total liabilities and shareholders’ equity	$	3,333,144	$	3,339,253

Condensed unaudited Statements of Operations (For the years ended December 31, 2012 and 2011)

	2012			2011
Revenues	$	-		$	-
General and administrative expenses		8,417			436,465
Loss before equity in undistributed earnings of subsidiaries		(8,417	)		(436,465	)
Equity in earnings of subsidiaries		(1,092,924	)		18,622,270
Net income	$	(1,101,341	)	$	18,185,805

Condensed unaudited Statement of Cash Flows (For the year ended December 31, 2012 and 2011)

	2012			2011
Net Income	$	(1,101,341	)	$	16,130,370
Adjustments to reconcile net income to net cash provided by (used in) operations:
Equity in earnings of subsidiaries		1,092,924			(16,566,631	)
Changes in operating liabilities and assets:
Trade accounts payable		-			-
Other receivable		-			226,896
Other payable		8,417			150,758
Net cash provided by (used in) operating activities		-			-

Cash flows from financing activities
Share issued for cash		-			-
Net cash provided by financing activities		-			-

Effect of rate changes on cash		-			-

Increase in cash and cash equivalents		-			-
Cash and cash equivalents, beginning of period		-			-
Cash and cash equivalents, end of period	$	-		$	-

F-27

19.	Segment information

ASC 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

During 2011 and 2010, the Company was organized into three main business segments: (1) Exclusive franchise stores, (2) Non-exclusive franchise stores, and (3) Company owned stores. The following table presents a summary of operating information and certain year-end balance sheet information as of December 31, 2012 and 2011, respectively.

	For the years ended December 31,
	2012		2011
Revenues from unaffiliated customers:
Exclusive franchise stores	$	34,256,697	$	47,221,802
Non-exclusive stores		16,147,112		47,172,272
Company owned stores		7,679,088		9,821,329
Consolidated	$	58,082,897	$	104,215,403
Gross Profit:
Exclusive franchise stores	$	2,600,317	$	6,865,503
Non-exclusive stores		1,206,361		7,121,130
Company owned stores		795,859		1,705,341
Consolidated	$	4,602,537	$	15,691,974

Depreciation and amortization:
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate		705,585		1,173,368
Consolidated	$	705,585	$	1,173,368
Capital expenditures:
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate	2,228,109		5,388,620
Consolidated	$	2,228,109	$ 5,388,620

Identifiable assets:	As of December 31, 2012		As of December 31, 2011
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate		59,940,697		58,295,145
Consolidated	$	59,940,697	$	58,295,145

F-28

20.	GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. During the year ended December 31, 2012, the Company incurred a loss of $1,101,341. If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether.

The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty

21 RESTATEMENT OF FINANCIAL STATEMENTS

On May 15, 2013, the management of China Electronics Holdings, Inc. (the “Company”) concluded, that the previously issued financial statements contained in the Company's annual Report on Form 10-K for the year ended December 31, 2012 required restatement due primarily to certain inaccuracies in presentation of due to a related party and accumulated other comprehensive income in the statement of consolidated balance sheet, foreign currency translation adjustment and comprehensive income (loss) in the statement of consolidated statements of operations and comprehensive income (loss).

Below is a comparative presentation of the balance sheet and income statement as of and for the year ended December 31, 2012 as restated in this report and as reported in the Company’s Reports on Form 10K previously filed with the Securities and Exchange Commission.

F-29

	As Reported 12/31/2012		As Restated 12/31/2012
BALANCE SHEET:
Due to a related party	$	-	$	964,156
Total current liabilities		5,772,865		6,737,021
Total liabilities		5,772,865		6,737,021
Accumulated other comprehensive loss		5,355,160		4,391,004
Total stockholders’ equity		54,158,202		53,194,046
Total equity		54,167,832		53,203,676
STATEMENT OF OPERATIONGS AND COMPREHENSIVE INCOME (LOSS):

Foreign currency translation adjustment		2,008,159		1,044,003
Comprehensive income (loss)	$	906,817	$	(57,338	)

F-30

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to the report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHINA ELECTRONICS HOLDINGS, INC.

	By:	/s/ Hailong Liu
		Name: Hailong Liu
		Title: Chairman, Chief Executive Officer and President (principal executive officer) & Chief Financial Officer (principal financial officer and principal accounting officer)

Date: May 22, 2013

EXHIBIT INDEX

Number		Description
2.1		Share Transfer Agreement between Guoying Shareholders and CEH Delaware dated December 26, 2008. Incorporated by reference to Exhibit 2.3 to our Form S-1 Registration Statement with the Commission on January 25, 2013.

2.2		Share Transfer Agreement between Guoying Shareholders and CEH Delaware dated December 31, 2009.

2.3		Share Exchange Agreement by and among China Electronics Holdings, Inc. (formerly, Buyonate, Inc.), China Electronic Holdings, Inc. and the CEH Stockholders dated as of July 9, 2010. Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed with the Commission on July 22, 2010 (the “July 2010 8-K”).

3.1		Articles of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 (File No. 333-152535) filed on July 25, 2008 (the “2008 S-1”).

3.2		By-laws of the Company. Incorporated by reference to Exhibit 3.2 to the 2008 S-1.

4.1		Subscription Agreement between among China Electronics Holdings, Inc. (formerly, Buyonate, Inc.) and certain investors, dated as of July 9, 2010. Incorporated by reference to Exhibit 4.1 to the July 2010 8-K.

4.2		Form of Warrant of China Electronics Holdings, Inc. (formerly, Buyonate, Inc.) issued on July 15, 2010. Incorporated by reference to Exhibit 4.2 to the July 2010 8-K.

4.3		Chairman Lock-up Agreement between China Electronics Holdings, Inc. (formerly, Buyonate, Inc.) and Hailong Liu, dated July 9, 2010. Incorporated by reference to Exhibit 4.3 to the July 2010 8-K.

4.4		Specimen of Common Stock certificate. Incorporated by reference to Exhibit 4.4 to our Registration Statement on Form S-1 (File No. 333-169968) filed on October 15, 2010.

10.1		Call Option Agreement between Sherry Li and Hailong Liu, dated February 10,2012
10.2		Call Option Agreement between Sherry Li and Hailong Liu, dated as July 9, 2010. Incorporated by reference to Exhibit 10.1 to the July 2010 8-K.

10.3		Voting Trust Agreement between Sherry Li and Hailong Liu, dated February 10, 2010

10.4		Voting Trust Agreement between Sherry Li and Hailong Liu, dated as July 9, 2010 Incorporated by reference to Exhibit 10.2 to the July 2010 8-K.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.*

32.1		Section 1350 Certification, Chief Executive Officer and Chief Financial Officer.*

________________

*	filed herewith

China Electronics Holdings, Inc. - FORM 10-K/A - May 22, 2013

Attached files

China Electronics Holdings, Inc. Reports