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

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - China Electronics Holdings, Inc.	Financial_Report.xls
EX-31.1 - China Electronics Holdings, Inc.	e612168_ex31-1.htm
EX-32.1 - China Electronics Holdings, Inc.	e612168_ex32-1.htm

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, 2013

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 30, 2013, 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 market value of the voting and non-voting common equity held by non-affiliates was $208,753 based on the closing trade price $0.04 as of June 28, 2013.

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 April 28, 2014.

Explanatory Note

We are filing this amendment to disclose an adjustment to correct an error in Note 13 – income tax to the financial statements ended December 31, 2012 included in our Annual Report on Form 10-K and reissued the auditor’s opinion letter issued by Kabani & Company, Inc. for the year ended December 31, 2012 and the reissued auditor’s opinion letter issued by UltraCPA LLP for the year ended December 31, 2013.

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-F3

Consolidated Balance Sheets		F-4

Consolidated Statements of Operations and Comprehensive Income		F-5

Consolidated Statements of Stockholders’ Equity		F-6

Consolidated Statements of Cash Flows		F-7

Notes to Consolidated Financial Statements		F-8 - F-32

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

China Electronics Holdings, Inc.

We have audited the accompanying consolidated balance sheet of China Electronics Holdings, Inc. as of December 31, 2013, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the year then ended. 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 also have audited the adjustments described in Note 13 that were applied to correct an error in the note of 2012 financial statements. In our opinion, such adjustments were appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2012 financial statements of the Company other than with respect to the adjustments and accordingly we do not express an opinion or any other form of assurance on the 2012 financial statements taken as a whole.

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. as of December 31, 2013, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 18 to the consolidated financial statements, the Company has incurred substantial losses and has an accumulated deficit, all of which raise substantial doubt about its ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ UltraCPA LLP

Millbrae, California

March 31, 2014

F-2

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

China Electronics Holdings, Inc. and Subsidiaries

We have audited, before the effects of the adjustments for the correction of the error in the notes to the financial statements (described in Note 13), the accompanying balance sheet of China Electronics Holdings, Inc. and Subsidiaries as of December 31, 2012, and the related statements of income, stockholders' equity, and cash flows for the year 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 audit.

We conducted our audit 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 audit provide a reasonable basis for our opinion.

In our opinion, except for the error described in Note 13, 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 the results of their operations and their cash flows for the year ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. We were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the error described in Note 13 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by UltraCPA LLP

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-3

CHINA ELECTRONICS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2013 AND 2012


			12/31/2013		12/31/2012
Assets	Note
Current assets
Cash and cash equivalents		2E	$	26,269	$	9,465
Accounts receivable, net		2F, 3		1,099,118		2,331,713
Other receivable		4		3,544,942		593,850
Related party receivable		5		-		642,000
Inventory		2G		5,449,341		956,779
Advance to suppliers		2H, 6		7,432,827		17,532,739
Prepaid expenses				226,204		-
Total current assets				17,778,701		22,066,546

Non-current assets
Property, plant and equipment, net		2I, 7		57,890		342,705
Construction in progress		2K		-		8,196,005
Intangible assets, net		2J, 8		-		15,381,250
Advance		2H, 6		-		13,954,191
Security deposit				32,315		-
Total non-current assets				90,205		37,874,151

Total Assets			$	17,868,906	$	59,940,697

Liabilities and Stockholders’ Equity

Liabilities
Current liabilities
Bank loans		9	$	-	$	1,605,000
Accounts payable and accrued expenses		10		203,316		224,884
Taxes payable				-		103
Other payable		11		54,144		3,512,045
Related party payable		5		-		964,156
Unearned revenue				-		430,833
Total current liabilities				257,460		6,737,021

Total Liabilities			$	257,460	$	6,737,021

			12/31/2013			12/31/2012
Stockholders’ Equity	Note
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2013 and 2012 respectively		12	$	-		$	-
Common stock, $0.0001 par value; 150,000,000 shares authorized; 16,775,113 shares issued and outstanding as of December 31, 2013 and 2012 respectively		12		1,678			1,678
Additional paid-in capital				15,341,710			15,341,710
Statutory reserve		2W		3,849,684			3,849,684
Retained earnings/(accumulated deficit)				(6,768,251	)		29,609,970
Accumulated other comprehensive income		2X		5,186,625			4,391,004
Total Stockholders’ Equity				17,611,446			53,194,046
Non-controlling interest				-			9,630
Total Equity				17,611,446			53,203,676

Total Liabilities and Stockholders’ Equity			$	17,868,906		$	59,940,697

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

F-4

CHINA ELECTRONICS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

Sales revenue	Note		2013			2012
Revenue from exclusive franchise stores			$	20,968,736		$	34,256,697
Revenue from non-exclusive franchise stores				1,917,498			16,147,112
Revenue from company owned stores				3,325,667			7,679,088
Sales revenue		2M		26,211,901			58,082,897
Cost of goods sold
Cost from exclusive franchise stores				19,373,992			31,656,380
Cost from non-exclusive franchise stores				1,776,574			14,940,751
Cost from company owned stores				3,011,869			6,883,229
Cost of goods sold		2N		24,162,435			53,480,360
Gross profit				2,049,466			4,602,537

Operating expenses
Selling expenses		2O		2,953,662			2,086,788
General and administrative expenses		2P		2,197,117			2,969,909
Bad debt allowance for accounts receivable				1,756,405			-
Bad debt allowance for other receivable				-			2,214,245
Bad debt recovery for accounts receivable				(368,886	)		(1,856,226	)
Bad debt allowance/(recovery) for due from related party				(1,144,820	)		1,109,500
Inventory loss of lower cost or net realizable value				1,943,442			-
Total operating expenses				7,336,920			6,524,216
Operating loss				(5,287,454	)		(1,921,679	)

Other income/(expenses)
Other income				2,383			917,359
Other expense				(1,325	)		(203,865	)
Interest income				480,109			107,132
Interest expense				(165,783	)		-
Impairment loss for plant and equipment		2K		(271,256	)		-
Impairment loss for long-term assets held for sale		2K		(31,134,887	)		-
Total other income/(expenses)				(31,090,759	)		820,626

Loss from continued operation before income taxes				(36,378,213	)		(1,101,053	)
Provision for income taxes		2S, 14		-			288
Loss from discontinued operation, net of tax		17		(8	)		-
Net loss			$	(36,378,221	)	$	(1,101,341	)
Other comprehensive income		2X
Foreign currency adjustment				795,621			1,044,003
Comprehensive income			$	(35,582,600	)	$	(57,338	)

Earnings per share		2V,16
- Basic: - Net Loss			$	(2.17	)	$	(0.07	)
- Loss from continued operation				(2.17	)		(0.07	)
- Loss from discontinued operation				-			-
- Diluted : - Net loss			$	(2.17	)	$	(0.07	)
- Loss from continued operation				(2.17	)		(0.07	)
- Loss from discontinued operation				-			-
Weighted average shares outstanding
- Basic				16,775,113			16,775,113
- Diluted				16,775,113			16,775,113

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

F-5

CHINA ELECTRONICS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

										Retained			Accumulated
	Number				Additional					Earnings			Other					Non-
	Of		Common		Paid in		Statutory			(Accumulated			Comprehensive					controlling
	Shares		Stock		Capital		Reserve			Deficit)			Income		Total			Interest
Balance at January 1, 2012		16,775,113	$	1,678	$	15,341,710	$	3,958,981		$	30,602,014		$	3,347,001	$	53,251,385		$	-
Net income		-		-		-		-			(1,101,341	)		-		(1,101,341	)		-
Appropriations of retained earnings		-		-		-		(109,297	)		109,297			-		-			-
Share issuance of subsidiary		-		-		-		-			-			-		-			9,630
Foreign currency translation adjustment		-		-		-		-			-			1,044,003		1,044,003			-
Balance at December 31, 2012		16,775,113	$	1,678	$	15,341,710	$	3,849,684		$	29,609,970		$	4,391,004	$	53,194,046		$	9,630

Balance at January 01, 2013		16,775,113	$	1,678	$	15,341,710	$	3,849,684		$	29,609,970		$	4,391,004	$	53,194,046		$	9,630
Net income		-		-		-		-			(36,378,221	)		-		(36,378,221	)		-
Appropriations of retained earnings		-		-		-		-			-			-		-			-
Discontinued operations of subsidiary		-		-		-		-			-			-		-			(9,630	)
Foreign currency translation adjustment		-		-		-		-			-			795,621		795,621			-
Balance at December 31, 2013		16,775,113	$	1,678	$	15,341,710	$	3,849,684		$	(6,768,251	)	$	5,186,625	$	17,611,446		$	-

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

F-6

CHINA ELECTRONICS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

	2013			2012

Net Loss	$	(36,378,221	)	$	(1,101,341	)
Adjustments to reconcile net income to net cash from operations:
Bad debt provision		1,756,405			1,467,519
Impairment loss for plant and equipment		271,256			1,048
Impairment loss for long-term assets held for sale		31,134,887			-
Inventory loss of lower cost or net realizable value		1,943,442			-
Amortization and depreciation		294,081			705,585
Changes in operating assets and liabilities:
Accounts and other receivables		(203,988	)		5,211,651
Inventories		(6,436,004	)		868,626
Advance to suppliers		10,099,912			(10,767,133	)
Prepaid expenses		(226,204	)		-
Accounts payables and accruals		(143,240	)		(1,385,656	)
Unearned revenue		(430,833	)		425,465
Net cash provided by/(used in) operating activities		1,681,493			(4,574,235	)

Cash flows from investing activities
Proceeds from disposal of plant and equipment					121,553
Payments for purchase of plant and equipment		(2,123	)		-
Payments for construction in progress		-			(2,349,662	)
Proceeds from cancellation of intangible assets purchase		-			4,722,000
Net cash provided by/(used in) investing activities		(2,123	)		2,493,891

Cash flows from financing activities
Contribution from non-controlling interest		-			9,630
Payments to non-controlling interest		(9,630	)		-
Proceeds from bank loans		1,605,000			1,585,000
Repayments of bank loans		(3,210,000	)		-
Proceeds from related party loans		642,000			952,141
Payments of related party loans		(964,156	)		(642,000	)
Net cash provided by/(used in) financing activities		(1,936,786	)		1,904,771

Effect of foreign currency translation on cash		274,220			13,200

Net increase/(decrease) of cash and cash equivalents		16,804			(162,373	)
Cash and cash equivalents at beginning of year		9,465			171,838
Cash and cash equivalents at end of year	$	26,269		$	9,465

Supplementary cash flow information:
Interest received	$	480,109		$	-
Interest paid	$	165,783		$	94,059
Tax paid	$	103		$	288

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

F-7

CHINA ELECTRONIC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Nature of Operations

China Electronics Holdings, Inc. (“CEHD Nevada” or the “Company”), formerly named Buyonate, Inc. and the public company, was incorporated in the State of Nevada on July 9, 2007. China Electronic Holdings, Inc. (“CEH Delaware”) was incorporated on November 15, 2007 in Delaware as a development stage company. Lu’an Guoying Electronic Sales Co., Ltd. (“Guoying”), a domestic PRC corporation, was established on January 4, 2002 to engage in wholesale and retail of electronics consumer products to rural areas in Anhui province. The Company owns 100% equity interest in CEH Delaware which owns 100% equity interest in Guoying. Mr. Hailong Liu is the CEO and Chairman of Guoying. In August 2012, Guoying and Mr. Hailing Liu contributed $945,054 and $9,546, representing 99% and 1% registered capital respectively, to establish Lu’an Guoying Opto-Electronics Technology Co., Ltd. (“Opto-Electronics”). On June 29, 2013, the Company through its indirectly wholly owned subsidiary Guoying executed a share transfer agreement (the “Transfer Agreement”) with Mr. Li Xiaoyu (“Buyer of Opto-Electronics”) to sell its 99% ownership interest in Opto-Electronics for a total consideration of $962,224 (RMB 5,940,000).

Share Exchange between Guoying and CEH Delaware

On December 26, 2008, pursuant to the Share Transfer Agreement entered into (the “2008 Share Transfer”) 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.

On December 31, 2009, pursuant to the Share Transfer Agreement entered into (the “2009 Share Transfer”) 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 Delaware. The 40% and 60% Guoying Shares were actually transferred from Guoying shareholders to CEH Delaware on September 29, 2009 and November 25, 2010 respectively and registered with local government authority. 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 to RMB 19,302,687 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.

On January 4, 2010, the Board of Directors of CEH Delaware adopted a board resolution and resolved that it was in the best interest of CEH Delaware to issue 13,213,268 CEH Delaware Shares pursuant to a call option agreement, which provided that Sherry Li was the call option holder on behalf of Guoying Shareholders.

In February 2010, as a result of 2008 and 2009 Share Transfer Agreements, CEHD Delaware issued 13,213,268 CEH Delaware Shares, constituting 96.6% of its issued and outstanding shares to Sherry Li, the nominee shareholder on behalf of Mr. Hailong Liu who was the nominee shareholder on behalf of Guoying Shareholders concurrent with the 2008 and 2009 Shares Transfers.

On February 10, 2010, 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. Pursuant to the 2010 February Call Option and Voting Trust Agreements, 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. The Voting Trust Agreement provided that Ms. Sherry Li should not vote or dispose of the respective portion of the shares of common stock without Mr. Liu’s prior written consent and was obligated to transfer Option Shares to Mr. Liu at nominal consideration of par value $0.001 per share. The Voting Trust Agreements further provided that, Sherry Li, the nominee shareholder, had no decision power to vote or dispose of the Option Shares without Mr. Liu’s consent.

Mr. Hailong Liu indirectly controlled CEH Delaware on February 10, 2010 through the Call Option Agreement and Voting Trust Agreement, as of the same date CEH Delaware issued 13,213,268 CEH Delaware shares to Sherry Li.

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 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 were the financial statements of Guoying.

F-8

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 Warrants 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 Warrants A and 314,285 common stock underlying Warrants 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 were together referred to as CEH Delaware Shareholders.

Share Exchange between CEH Delaware and CEHD Nevada

On July 9, 2010, the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with CEH Delaware and CEH Delaware Shareholders. Pursuant to the Share Exchange Agreement, on July 15, 2010, 10 CEH Delaware Shareholders 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 and warrants to purchase an aggregate of 1,628,570 shares of the Company's common stock. The shares of the Company’s common stock acquired by the CEH Delaware shareholders in such transactions constitute approximately 82.2% of the Company’s issued and outstanding common stock (including 68.9% owned by former Guoying Shareholders) 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.

On July 9, 2010, 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. 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 should 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 provided that Ms. Sherry Li should not vote or dispose of the respective portion of the shares of common stock without Mr. Liu’s prior written consent and was obligated to transfer Option Shares to Mr. Liu at nominal consideration of par value $0.001 per share . The Voting Trust Agreements further provides that, Sherry Li, the nominee shareholder, had no decision power to vote or dispose of the Option Shares without Mr. Liu’s consent. Pursuant to the terms of the Call Option Agreement, Mr. Liu received 5,778,144 shares in August 2010 and 5,778,144 shares in January 2013 from Ms. Sherry Liu pursuant to the vesting schedule set forth in the Call Option Agreement.

The Share Exchange resulted in (i) a change in 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 CEHD Nevada's 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 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 were the financial statements of CEH Delaware which were in essence the financial statements of Guoying.

F-9

2010 PIPE Transaction

On July 15, 2010, the Company 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 the Company sold units (the “Units”) to such Selling Stockholders. Each Unit consists of four shares of the Company’s common stock, a warrant to purchase one share of common stock at an exercise price of $3.70 per share (a “Series C Warrants”) and a warrant to purchase one share of common stock at an exercise price of $4.75 per share (a “Series D Warrants”). 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 the Company’s common stock, (b) Series C Warrants to purchase an aggregate of 497,303 shares of the Company’s common stock and (c) Series D Warrants to purchase an aggregate of 497,303 shares of the Company’s common stock was sold.

2.	Significant Accounting Policies

Basis of Presentation

The accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows are prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”). The financial statements and notes are representations of management.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries CEH Delaware and Guoying. All significant inter-company transactions and balances, such as due to/due from, investment in subsidiaries, and subsidiaries’ capitalization have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are used for, but not limited to: (1) allowance for trade receivables, (2) economic lives of property, plant and equipment, (3) asset impairments, and (4) contingency reserves. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates

F-10

Economic and Political Risks

The Company’s operations are conducted in the People’s Republic of China (the “PRC”). Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

Cash and Cash Equivalents

The Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid investments purchased 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.

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. Accounts receivable are recognized and carried at gross invoice amounts less an allowance for any doubtful accounts. Management understands and expects the Company’s credit sales outstanding to vary from period to period within a given range. Based on the credit terms the Company grants to its customers, management expects credit sales outstanding not to exceed 90 days by any large margin. Management regularly reviews outstanding accounts and provides an allowance for doubtful accounts for any specific aging of receivables over 90 days. In a situation, management uses all its efforts, such as having internal staff call for payment, hiring collection agent and filing legal pledge to pursue payment, but the collection is no longer probable. The Company will then write off the accounts receivable amounts against the allowance for doubtful accounts. On the contrary, if payment is collected in subsequent period, management will reverse the doubtful accounts. Subsequent cash recovery is recognized as income in the period it occurs.

Inventory

Inventory is stated at the lower of cost determined on a weighted average basis or net realizable value. Cost of inventory is comprised of the cost of acquiring electronic products sold plus freight in cost incurred acquiring the electronic products. The freight in cost is allocated to the individual product purchased. Net realizable value is equal to the estimated selling price, in the ordinary course of business, less estimated selling costs, completion and disposal. Inventory as of December 31, 2013 and December 31, 2012 consisted of:

Description		As of December 31, 2013				As of December 31, 2012
Electronic products		$	5,449,341			$	956,779

Advances

Advance represents the cash paid in advance to suppliers for: a) the purchase of inventory and b) the construction of property and plant. Advance related to the purchase of inventory is classified as current assets. Advance to suppliers for the construction of property and plant is classified as non-current assets.

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 revenue. Depreciation not related to manufacturing is reported in selling, general and administrative expenses. Estimated useful lives of the property, plant and equipment are as follows:

Furniture	5 years
Motor vehicles	10 years
Office equipment	5 years

F-11

Intangible Assets

The Company individually tracks and accounts for each intangible asset. Each intangible asset is carried at its original acquisition cost less accumulated amortization. The Company provides amortization for each intangible asset using the straight line method over its estimated useful life.

Construction in Progress

During 2011, the Company started construction of four buildings, 4,800 square meters each and 19,200 square meters in total, on its Pingqiao land. These four buildings were intended to be used as warehouses to build the Company’s logistic center. The Company did not have sufficient capital to continue building the construction and has disposed the construction of logistics center on July 28, 2013. See Note 17 – Discontinued Operations.

Accounting for the Impairment or Disposal of Long-Lived Assets

The Company has adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), ASC 360-10-35. The Company evaluates its long-lived assets for impairment when indicators of impairment are present or annually, whichever occurs sooner. When there are indications of impairment, the Company will record a loss to statement of operations equal to the difference between the carrying value and the fair value of the long-lived assets. The Company typically, but not exclusively uses the expected future discounted flows method to determine fair value of long-lived assets subject to impairment. The fair value of long-lived assets that held for disposition will include the cost of disposal.

The Company’s long-lived assets are grouped by their presentation on the consolidated balance sheets, and further segregated by their operating and asset type. Long-lived assets subject to impairment include property, plant and equipment, intangible assets, construction in progress, and advance for the construction of property and equipment. The Company makes its determinations based on various factors that impact those assets.

At December 31, 2013, the Company assessed its long-lived assets and has concluded that cash flows generated by its ongoing business, which incorporate significant use of the property, plant and equipment, did not provide sufficient profit. Therefore, the Company recorded $271,256 impairment loss for its plant and equipment. Simultaneously, the Company also recorded $31,134,887 impairment loss for long-term assets held for sale. See Note 17 – Discontinued Operations.

M.	Revenue Recognition

Product Sales

The Company recognizes 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.

F-12

Electronic products are mainly sold to: a) exclusive franchise stores, b) non-exclusive franchise stores (collectively referred to as “co-operative stores”), and c) company-owned stores.

Product sales to all co-operative stores are recorded at the gross amount billed to the stores. The Company is not obliged to provide any further services to be entitled to payment by co-operative stores. The products are fully functional upon shipment. The Company’s products delivered to Co-operative stores will be checked on site by such stores and, once the products are accepted by such stores, co-operative stores will sign the acceptance notice. No return rights are granted to co-operative stores if such stores are unable to sell their purchase to the end users. Rewards or incentives given to co-operative stores are an adjustment of the selling prices. The consideration of the adjustment is characterized as a reduction of revenue when recognized in the income statement.

Additionally, product sales from company-owned stores are covered by the respective manufacturers’ return and warranty policies and the Company will receive full reimbursement for any costs associated with returns and warranty payments. Therefore, revenue from company-owned stores sales is presented as gross amount and the Company does not estimate deductions or allowance for company-owned stores sales return.

Payments received before all of the relevant criteria for revenue recognition satisfied are recorded as unearned revenue. Unearned revenue amounted to $0 and $430,833 as of December 31, 2013 and 2012 respectively.

Product sales revenue represents the invoice value of goods, net of the value-added taxes (“VAT”). The Company has been giving tax holiday status by the PRC local government. The Company benefits a reduced fixed annual tax rate in amount of no less than RMB 7,500 (approximately $1,200) for both income tax and VAT.

b)	Franchise Fees

Franchise fees, including area development and initial franchise fee, continuing fee, and royalty (collectively referred to as “franchise fees”), are revenue received from co-operative stores. Initial fee is recorded as unearned franchise revenue when payment received from a franchisee. When the Company has fulfilled all significant obligations to establish a new franchise for the franchisee, unearned franchise revenue is recognized as franchise fees. Royalty is charged to the franchisee based on a percentage of the franchised store’s sales. Continuing fee and royalty revenue are recognized in the period earned.

Currently, in connection with promotional efforts aimed at network growth, the Company has ceased charging initial franchise fee, continuing fee and royalty to co-operativestores. As such, total franchise fees for the years ended December 31, 2013 and 2012 were $0.

N.	Cost of Goods Sold

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

O.	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.

F-13

P.	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, warehouse costs, office supplies, bad debt expense, and amortization of intangible assets.

Q.	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 the Company's products from warehouses to buyers’ designated locations at 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, 2013 and 2012 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, 2013 and 2012 were $474,312 and $863,798 respectively.

R.	Advertising Costs

The Company records advertising costs as incurred. Advertising costs in the amounts of $1,262,791 and $107,323 were included in selling expenses for the years ended December 31, 2013 and 2012 respectively.

S.	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, 2013 and 2012, the Company did not have any deferred tax assets or liabilities, and as such, no valuation allowances were recorded at December 31, 2013 and 2012.

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.

F-14

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.

T.	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.

U.	Foreign Currency Translation

The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

Exchange Rates	12/31/2013	12/31/2012
Year end RMB: US$ exchange rate	6.1891	6.3011
Average RMB: US$ exchange rate	6.1145	6.3034

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US Dollar at the rates used in translation.

V.	Earnings Per Share

The Company computes earnings per share (“EPS”) in accordance with FASB ASC 260 “Earnings per share”. FASB ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., contingent shares, convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

W.	Statutory Reserve

As stipulated by the Company Law of PRC as applicable to Chinese companies with foreign ownership, net income after taxation can only be distributed as dividends after appropriation has been made to the statutory reserve. Statutory reserve refers to the appropriation from net income to be used for recovery of prior years’ losses, increase of capital and for future company development, as approved, to expand production or operations. PRC laws prescribe that an enterprise operating at a profit, must appropriate, on an annual basis, an amount equal to 10% of its profit. Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered capital. The Company cannot pay dividends out of statutory reserves or paid in capital registered in PRC.

F-15

X.	Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company presents components of comprehensive income with equal prominence to other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

Y.	Fair Value of Financial Instruments

The Company has adopted ASC 820-10, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. ASC 820-10 applies whenever other statements require or permit assets or liabilities to be measured at fair value.

ASC 820-10 includes a fair value hierarchy that is intended to increase the consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing an asset or liability based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1–inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2–observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3–instrument valuations are obtained without observable market values and require a high-level of judgment to determine the fair value.

The Company’s financial instruments consist mainly of cash, restricted cash, bank notes receivable, and debt obligations. Bank notes receivable are reflected in the accompanying financial statements at historical cost, which approximates fair value due to the short-term nature of these instruments. Based on the borrowing rates currently available to the Company for loans with similar terms and average maturities, the fair value of debt obligations also approximates its carrying value due to the short-term nature of the instruments. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

There was no stock based compensation for the years ended December 31, 2013 and 2012.

	Quoted in		Significant
	Active Markets		Other		Significant
	For Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
As of December 31, 2013
Financial assets:
Cash	$	26,269	$	-	$	-	$	26,269
Total financial assets	$	26,269	$	-	$	-	$	26,269

Financial Liabilities:
Total financial liabilities	$	-	$	-	$	-	$	-

F-16

In January 2008, the Company adopted ASC 825-10, Fair Value Option for Financial Assets and Financial Liabilities, and has elected not to measure any of the Company’s current eligible financial assets or liabilities at fair value. ASC 825-10 was issued to allow entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, ASC 825-10 specifies that unrealized gains and losses for that instrument shall be reported in earnings at each subsequent reporting date. ASC 825-10 became effective January 1, 2008. The Company did not elect the fair value option for its financial assets and liabilities existing on January 1, 2008, and did not elect the fair value option for any financial assets or liabilities transacted during the year ended December 31, 2013.

Z.	Share-Based Compensation

The Company records share-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, 2013 and 2012.

AA.	Employee Welfare Plan

The employees of the Company participate in the defined contribution welfare plan managed by the local government authorities whereby the Company is required to contribute to the schemes at fixed rates of the employees’ salary. The Company’s contributions to this plan are charged to the statements of operations when incurred. The Company has no obligations for the payment of retirement and other post-retirement benefits of staff other than the contributions described above. The total expenses for the welfare plan were $458,258 and $74,490 for the years ended December 31, 2013 and 2012 respectively.

BB.	Subsequent Events

The Company evaluates subsequent events that have occurred after the consolidated balance sheet date but before the consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. The Company has evaluated subsequent events, and based on this evaluation, the Company identified two subsequent events that would require disclosure to the consolidated financial statements. See Note - 19 Subsequent Events

F-17

CC.	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.

On July 18, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2013-11”). The ASU presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists (a consensus of the FASB Emerging Issues Task Force), which requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for an net operating loss (NOL) carry forward, or similar tax loss or tax credit carry forward, rather than as a liability when (1) the uncertain tax position would reduce the NOL or other carry forward under the tax law of the applicable jurisdiction and (2) the entity intends to use the deferred tax asset for that purpose. The ASU does not require new recurring disclosures. It is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013 and December 15, 2014, for public and nonpublic entities, respectively. Early adoption and retrospective application are permitted. Management does not expect the adoption of this standard will have a significant effect on the Company’s consolidated financial position or results of operations.

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. Management does not expect the adoption will have a significant impact on the Company’s consolidated financial statements.

3.	Accounts Receivable

Accounts receivable	As of December 31, 2013			As of December 31, 2012
Exclusive franchise stores	$	2,633,882		$	2,693,729
Non-exclusive franchise stores		200,470			-
Accounts receivable, gross		2,834,352			2,693,729
Less: allowance for doubtful accounts		(1,735,234	)		(362,016	)
Accounts receivable, net	$	1,099,118		$	2,331,713

F-18

Allowance for doubtful accounts	As of December 31, 2013			As of December 31, 2012
Beginning balance	$	(362,016	)	$	(2,198,376	)
Allowance provided		(1,756,405	)		(43,288	)
Recovery		368,886			1,897,648
Foreign currency adjustment		14,301			-
Ending Balance	$	(1,735,234	)	$	(362,016	)

Accounts receivable aging analysis	As of December 31, 2013		As of December 31, 2012
1-30 Days	$	718,809	$	2,084,751
30-60 Days		190,477		-
61-90 Days		189,832		246,962
Over 90 Days		-		-
Total	$	1,099,118	$	2,331,713

4.	Other Receivable

Description	Note	As of December 31, 2013			As of December 31, 2012
Hongrong Real Estate Company	(1)	$	2,257,194		$	2,242,185
Mr. Li Xiaoyu (Buyer of Opto-Electronics)	(2)		3,544,942			-
Others			-			593,850
Subtotal			5,802,136			2,836,035
Less: allowance	(1)		(2,257,194	)		(2,242,185	)
Total		$	3,544,942		$	593,850

(1). The Company loaned $2,242,185 to Hongrong Real Estate Company (“Hongrong”), an unrelated party, on August 20, 2012. The loan was due on August 19, 2013 and secured by a building owned by Hongrong. The building was still under construction in progress in 2012 and as of today. As completion of substantial building construction was required to evaluate the value of the security under the loan, the Company reserved full amount of $2,242,185 of other receivable from Hongrong as of December 31, 2012. An allowance for loans receivables is recorded when circumstances indicate that collection of all or a portion of a specific balance is unrecoverable. The Company provides for allowance on a specific identification basis. Subsequent loan repayment from Hongrong to the Company will be recognized as reduction of operating expenses in the period when it occurs.

(2). See Note 17 - Discontinued Operations

5.	Related Party Receivable and Payable

Related Party Receivable	Note	As of December 31, 2013		As of December 31, 2012
Due from Mr. Hailong Liu	(1)	$	-	$	642,000
Due from Shenyuan	(2)		-		1,123,500
Subtotal			-		1,765,500
Less: allowance			-		(1,123,500	)
Related party receivable, net		$	-	$	642,000

F-19

Allowance for Receivable	As of December 31, 2013			As of December 31, 2012
Beginning balance	$	(1,123,500	)	$	-
Allowance provided		-			(1,123,500	)
Recovery		1,144,820			-
Foreign currency adjustment		21,320			-
Ending Balance	$	-		$	(1,123,500	)

Related Party Payable		Note				As of December 31, 2013				As of December 31, 2012
Yumin Village			(2)			$	-			$	964,156

(1)

Related party receivable from the Company’s CEO Mr. Hailong Liu was a company loan to the CEO for operating advance collateralized with the CEO’s personal property. This loan carried a 10% annual interest rate. The term of the loan was from August 28, 2012 to May 27, 2013. Mr. Hailong Liu has already repaid this loan in 2013.

(2)

On January 3, 2011, the Company leased 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 has paid $94,500 and $94,500 rents 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 $961,000 and $0 rent for the years ended December 31, 2011 and 2012, respectively.

In order to improve the Company’s cash flows from operations and working capital to support its business strategy to 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. On December 9, 2012, the Company’s board of directors approved the decision to transfer the leases of the 5,006 and 503 Chinese acres of lands together with plants grown on the leased lands to Lu’an Senyuan Ecological Park Ltd. (“Senyuan”), an affiliated company controlled and owned by the father and ex-wife of the CEO of the Company, for approximately $1,123,500, due by October 2015.

At December 31, 2012, the Company has fully reserved an allowance for the balance of related party receivable from Senyuan due to the uncertainty of the collection because no collateral was provided to secure the payment from Senyuan to the Company. On November 30, 2013, Senyuan fully prepaid the loan to the Company. The Company then used the payment to settle the $964,156 rent owed to Yumin Village. The collection of Senyuan's loan has been recorded as a reduction of operating expenses in the consolidated statements of operations and comprehensive income.

Advance

A.	Advance to Suppliers - Short Term

The current advance to suppliers amounted $7,432,827 and $17,532,739 as of December 31, 2013 and 2012 respectively. As a wholesaler of consumer electronics and appliances, the Company purchased products from large distributors, including Sony, Samsung, LG, Haier, etc. Pursuant to purchase agreements with these large suppliers, advance deposit in significant amount of following year purchase is mandatory. Therefore, the Company deposited advance to suppliers for 2014 purchase at the end of year 2013 and the beginning of 2014. The Company has purchased insurance to secure its advance.

F-20

B.	Advance - Long Term

Long term advances related to construction were $0 and $13,954,191 as of December 31, 2013 and 2012 respectively. Because the Company did not have sufficient capital to continue building the construction and wanted to improve its cash flows from operation and working capital, the Company disposed the construction of logistics center on July 28, 2013. See Note 17 – Discontinued Operations.

7.	Property, Plant and Equipment

As of December 31, 2013			Accumulated
Category of Asset	Cost		Depreciation			Net
Vehicle	$	74,418	$	(35,831	)	$	38,587
Furniture and equipment		44,947		(25,644	)		19,303
	$	119,365	$	(61,475	)	$	57,890

As of
December 31, 2012			Accumulated
Category of Asset	Cost		Depreciation			Net
Vehicle	$	73,924	$	(27,089	)	$	46,835
Furniture and equipment		365,147		(69,277	)		295,870
	$	439,071	$	(96,366	)	$	342,705

Depreciation expenses were $21,505 and $73,783 for the years ended December 31, 2013 and 2012 respectively.

8.	Intangible Assets

As of
December 31, 2013			Accumulated
Category of Asset	Cost		Amortization			Net
Land use rights	$	-	$	-		$	-
Trade mark		1,357		(1,357	)		-
	$	1,357	$	(1,357	)	$	-

As of
December 31, 2012			Accumulated
Category of Asset	Cost		Amortization			Net
Land use rights	$	17,215,013	$	(1,833,763	)	$	15,381,250
Trade Mark		1,348		(1,348	)		-
	$	17,216,361	$	(1,835,111	)	$	15,381,250

F-21

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 acquired through Pingqiao Industrial Park in Lu’an City the land use rights for a parcel of land for $17,215,013 (RMB 100,000,000). The Company was amortizing the cost of land use rights over the usage terms 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 rights certificate because the Company has advanced a down payment for the land, built constructions on the land, and received the land use rights for a parcel of the land. The Company initially intended to construct a factory, research and development center and a commercial center on this land. However, the Company did not have sufficient capital to continue building the construction. Therefore, the Company disposed this land use rights on July 28, 2013. See Note 17 – Discontinue Operations.

The Company through its subsidiary Guoying entered into a land use rights purchase agreement in 2010 with Youbang Pharmaceuticals Co., Ltd., (“Youbang”). Pursuant to the purchase agreement, Youbang agreed to grant a 200 Chinese acres commercial use land use rights to Guoying for a consideration of $6,296,000 (RMB 40,000,000). Guoying planned to use the land to build its department office and a logistics center. During 2011, Guoying advanced $6,296,000 to Youbang and Youbang promised to transfer the land use rights certificate to Guoying by December 31, 2011 or no later than December 31, 2012. Subsequently, Youbang identified it had difficulty to transfer the land use rights certificate to Guoying because the PRC local government regulated the zoning plan of the land use rights. Therefore, Guoying and Youbang agreed to cancel the purchase agreement and Youbang committed to refund the payments to Guoying. $1,574,000 (RMB 10,000,000) and $4,722,000 (RMB 30,000,000) were refunded to Guoying in September 2011 and December 2012 respectively.

Amortization expenses amounted $272,576 and $631,802 for the years ended December 31, 2013 and 2012 respectively.

9.	Bank Loans

						As of		As of
		Interest Rate				December 31,		December 31,
Name of Creditor	Note	Per Annum			Maturity	2013		2012
Rural Credit Cooperatives of Lu’an	(1)		11.808	%	4/28/2013	$	-	$	802,500
Rural Credit Cooperatives of Lu’an	(2)		11.70	%	8/17/2013		-		802,500
						$	-	$	1,605,000

(1)	The loan from Rural Credit Cooperatives of Lu’an was secured by the Company’s land use rights.

(2)	The loan from Rural Credit Cooperative of Lu’an was guaranteed by Anhui Juneng Guarantee Company.

Rural Credit Cooperative of Lu’an did not implement restrictive covenants such as minimum bank balance, level of working capital, or net income requirement on above loans.

10.	Accounts Payable and Accrued Expenses

Description	As of December 31, 2013		As of December 31, 2012
Accrued payroll	$	58,008	$	79,576
Claimed unpaid legal fee in dispute		145,308		145,308
Total	$	203,316	$	224,884

F-22

11.	Other Payables

Description	As of December 31, 2013		As of December 31, 2012
HaiFeng Trading Company	$	-	$	3,274,200
Others		54,144		237,845
Total	$	54,144	$	3,512,045

12.	Capitalization

The Company’s outstanding securities at December 31, 2013 are shown in the following table:

	Authorized Shares		Shares Issued and Outstanding
Common Stock		150,000,000		16,775,113
Preferred Stock		50,000,000		-

	Strike Price		Contractual Life	Expiration Date	Shares Issued and Outstanding		Weighted Average Fair Value
Series E Warrants	$	0.25	5 years	07/13/2015		1,000,000	$	4.12
Series F(i) Warrants	$	1.75	5 years	07/13/2015		31,429	$	2.64
Series F(ii) Warrants	$	2.64	5 years	07/13/2015		94,329	$	1.77
Series F(iii) Warrants	$	2.64	5 years	07/13/2015		104,592	$	1.77

Common Stock

Total 150,000,000 shares of common stock, par value $0.0001 per share, are authorized. 16,775,113 shares were issued and outstanding at December 31, 2013.

Preferred Stock

Total 50,000,000 shares of preferred stock, par value $0.0001 per share, are authorized. 0 share was issued and outstanding at December 31, 2013.

F-23

Warrants

Total 1,230,350 warrants, including 1,000,000 series warrants E and 230,350 series warrants F, were outstanding at December 31, 2013. 314,285 series warrants A, 314,285 series warrants B, 497,303 series warrants C, 497,303 series warrants D, and 50,000 series warrants G have been expired on July 9, 2013. The Company used the Black-Scholes option pricing model to calculate the values of these warrants. The following table depicts the assumptions that were employed in the model:

Warrants	Series: E and F(i,ii,iii)
Annual dividend yield		-
Risk-free interest rate		0.30	%
Expected volatility		12	%
Year to maturity		1.75

13.	Income Taxes

The Company is registered in the State of Nevada and has operations in primarily two tax jurisdictions – the PRC and the United States. For operation in the US, the Company has incurred net accumulated operating losses for income tax purpose. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Accordingly, the Company has no deferred tax assets.

Effective tax rates were approximately 0% and 0% for the years ended December 31, 2013 and 2012 respectively. Central government tax benefits which have been granted to Guoying will expire on December 31, 2013 and local government tax benefits will expire on December 31, 2016. The Company’s effective tax rate was lower than the U.S. federal statutory rate due to the fact that its 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, 2013 and 2012:

	For Years Ended
	December 31, 2013			December 31, 2012
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	%

The provision for income taxes from continuing operations on income consists of the following for the years ended December 31, 2013 and 2012:

	For Years Ended
	December 31, 2013		December 31, 2012
US current income tax expense	$	-	$	-
Federal		-		-
State		-		-
PRC current income tax expense		-		288
Total provision for income tax	$	-	$	288

United States of America

As of December 31, 2013, the Company in the United States had approximately $1,404,996 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. As of December 31, 2013 and 2012, the Company did not have any deferred tax assets or liabilities, and as such, no valuation allowance were recorded for the years then ended.

F-24

The following table sets forth the significant components of the net deferred tax assets for operations in the US as of December 31, 2013 and 2012.

	As of			As of
	December 31,			December 31,
	2013			2012
							Filed at 2012 10K
Net operation loss carry forward		(1,404,996	)		(1,404,996	)		(2,378,190	)
Total deferred tax assets								784,803
Less: valuation allowance								(784,803	)
Net deferred tax assets
Change in valuation allowance	$			$			$

The management of 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 adjustment to correct an error on above tabulation resulting from mathematical mistakes.

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 and VAT benefit approval to Guoying on September 2, 2007 providing that Guoying was eligible to enjoy a reduced tax rate valid from October 1, 2007 until December 31, 2010. On January 10, 2011, the State Tax Bureau of Lu’an City has renewed the term of tax benefit approval until December 31, 2013. However, according to the approval, Guoying has an 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 RMB 7,500 per year that changes to cover all types of taxes including income tax and VAT. There were no significant book and tax basis differences. On January 1, 2014, the State Tax Bureau of Lu'an City renewed the term of tax benefit approval. See Note 19 - Subsequent Events.

14.	Concentration of Credit Risks, Uncertainties, Contingencies, and Commitments

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.

F-25

For the year ended December 31, 2013, there is no major customer that individually comprised more than 10% of the Company’s total sales. There are three major suppliers individually accounting for over 10% of the Company’s total purchase. These three major suppliers accounted for 46.82% of total purchase:

Suppliers	For Year Ended December 31, 2013		%
Shenzhen Skyworth - RGB Electronics Co., Ltd.	$	3,236,403		10.56	%
Lu’an ZhongXing Trading Co., Ltd.		5,455,437		17.80	%
Lu’an Jinan District Shenfa Electronics Co., Ltd.		5,657,347		18.46	%
	$	14,349,187		46.82	%

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 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, 2013 and was included in accrued expenses.

Operating Leases

The Company leases various facilities under operating leases that terminate on various dates. The Company incurred rent expenses of $182,020 and $160,349 for the years ended December 31, 2013 and 2012 respectively.

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

2014	$	53,065
2015		5,642
2016		-
2017		-
2018		-
	$	58,707

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 rights 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 rights certificate issued by PRC government pursuant to the Land Investment Agreement. The Company received a land use rights 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 collateralized for a loan of RMB 5 million to a bank, including the 19,200 square meters where the four warehouses were built. The Company waited to receive the land use rights certificate for the remaining 126,534 square meters of Pingqiao land. The government may not remove the Company’s facilities from the land which the Company has obtained the land use right certificate but could remove any future constructions that the Company builds on the land which the Company has not obtained land use rights certificate. Due to burdensome and repetitive approval procedures, the Company has not been granted land use rights certificate for the rest of land. The Company disposed the land use rights on July 28, 2013. Buyer carries a contractual obligation to obtain a land use rights certificate for the remaining 126,534 square meters of Pingqiao land. The Company is no longer obligated to pay the remaining $3.7 million. See Note 17 – Discontinued Operations.

F-26

15.	Operating Segments

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: (1) exclusive franchise stores, (2) non-exclusive franchise stores, and (3) company owned stores, 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.

The following table presents a summary of operating information and balance sheet information as of and for the years ended December 31, 2013 and 2012 respectively.

	For Years Ended
	December 31, 2013			December 31, 2012
Revenues from unaffiliated customers:
Exclusive franchise stores	$	20,968,736		$	34,256,697
Non-exclusive stores		1,917,498			16,147,112
Company owned stores		3,325,667			7,679,088
Consolidated		26,211,901			58,082,897
Gross Profit:
Exclusive franchise stores		1,594,744			2,600,317
Non-exclusive stores		140,924			1,206,361
Company owned stores		313,779			795,859
Consolidated		2,049,466			4,602,537

Depreciation and amortization:
Exclusive franchise stores		-			-
Non-exclusive stores		-			-
Company owned stores		-			-
Corporate		294,081			705,585
Consolidated		294,081			705,585

Capital expenditures:
Exclusive franchise stores		-			-
Non-exclusive stores		-			-
Company owned stores		-			-
Corporate		(2,123	)		2,228,109
Consolidated	$	(2,123	)	$	2,228,109

	As of December 31, 2013		As of December 31, 2012
Identified Assets:
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate		17,868,906		59,940,697
Consolidated	$	17,868,906	$	59,940,697

F-27

16.	Earnings Per Share

Components of basic and diluted earnings per share were as follows:

	For Years Ended
	December 31, 2013			December 31, 2012

Net loss	$	(36,378,221	)	$	(1,101,341	)
- Loss from continued operation		(36,378,213	)		(1,101,341	)
- Loss from discontinued operation		(8	)		-

Original Shares of Common Stock		16,775,113			16,775,113
New Issuance of Common Stock		-			-
Basic Weighted Average Shares Outstanding		16,775,113			16,775,113

Addition to Common Stock from exercise of Warrant		-			-
Diluted Weighted Average Shares Outstanding		16,775,113			16,775,113

Earnings Per Share
- Basic:
Net Loss	$	(2.17	)	$	(0.07	)
Loss from continued operation		(2.17	)		(0.07	)
Loss from discontinued operation		-			-
- Diluted:
Net Loss	$	(2.17	)	$	(0.07	)
Loss from continued operation		(2.17	)		(0.07	)
Loss from discontinued operation		-			-

Weighted Average Shares Outstanding
- Basic		16,775,113			16,775,113
- Diluted		16,775,113			16,775,113

F-28

17.	Discontinued Operations

(1)

On June 29, 2013, the Company through its indirectly wholly owned subsidiary Guoying executed share transfer agreement (the “Transfer Agreement”) with Mr. Li Xiaoyu (“Buyer of Opto-Electronics”) to sell assets and ownership of its subsidiary Opto-Electronics for total consideration of $969,486 (RMB 5,940,000). The Company has accounted for the disposition of the assets of discontinued operation in accordance with SFAS 144 (“FASB ASC 360”), “Accounting for the Impairment or Disposal of Long-Lived Assets”. No gain or loss was recognized for this disposal in the Company’s consolidated statements of operations and comprehensive income for the year ended December 31, 2013.

The following tabulation presents the calculation of the disposal of the subsidiary Opto-Electronics:

	Valuation of		Buyer’s
Subsidiary	Disposition		Acquisition Price		Gain/(Loss)
Opto-Electronics	$	969,479	$	969,479	$	-

The following tabulation summarizes the operation results of Opto-Electronics, which was accounted as discontinued operation for the year ended December 31, 2013 in the consolidated statements of operations and comprehensive income.

	For Year Ended
	December 31, 2013
Revenue	$	-
Loss from discontinued operation before income tax		(8	)

Provision for income tax		-
Gain on disposal		-
Loss from discontinued operation, net of tax	$	(8	)

The following table presents Opto-Electronics' aggregate carrying amounts of the major assets and liabilities:

	As of
	December 31, 2013
Assets:
Cash	$	-
Other receivable		646,319
Inventory		323,160
Total Assets	$	969,479
Liabilities:	$	-

F-29

(2)

In order to improve its cash flows from operations and working capital, the Company decided to redeploy its capital to meet the requirements of its business plan. In accordance with SFAS No. 144 (ASC 360-10), “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS 144”), the Company classified its logistics and transportation centers, which were still under construction, as a component of discontinued operations on June 30, 2013. Accordingly, the assets associated with the logistics and transportation centers have been classified as long-term assets held for sale in the consolidated balance sheets. The long-term assets held for sale included: a) construction in progress, b) advances for the construction of property and equipment, and c) land use rights the Company acquired through Pingqiao Industrial Park in Lu’an City.

On July 28, 2013, the Company through its indirectly wholly owned subsidiary Guoying executed an asset sales agreement (the “Sales Agreement”) with Opto-Electronics. Pursuant to the Sales Agreement, Opto-Electronics agreed to purchase the Company’s assets associated with the logistics and transportation centers for total consideration of RMB 20,000,000 (approximately $3,239,810) to be paid in three installments of: a) RMB 5,000,000 (approximately $809,952), b) RMB 10,000,000 (approximately $1,619,904) and c) RMB 5,000,000 (approximately $809,952) due on December 31, 2013, 2014 and 2015, respectively. In the event that Opto-Electronics does not consummate the payments, Opto-Electronics will be penalized 0.02% monthly of the outstanding balance. On December 26, 2013, the Company agreed Opto-Electronics’ buyer Mr. Li Xiaoyu's request to extend the payment schedule. The first RMB 5,000,000 (approximately $809,952) installment will be paid by May 2014.

The Company’s business strategy has been to become a significant retailer and wholesaler of consumer electronics and appliances to rural markets in China with a goal of having a national distribution network throughout China. The Company’s decision to discontinue and sell its Opto subsidiary and its logistics business on the Pingqiao land reflects its belief that: a) The industry in which Opto-Electronics was to compete has become more competitive and less profitable; b) the Company would like to continue using its working capital to focus on developing its wholesale and retail business; c) the Company does not have sufficient capital to complete the construction of its logistics facility.

The sales price of the 38,449 square meters land with land use rights certificate was appraised by an independent appraisal firm, Luan Century Price Evaluation Consultative Co., Ltd., on April 24, 2013. The appraisal firm concluded the fair market value of the 38,449 square meter portion of the land for which the Company has received a land use rights certificate with a term of 50 years until 2062 was RMB 11,073,378 (approximately $1,774,722). The appraised value excluded the remaining 126,534 square meters of Pingqiao Land for which the Company has not received a land use rights certificate. Further, pursuant to Article 2 of the Sales Agreement, 1) Opto-Electronics is obligated to negotiate with the Yu An government to: a) obtain the land use rights certificate for the remaining 126,534 square meters of land and b) pay to the Company the agreed upon purchase price of the remaining land up to the amount which the Company has advanced to the Pingqiao Committee; and 2) upon completion of the logistics center by Opto-Electronics, the Company has a right of first refusal to lease the building at a favorable rent.

Constructions by the Company of its logistics center on the Pingqiao land resulted significant impairments due to the facts and circumstances that: a) the Company has decided to discontinue and sell its Opto-Electronics subsidiary, b) the construction caused a current period operating loss and negative cash flow combined with a history of such losses in the prior periods, c) a significant decrease in the market price of constructions in progress.

The Company assessed its long-term assets held for sale associated with the logistics and transportation centers based on above mentioned events and circumstances and determined that a write-down was necessary because the sales price of the long-term assets held for sale was significantly less than their carrying value. For the year ended December 31, 2013, the Company has recorded a $31,134,887 impairment loss in the consolidated statements of operations and comprehensive income.

F-30

The following tabulation presents the calculation of the impairment loss, the difference between the sales price and the carrying value of the long-term assets held for sale:

	For Year Ended December 31, 2013
Land use rights	$	15,400,551
Construction in progress		8,351,534
Advance for construction of plant and equipment		10,653,692
		34,405,776
Less: sales price		(3,270,889	)

Impairment loss	$	31,134,887

18.	Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2013, the Company has an accumulated deficit of $6,768,251 because the Company continued to incur operating losses over the past several periods and has recorded impairment loss of $31,134,887 for the disposal of long lived assets for the year then ended.

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. 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 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.

19. Subsequent Events

(1)

The Company through its wholly owned subsidiary Guoying borrowed a loan in the amount of RMB 8,000,000 (approximately $1,292,595) from Rural Credit Cooperatives of Lu’an on January 3, 2014. The loan carries annual 10.08% interest rate and is due on January 3, 2015. The loan is guaranteed by Lu'an Senyuan Ecological Park Ltd and secured by the forestry plants grown on its land.

(2)

On January 1, 2014, the State Tax Bureau of Lu'an City renewed the term of tax benefit approval. Pursuant to the renewal approval, Guoying will continue to enjoy the same income tax and VAT benefits until December 31, 2017.

F-31

20.	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

		December 31, 2012
Current assets	$	3,333,144

Current liabilities	$	145,308
Total stockholders' equity		3,187,836
Total liabilities and shareholders’ equity	$	3,333,144

Condensed unaudited Statements of Operations (For the year ended December 31, 2012)

	2012
Revenues	$	-
General and administrative expenses		8,417
Loss before equity in undistributed earnings of subsidiaries		(8,417	)
Equity in earnings of subsidiaries		(1,092,924	)
Net income	$	(1,101,341	)

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

	2012
Net Income	$	(1,101,341
Adjustments to reconcile net income to net cash provided by (used in) operations:
Equity in earnings of subsidiaries		1,092,924
Changes in operating liabilities and assets:
Trade accounts payable		-
Other receivable		-
Other payable		8,417
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	$	-

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.

	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-32

SIGNATURES

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

	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: April 29, 2014

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

Signature	Title	Date

/s/ Hailong Liu	Chairman, Chief Executive Officer and President & Chief Financial Officer	April 29, 2014
Hailong Liu

/s/ Haibo Liu	Vice President and Director	April 29, 2014
Haibo Liu

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”).
2.4		Share Transfer Agreement of Opto-Electronics between Lu’an Guoying Electronics Sales Co., Ltd and Mr. Li Xiao Yu dated June 29, 2013(incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 filed on December 6, 2013).
2.5		Asset Sales Agreement of Pingqiao Land Use Right and Logistics Centers between Lu’an Guoying Electronics Sales Co., Ltd and Lu’an Guoying Opto-Electronics Technology Co., Ltd dated July 28, 2013(incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 filed on December 6, 2013).

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 10.5		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. Investment Agreement between Ping Bridge Industrial Park and Lu'an Guoying Electronic Sales Co., Ltd., dated as October 28, 2010, incorporated by referednce to Exhibit 10.5 to the Registration Statement Amendment No.4 filed with the Commission dated April 23, 2012.

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 - April 29, 2014

Attached files

China Electronics Holdings, Inc. Reports