UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ~~September~~March 3031, ~~2013~~2014, or
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number: 333-152535

CHINA ELECTRONICS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada (State of Other Jurisdiction of Incorporation or Organization)		98-0550385 (I.R.S. Employer Identification No.)

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

011-86-564-3224888

(Registrant’s Telephone Number, Including Area Code)

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

Yes x

No o

Indicate by check mark 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).

Yes x

No o

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

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller reporting company x

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

Yes o

No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 16,775,113 as of ~~December~~August 215 , ~~2013.~~ 2014

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION	13
Item 1. Financial Statements (Unaudited)	13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2830
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	5650
Item 4. Controls and Procedures.	5651
PART II—OTHER INFORMATION	5752
Item 1A. Risk Factors.	5752
Item 6. Exhibits.	5752

Throughout this Quarterly Report on Form 10-Q, the “Company”, “we,” “us,” and “our,” refer to (i) China Electronics Holdings, Inc., a Nevada corporation (“China Electronics”), (ii) China Electronic Holdings, Inc., a Delaware corporation (“CEH Delaware”), and (iii) Lu’anGuoying Electronic Sales Co., Ltd., a wholly foreign enterprise under the laws of the People’s Republic of China (“Guoying”), unless otherwise indicated or the context otherwise requires.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). The statements herein which are not historical reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events. Such forward-looking statements include statements regarding, among other things:

●

our ability to produce, market and generate sales of our private label products;

●

our ability to market and generate sales of the products that we sell as a wholesaler;

●

our ability to develop, acquire and/or introduce new products;

●

our projected future sales, profitability and other financial metrics;

●

our future financing plans;

●

our plans for expansion of our stores and manufacturing facilities;

●

our anticipated needs for working capital;

●

the anticipated trends in our industry;

●

our ability to expand our sales and marketing capability;

●

acquisitions of other companies or assets that we might undertake in the future;

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●

our operations in China and the regulatory, economic and political conditions in China;

●

our ability as a U.S. company to operate our business in China through our subsidiary, Guoying;

●

competition existing today or that will likely arise in the future; and

●

other factors discussed elsewhere herein.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations. These statements may be found under Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q and in the Company’s Annual Report for the year ended December 31, 2013 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2014. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur.

Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.

Potential investors should not make an investment decision based solely on our projections, estimates or expectations.

Table of Contents

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA ELECTRONICS HOLDINGS, INC.

Table of Contents	Page

Consolidated Balance Sheets	4

Consolidated Statements of Operations and Comprehensive Income	6

Consolidated Statements of Stockholders’ Equity	7

Consolidated Statements of Cash Flows	8

Notes to Consolidated Financial Statements	9

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012

(STATED IN US DOLLARS)

	As of		As of
	September 30,		December 31,
	2013		2012
Assets	[unaudited]		[audited]
Current assets
Cash and cash equivalents	$	66,694	$	9,465
Accounts receivable, net		6,858,527		2,331,713
Other receivable		3,607,979		593,850
Related party receivable		-		642,000
Inventory		9,521,872		956,779
Advance to suppliers		2,345,553		17,532,739
Prepaid expenses		342,220		-
Total current assets		22,742,845		22,066,546
Non-current assets
Property, plant and equipment, net		63,600		342,705
Construction in progress		-		8,196,005
Intangible assets, net		-		15,381,250
Advance		-		13,954,191
Total non-current assets		63,600		37,874,151
Total Assets	$	22,806,445	$	59,940,697
Liabilities and Stockholders’ Equity
Liabilities
Current liabilities
Bank loans	$	1,629,620	$	1,605,000
Accounts payable and accrued expenses		221,512		224,884
Taxes payable		-		103
Other payable		241,302		3,512,045
Related party payable		978,945		964,156
Unearned revenue		57,941		430,833
Total current liabilities		3,129,320		6,737,021
Total Liabilities	$	3,129,320	$	6,737,021

	As of			As of
	September,			December 31,
	2013			2012
Stockholders’ Equity	[unaudited]			[audited]
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2013 and December 31, 2012	$	-		$	-
Common stock, $0.0001 par value; 150,000,000 shares authorized; 16,775,113 shares and 16,775,113 issued and outstanding as of September 30, 2013 and December 31, 2012, respectively		1,678			1,678
Additional paid-in capital		15,341,710			15,341,710
Statutory reserve		3,849,684			3,849,684
Retained earnings/(accumulated deficit)		(4,300,936	)		29,609,970
Accumulated other comprehensive income		4,784,989			4,391,004
Total stockholders’ equity		19,677,125			53,194,046
Non-controlling interest		-			9,630
Total equity		19,677,125			53,203,676
Total liabilities and stockholders’ equity	$	22,806,445		$	59,940,697

CHINA ELECTRONICS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS PERIODS ENDED SEPTEMBER 30, 2013 AND 2012

(STATED IN US DOLLARS)

	Three Months Ended						Nine Months Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Sales revenue
Revenue from exclusive franchise stores	$	7,187,992		$	8,013,254		$	16,583,690		$	26,899,816
Revenue from non-exclusive franchise stores		666,932			4,657,161			1,515,606			14,166,076
Revenue from company owned stores		501,950			1,754,835			2,658,686			3,431,983
Revenue		8,356,874			14,425,250			20,757,982			44,497,875
Cost of goods sold
Cost from exclusive franchise stores		6,607,101			7,346,134			15,228,323			24,941,217
Cost from non-exclusive franchise stores		612,369			4,270,260			1,391,398			13,137,960
Cost from company owned stores		459,675			1,564,432			2,396,516			3,092,874
Cost of goods sold		7,679,145			13,180,826			19,016,237			41,172,051
Gross profit		677,729			1,244,424			1,741,745			3,325,824
Operating expenses
Selling expenses		401,403			522,486			1,950,360			1,550,790
General and administrative expenses		146,829			343,426			1,111,472			1,519,372
Bad debt allowance for accounts receivable		2,339,300			353,511			2,595,368			353,511
Bad debt recovery for accounts receivable		(1,530	)					(363,026	)
Bad debt recovery for due from related party		(121,050	)		-			(201,152	)		-
Total operating expenses		2,764,952			1,219,423			5,093,022			3,423,673
Operating income/(loss)		(2,087,223	)		25,001			(3,351,277	)		(97,849	)
Other income/(expense)
Other income		1,294			-			1,075			1,753
Other expense		(132,030	)		(1,248	)		-			(203,030	)
Interest income		2,034			-			472,485			-
Interest expense		(33,236	)		(33,787	)		(124,211	)		(49,126	)
Impairment loss for plant and equipment		-			-			(268,677	)		-
Impairment loss for long-term assets held for sale		-			-			(30,640,293	)		-
Total other expense		(161,938	)		(35,035	)		(30,559,621	)		(250,403	)
Net loss before provision for income taxes		(2,249,161	)		(10,034	)		(33,910,898	)		(348,252	)
Provision for income taxes		-			-			-			287
Loss from discontinued operation, net of tax		-			-			(8	)		-
Net loss	$	(2,249,161	)	$	(10,034	)	$	(33,910,906	)	$	(348,539	)
Other comprehensive income
Foreign currency adjustment		227,764			573,448			393,985			580,398
Comprehensive income	$	(2,021,397	)	$	563,414		$	(33,516,921	)	$	231,859
Earnings per share
-Basic	$	(0.13	)	$	(0.001	)	$	(2.02	)	$	(0.02	)
-Diluted	$	(0.13	)	$	(0.001	)	$	(2.02	)	$	(0.02	)
Weighted average shares outstanding
-Basic		16,775,113			16,775,113			16,775,113			16,775,113
-Diluted		16,775,113			16,775,113			16,775,113			16,775,113

~~CHINA~~Table ~~ELECTRONICS~~of ~~HOLDINGS,~~Contents ~~INC.~~

~~CONSOLIDATED~~China ~~STATEMENTS~~Electronics OFHoldings, ~~CASH FLOWS~~Inc.

~~FOR~~Consolidated ~~THE~~Balance ~~NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012~~Sheets

~~(STATED~~As INof USMarch ~~DOLLARS)~~31, 2014 and December 31, 2013

	Nine Months Ended
	As of			As of
	September 30, 2013			September 30, 2012
	March 31,			December 31,
Net Loss	$	(33,910,906	)	$	(348,539	)
	2014			2013
Adjustments to reconcile net income to net cash from operations:
Assets	(Unaudited)			(Audited)
Bad debt provision		2,595,368			-
Current assets
Impairment loss for plant and equipment		268,677			-
Cash and cash equivalents	$	28,805		$	26,269
Impairment loss for long-term assets held for sale		30,640,293			-
Accounts receivable, net		2,623,552			1,099,118
Amortization and depreciation		287,819			483,199
Other receivable		3,560,591			3,544,942
Changes in operating assets and liabilities:
Inventory		3,027,926			5,449,341
(Increase)/decrease in accounts and other receivables		(6,877,070	)		571,234
Advance to suppliers		6,962,928			7,432,827
(Increase)/decrease in inventories		(8,565,093	)		(734,825	)
Prepaid expenses		113,601			226,204
(Increase)/decrease in advance to suppliers		15,187,186			2,543,477
Total current assets		16,317,403			17,778,701
(Increase)/decrease in prepaid expenses		(342,220	)		-
Non-current assets
Increase/(decrease) in accounts payables and accruals		9,113			(1,223,212	)
Property, plant and equipment, net		56,681			57,890
Increase/(decrease) in unearned revenue		(372,891	)		-
Security deposit		32,458			32,315
Net cash provided by/(used in) operating activities		(1,079,724	)		1,291,334
Total non-current assets		89,139			90,205
Cash flows from investing activities
Total Assets	$	16,406,542		$	17,868,906
Payments for purchases of plant and equipment		-			(69,236	)
Liabilities and Stockholders’ Equity
Payments for construction in progress		-			(2,336,662	)
Liabilities
Net cash used in investing activities		-			(2,405,898	)
Current liabilities
Cash flows from financing activities
Bank loans	$	1,298,301		$	-
Discontinued operation of subsidiary		(9,630	)		-
Accounts payable and accrued expenses		211,393			203,316
Proceeds from bank loans		1,609,477			1,580,000
Other payable		89,136			54,144
Repayments of bank loans		(1,609,477	)		-
Unearned revenue		67,245			-
Proceeds from related party loans		656,789			9,546
Total current liabilities		1,666,075			257,460
Net cash provided by financing activities		647,159			1,589,546
Total Liabilities	$	1,666,075		$	257,460
Effect of foreign currency translation on cash		489,794			7,313
Net increase of cash and cash equivalents		57,229			482,295
Cash and cash equivalents at beginning of periods		9,465			171,838
Cash and cash equivalents at end of periods	$	66,694		$	654,133
Supplementary cash flow information:
Interest received	$	472,485		$	-
Interest paid	$	124,211		$	46,818
Income tax paid	$	-		$	287

See Accompanying Notes to Consolidated Financial Statements.

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China Electronics Holdings, Inc.

Consolidated Balance Sheets

As of March 31, 2014 and December 31, 2013

	As of			As of
	March 31,			December 31,
	2014			2013
	(Unaudited)			(Audited)
Stockholders’ Equity
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2014 and December 31, 2013 respectively	$	-		$	-
Common stock, $0.0001 par value; 150,000,000 shares authorized; 16,775,113 shares issued and outstanding as of March 31, 2014 and December 31, 2013 respectively		1,678			1,678
Additional paid-in capital		15,341,710			15,341,710
Statutory reserve		3,849,684			3,849,684
Accumulated deficit		(9,739,997	)		(6,768,251	)
Accumulated other comprehensive income		5,287,392			5,186,625
Total Stockholders’ Equity		14,740,467			17,611,446

Total Liabilities and Stockholders’ Equity	$	16,406,542		$	17,868,906

See Accompanying Notes to Consolidated Financial Statements.

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China Electronics Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Income

For the three months ended March 31, 2014 and 2013

(Stated in US Dollars)

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31, 2013
Sales revenue
Revenue from exclusive franchise stores	$	3,754,949		$	3,909,069
Revenue from non-exclusive franchise stores		403,303			401,690
Revenue from company owned stores		286,350			1,193,501
Sales revenue		4,444,602			5,504,260
Cost of goods sold
Cost from exclusive franchise stores		3,405,206			3,584,331
Cost from non-exclusive franchise stores		538,040			368,957
Cost from company owned stores		365,894			1,067,230
Cost of goods sold		4,309,140			5,020,518
Gross profit		135,462			483,742

Operating expenses
Selling expenses		391,932			356,565
General and administrative expenses		175,689			459,888
Bad debt allowance for accounts receivable		1,245,764			-
Bad debt recoveries		(368,363	)		(80,318	)
Inventory loss of lower cost or fair market value		1,668,649			-
Total operating expenses		3,113,671			736,135
Operating loss		(2,978,209	)		(252,393	)

Other income/(expenses)
Other income		34,805			-
Other expense		-			(802	)
Interest income		32			261,791
Interest expense		(28,374	)		-
Total other income/(expenses)		6,463			260,989

Loss from continued operation before income taxes		(2,971,746	)		8,596
Provision for income taxes		-			-
Net income (loss)	$	(2,971,746	)	$	8,596
Net income (loss) attributable to China Electronics Holding, Inc.		(2,971,746	)		8,221
Net income (loss) attributable to minority interest		-			375

Other comprehensive income
Foreign currency adjustment		100,767			166,221
Comprehensive income	$	(2,870,979	)	$	174,816
Comprehensive income attributable to China Electronics Holding, Inc.		(2,870,979	)		174,134
Comprehensive income attributable to minority interest		-			682

Earnings per share
- Basic	$	(0.18	)	$	-
- Diluted	$	(0.18	)	$	-
Weighted average shares outstanding
- Basic		16,775,113			16,775,113
- Diluted		16,775,113			16,775,113

See Accompanying Notes to Consolidated Financial Statements.

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China Electronics Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

As of March 31, 2014 and December 31, 2013

									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 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	)		-
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		$	-

Balance at January 01, 2014		16,775,113	$	1,678	$	15,341,710	$	3,849,684	$	(6,768,251	)	$	5,186,625	$	17,611,446		$	-
Net income		-		-		-		-		(2,971,746	)		-		(2,971,746	)		-
Foreign currency translation adjustment		-		-		-		-		-			100,767		100,767			-
Balance at March 31, 2014		16,775,113	$	1,678	$	15,341,710	$	3,849,684	$	(9,739,997	)	$	5,287,392	$	14,740,467		$	-

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China Electronics Holdings, Inc.

Consolidated Statements of Cash Flows

For the three months ended March 31, 2014 and 2013

	Three Months			Three Months
	Ended			Ended
	March 31, 2014			March 31, 2013

Net income (loss)	$	(2,971,746	)	$	8,596
Adjustments to reconcile net income to net cash from operations:
Bad debt provision		1,245,764			-
Bad debt recovery		-			(80,318	)
Inventory loss of lower cost or fair market value		1,668,649			-
Amortization and depreciation		5,462			154,607
Changes in operating assets and liabilities:
Accounts receivable		(2,770,198	)		2,161,955
Other receivable		(15,649	)		477,613
Inventories		752,766			(1,654,090	)
Advance to suppliers		469,898			(2,356,844	)
Prepaid expenses		112,603			-
Accounts payables and accruals		43,070			10,272
Unearned revenue		67,245			1,409,418
Net cash provided by/(used in) operating activities		(1,392,136	)		131,208

Cash flows from investing activities
Payments for purchase of plant and equipment		(4,253	)		(805	)
Net cash used in investing activities		(4,253	)		(805	)

Cash flows from financing activities
Proceeds from bank loans		1,298,301			-
Proceeds from related party loans		-			42,751
Net cash provided by financing activities		1,298,301			42,751

Effect of foreign currency translation on cash		100,624			423

Net increase/(decrease) of cash and cash equivalents		2,536			173,577

Cash and cash equivalents at beginning of period		26,269			9,465

Cash and cash equivalents at end of period	$	28,805		$	183,042

Supplementary cash flow information:
Interest paid	$	28,374		$	47,222

See Accompanying Notes to the Consolidated Financial Statements.

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China Electronics Holdings, Inc.

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 ~~organized~~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. ~~CEH~~The ~~Nevada~~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 ~~its subsidiary~~ 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~~RMB 400, 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~~Shares were actually transferred from Guoying ~~Shareholders~~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 ~~its paid-in capital~~ to $2RMB 19,~~838~~302,~~653~~687 ~~in 2010~~ subsequent to the 2010 PIPE financing. The transaction was approved by Ministry of Commerce of Anhui Province and registered with Administration and Industry of Commerce of Lu An City.

On January 4, 2010, the Board of Directors of CEH Delaware adopted a board resolution and resolved that it iswas in the best interest of CEH Delaware to issue 13,213,268 CEH Delaware ~~shares~~Shares pursuant to a call option agreement, which ~~provides~~provided that Sherry Li iswas 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 ~~of CEH Delaware~~ to Sherry Li, the nominee shareholder on behalf of Mr. Hailong Liu who iswas 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 ~~Agreement~~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 ~~Agreements~~Agreement ~~provide~~provided that Ms. Sherry Li ~~shall~~should not vote or dispose of the respective portion of the shares of common stock without Mr. Liu’s prior written consent and iswas obligated to transfer Option Shares to Mr. Liu at nominal consideration of par value $0.001 per share ~~par value~~. The Voting Trust Agreements further ~~provides~~provided that, Sherry Li, the nominee shareholder, ~~has~~had no decision power to vote or dispose of the Option Shares without Mr. Liu’s consent.

~~Mr.~~Table ~~Hailong Liu indirectly controlled CEH Delaware on February 10, 2010 through the Call Option Agreement and Voting Trust Agreement, as~~ of ~~the~~Contents same date CEH Delaware issued 13, 213, 268 CEH Delaware Shares to Sherry Li, the nominee shareholder of Mr. Hailong Liu who is the nominee shareholder of former Guoying Shareholders in February 2010, as a result of the 2008 and 2009 Share Transfer Agreements.

~~The~~Mr. ~~2008~~Hailong ~~and~~Liu ~~2009~~indirectly ~~Share~~controlled ~~Transfer~~CEH ~~Transaction was~~Delaware ~~accounted~~on ~~for~~February as10, a2010 ~~reverse acquisition at historical costs since Guoying Shareholders obtained control of 96.6% of outstanding CEH Delaware Shares~~ through ~~Sherry~~the LiCall asOption ~~nominee~~Agreement ~~shareholder~~ and ~~Guoying~~Voting ~~management,~~Trust ~~Mr. Hailong Liu~~Agreement, ~~became~~as ~~the management~~ of ~~CEH Delaware. Accordingly,~~ the ~~merger~~same ofdate ~~Guoying into~~ CEH Delaware ~~was~~issued ~~recorded as a recapitalization of Guoying~~13,213,268 ~~with~~CEH ~~Guoying~~Delaware ~~being~~shares ~~treated~~to asSherry ~~the continuing entity~~Li. ~~The historical financial statements presented are the financial statements of Guoying.~~

The 2008 and 2009 Share ~~Exchange~~Transfer ~~between~~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 ~~CEHD~~Guoying ~~Nevada~~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.

On July 9, 2010, the Company entered into a Share Exchange Agreement, dated (the “Share Exchange Agreement”) with CEH Delaware and CEH Delaware Stockholders. Pursuant to the Share Exchange Agreement, on July 15, 2010, 10 CEH Delaware Stockholders transferred 100% of the outstanding shares of common stock and preferred stock and 100% of the warrants to purchase common stock of CEH Delaware held by them, in exchange for an aggregate of 13,785,902 newly issued shares of the Company’s Common Stock and warrants to purchase an aggregate of 1,628,570 shares of our Common Stock. The shares of the Company’s common stock acquired by the CEH Delaware Stockholders in such transactions constitute approximately 82.2% of the Company’s issued and outstanding Common Stock (including 68.9% owned by 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 shall have right and option to acquire 50% of Option Shares upon first filing of a quarterly report on Form 10-Q with the SEC on August 23, 2010 following the execution of the Share Exchange Agreement and 50% of the remaining Option Shares 2 years after such filing by August 23, 2012. The Voting Trust Agreements provide that Ms. Sherry Li shall not vote or dispose of the respective portion of the shares of common stock without Mr. Liu’s prior written consent and is obligated to transfer Option Shares to Mr. Liu at nominal consideration of $0.001 per share par value. The Voting Trust Agreements further provides that, Sherry Li, the nominee shareholder, has no decision power to vote or dispose of the Option Shares without Mr. Liu’s consent. 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 our control with a shareholder of CEH Delaware owning approximately 82.2% of issued and outstanding shares of the Company’s common stock, including the shares of common stock sold to PIPE investors pursuant to the Subscription Agreement, (ii) CEH Delaware becoming our wholly-owned subsidiary, and (iii) appointment of Mr. Hailong Liu as the Company’s sole director, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer.

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

2008 and 2010 Bridge Financings

On January 30, 2008, CEH Delaware consummated a bridge financing in amount of $275,000 made pursuant to a Securities Purchase Agreement with a bridge investor, pursuant to which it sold 343,750 Series A Convertible Preferred Stock par value $0.00001 per share and ~~common~~Warrants ~~stock Warrant~~ E to purchase one million shares of common stock (“CEH Delaware Shares”) at $1 per share. On January 5, 2010, CEH Delaware consummated a second bridge financing in amount of $550,000 made pursuant to Securities Purchase Agreements with four bridge investors (together collectively referred to as “Bridge Investors”), pursuant to which it sold 314,285 shares of CEH Delaware ~~Shares~~shares, 314,285 common stock underlying ~~Warrant~~Warrants A and 314,285 common stock underlying ~~Warrant~~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 ~~are~~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.

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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.

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 ~~Warrant~~Warrants”) and a warrant to purchase one share of common stock at an exercise price of $4.75 per share (a “Series D ~~Warrant~~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~~representation 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.

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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 ~~certain~~ accounts receivable amounts against the allowance for doubtful accounts. On the contrary, if ~~payments~~payment ~~are~~is collected in subsequent period, management will reverse the doubtful accounts. Subsequent cash ~~recoveries~~recovery ~~are~~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 ~~September~~March 3031, ~~2013~~2014 and December 31, ~~2012~~2013 consisted of:

Description		AtAs ~~September~~of 30March 31, ~~2013~~2014				AtAs of December 31, ~~2012~~2013
Electronic products		$	23,~~345~~027,~~553~~926			$	~~956~~5,~~779~~449,341

~~Advances~~Advance

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

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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

Intangible ~~assets~~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 1714 – 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 ~~September~~December 3031, 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 $~~268~~271,~~677~~256 impairment loss for its plant and equipment. Simultaneously, the Company also recorded $3031,~~640~~134,~~293~~887 impairment loss for long-term assets held for sale ~~for the nine months ended September 30, 2013~~. See Note 1714 – Discontinued Operations.

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.

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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 $5767,~~941~~245 and $~~430,833~~0 as of ~~September~~March 3031, ~~2013~~2014 and December 31, ~~2012,~~2013 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 ~~more~~less than RMB 7,500 (approximately $1,200) for both ~~its~~ income ~~tax~~taxes and ~~value added taxes~~VAT.

Revenue Recognition -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 ~~exclusive~~co-operative ~~franchise~~ stores. As such, total franchise fees for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013 were $0.

Cost of Goods Sold

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

Selling Expenses

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

General and Administrative Expenses

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

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Shipping and Handling Costs

ASC 605-45-20 (formerly EITF No. 00-10, “Accounting for Shipping and Handling Fees and Costs”) establishes standards for the classification of shipping and handling costs. Shipping and Handling costs include shipping and handling costs related to shipping and handling ~~our~~the Company's products from warehouse ~~our warehouses~~ to buyers’ designated locations at ~~our~~ exclusive or non-exclusive franchise stores, and company owned stores (collectively referred to as the “Stores”). Shipping and handling costs that are billed to Stores are classified as revenue, while those costs not billed to Stores are classified as selling expenses. Shipping and handling costs billed to customers and included within revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013 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 ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013 were $~~317~~78,~~722~~846 and $~~645~~75,~~185,~~800 respectively.

Advertising Costs

The Company ~~expenses~~records advertising costs as incurred. Advertising costs in the amounts of $1123,~~108,263~~429 and $8451,~~210~~926 were included in selling expenses for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012,~~2013 respectively.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740 (formerly SFAS 109, “Accounting for Income Taxes.”) Under the asset and liability method as required by ASC 740, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under ASC 740, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. As of ~~September~~March 3031, ~~2013~~2014 and December 31, ~~2012~~2013, the Company did not have any deferred tax assets or liabilities, and as such, no valuation allowances were recorded at ~~September~~March 3031, ~~2013~~2014 and December 31, ~~2012~~2013.

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

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

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

Restrictions on Transfer of Assets Out of the PRC

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

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~~Foreign~~Table ~~currency~~of ~~translation~~Contents

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

3/31/2014

~~9/30/2013~~

12/31/2013

3/31/2013

~~12/31/2012~~

~~6/30/2012~~

Period/year end RMB: US$ exchange rate

6.1364

6.3011

6.3197

Year end RMB: US$ exchange rate

6.1619

6.1891

6.2702

Average RMB: US$ exchange rate

6.1156

6.~~2132~~1145

6.2753

~~6.3034~~

~~6.3257~~

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.

Earnings ~~per~~Per ~~share~~Share

The Company computes earnings per share (“EPS”) in accordance with FASB ASC 260 “Earnings per share”. ~~SFAS~~FASB ~~No.~~ASC ~~128~~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.

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.

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.

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.

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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~~and ~~cash,~~ bank ~~notes receivable, and debt obligations~~loans. Bank ~~notes~~loans ~~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.

The following table presents the Company’s financial assets and liabilities in accordance with the hierarchy set forth in ASC 820-10:

	Quoted in		Significant
	Active Markets		Other		Significant
	For Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
As of	(Level 1)		(Level 2)		(Level 3)		Total
At September 30, 2013
March 31, 2014
Financial assets:
Cash	$	6628,~~694~~805	$	-	$	-	$	6628,~~694~~805
Total financial assets	$	6628,~~694~~805	$	-	$	-	$	6628,~~694~~805
Financial Liabilities:
Total financial liabilities	$	-	$	-	$	-	$	-
Bank loan	$	1,298,301	$	-	$	-	$	1,298,301
Total financial liabilities	$	1,298,301	$	-	$	-	$	1,298,301

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 SC Coke’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 nine months ended September 30, 2013.17

13Table of Contents

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

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

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 three months ended March 31, 2014.

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 ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013.

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 ~~profit~~statement orof ~~loss~~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 $5322,~~247~~158 and $6034,~~813~~678 for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012,~~2013 respectively.

Subsequent ~~events~~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 ~~does~~concludes ~~not~~that ~~identify~~there ais no subsequent ~~event~~events that would require adjustments or disclosure to the consolidated financial statements as of and for the three months ended March 31, 2014.

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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, 2013, 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.

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

3.	Accounts Receivable

Accounts receivable	AtAs ~~September~~of March 31, ~~2013~~2014			AtAs of December 31, ~~2012~~2013
Exclusive franchise stores	$	84,~~659~~760,~~266~~385		$	2,~~693~~633,~~729~~882
Non-exclusive franchise stores		~~827~~476,~~111~~870			-200,470
Accounts receivable, gross		95,~~486~~237,~~377~~255			2,~~693~~834,~~729~~352
Less: allowance for doubtful accounts		(2,~~627~~613,~~850~~703	)		(~~362~~1,~~016~~735,234	)
Accounts receivable, net	$	62,~~858~~623,~~527~~552		$	21,~~331~~099,~~713~~118
Allowance for doubtful accounts	AtAs ~~September~~of March 31, ~~2013~~2014			AtAs of December 31, ~~2012~~2013
Beginning balance	$	(~~362~~1,~~016~~735,234	)	$	(2362,~~198,376~~016	)
Allowance provided		(21,~~595~~245,~~368~~764	)		(431,~~288~~756,405	)
Recovery		~~363~~368,~~026~~363			1368,~~897,648~~886
Foreign currency adjustment		(331,~~492~~067	)		-14,301
Ending Balance	$	(2,~~627~~613,~~850~~703	)	$	(~~362~~1,~~016~~735,234	)

Accounts receivable aging analysis	At September 30, 2013		At December 31, 2012
1-30 Days	$	1,588,337	$	2,084,751
30-60 Days		2,981,030		-
61-90 Days		2,289,160		246,962
Over 90 Days		-		-
Total	$	6,858,527	$	2,331,713

4. Other Receivables

Description	Note	At September 30, 2013			At December 31, 2012
Hongrong Real Estate Company	(1)	$	2,276,579		$	2,242,185
Mr. Li Xiaoyu (Buyer of Opto-Electronics)	(2)		3,575,386			-
Others			32,593			593,850
Subtotal			5,884,558			2,836,035
Less: allowance	(1)		(2,276,579	)		(2,242,185	)
Total		$	3,607,979		$	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. Certain other loans receivable amounts are charged off against the allowance after a sufficient period of collection efforts. Subsequent loan repayment from Hongrong to the Company will be recognized as reduction of operating expense in the period when it occurs.

(2). See Note 17 - Discontinued Operations

5. Related Party Receivable and Payable

Related Party Receivable	Note	At September 30, 2013			At December 31, 2012
Due from Mr. Hailong Liu	(1)	$	-		$	642,000
Due from Shenyuan	(2)		1,140,734			1,123,500
Subtotal			1,140,734			1,765,500
Less: allowance			(1,140,734	)		(1,123,500	)
Related party receivable, net		$	-		$	642,000

Allowance for Receivable	At September 30, 2013			At December 31, 2012
Beginning balance	$	(1,123,500	)	$	-
Allowance provided		-			(1,123,500	)
Recovery		-			-
Foreign currency adjustment		(17,234	)		-
Ending Balance	$	(1,140,734	)	$	(1,123,500	)

Related Party Payable		Note			At September 30, 2013				At December 31, 2012
Yumin Village		(2)			$	978,945			$	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.

(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. The Company will make payment of the unpaid rent of $964,156 (RMB 6,007,200) of the 5,006 Chinese acres of land for year 2012 due to Yumin Village from the receivable due from Senyuan.

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. Simultaneously, management pursued Shenyuan to repay the loans immediately. As of September 30, 2013, Shenyuan has returned $201,152 to the Company which has been recorded as reduction of operating expense in the consolidated statements of operations and comprehensive income.

6. Advances

A. Advances to Suppliers - Short Term

The current advance to suppliers amounted to $2,345,553 and $17,532,739 as of September 30, 2013 and December 31, 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 the full amount of following entire year purchase is mandatory. As the Company agreed to deposit advances to suppliers for a substantial amount of the purchase orders for 2013 at the end of year 2012 and the beginning of 2013 in order to be contracted as distributor to certain top domestic brands of electronic appliances in China such as Ge Li, a top domestic brand in China. Simultaneously, the Company purchased insurance to secure its advances.

B. Advances - Long Term

Long term advances related to construction amounted to $0 and $13,954,191 as of September 30, 2013 and December 31, 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

At September 30, 2013			Accumulated
Category of Asset	Cost		Depreciation			Net
Vehicle	$	75,057	$	(32,572	)	$	42,485
Furniture and equipment		45,334		(24,219	)		(21,115	)
	$	120,391	$	(56,791	)	$	63,600
At
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 $16,216 and $10,842 for the nine months ended September 30, 2013 and 2012 respectively.

8. Intangible Assets

At
September 30, 2013			Accumulated
Category of Asset	Cost		Amortization			Net
Land use rights	$	-	$	-		$	-
Trade mark		1,369		(1,369	)		-
	$	1,369	$	(1,369	)	$	-
At
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

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 $271,603 and $472,357 for the nine months ended September 30, 2013 and 2012, respectively.

9. Bank Loans

					At		At
	Interest Rate				September 30,		December 31,
Name of Creditor	Per Annum			Maturity	2013		2012
Rural Credit Cooperatives of Lu’an		10.08	%	4/27/2014	$	814,810	$	802,500
Rural Credit Cooperatives of Lu’an		11.70	%	8/17/2013		-		802,500
Rural Credit Cooperatives of Lu’an		9.00	%	8/27/2014		814,810		-
					$	1,629,620	$	1,605,000

(1) The loan from Rural Credit Cooperatives of Lu’an is secured by the Company’s land use rights. The Company disposed the land use rights to Opto-Electronics on July 28, 2013. Opto-Electronics allows the Company to transfer the land certificate after the loan is due and repaid in 2014. See Note 17 – Discontinued Operations.

(2) The other loan from Rural Credit Cooperative of Lu’an is 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	At September 30, 2013		At December 31, 2012
Accrued payroll	$	76,204	$	79,576
Claimed unpaid legal fee in dispute		145,308		145,308
Total	$	221,512	$	224,884

11. Other Payables

Description	At September 30, 2013		At December 31, 2012
HaiFeng Trading Company	$	-	$	3,274,200
Others		241,302		237,845
Total	$	241,302	$	3,512,045

~~12.~~Table ~~Capitalization~~of Contents

The Company’s outstanding securities at September 30, 2013 are shown in the following table:

Accounts receivable aging analysis	As of March 31, 2014		As of December 31, 2013
1-30 Days	$	663,139	$	718,809
30-60 Days		1,174,323		190,477
61-90 Days		786,090		189,832
Over 90 Days		-		-
Total	$	2,623,552	$	1,099,118

	Authorized Shares		Shares issued and outstanding
Common Stock		150,000,000		16,775,113
Preferred Stock		50,000,000		-

4.	Other Receivables

	Strike Price		Contractual Life		Expiration Date		Shares issued and outstanding				Weighted Average Fair Value
Description	Note			As of March 31, 2014				As of December 31, 2013
Series E Warrants	$	0.25	5 years		07/13/2015			1,000,000			$	4.12
Hongrong Real Estate Company		(1)		$	2,267,158			$	2,257,194
Series F(i) Warrants	$	1.75	5 years		07/13/2015			31,429			$	2.64
Mr. Li Xiaoyu (Buyer of Opto-Electronics)		(2)			3,560,590				3,544,942
Series F(ii) Warrants	$	2.64	5 years		07/13/2015			94,329			$	1.77
Subtotal					5,827,748				5,802,136
Series F(iii) Warrants	$	2.64	5 years		07/13/2015			104,592			$	1.77
Less: allowance		(1)			(2,267,158	)			(2,257,194	)
Total				$	3,560,590			$	3,544,942

(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 14 - Discontinued Operations

5.	Advance to Suppliers

The current advance to suppliers amounted $6,962,928 and $7,432,827 as of March 31, 2014 and December 31, 2013 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.

6.	Property, Plant and Equipment

As of March 31, 2014			Accumulated
Category of Asset	Cost		Depreciation		Net
Vehicle	$	74,747	$	39,541	$	35,205
Furniture and equipment		48,872		27,396		21,476
	$	123,619	$	66,937	$	56,681

Table of Contents

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

Depreciation expenses were $5,462 and $20,690 for the three months ended March 31, 2014 and 2013 respectively.

7.	Bank Loans

					As of		As of
	Interest Rate				March 31,		December 31,
Name of Creditor	Per Annum			Maturity	2014		2013
Rural Credit Cooperatives of Lu’an		10.08	%	1/3/2015	$	1,298,301	$	-

The Company entered into a loan agreement with Rural Credit Cooperative of Lu’an in amount of $1,298,301 at interest rate of 10.08% per annum due by January 3, 2015. Such loan is guaranteed by Lu'an Senyuan Ecological Park Ltd. and secured by the forestry plants grown on its land. Rural Credit Cooperative of Lu’an does not implement restrictive covenants such as minimum bank balance, level of working capital, or net income requirement on above loan.

8.	Accounts Payable and Accrued Expenses

Description	As of March 31, 2014		As of December 31, 2013
Accrued payroll	$	66,085	$	58,008
Claimed unpaid legal fee in dispute		145,308		145,308
Total	$	211,393	$	203,316

9.	Capitalization

The Company’s outstanding securities at March 31, 2014 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

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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 ~~September~~March 3031, ~~2013~~2014.

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 ~~September~~March 3031, ~~2013~~2014.

Warrants

Total 1,230,350 warrants, including 1,000,000 series warrants E and 230,350 series warrants F, were outstanding at ~~September~~March 3031, ~~2013~~2014. ~~Total~~ 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	25.00

1310. 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~~taxes ~~purposes~~purpose. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. ~~Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of September 30, 2013.~~ Accordingly, the Company has no ~~net~~ deferred tax assets.

Effective tax rates were approximately 0% and 0% for the ~~six~~three months ~~periods~~ ended ~~September~~March 3031, ~~2013~~2014 and ~~2012,~~2013 respectively. Central government ~~and local government~~ tax benefits, which have been granted to Guoying, will expire on December 31, ~~2013~~2017 and ~~2016~~local government tax benefits will expire on December 31, ~~respectively~~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.

20The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31, 2014 and 2013:

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the nine months ended September 30, 2013 and 2012:

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31, 2013
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	%

	September 30, 2013			September 30, 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~~Table ~~provision for income taxes from continuing operations on income consists~~ of ~~the~~Contents ~~following for the nine months ended September 30, 2013 and 2012:~~

	September 30, 2013		September 30, 2012
US current income tax expense	$	-	$	-
Federal		-		-
State		-		-
PRC current income tax expense		-		287
Total provision for income tax	$	-	$	287

The provision for income taxes from continuing operations on income consists of the following for the three months ended March 31, 2014 and 2013:

	Three Months Ended March 31, 2014		Three Months Ended March 31, 2013
US current income tax expense	$	-	$	-
Federal		-		-
State		-		-
PRC current income tax expense		-		-
Total provision for income tax	$	-	$	-

United States of America

As of ~~September~~March 3031, ~~2013~~2014, the Company in the United States had approximately $21,~~378~~404,~~190~~996 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. ~~The~~As ~~deferred~~of ~~tax~~March ~~assets~~31, ~~for~~2014 ~~the~~and ~~United~~December ~~States entities at September 30~~31, 2013, ~~consists~~the ~~mainly~~Company ofdid ~~net~~not ~~operating~~have ~~loss~~any ~~incurred~~deferred intax ~~2011~~assets ~~and~~or ~~were~~liabilities, ~~fully~~and ~~reserved~~ as ~~the~~such, ~~management~~no ~~believes~~valuation itallowances iswere ~~more~~recorded ~~likely~~at ~~than~~March ~~not~~31, ~~that~~2014 ~~these~~and ~~assets~~December ~~will~~31, ~~not be realized in the future~~2013.

The following table sets forth the significant components of the net deferred tax assets for ~~operation~~operations in the US as of ~~September~~March 3031, ~~2013~~2014 and December 31, ~~2012~~2013.

	At September 30, 2013			At December 31, 2012
	As of March 31, 2014			As of December 31, 2013
Net operation loss carry forward	$	(21,~~378~~404,~~190~~996	)	$	(21,~~378~~404,~~190~~996	)
Total deferred tax assets		~~784,803~~-			~~784,803~~-
Less: valuation allowance		~~(784,803~~-	)		~~(784,803~~-	)
Net deferred tax assets		-			-
Change in valuation allowance	$	-		$	-

People’s Republic of China (PRC)

Under the Income Tax Laws of the PRC, the Company’s subsidiaries are generally subject to an Enterprise Income Tax (EIT) at a standard rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The State Tax Bureau of Lu’An City, Anhui province issued an income tax and VAT benefit approval to Guoying on September 2, 2007 providing that Guoying iswas ~~subject~~eligible to ~~income~~enjoy ~~tax~~a ~~and VAT benefit treatment of~~ reduced ~~rate of RMB 7,500~~ tax ~~payment~~rate ~~per year (including income tax and VAT)~~ valid from October 1, 2007 until December 31, 2010. ~~The~~On ~~State~~January ~~Tax~~10, ~~Bureau~~2011, ~~of Lu’an City has renewed~~ the ~~tax benefit approval. Guoying will be subject to the tax benefit until December 31, 2016. The~~ State Tax Bureau of Lu’Anan City, ~~Anhui~~renewed ~~province~~the ~~issued~~term anof ~~income~~ tax benefit approval to Guoying on December 10, 2011 providing that Guoying is subject to income tax and VAT benefit treatment of reduced rate of RMB 7,500 tax payment per year (including income tax and VAT) valid from December 1, 2011 until December 31, 2013. However, according to the approval, Guoying has 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 ~~RMB7,~~RMB 7,500 per year that changes ~~every year~~ to cover all types of taxes including income taxes and VAT. ~~The~~ ~~income~~There were no significant book and tax ~~expenses~~basis ~~for~~differences. On January 1, 2014, the ~~nine~~State ~~months~~Tax ~~ended~~Bureau ~~September~~of ~~30,~~Lu'an ~~2013~~City ~~and~~renewed ~~2012~~the ~~were~~term $0of ~~and~~tax ~~$288,~~benefit ~~respectively~~approval. ~~There~~ ~~were~~Pursuant noto ~~significant~~the ~~book~~renewal ~~and~~approval, Guoying is continuing to enjoy the same income tax ~~basis~~and ~~differences~~VAT benefits until December 31, 2017.

2123

~~14.~~Table ~~Concentration~~ of ~~Credit~~Contents ~~Risks, Uncertainties, Contingencies, and Commitments~~

11.	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.

For the ~~nine~~three months ~~periods~~ ended ~~September~~March 3031, ~~2013~~2014, 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 4790.8537% of total purchase:

Suppliers	~~Nine~~Three Months Ended ~~September~~March 3031, ~~2013~~2014		%
Shenzhen Skyworth - RGB Electronics Co., Ltd.	$	3,184,991		11.60	%
Lu’an Jinan District Shenfa Electronics Co., Ltd.	$	917,990		26.15	%
Lu’an ZhongXing Trading Co., Ltd.		5,368,775		19.55	%
Lu'an Future Star Co., Ltd.		1,713,675		48.81	%
Lu’an Jinan District Shenfa Electronics Co., Ltd.		4,583,702		16.69	%
Shanghai Shangling Electronics Manufacture Co., Ltd. - Hefei Branch		540,947		15.41	%
	$	133,~~137~~172,~~468~~612		4790.8537	%

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 ~~September~~March 3031, ~~2013~~2014 and iswas 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 $6935,~~363~~338 and $3940,~~859~~384 for the three months ended ~~Sptember~~March 3031, ~~2013~~ ~~and~~2014 ~~2012 respectively. The Company incurred rent expenses of $144,086~~ and ~~$119,882 for the nine months ended September 30,~~ 2013 ~~and 2012,~~ respectively.

~~The lease expenses for the next five years are estimated to be as follows:~~ 24

2014	$	95,329
2015		11,365
2016		-
2017		-
2018		-
	$	106,694

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

Three Months Ended March 31,
2015	$	141,090
2016		117,732
2017		117,732
	$	376,554

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 ~~meters~~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. This loan was paid back by the Company on December 21, 2013. 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 ~~rights~~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 ~~right~~rights certificate for the rest of land. The Company ~~sold~~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 ~~reamining~~remaining $3.7 million. See Note 1714 – Discontinued Operations.

1512. 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 for the three and nine months periods ended September 30, 2013 and 2012, and certain period-end balance sheet information as of September 30, 2013 and December 31, 2012, respectively.

	Three Months Ended					Nine Months Ended
	September 30, 2013		September 30, 2012			September 30, 2013		September 30, 2012
Revenues from unaffiliated customers:
Exclusive franchise stores	$	7,187,992	$	8,013,254		$	16,583,690	$	26,899,816
Non-exclusive stores		666,932		4,657,161			1,515,606		14,166,076
Company owned stores		501,950		1,754,835			2,658,686		3,431,983
Consolidated		8,356,874		14,425,250			20,757,982		44,497,875
Gross Profit:
Exclusive franchise stores		580,892		667,119			1,355,367		1,958,599
Non-exclusive stores		54,562		386,902			124,208		1,028,117
Company owned stores		42,275		190,403			262,170		339,108
Consolidated		677,729		1,244,424			1,741,745		3,325,824
Depreciation and amortization:
Exclusive franchise stores
Non-exclusive stores
Company owned stores
Corporate		6,994		161,791			287,819		483,199
Consolidated		6,994		161,791			287,819		483,199
Capital expenditures:
Exclusive franchise stores		-		-			-		-
Non-exclusive stores		-		-			-		-
Company owned stores		-		-			-		-
Corporate		-		(4,650,226	)		-		2,405,898
Consolidated	$	-	$	(4,650,226	)	$	-	$	2,405,898

	At September 30, 2013		At December 31, 2012
Identified Assets:
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate		22,806,445		59,940,697
Consolidated	$	22,806,445	$	59,940,697

16. Earnings Per Share

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

	Three Months Ended						Nine Months Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Net loss	$	(2,249,161	)	$	(10,034	)	$	(33,910,906	)	$	(348,539	)
Original Shares of Common Stock		16,775,113			16,775,113			16,775,113			16,775,113
New Issuance of Common Stock		-			-			-			-
Basic Weighted Average Shares Outstanding		16,775,113			16,775,113			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			16,775,113			16,775,113
Earnings Per Share
- Basic	$	(0.13	)	$	(0.001	)	$	(2.02	)	$	(0.02	)
- Diluted	$	(0.13	)	$	(0.001	)	$	(2.02	)	$	(0.02	)
Weighted Average Shares Outstanding
- Basic		16,775,113			16,775,113			16,775,113			16,775,113
- Diluted		16,775,113			16,775,113			16,775,113			16,775,113

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 its 99% ownership interest in its subsidiary Opto-Electronics for total consideration of $962,224 (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 operation and comprehensive income for the nine months ended September 30, 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	$	962,224	$	962,224	$	-

The following tabulation summarizes the operation results of Opto-Electronics for the period ended June 29, 2013, which was also accounted as loss from discontinued operations, net of tax in the consolidated statements of operation and comprehensive income.

	Period Ended
	June 29, 2013
Revenue	$	-
Cost of revenue		-
Gross profit		-
Operating expenses		-
Operating income		-
Other expense		(8	)
Earnings before tax		(8	)
Provision for income tax		-
Net income	$	(8	)

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~~(2) In~~The ~~order~~following totable ~~improve~~presents its cash flows from operations and working capital, the Company decided to redeploy its capital to meet requirements of its business plan. On July 28, 2013, the Company through its indirectly wholly owned subsidiary Guoying executed an assets 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 $3,239,810 (RMB 20,000,000). Three installments in the amounts of: a) ~~$809,952~~summary ~~(RMB 5,000,000), b) $1,619,906 (RMB 10,000,000) and c) $809,952 (RMB 5,000,000) are due by the ends~~ of ~~December~~operating ~~31,~~information ~~2013, 2014~~ and ~~2015, respectively. In the event that Opto-Electronics does not consummate the payments, Opto-Electronics will be penalized 0.02% of the outstanding~~ balance ~~monthly.~~sheet information:

The land use rights acquired through Pingqiao Industrial Park in Lu’an City were re-appraised by an independent appraisal firm Luan Shiji Land Price Evaluation Consultantive Co., Ltd. on April 24, 2013. The appraisal firm concluded the fair value of the 38,449 square meters portion of the land that the Company has 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 was $1,774,722 (RMB 11,073,378). The appraisal firm further concluded that pursuant to the Sales Agreement, Opto-Electronics will carry a contractual obligation to negotiate with the Yu An government for purchase price to be paid to the Company to obtain the land use rights certificate of the remaining126, 534 square meters of Pingqiao land.

	Three Months Ended March 31, 2014			Three Months Ended March 31,2013
Revenues from unaffiliated customers:
Exclusive franchise stores	$	3,754,949		$	3,909,069
Non-exclusive stores		403,303			401,690
Company owned stores		286,350			1,193,501
Consolidated		4,444,602			5,504,260
Gross Profit:
Exclusive franchise stores		349,743			324,738
Non-exclusive stores		(134,737	)		32,733
Company owned stores		(79,544	)		126,271
Consolidated		135,462			483,742

Depreciation and amortization:
Exclusive franchise stores		-			-
Non-exclusive stores		-			-
Company owned stores		-			-
Corporate		5,462			154,607
Consolidated		5,462			154,607

Capital expenditures:
Exclusive franchise stores		-			-
Non-exclusive stores		-			-
Company owned stores		-			-
Corporate		-			805
Consolidated		-			805

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 center which were still under construction as a component of discontinued operation. 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 as of June 30, 2013. The long-term assets held for sale includes: a) construction in progress, b) advance for construction of property and equipment, and c) land use rights the Company acquired through Pingqiao Industrial Park in Lu’an City.

	As of March 31, 2014		As of December 31, 2013
Identified Assets:
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate		16,406,542		17,868,906
Consolidated	$	16,406,542	$	17,868,906

The Company has assessed its long-term assets held for sale and determined that write-down was necessary because the sales price of the long-term assets held for sale was significant less than its carrying value13. ~~Therefore,~~Earnings asPer of June 30, 2013, the Company has written down the long-term assets held for sale to $3,239,810 (RMB 20,000,000), the same value as sales price in the consolidated balance sheets and has recorded $30,511,118 impairment loss in the consolidated statements of operations and comprehensive income for the six months ended June 30, 2013. As of September 30, 2013, the Company has classified the long-term assets held for sale as receivable from Buyer of Opto-Electronics because the assets associated with the logistics and transportation centers has been disposed on July 28, 2013.Share

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

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013

Net income (loss)	$	(2,971,746	)	$	8,596
Net income (loss) attributable to China Electronics Holding, Inc.		(2,971,746	)		8,221
Net income (loss) attributable to minority interest		-			375

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

Earnings Per Share
- Basic	$	(0.18	)	$	-
- Diluted	$	(0.18	)	$	-

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

~~The~~Table ~~following tabulation presents the calculation~~ of ~~the~~Contents ~~difference between the sales price and the carrying value of the long-term assets held for sale:~~

	At September 30, 2013
Land use rights	$	15,173,948
Construction in progress		8,228,650
Advance for construction of plant and equipment		10,496,935
		33,899,533
Less: sales price		(3,259,240	)
Impairment loss	$	(30,640,293	)

14.	Discontinued Operations

18(1) On June 29, 2013, the Company through its indirectly wholly owned subsidiary Guoying executed share transfer agreement (the “Transfer Agreement”) with Mr. ~~Going~~Li ~~Concern~~Xiaoyu (“Buyer of Opto-Electronics”) to sell assets and ownership of its subsidiary Opto-Electronics for total consideration of RMB 5,940,000 (approximately $969,479). 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 ~~accompanying~~following ~~consolidated~~tabulation ~~financial~~presents ~~statements have been prepared assuming that~~ the ~~Company~~calculation ~~will continue as a going concern. As~~ of ~~September 30, 2013,~~ the ~~Company has an accumulated deficit of $4,300,936 because the Company continued to incur operating losses over the past several periods and has an impairment loss of $33,910,906 for the~~ disposal of ~~long-term assets held for sales for~~ the ~~nine~~subsidiary ~~months ended September 30, 2013.~~Opto-Electronics:

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.

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

The ~~accompanying~~following ~~consolidated~~tabulation ~~financial~~summarizes ~~statements have been prepared in conformity with accounting principles generally accepted in~~ the ~~United~~operation ~~States~~results of ~~America~~Opto-Electronics, which ~~contemplate~~was ~~continuation~~accounted ~~of the Company~~ as adiscontinued ~~going~~operation ~~concern.~~for ~~The~~the ~~consolidated~~year ~~financial~~ended ~~statements~~December do31, ~~not~~2013 ~~include~~in ~~any adjustments relating to~~ the ~~recoverability~~consolidated ~~and~~statements ~~classification~~ of ~~recorded~~operations ~~asset amounts or the amounts~~ and ~~classification~~comprehensive ~~of liabilities that could result from the outcome of this uncertainty~~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:	$	-

~~ITEM~~Table 2.of ~~MANAGEMENT’S~~Contents ~~DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

~~The~~(2) ~~following~~In ~~discussion~~order ~~and~~to ~~analysis~~improve ofits ~~financial~~cash ~~condition~~flows from operations and ~~results~~working ofcapital, ~~operations~~the ~~relates~~Company decided to ~~the~~redeploy ~~operations~~its ~~and~~capital ~~financial~~to ~~condition~~meet ~~reported~~the inrequirements ~~the~~of ~~unaudited~~its ~~condensed~~business ~~consolidated~~plan. ~~financial~~In ~~statements~~accordance ofwith ~~the~~SFAS ~~Company~~No. 144 (ASC 360-10), “Accounting for the ~~nine~~Impairment ~~months~~or ~~ended~~Disposal ~~September~~of ~~30,~~Long-lived ~~2013~~Assets” ~~and~~(“SFAS ~~2012~~144”), ~~and~~the ~~should~~Company beclassified ~~read~~its inlogistics ~~conjunction~~and ~~with~~transportation ~~such~~centers, ~~financial~~which ~~statements~~were ~~and~~still ~~related~~under ~~notes~~construction, ~~included~~as ina ~~this~~component ~~report. Those~~of ~~statements~~discontinued inoperations ~~the~~on ~~following~~June ~~discussion~~30, ~~that~~2013. ~~are~~Accordingly, ~~not~~the ~~historical~~assets inassociated ~~nature~~with ~~should~~the belogistics ~~considered~~and totransportation becenters ~~forward~~have ~~looking~~been ~~statements~~classified ~~that~~as ~~are~~long-term ~~inherently~~assets ~~uncertain.~~held ~~Actual~~for ~~results~~sale ~~and~~in the ~~timing~~consolidated ofbalance ~~the~~sheets. ~~events~~The ~~may~~long-term ~~differ~~assets ~~materially~~held ~~from~~for ~~those~~sale ~~contained~~included: ina) ~~these~~construction ~~forward~~in ~~looking~~progress, ~~statements~~b) ~~due~~advances tofor athe ~~number~~construction of ~~factors,~~property ~~including~~and ~~those~~equipment, ~~discussed~~and inc) ~~the~~land ~~“Forward-Looking~~use ~~Statements”~~rights ~~set~~the ~~forth~~Company ~~elsewhere~~acquired inthrough ~~this~~Pingqiao ~~Quarterly~~Industrial ~~Report~~Park onin ~~Form~~Lu’an ~~10-Q~~City.

~~Overview~~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 company received 990,000 RMB paid from Mr. Li Xiaoyu on May 16, 2014, with the rest being deferred and to be paid continuously in the future.

~~China~~The ~~Electronic~~Company’s ~~Holdings,~~business ~~Inc~~strategy ~~(“CEH~~has ~~Delaware”)~~been ~~was~~to ~~organized~~become ~~on November 15, 2007 in Delaware as~~ a ~~development~~significant ~~stage~~retailer ~~company.~~and ~~China~~wholesaler ~~Electronics~~of ~~Holdings,~~consumer ~~Inc.~~electronics ~~(“CEHD Nevada” or the “Company”), formerly named Buyonate, Inc.~~ and ~~the~~appliances ~~public~~to ~~company,~~rural ~~was~~markets ~~incorporated~~ in ~~the~~China ~~State~~with ofa ~~Nevada~~goal onof ~~July~~having 9,a ~~2007.~~national ~~Lu’an~~distribution ~~Guoying~~network ~~Electronic~~throughout ~~Sales Co~~China., ~~Ltd.,~~The aCompany’s ~~domestic~~decision ~~PRC corporation, (“Guoying”) was established on January 4, 2002~~ to ~~engage~~discontinue ~~in wholesale~~ and ~~retail~~sell ofits ~~electronics~~Opto-Electronics ~~consumer~~subsidiary ~~products~~and toits ~~rural~~logistics ~~areas~~business inon ~~An Hui province. Mr. Hailong Liu is~~ the ~~CEO~~Pingqiao ~~and~~land ~~Chairman~~reflects ofits ~~Guoying.~~belief ~~CEH~~that: a) ~~Delaware~~The ~~owns~~industry ~~100% equity interest~~ in ~~CEH Nevada~~ which ~~owns~~Opto-Electronics ~~100%~~was ~~equity~~to ~~interest~~compete inhas ~~Guoying.~~become ~~Mr.~~more ~~Hailong~~competitive ~~Liu is the CEO~~ and ~~Chairman~~less ofprofitable; ~~Guoying.~~b) Inthe ~~August~~Company ~~2012,~~would ~~Guoying~~like ~~and~~to ~~Mr.~~continue ~~Hailing~~using ~~Liu~~its ~~contributed~~working ~~$945,054 and $9,546, representing 99% and 1% registered~~ capital ~~respective,~~ to ~~establish~~focus ~~Lu’an~~on ~~Guoying~~developing ~~Opto-Electronics~~its ~~Technology~~wholesale ~~Co.,~~and ~~Ltd.~~retail ~~(“Opto-Electronics”~~business; c). ~~On June 29, 2013,~~ the Company ~~through~~does ~~its~~not ~~indirectly~~have ~~wholly~~sufficient ~~owned~~capital ~~subsidiary~~to ~~Guoying~~complete ~~executed share transfer agreement (~~the ~~“Transfer~~construction ~~Agreement”) with Mr. Li Xiaoyu (“Buyer~~ of ~~Opto-Electronics”) to sell~~ its ~~99%~~logistics ~~ownership interest in its subsidiary Opto-Electronics for total consideration of $962,224 (RMB 5,940,000)~~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.

~~Share~~Table ~~Exchange~~of ~~between~~Contents ~~Guoying and CEH Delaware~~

OnThe ~~December~~following ~~26,~~tabulation ~~2008,~~presents ~~pursuant to~~ the ~~Share~~calculation ~~Transfer~~of ~~Agreement~~the ~~entered~~impairment ~~into~~loss, (the ~~“2008~~difference ~~Share Transfer”)~~ between the ~~shareholders~~sales ofprice ~~Guoying (the “Guoying Shareholders”)~~ and ~~CEH Delaware, CEH Delaware agreed to acquire 40% of~~ the ~~outstanding~~carrying ~~equity~~value ~~securities~~ of ~~Guoying (~~the ~~“Guoying~~long-term ~~Shares”)~~assets ~~from~~held ~~Guoying Shareholders in consideration~~ for ~~RMB 400,000 contribution of registered capital from CEH Delaware to Guoying.~~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

~~The amount of RMB400, 000 was paid in February 2010 and the amount of RMB 600,000 was paid in July 2010 by CEH~~15. ~~The~~ ~~40%~~Going 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 its paid-in capital to $2,838,653 in 2010 subsequent to the 2010 PIPE financing. The transaction was approved by Ministry of Commerce of Anhui Province and registered with Administration and Industry of Commerce of Lu An City.Concern

OnThe ~~January~~accompanying 4,consolidated ~~2010,~~financial ~~the~~statements ~~Board~~have ofbeen ~~Directors~~prepared ofassuming ~~CEH~~that ~~Delaware~~the ~~adopted~~Company awill ~~board~~continue ~~resolution~~as ~~and~~a ~~resolved~~going ~~that~~concern. As itof isMarch in31, 2014, the ~~best~~Company ~~interest~~has ofan ~~CEH~~accumulated ~~Delaware~~deficit toof ~~issue 13~~$9,~~213~~739,~~268 CEH~~997 ~~Delaware~~because ~~shares~~the ~~pursuant~~Company continued to aincur ~~call~~operating ~~option~~losses ~~agreementwhich~~over ~~provides~~the ~~that~~past ~~Sherry~~several Liperiods isand ~~the~~has ~~call~~recorded ~~option~~an ~~holder~~impairment onloss ~~behalf~~of $31,134,887 for the disposal of ~~Guoying~~long ~~Shareholders~~lived assets in 2013.

InThe ~~February~~Company's ~~2010,~~continuation as a ~~result~~going ofconcern ~~2008~~is ~~and~~dependent ~~2009~~upon ~~Share~~its ~~Transfer~~ability ~~Agreements,~~to ~~CEHD~~generate ~~Delaware~~sufficient ~~issued~~cash ~~13,213,268 CEH~~flow ~~Delaware~~to ~~Shares,~~meet ~~constituting~~its ~~96.6%~~obligations ofon ~~issued~~a ~~and~~timely ~~outstanding~~basis, ~~shares~~to ofretain ~~CEH~~its ~~Delaware~~current financing, to ~~Sherry~~obtain Liadditional financing, ~~the~~and ~~nominee~~ultimately ~~shareholder~~to onattain ~~behalf~~profitability. ofIf ~~Mr.~~the ~~Hailong~~Company ~~Liu~~is ~~who~~unable to generate profits and is ~~the~~unable ~~nominee~~to ~~shareholder~~continue onto ~~behalf~~obtain offinancing ~~Guoying~~for ~~Shareholders~~its ~~concurrent~~working ~~with~~capital ~~the~~requirements, ~~2008~~it ~~and~~may ~~2009~~have ~~Shares~~to ~~Transfers~~curtail its business sharply or cease business altogether.

OnThe ~~February~~accompanying ~~10,~~consolidated ~~2010,~~financial ~~Mr.~~statements ~~Hailong~~have ~~Liu~~been ~~entered~~prepared ~~into~~in aconformity ~~call~~with ~~option~~accounting ~~agreement~~principles ~~(the~~generally ~~“2010~~accepted ~~February~~in ~~Call Option Agreement”) and voting trust agreement (~~the ~~“2010~~United ~~February~~States ~~Voting~~of ~~Trust~~America, ~~Agreement)~~which ~~with~~contemplate ~~Sherry~~continuation ~~Li. Pursuant~~of to the ~~2010~~Company ~~February~~as ~~Call~~a ~~Option~~going ~~and Voting Trust Agreement, Ms~~concern. ~~Sherry~~The Liconsolidated ~~agreed~~financial tostatements ~~serve~~do asnot ~~nominee~~include ~~shareholder~~any ~~for~~adjustments ~~Mr.~~relating ~~Liu~~to ~~and grant Mr. Hailong Liu~~ the ~~voting~~recoverability ~~power~~ and ~~call~~classification ~~option~~of torecorded ~~acquire~~asset ~~13,213,268~~amounts ~~CEH Delaware shares held by Ms. Sherry Li. The Voting Trust Agreements provide that Ms. Sherry Li shall not vote~~ or ~~dispose of~~ the ~~respective~~amounts ~~portion of the shares of common stock without Mr. Liu’s prior written consent~~ and isclassification ~~obligated to transfer Option Shares to Mr. Liu at nominal consideration~~ of ~~$0.001~~liabilities ~~per share par value. The Voting Trust Agreements further provides~~ that, ~~Sherry~~could ~~Li,~~result from the ~~nominee~~outcome ~~shareholder, has no decision power to vote or dispose~~ of ~~the~~this ~~Option Shares without Mr~~uncertainty. ~~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 that CEH Delaware issued 13, 213, 268 CEH Delaware Shares to Sherry Li, the nominee shareholder of Mr. Hailong Liu who is the nominee shareholder of former Guoying Shareholders in February 2010, as a result of the 2008 and 2009 Share Transfer Agreements.

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

~~Share~~Table ~~Exchange~~of ~~between~~Contents ~~CEH Delaware and CEHD Nevada~~

OnITEM July 9, 2010, the Company entered into a Share Exchange Agreement, dated (the “Share Exchange Agreement”) with CEH Delaware and CEH Delaware Stockholders. Pursuant to the Share Exchange Agreement, on July 15, 2010, 10 CEH Delaware Stockholders transferred 100% of the outstanding shares of common stock and preferred stock and 100% of the warrants to purchase common stock of CEH Delaware held by them, in exchange for an aggregate of 13,785,902 newly issued shares of the Company’s Common Stock and warrants to purchase an aggregate of 1,628,570 shares of our Common Stock. The shares of the Company’s common stock acquired by the CEH Delaware Stockholders in such transactions constitute approximately 82.2~~% of the Company’s issued and outstanding Common Stock (including 68~~.~~9% owned by former Guoying Shareholders) giving effect to the share and warrant exchange and the sale of the Company~~ MANAGEMENT’sS ~~Common~~DISCUSSION ~~Stock~~AND ~~pursuant~~ANALYSIS toOF ~~the~~FINANCIAL ~~Subscription~~CONDITION ~~Agreement,~~AND ~~but~~RESULTS ~~not~~OF ~~including any outstanding purchase warrants to purchase shares of the Company’s common stock, including the warrants issued pursuant to the Subscription Agreement.~~OPERATIONS

OnThe ~~July~~following 9,discussion ~~2010,~~and ~~Mr.~~analysis ~~Hailong~~of ~~Liu~~financial ~~entered~~condition ~~into a call option agreement (the “2010 July Call Option Agreement”)~~ and ~~voting~~results ~~trust~~of ~~agreement~~operations ~~(the~~relates ~~“2010 July Voting Trust Agreement”) with Sherry Li. Pursuant~~ to the ~~2010~~operations ~~July Call~~and ~~Option~~financial ~~Agreements,~~condition ~~Mr.~~reported ~~Liu~~in ~~received~~the ~~two-year~~unaudited ~~options~~condensed ~~exercisable~~consolidated ~~for~~financial ~~11,556,288~~statements ~~shares~~ of ~~common stock (~~the ~~Option~~Company ~~Shares)~~for ~~from~~the ~~Sherry~~three Limonths ~~concurrent~~ended ~~with~~March ~~the~~31, ~~2010~~2014 ~~July Share Exchange~~ and ~~Mr.~~2013, ~~Liu shall have right~~ and ~~option~~should tobe ~~acquire~~read ~~50%~~in ofconjunction ~~Option Shares upon first filing of a quarterly report on Form 10-Q~~ with ~~the~~such ~~SEC~~financial onstatements ~~August 23, 2010 following the execution of the Share Exchange Agreement~~ and ~~50%~~related ofnotes ~~the~~included ~~remaining~~in ~~Option~~this ~~Shares 2 years after such filing by August 23, 2012~~report. Those ~~The~~statements ~~Voting~~in ~~Trust~~the ~~Agreements~~following ~~provide~~discussion that ~~Ms.~~are ~~Sherry Li shall~~ not ~~vote~~historical orin ~~dispose~~nature ofshould ~~the~~be ~~respective~~considered ~~portion~~to ofbe ~~the~~forward ~~shares~~looking ofstatements ~~common~~that ~~stock~~are ~~without~~inherently Mruncertain. ~~Liu’s~~Actual ~~prior~~results ~~written consent~~ and isthe ~~obligated~~timing ~~to transfer Option Shares to Mr. Liu at nominal consideration~~ of ~~$0.001 per share par value. The Voting Trust Agreements further provides that, Sherry Li,~~ the ~~nominee~~events ~~shareholder, has~~may nodiffer ~~decision~~materially ~~power~~from tothose ~~vote~~contained orin ~~dispose~~these offorward ~~the~~looking ~~Option~~statements ~~Shares~~due ~~without Mr. Liu’s consent. Pursuant~~ to ~~the~~a ~~terms~~number of ~~the Call Option Agreement~~factors, ~~Mr.~~including ~~Liu~~those ~~received~~discussed ~~5,778,144 shares~~ in ~~August 2010 and 5,778,144 shares in January 2013 from Ms. Sherry Liu pursuant to~~ the ~~vesting~~“Forward-Looking ~~schedule~~Statements” set forth elsewhere in ~~the~~this ~~Call~~Quarterly ~~Option~~Report ~~Agreement~~on Form 10-Q.

~~The~~China ~~exchange~~Electronics ofHoldings, ~~shares~~Inc. ~~pursuant~~(the to“Company”), ~~the~~formerly ~~July~~named 10Buyonate, ~~2010~~Inc. ~~Share~~and ~~Exchange~~the ~~was~~public ~~accounted~~company, ~~for~~was asincorporated ain ~~reverse~~the ~~acquisition~~State atof ~~historical~~Nevada ~~cost~~on ~~since~~July ~~CEH~~9, ~~Delaware~~2007. ~~Shareholders~~The ~~obtained~~Company’s ~~control~~business ofoperations ~~82.2%~~are ofconducted ~~outstanding~~through ~~shares~~its ofindirectly ~~the~~owned ~~Company~~operating subsidiary, ~~including~~Lu’an ~~68.9%~~Guoying ofElectronic ~~outstanding~~Sales ~~shares~~Co., ofLtd., ~~the~~a ~~Company~~domestic ~~owned~~PRC bycorporation, (“Guoying”) ~~Shareholders~~established on January 4, ~~and~~2002 ~~the~~to ~~management~~engage in wholesale and retail of ~~CEH~~electronics ~~Delaware,~~consumer ~~Mr.~~products ~~Hailong~~to ~~Liu,~~rural ~~became~~areas ~~the~~in ~~management~~An ofHui province in the ~~Company.~~People’s ~~Mr,~~Republic ~~Liu,~~of ~~who~~China. In ~~maintained~~a ~~control~~series of ~~Guoying~~reverse ~~prior~~acquisitions toconsummated ~~the~~between ~~mergers~~2008 and ~~subsequently~~2010, ~~obtained~~(i) ~~control~~Guoying ofbecame ~~CEH~~100% ~~Delaware~~owned ~~pursuant~~by toChina ~~2009~~Electronic ~~Share Transfer~~Holdings, ~~effectively~~Inc ~~obtained~~(“CEH ~~control~~Delaware”), ofa ~~the~~development ~~Company~~stage ~~upon~~company ~~completion~~organized ofin ~~2010~~the ~~Share~~State ~~Exchange~~of ~~subject~~Delaware toon ~~the~~November ~~Voting~~15, ~~Trust~~2007 ~~Agreement~~ and ~~Call~~(ii) ~~Option~~CEH ~~Agreement. Accordingly~~Delaware, ~~the~~in ~~merger~~turn, ofbecame ~~CEH~~the ~~Delaware~~wholly-owned ~~into~~subsidiary of the Company. Both ~~was~~transactions were recorded as arecapitalizations ~~recapitalization~~ of ~~CEH Delaware~~Guoying, with ~~CEH~~Guoying ~~Delaware~~ being treated as the continuing entity~~. The~~ ~~historical~~in ~~financial~~each ~~statements~~instance ~~presented~~and ~~are~~resulting ~~the~~in Guoying’s historical financial statements ofeffectively ~~CEH~~becoming ~~Delaware~~the ~~which~~financial ~~are~~statements presented in ~~essence~~ the Company’s financial ~~statements of Guoying~~reporting.

~~2008~~In August 2012, Guoying and ~~2010~~its ~~Bridge~~CEO ~~Financings~~and Chairman, Mr. Hailing Liu, contributed $945,054 (RMB 5,940,000) and $9,546 (RMB 60,000), representing 99% and 1% registered capital, respectively, to establish Lu’an Guoying Opto-Electronics Technology Co., Ltd. (“Opto-Electronics”). As discussed below, 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 its subsidiary Opto-Electronics for total consideration of $959,752 (RMB 5,940,000).

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

30Mr. Liu also effectively controls the Company, holding shares approximating 68.9% of the voting power of the Company’s outstanding capital stock as of March 31, 2014. Under a call option agreement and voting trust agreement entered into on July 9, 2010 with Sherry Li, the nominee shareholder respectively for the former Guoying shareholders and the former CEH Delaware stockholders in connection with the above referenced recapitalizations, Mr. Liu received options exercisable for 11,556,288 shares of common stock in the Company. 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.

2010 PIPE Transaction

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

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

Results of Operations

Wholesale and Retail of Consumer Electronics Appliances

We operated 1 company-owned store as of ~~September~~March 31, 2014. We do not expect to close this store or open any new company-owned stores in the next quarter ending June 30, ~~2013~~2014.

~~As of September~~ 30, 2013, we have exclusive franchise agreements with 136 exclusive franchise stores operated under the Guoying brand name (the “Exclusive Franchise Stores”). We entered into franchise agreements with 93, 91, 0, 0 and 21 new exclusive franchise stores in 2011, 2012, first quarter of 2013, second quarter of 2013 and third quarter of 2013, respectively. We terminated our exclusive franchise agreement with 233, 131, 0, 0 and 191 exclusive franchise stores in 2011, 2012, first quarter of 2013, second quarter of 2013 and third quarter of 2013, respectively. Both our Company-owned stores and our exclusive franchise stores only sell merchandise that we provide as their exclusive wholesaler, and such merchandise includes Guoying branded products as well as products from major wholesalers and manufacturers, such as Sony, Samsung and LG.

AsTable of ~~September~~Contents 30, 2013, we have non-exclusive franchise agreements with 18 stores (the “Non-Exclusive Franchise Stores”) to which we provide Guoying branded merchandise on a non-exclusive wholesale basis. We entered into franchise agreements with 1, 20, 0, 1 and 0 non-exclusive franchise stores in 2011, 2012, first quarter of 2013, second quarter of 2013 and third quarter of 2013, respectively. We terminated our non-exclusive franchise agreements with 362, 198, 0, 0 and 159 non-exclusive franchise stores in 2011, 2012, first quarter of 2013, second quarter of 2013 and third quarter of 2013, respectively.

WeAs ~~currently~~of ~~target~~March ~~customers~~31, ~~in county~~2014, ~~township~~we ~~and~~have ~~villages~~exclusive franchise agreements with 134 exclusive franchise stores operated under the Guoying brand name (the ~~third~~“Exclusive Franchise Stores”). We entered into a franchise agreement with 91, ~~fourth~~25 and ~~fifth~~1 ~~tiers~~new ofexclusive ~~markets)~~franchise stores in ~~rural~~2012, ~~areas~~2013 inand ~~Anhui~~first ~~Province~~quarter of ~~China~~2014, respectively. ~~Our~~We ~~distribution~~terminated ~~and~~our ~~sales~~exclusive ~~network~~franchise ~~currently~~agreements ~~covers~~with ~~twelve~~131, ~~districts~~198 and ~~counties~~0 inexclusive ~~Anhui~~franchise ~~province~~stores in 2012, ~~namely~~2013 ~~Shou~~and ~~County,~~first ~~Shu~~quarter ~~City~~of 2014, ~~Jin~~respectively. ~~An,~~Both Yuour ~~An,~~Company-owned ~~Huo~~stores ~~Shan,~~and ~~Jinn~~our ~~Sai,~~exclusive ~~HuoQiu,~~franchise Gustores ~~Shi,~~only Yesell Jimerchandise that we provide as their exclusive wholesaler, ~~Fei~~and ~~West~~such merchandise includes Guoying branded products as well as products from major wholesalers and manufacturers, ~~Fei~~such ~~East~~as Sony, Samsung and ~~Huai~~LG. We ~~Nan~~expect ~~Districts~~to open 10 new exclusive franchise stores in the quarter ending June 30, 2014.

InAs ~~August~~of ~~2011~~March 31, ~~our~~2014, ~~Board~~we ~~decided~~have ~~to terminate our exclusive and~~ non-exclusive franchise agreements with a16 ~~number of~~ stores ~~in order to strengthen and grow~~ (the Company’s business after concluding that the rapid growth of the number of stores serviced by the Company and aggressive business expansion had caused deficiencies in the Company’s internal controls and management. The following criteria was used to determine which stores (“~~Disqualified Exclusive Stores” and “Disqualified~~ Non-Exclusive Franchise Stores”) to ~~close~~which ~~(i)~~we ~~exclusive~~provide ~~franchise~~Guoying ~~stores~~branded ~~that sold~~ merchandise ~~supplied~~on bya ~~other~~non-exclusive ~~wholesalers~~wholesale basis. inWe ~~breach~~entered ofinto ~~the exclusive~~ franchise ~~agreement;~~agreements ~~(ii)~~with ~~exclusive~~20, 1 and 0 non-exclusive franchise stores ~~that failed to obey the Company’s pricing and resulting~~ in ~~lower~~2012, ~~profit~~2013 ~~margins;~~ and ~~(iii) stores located remotely Lu An City that result in higher transportation and logistics expenses to us. During~~ the ~~year~~first ~~ended~~quarter ~~December~~of 312014, ~~2012,~~respectively. weWe ~~closed 0 company-owned stores,~~ terminated our ~~contracts with 131~~ non-exclusive franchise ~~stores,~~agreements ~~and~~with ~~terminated~~198, ~~our~~161 ~~contracts~~and ~~with~~0 ~~198~~ non-exclusive franchise stores~~. During~~ ~~the~~in ~~nine months ended September 30~~2012, 2013, weand ~~closed~~first 1quarter ~~company-owned~~of ~~stores~~2014, ~~terminated~~respectively. We ~~our~~do ~~contracts~~not ~~with~~expect ~~191~~to ~~exclusive~~open ~~franchise~~or ~~stores,~~close ~~and~~any ~~terminated our contracts with 159~~ non-exclusive franchise stores~~. We~~ ~~will continue to evaluate and decide if we need to terminate any more stores~~ in the ~~future~~next quarter.

We currently target customers in county, township and villages (the third, fourth and fifth tiers of markets) in rural areas in Anhui Province of China. Our distribution and sales network currently covers twelve districts and counties in Anhui province, namely Shou County, Shu City, Jin An, Yu An, Huo Shan, Jinn Sai, HuoQiu, Gu Shi, Ye Ji, Fei West, Fei East, and Huai Nan Districts. We expect to expand our business to the following districts in the next twelve months after March 31, 2014.

Prior to 2014, our Board decided to terminate our exclusive and non-exclusive franchise agreements with a number of stores in order to strengthen and grow the Company’s business. This decision followed from us concluding that the rapid growth of the number of stores serviced by the Company and aggressive business expansion had caused deficiencies in the Company’s internal controls and management. Criteria used when determining to close stores (“Disqualified Exclusive Stores” and “Disqualified Non-Exclusive Stores”) includes: (i) whether exclusive franchise store sold merchandise supplied by other wholesalers in breach of the exclusive franchise agreement; (ii) whether exclusive and non-exclusive franchise stores failed to obey the Company’s pricing, resulting in lower profit margins;and (iii) to the extent stores located remotely Lu An City resulted in unacceptable transportation and logistics expenses to us. During the three months ended March 31, 2014, we did not close our company-owned store or terminate contracts with any of the exclusive franchise stores or non-exclusive franchise stores. We will continue to evaluate and decide if we need to terminate any more stores in the future.

Logistics and Transportations In order to improve its cash flows from operations and working capital, the Company decided in 2013 to redeploy its capital to meet the requirements of its business plan, and accordingly classified its logistics and transportation centers, which were still under construction, as a component of discontinued operations on June 30, 2013. Assets associated with the logistics and transportation centers have been classified as long-term assets held for sale and include: 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.

As part of this redeployment, we ceased construction of logistic centers on 38,449 square meters of the land located at Pingqiao Industrial Park. Our plan had been to construct four warehouses/logistics centers to provide distribution channels and logistics transportation services to deliver merchandise and Guoying branded products to counties, townships and villages in Hubei, Henan and Anhui provinces. Construction on the four warehouses had been on-going since October 2011. Each warehouse is 4,800 square meters. We currently stopped the construction of four logistics centers due to lack of sufficient capital.

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

~~Logistics~~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 ~~Transportations~~transportation centers for total consideration of $3,239,810 (RMB 20,000,000) to be paid in three installments of: a) $809,952 (RMB 5,000,000), b) $1,619,906 (RMB 10,000,000) and c) $809,952 (RMB 5,000,000) due 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 Company received 990,000 RMB payment from Mr. Li Xiaoyu on May 16, 2014 and the rest has been deferred and will be paid continuously in the future.

WeThe ~~entered~~sales ~~into~~price aof ~~Land Investment~~the ~~Agreement for 300 Chinese acres (164~~38,~~983~~449 square meters) land with ~~Pingqiao~~land ~~Industrial~~use ~~Park.~~rights Wecertificate ~~originally~~was ~~planned~~appraised toby ~~build~~an ~~our~~independent ~~LED~~appraisal ~~manufacturing~~firm, ~~facility~~Luan onCentury ~~the~~Price ~~land~~Evaluation Consultative Co. We, ~~filed~~Ltd., aon ~~proposal~~April to24, ~~obtain~~2013. ~~permission~~The toappraisal ~~enter~~firm ~~into~~concluded the ~~LED~~fair ~~manufacturing~~market ~~business~~value ~~with~~of the ~~Reform~~38,449 ~~and~~square ~~Development~~meter ~~Commission~~portion of Yuthe Anland ~~District,~~for Luwhich the AnCompany ~~City~~has onreceiveda ~~May~~land ~~13,~~use ~~2011.~~rights Wecertificate with ~~obtained~~ a ~~construction~~term ~~permit~~extending ~~issued~~to by the ~~Housing~~year ~~and~~of 2062 ~~Urban-Rural~~was ~~Development~~$1,774,722 ~~Bureau~~(RMB of11,073,378). YuThe Anappraised ~~District~~value excluded the remaining 126,534 Lusquare Anmeters ~~City~~of onPingqiao ~~October~~Land ~~28,~~for ~~2011~~which tothe ~~build~~Company anhas ~~LED~~not ~~manufacturing~~received ~~facility~~a onland ~~the~~use ~~Pingqiao~~rights ~~Land~~certificate. ~~Due~~ Further, pursuant to aArticle ~~change~~2 inof the ~~Company’s~~Sales ~~business plans~~Agreement, we1) ~~determined~~Opto-Electronics is obligated to ~~build~~negotiate ~~logistic~~with ~~centers~~the ~~on 38,449~~Yu ~~square~~An ~~meters~~government ofto: a) obtain the land. ~~Our~~use ~~plan~~rights ~~was to~~certificate ~~construct~~for the ~~four~~remaining ~~warehouses/logistics~~126,534 ~~centers~~square tometers ~~provide~~of ~~distribution~~land ~~channels~~ and ~~logistics~~b) ~~transportation~~pay ~~services~~ to ~~deliver~~the ~~merchandise~~Company ~~and~~the agreed ~~Guoying~~upon ~~branded~~purchase ~~products~~price of the remaining land up to ~~counties,~~the ~~townships~~amount ~~and~~which ~~villages~~the inCompany ~~Hubei,~~has ~~Henan~~advanced ~~and~~to ~~Anhui~~the ~~provinces.~~Pingqiao WeCommittee; ~~have~~and ~~started~~2) ~~construction~~upon completion of ~~four~~the ~~warehouses~~logistics ~~located~~center onby Opto-Electronics, the ~~Pingqiao~~Company ~~land~~has ~~since~~a ~~October~~right ~~2011.~~of ~~Each~~first ~~warehouse~~refusal isto ~~4,800~~lease ~~square~~the ~~meters~~building at a favorable rent.

InThe ~~order to improve its cash flows from operations and working capital, the~~ Company ~~decided~~assessed ~~to redeploy~~ its ~~capital~~long-term toassets ~~meet~~held ~~requirements~~for ofsale ~~its~~associated ~~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~~based ~~were~~on ~~still~~above ~~under~~mentioned ~~construction~~events asand acircumstances ~~component~~and ofdetermined ~~discontinued~~that ~~operation.~~a ~~Accordingly,~~write-down ~~the~~was ~~assets~~necessary ~~associated~~because ~~with~~ the ~~logistics~~sales ~~and~~price ~~transportation~~of ~~centers~~the ~~have been classified as~~ long-term assets held for sale inwas ~~the~~significantly ~~consolidated~~less ~~balance~~than ~~sheets.~~their ~~The~~carrying ~~long-term~~value. ~~assets~~For ~~held~~the ~~for~~three ~~sale~~months ~~includes:~~ended a)March ~~construction~~31, ~~in progress~~2014, b)the ~~advance~~Company ~~for~~has ~~construction~~recorded ofa ~~property~~$0 ~~and~~impairment ~~equipment,~~loss ~~and~~in ~~c) land use rights~~ the ~~Company~~consolidated ~~acquired~~statements ~~through~~of ~~Pingqiao~~operations ~~Industrial~~and ~~Park~~comprehensive ~~in Lu’an City~~income.

OnThe ~~June~~Company’s ~~29,~~business ~~2013,~~strategy ~~the~~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 ~~through~~decision ~~its~~to ~~indirectly~~discontinue ~~wholly~~and ~~owned~~sell its Opto subsidiary ~~Guoying~~and ~~executed~~its ~~share~~logistics ~~transfer~~business ~~agreement~~on (the ~~“Transfer~~Pingqiao ~~Agreement”)~~land ~~with~~reflects ~~Mr.~~its Libelief ~~Xiaoyu~~that: a) ~~(“Buyer~~The ofindustry in which Opto-Electronics” was to compete had become more competitive and less profitable; b) the Company would like to ~~sell~~use its ~~99%~~working ~~ownership~~capital ~~interest~~to infocus on developing its ~~subsidiary~~wholesale ~~Opto-Electronics~~and ~~for~~retail ~~total~~business; c) ~~consideration~~the Company does not have sufficient capital to complete the construction of ~~$962,224~~its ~~(RMB~~logistics ~~5,940,000)~~facility.

OnThree ~~July~~Months ~~28,~~ended ~~2013,~~March ~~the Company through its indirectly wholly owned subsidiary Guoying executed an assets sales agreement (the “Sales Agreement”) with Opto-Electronics. Pursuant to the Sales Agreement~~31, ~~Opto-Electronics~~2014 ~~agreed~~Compared ~~to purchase the Company’s assets associated~~ with ~~the logistics and transportation centers for total consideration of $3,239,810 (RMB 20,000,000).~~ Three ~~installments~~Months inended ~~the~~March ~~amounts of: a) $809,952 (RMB 5,000,000), b) $1,619,906 (RMB 10,000,000) and c) $809,952 (RMB 5,000,000) are due by the ends of 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% of the outstanding balance monthly.~~

The Company has assessed its long-term assets held for sale and determined that write-down was necessary because the sales price of the long-term assets held for sale was significant less than its carrying value. Therefore, as of June 30, 2013, the Company has written-down the long-term assets held for sale to $3,239,810 (RMB 20,000,000), the same value as sales price, in the consolidated balance sheets and has recorded $30,511,118 impairment loss in the consolidated statements of operations and comprehensive income for the six months ended June 30, 2013. As of September 30, 2013, the Company has classified the long-term assets held for sale as receivable from Buyer of Opto-Electronics because the assets associated with the logistics and transportation centers has been disposed on July 28, 2013.

The Company will continue focusing on becoming a significant retailer and wholesaler of consumer electronics and appliances to rural markets with a goal of having a national distribution network throughout China. The Company’s working capital will continue to be used to develop wholesale and retail business.

Three months ended September 30, 2013 Compared with Three months ended September 30, 2012

Revenues

Our net revenue for the three months ended ~~September~~March 3031, ~~2013~~2014 was $84,~~356~~444,~~874~~602, a decrease of 4219.13%, or $61,~~068~~059,~~376~~658, from $145,~~425~~504,~~250~~260 for the three months ended ~~September~~March 3031, ~~2012~~2013.

For the three months ended ~~September~~March 3031, ~~2013~~2014, net revenue from exclusive franchise stores was $73,~~187~~754,~~992~~949, a decrease of ~~10.~~3.9%, or $~~825~~154,~~262~~120, from $83,~~013~~909,~~254~~069 for the three months ended ~~September~~March 3031, ~~2012~~2013. There were ~~136~~134 exclusive franchise stores as of ~~September~~March 3031, ~~2013~~2014, compared to the ~~306~~133 exclusive franchise stores as of December 31, ~~2012.~~2013 ~~There~~and ~~are~~306 ~~296~~ exclusive franchise stores as of ~~September~~March 3031, ~~2012. The Company entered into franchise agreements with 21 exclusive stores and terminated its agreement with 191 exclusive stores in the third quarter of~~ 2013. The decreased revenue iscan ~~because~~be ofattributed ~~decreased~~to fewer number of exclusive stores and decreased sales from some product lines ~~due~~resulting tofrom less demand and more competition.

For the three months ended ~~September~~March 3031, ~~2013~~2014, net revenue from non-exclusive stores was $~~666~~403,~~932~~303, aan ~~decrease~~increase of 850.74%, or $31,~~990~~613,~~229,~~ from $4401,~~657,161~~690 for the three months ended ~~September~~March 3031, ~~2012~~2013. There were 1816 non-exclusive stores as of ~~September~~March 3031, ~~2013~~2014, compared to the 176 non-exclusive stores as of ~~December~~March 31, ~~2012~~2013. ~~and~~As ~~175~~noted ~~non-exclusive~~above, ~~stores~~the asCompany ofdecided ~~September~~in ~~30,~~2013 ~~2012.~~to ~~The~~begin ~~Company~~terminating ~~entered~~its ~~into a non-exclusive~~ franchise ~~agreement~~arrangements ~~with~~based 0on ~~non-exclusive~~certain ~~stores~~enumerated ~~and~~criteria. ~~terminated~~The ~~its~~Company ~~agreement~~entered ~~with~~into ~~159~~no new non-exclusive ~~stores~~franchise agreements in the first ~~third~~ quarter of ~~2013~~ 2014. The ~~decreased~~ revenue isremains stable without significant decline because ofthe ~~decreased~~Company ~~number~~terminated ofcontracts with non-exclusive franchise stores that generated little revenue and ~~decreased~~maintained ~~sales~~contracts ~~from~~with ~~some~~stores ~~product~~that ~~lines~~have ~~due~~business towith ~~less~~the ~~demand~~company’s ~~and~~top ~~more~~20 ~~competition~~largest customers.

For the three months ended September 30, 2013, net revenue from company owned stores was $501,950, a decrease of 71.4%, or $1,252,885, from $1,754,835 for the three months ended September 30, 2012. The decreased revenue from company-owned stores was mainly because of decreased sales from some product lines due to less demand and more competition.32

Table of Contents

For the three months ended March 31, 2014, net revenue from company owned stores was $286,350, a decrease of 76.0%, or $907,151, from $1,193,501 for the three months ended March 31, 2013. The decreased revenue from company-owned stores was mainly because of decreased sales from some product lines, less demand, less advertising efforts and more competition from e-commerce retail and wholesale business.

Revenue Classified by Store Type

Our disaggregation of revenue and cost of sales by each store type in the three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~ 2013 are as follows:

Three Months Ended 9/30/2012

Non-Exclusive Franchise Stores

Exclusive Franchise Stores

Company-Owned Stores

Total

Three Months-Ended 03/31/2013

Non-Exclusive Franchise Stores

Exclusive Franchise Stores

Company-Owned Stores

Total

Revenue

4401,~~657,161~~690

83,~~013~~909,~~254~~069

1,~~754~~193,~~835~~501

145,~~425~~504,~~250~~260

Cost of Sales

4368,~~270,260~~957

73,~~346~~584,~~134~~331

1,~~564~~067,~~432~~230

135,~~180~~020,~~826~~518

Gross Profit

~~386~~32,~~901~~733

~~667~~324,~~120~~738

~~190~~126,~~403~~271

1483,~~244,424~~742

Three Months-Ended 03/31/2014	Non-Exclusive Franchise Stores			Exclusive Franchise Stores		Company-Owned Stores			Total
Revenue	$	403,303		$	3,754,949	$	286,350		$	4,444,602
Cost of Sales	$	538,040		$	3,405,206	$	365,894		$	4,309,140
Gross Profit	$	(134,737	)	$	349,743	$	(79,544	)	$	135,462

Three months-Ended 9/30/2013	Non-Exclusive Franchise Stores		Exclusive Franchise Stores		Company-Owned Stores		Total
Revenue	$	666,932	$	7,187,992	$	501,950	$	8,356,874
Cost of Sales	$	612,369	$	6,607,101	$	459,675	$	7,679,145
Gross Profit	$	54,563	$	580,891	$	42,275	$	677,729

Sales and Average Per Store Sales of Same Stores

Same Stores are defined as stores that we opened or entered into franchise agreements with prior to ~~2012~~2013 and that have been in continuous operation as of ~~September~~March 3031, ~~2013~~2014 and excludes stores that were newly opened or closed or with which we entered into or terminated franchise agreements in ~~2012~~2013 or ~~2013~~2014. Same Store Sales are defined as sales from the Same Stores.

Same Stores Sales in three months ended ~~September~~March 3031, ~~2013~~ 2014 and ~~2012~~2013, and the increase or decrease experienced as a percentage of Same Store Sales are as follows:

Same Store Sales	Three ~~months~~Months-Ended 903/3031/~~2013~~2014		Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	~~374~~364,~~472~~345	$	~~346~~91,~~007~~637	$	28272,~~465~~708			8298	%
Exclusive Franchise Stores	$	4805,~~213,129~~737	$	~~880~~2,~~808~~686,705	$	3(1,~~332~~880,~~321~~968	)		~~378~~(70	)%
Company-Owned Stores	$	~~500~~286,~~645~~350	$	1,~~647~~032,~~183~~026	$	(1745,~~146,538~~676	)		(7072	)%
Total	$	51,~~088~~456,~~246~~432	$	23,~~873~~810,~~998~~368	$	(2,~~214~~353,~~248~~936	)		77(62	)%

The primary reason for the increase in Same Stores Sales was the increase in sales from exclusive stores (“Same Exclusive Franchise Stores”), increase in sales from non-exclusive stores (“Same Non-Exclusive Franchise Stores”), offset by decrease in sales from company-owned stores (“Same Company-Owned Stores”). The increased sales in non-exclusive Franchise stores and in Exclusive franchise stores is due to better promotion during the three months ended September 30, 2013 compared to the same period last year. The decrease in sales in Company-owned stores is due to decreased demand and increased competition during the three months ended September 30, 2013 compared to the same period last year.33

Table of Contents

The primary reason for the decrease in Same Stores Sales was the decrease in sales from exclusive stores (“Same Exclusive Franchise Stores”), and decrease in sales from company-owned stores (“Same Company-Owned Stores”), offset by increase in sales from non-exclusive stores (“Same Non-Exclusive Franchise Stores”). The increase in our sales in Same Non-Exclusive Franchise stores is a result of better promotion during the three months ended March 31, 2014 compared to the same period last year and closing in late 2013 of Same Non-Exclusive Franchise stores with poor sales performance. The decrease of sales in Exclusive franchise stores and decrease in sales in Company-Owned stores are due to less demand and more competition. The Company estimates that the sales from same stores will increase during the three months ended June 30, 2014 due to the increased demand from customers, new products introduced by the Company, and more advertising efforts by the Company.

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

Number of Same Stores	Three ~~months~~Months-Ended 903/3031/~~2013~~2014		Three ~~months~~Months-Ended 903/3031/~~2012~~2013
Non-Exclusive Franchise Stores		15		15
Exclusive Franchise Stores		31108		31108
Company-Owned Stores		1		1

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

Average Per-Store Same Store Sales	Three ~~months~~Months-Ended 903/3031/~~2013~~2014		Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	24,~~965~~290	$	236,~~067~~109	$	118,~~898~~181			8298	%
Exclusive Franchise Stores	$	~~135~~7,~~907~~461	$	2824,~~413~~877	$	~~107~~(17,~~494~~416)			~~378~~(70	)%
Company-Owned Stores	$	~~500~~286,~~645~~350	$	1,~~647~~032,~~183~~026	$	(1745,~~146,538~~676	)		(7072	)%

Sales and Average Per Store Sales of New Stores

New Stores are defined as stores that were newly opened or with which we entered into a franchise agreement in either 2013 or 2012 that are in existence under normal business operations as of September 30, 2013 and excluding stores that closed in 2013 or 2012 (“New Stores”). New Store Sales are defined as sales from the New Stores. 2012 New Store Sales refer to the sales from New Stores opened or with which we entered into a franchise agreement in 2012 and not closed in 2013. 2013 New Store Sales refer to the sales generated in 2013 from both New Stores opened or with which we entered into a franchise agreement in 2012 and 2013 that have not closed as of the end of September 30, 2013.

~~New~~Table ~~Stores~~of ~~Sales~~Contents ~~operating in both 2012 and 2013, and the increase experiences at a percentage are as follows:~~

New Store Sales	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference		Change
Non-Exclusive Franchise Stores	$	235,785	$	46,554	$	189,231		406	%
Exclusive Franchise Stores	$	2,519,984	$	1,589,390	$	930,594		59	%
Company-Owned Stores	$	-	$	-	$	-		-	%
Total	$	2,755,769	$	1,635,944	$	1,119,825		68	%

The primary reason for the increase in New Stores Sales was the increase of sales from new exclusive franchise stores (the “New Exclusive Franchise Stores”), the increase in sales from new Non-Exclusive franchise stores (the “New Non-Exclusive Franchise Stores). The increase of sales from New Non-Exclusive Franchise Stores is because of better promotion during the three months ended September 30, 2013 compared to the same period last year. The increase of sales from exclusive stores is because of better promotion during the three months ended September 30, 2013 compared to the same period last year.

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

Number of New Stores	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012
Non-Exclusive Franchise Stores		21		19
Exclusive Franchise Stores		112		81
Company-Owned Stores		-		-

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

Average Per-Store New Store Sales	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference		Change
Non-Exclusive Franchise Stores	$	11,228	$	2,450	$	8,778		358	%
Exclusive Franchise Stores	$	22,500	$	19,622	$	2,878		15	%
Company-Owned Stores	$	-	$	-	$	-		-	%

Sales and Average Per Store Sales of Closed Stores

Closed Stores are defined as stores that were closed or with which the Company terminated its agreement in either 2013 or 2012 (the “Closed Stores”). Closed Store Sales are defined as sales from the Closed Stores. 2012 Closed Store Sales refer to sales generated in 2012 from stores whose franchise agreements were terminated or which closed in 2012 or 2013. 2013 Closed Store Sales refer to sales generated in 2013 from stores whose franchise agreements were terminated or which closed in 2013.

Closed Store Sales in 2012 and 2013, and the change experienced as a percentage are as follows:

Closed Store Sales	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	56,675	$	4,264,600	$	(4,207,925	)		(99	)%
Exclusive Franchise Stores	$	454,880	$	5,543,056	$	(5,088,176	)		(92	)%
Company-Owned Stores	$	1,304	$	107,652	$	(106,348	)		(99	)%
Total	$	512,859	$	9,915,308	$	(9,402,449	)		(95	)%

The decrease in Closed Store Sales resulted from the fact that Stores whose franchise agreements were terminated or which closed in 2012 generated no sales for the Company in the three months ended September 30, 2013. The Company resolved to close (i) exclusive franchise stores that sold merchandise supplied by other wholesalers in breach of the exclusive franchise agreement; (ii) exclusive and non-exclusive franchise stores that failed to obey the Company’s pricing strategies, resulting in lower profit margins; (iii) stores located remotely from Lu An City that resulted in higher transportation and logistics expenses to us; and (iv) stores that sold brands of merchandise not supplied by us.

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

Number of Closed Stores	Three months-Ended 9/30/2013		Three months-Ended 3/31/202
Non-Exclusive Franchise Stores		357		357
Exclusive Franchise Stores		322		322
Company-Owned Stores		1		1

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

Average Per-Store Closed Store Sales	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	159	$	11,946	$	(11,787	)		(99	)%
Exclusive Franchise Stores	$	1,413	$	17,214	$	(15,801	)		(92	)%
Company-Owned Stores	$	1,304	$	107,652	$	(106,348	)		(99	)%

Other information

The following is a summary of revenue by product line for the three months ended September30, 2013 and 2012:

	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012
Solar Power Products	$	287,429	$	(761,005	)
Air Conditioner	$	3,193,262	$	8,425,676
Refrigerator	$	864,332	$	1,233,048
TV	$	2,980,323	$	4,949,391
Washer	$	406,945	$	382,836
Others	$	624,583	$	195,304
Total	$	8,356,874	$	14,425,250

The decrease of revenue for the three months ended September 30, 2013 compared to the same period last year is mainly due to the decreased sales from Air-conditioners, Refrigerators and TV.

Air-conditioners sales decreased by $5,232,414, or 62.1%, from $8,425,676 in the three months ended September 30, 2012 to $3,193,262 in the same period in 2013.

Refrigerators sales decreased by $368,716, or 29.9%, from $1,233,048 in the three months ended September 30, 2012 to $864,332 in the same period in 2013.

TV sales decreased by $1,969,068, or 39.8%, from $4,949,391 in the three months ended September 30, 2012 to $2,980,323 in the same period in 2013.

The decreased sales of these products are due to increased competition and decreased demand.

Cost of Goods Sold

Our cost of goods sold for the three months ended September 30, 2013 was $7,679,145, a decrease of $5,501,681, or 41.7%, compared to $13,180,826 for the three months ended September 30, 2012. The decrease was mainly due to the decrease in sales.

	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012
Cost of goods sold from non-exclusive stores	$	612,369	$	4,270,260
Cost of goods sold from exclusive franchise stores		6,607,101		7,346,134
Cost of goods sold from company-owned stores		459,675		1,564,432
Cost of goods sold	$	7,679,145	$	13,180,826

For the three months ended September 30, 2013, cost of goods sold from non-exclusive stores was $612,369, a decrease of 85.7%, or $3,657,891, from $4,270,260 for the three months ended September 30, 2012. The decrease was in line with the decrease in sales from non-exclusive stores.

For the three months ended September 30, 2013, cost of goods sold from company-owned stores was $459,675, a decrease of 70.6%, or $1,104,757, from $1,564,432 for the three months ended September 30, 2012. The decrease was in line with the decrease in sales from company-owned stores.

For the three months ended September 30, 2013, cost of goods sold from exclusive franchise stores was $6,607,101, a decrease of 10.1%, or $739,033, from $7,346,134 for the three months ended September 30, 2012. The decrease was in line with the decrease in sales from exclusive stores.

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

Same Store Cost of Goods Sold	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	343,703	$	315,789	$	27,914			9	%
Exclusive Franchise Stores	$	3,870,996	$	801,083	$	3,069,913			383	%
Company-Owned Stores	$	458,486	$	1,470,725	$	(1,012,239	)		(69	)%
Total	$	4,673,185	$	2,587,597	$	2,085,588			81	%

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

Average Per-Store Same Store Cost of Goods Sold	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	22,914	$	21,053	$	1,861			9	%
Exclusive Franchise Stores	$	124,871	$	25,841	$	99,030			383	%
Company-Owned Stores	$	458,486	$	1,470,725	$	(1,012,239	)		(69	)%

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

New Store Cost of Goods Sold	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference		Change
Non-Exclusive Franchise Stores	$	216,513	$	42,465	$	174,048		410	%
Exclusive Franchise Stores	$	2,316,105	$	1,457,532	$	858,573		59	%
Company-Owned Stores	$	-	$	-	$	-		-	%
Total	$	2,532,618	$	1,499,997	$	1,032,621		69	%

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

Average Per-Store New Store Cost of Goods Sold	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference		Change
Non-Exclusive Franchise Stores	$	10,310	$	2,235	$	8,075		361	%
Exclusive Franchise Stores	$	20,680	$	17,994	$	2,686		15	%
Company-Owned Stores	$	-	$	-	$	-		-	%

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

Closed Store Cost of Goods Sold	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	52,152	$	3,912,005	$	(3,859,853	)		(99	)%
Exclusive Franchise Stores	$	420,000	$	5,087,519	$	(4,667,519	)		(92	)%
Company-Owned Stores	$	1,188	$	93,707	$	(92,519	)		(99	)%
Total	$	473,340	$	9,093,231	$	(8,619,891	)		(95	)%

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

Average Per-Store Closed Store Cost of Goods Sold	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	146	$	10,958	$	(10,812	)		(99	)%
Exclusive Franchise Stores	$	1,304	$	15,800	$	(14,496	)		(92	)%
Company-Owned Stores	$	1,188	$	93,707	$	(92,519	)		(99	)%

Other information

The following is a summary of cost of goods sold by product line for the three months ended September 30, 2013 and 2012:

	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012
Solar Power Products	$	264,864	$	(716,950	)
Air Conditioner	$	2,932,396	$	7,702,574
Refrigerator	$	793,929	$	1,126,286
TV	$	2,737,748	$	4,544,128
Washer	$	373,722	$	349,714
Others	$	576,486	$	175,074
Total	$	7,679,145	$	13,180,826

Gross Profit

Gross profit for the three months ended September 30, 2013 was $677,729, a decrease of $566,695, or approximately 45.5%, compared to $1,244,424 for the three months ended September 30, 2012.

For the three months ended September 30, 2013, gross profit for non-exclusive stores was $54,563, a decrease of 85.9%, or $332,338, from $386,901 for the three months ended September 30, 2012. The decrease was mainly due to the decreased sales from non-exclusive stores.

For the three months ended September 30, 2013, gross profit for exclusive franchise stores was $580,891, a decrease of 12.9%, or $86,229, from $667,120 for the three months ended September 30, 2012. The decrease was mainly due to the decreased sales from exclusive franchise stores.

For the three months ended September 30, 2013, gross profit for company-owned stores was $42,275, a decrease of 77.8%, or $148,128, from $190,403 for the three months ended September 30, 2012. The decrease was mainly due to decreased sales from company-owned stores.

Gross profit and Average Per Store Gross Profit of Same Stores

Same Store Gross Profit	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	30,769	$	30,218	$	551			2	%
Exclusive Franchise Stores	$	342,132	$	79,724	$	262,408			329	%
Company-Owned Stores	$	42,159	$	176,458	$	(134,299	)		(76	)%
Total	$	415,060	$	286,400	$	128,660			45	%

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

Average Per-Store Same Store Gross Profit	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	2,051	$	2,015	$	36			2	%
Exclusive Franchise Stores	$	11,037	$	2,572	$	8,465			329	%
Company-Owned Stores	$	42,159	$	176,458	$	(134,299	)		(76	)%

Gross Profit and Average Per Store Gross Profit of New Stores

New Store Gross Profit	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference		Change
Non-Exclusive Franchise Stores	$	19,271	$	4,089	$	15,182		371	%
Exclusive Franchise Stores	$	203,879	$	131,858	$	72,021		55	%
Company-Owned Stores	$	-	$	-	$	-		-	%
Total	$	223,150	$	135,947	$	87,203		64	%

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

Average Per-Store New Store Gross Profit	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference		Change
Non-Exclusive Franchise Stores	$	918	$	215	$	703		326	%
Exclusive Franchise Stores	$	1,820	$	1,628	$	192		12	%
Company-Owned Stores	$	-	$	-	$	-		-	%

Gross Profit and Average Per Store Gross Profit of Closed Stores

Closed Store Gross Profit	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	4,524	$	352,595	$	(348,071	)		(99	)%
Exclusive Franchise Stores	$	34,880	$	455,537	$	(420,657	)		(92	)%
Company-Owned Stores	$	115	$	13,945	$	(13,830	)		(99	)%
Total	$	39,519	$	822,077	$	(782,558	)		(95	)%

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

Average Per-Store Closed Store Gross Profit	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	13	$	988	$	(975	)		(99	)%
Exclusive Franchise Stores	$	108	$	1,415	$	(1,307	)		(92	)%
Company-Owned Stores	$	116	$	13,945	$	(13,829	)		(99	)%

Other information

The following is a summary of gross profit by product line for the three months ended September 30, 2013 and 2012:

	Three months-Ended 9/30/2013		Three months-Ended 9/30/2012
Solar Power Products	$	22,565	$	(44,055	)
Air Conditioner	$	260,867	$	723,102
Refrigerator	$	70,403	$	106,763
TV	$	242,575	$	405,263
Washer	$	33,223	$	33,122
Others	$	48,096	$	20,229
Total	$	677,729	$	1,244,424

Gross Profit Rate

Gross profit rate for the three months ended September 30, 2013 was 8.11%, a decrease of approximately 0.52%, compared to 8.63% for the three months ended September 30, 2012. The decrease of gross profit rate is because of decreased sales prices due to increased competition and decreased demand. The Company continues to improve managing its sales network as well as products offered, which continuously requires us to review pricing on existing products and existing sales channels. We expect that our pricing strategies will continue to evolve to market conditions and expect improvements to have a marginalizing effect on the noted increase in gross profit rates at exclusive franchise stores as changes in product offerings mature along with their related pricing strategies.

For the three months ended September 30, 2013, gross profit rate for exclusive franchise stores was 8.08%, a decrease of 0.25% compared to 8.33% for the three months ended September 30, 2012. The decrease of gross profit rate is because the change of product portfolios in our sales during the three months ended September 30, 2013 compared to the same period last year.

For the three months ended September 30, 2013, gross profit rate for non-exclusive stores was 8.18%, a decrease of 0.13%, compared to 8.31% for the three months ended September 30, 2012. The decrease of gross profit rate is because the change of product mix in our sales during the three months ended September 30, 2013 compared to the same period last year.

For the three months ended September 30, 2013, gross profit rate for company-owned stores was 8.42%, a decrease of 2.43%, compared to 10.85% for the three months ended September 30, 2012. The decrease of gross profit rate is because the change of product mix in our sales during the three months ended September 30, 2013 compared to the same period last year.

Operating Expenses

Operating expenses for the three months ended September 30, 2013 were $2,764,952, an increase of $1,545,529, or 126.7%, from $1,219,423 for the three months ended September 30, 2012.

Selling expenses for the three months ended September 30, 2013 were $401,403, a decrease of $121,083, or 23.2%, from $522,486 for the three months ended September 30, 2012. The decrease of selling expenses relates primarily to the decrease sales.

General and administrative expenses for the three months ended September 30, 2013 were $146,829, a decrease of $196,597, or 57.2%, from $343,426 for three months ended September 30, 2012. The decrease is mainly due to the decrease of overhead expense related to the drop of sales.

During the three months ended September 30, 2013 and 2012, bad debt allowance for accounts receivable of $2,339,300 and $0 were recorded as operating expenses.

During the three months ended September 30, 2013 and 2012, recovery of debt expenses of $(122,580) and $353,511 were recorded as a reduction of operating expenses.

Net Operating Loss

Our net operating loss for the three months ended September 30, 2013 was $2,087,223, an increase of $2,112,224, or 8,448.6%, from net operating income $25,001 for the same period in 2012. The increase was mainly due to the decrease of sales and gross profit and the increase of operating expenses.

Other Income (Expense)

Our net other expense for the three months ended September 30, 2013 was $161,938, an increase of $126,903, or 362.2%, from net other expense $35,035 for the same period in 2012. The increase of other expense was mainly due to increase in other expense of $132,030during the three months ended September 30, 2013.

Provision for Income Taxes

Net Income (Loss) Attributable to China Electronics Holdings, Inc.

Our net loss attributable to China Electronics Holdings, Inc. for the three months ended September 30, 2013 was $2,249,161, an increase of $2,239,127, or 22,315.4%, from net loss attributable to China Electronics Holdings, Inc. of $10,034 for the same period in 2012. The increase was mainly due to the increase in operating loss and other expenses during the three months ended September 30, 2013.

Nine months ended September 30, 2013 Compared with Nine months ended September 30, 2012

Revenues

Our net revenue for the nine months ended September 30, 2013 was $20,757,982, a decrease of 53.4%, or $23,739,893, from $44,497,875 for the nine months ended September 30, 2012.

For the nine months ended September 30, 2013, net revenue from exclusive franchise stores was $16,583,690, a decrease of 38.4%, or $10,316,126, from $26,899,816 for the nine months ended September 30, 2012. There were 136 exclusive franchise stores as of September 30, 2013, compared to the 306 exclusive franchise stores as of December 31, 2012 and 296 exclusive franchise stores as of September 30, 2012. The Company entered into franchise agreements with 21 exclusive stores and terminated its agreement with 191 exclusive stores in the first three quarters of 2013. The decreased revenue is because of decreased number of exclusive stores and decreased sales from some product lines due to less demand and more competition.

For the nine months ended September 30, 2013, net revenue from non-exclusive stores was $1,515,606, a decrease of 89.3%, or $12,650,470, from $14,166,076 for the nine months ended September 30, 2012. There were 18 non-exclusive stores as of September 30, 2013, compared to the 176 non-exclusive stores as of December 31, 2012 and 175 non-exclusive stores as of September 30, 2012. The Company entered into a non-exclusive franchise agreement with 1 non-exclusive stores and terminated its agreement with 159 non-exclusive stores in the first three quarters of 2013. The decreased revenue is because of decreased number of exclusive stores and decreased sales from some product lines due to less demand and more competition.

For the nine months ended September 30, 2013, net revenue from company owned stores was $2,658,686, a decrease of 22.5%, or $773,297, from $3,431,983 for the nine months ended September 30, 2012. The decreased revenue from company-owned stores was mainly because The decreased revenue is because of decreased sales from some product lines due to less demand and more competition.

Revenue Classified by Store Type

Our disaggregation of revenue and cost of sales by each store type in the nine months ended September 30, 2013 and 2012 are as follows:

Nine months-Ended 9/30/2012	Non-Exclusive Franchise Stores		Exclusive Franchise Stores		Company-Owned Stores		Total
Revenue	$	14,166,076	$	26,899,816	$	3,431,983	$	44,497,875
Cost of Sales	$	13,137,960	$	24,941,217	$	3,092,874	$	41,172,051
Gross Profit	$	1,028,116	$	1,958,599	$	339,109	$	3,325,824

Nine months-Ended 9/30/2013	Non-Exclusive Franchise Stores		Exclusive Franchise Stores		Company-Owned Stores		Total
Revenue	$	1,515,606	$	16,583,690	$	2,658,686	$	20,757,982
Cost of Sales	$	1,391,398	$	15,228,323	$	2,396,516	$	19,016,237
Gross Profit	$	124,208	$	1,355,367	$	262,170	$	1,741,745

Sales and Average Per Store Sales of Same Stores

Same Stores are defined as stores that we opened or entered into franchise agreements with prior to 2012 and that have been in continuous operation as of September 30, 2013 and excludes stores that were newly opened or closed or with which we entered into or terminated franchise agreements in 2012 or 2013. Same Store Sales are defined as sales from the Same Stores.

Same Stores Sales in nine months ended September 30, 2012 and 2013, and the increase or decrease experienced as a percentage of Same Store Sales are as follows:

Same Store Sales	Nine months-Ended 9/30/2013		Nine months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	642,605	$	976,765	$	(334,160	)		(34	)%
Exclusive Franchise Stores	$	9,389,048	$	7,027,890	$	2,361,158			34	%
Company-Owned Stores	$	2,349,249	$	3,013,771	$	(664,522	)		(22	)%
Total	$	12,380,902	$	11,018,426	$	1,362,476			12	%

The primary reason for the increase in Same Stores Sales was the increase in sales from exclusive stores (“Same Exclusive Franchise Stores”), offset by decrease in sales from non-exclusive stores (“Same Non-Exclusive Franchise Stores”), and decrease in sales from company-owned stores (“Same Company-Owned Stores”). The increase in our sales in Same Exclusive Franchise stores is a result of better promotion during the nine months ended September 30, 2013 compared to the same period last year. The decrease of sales in Non-exclusive franchise stores and decrease in sales in Company-Owned stores are due to less demand and more competition.

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

Number of Same Stores	Nine months-Ended 9/30/2013		Nine months-Ended 9/30/2012
Non-Exclusive Franchise Stores		15		15
Exclusive Franchise Stores		31		31
Company-Owned Stores		1		1

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

Average Per-Store Same Store Sales	Nine months-Ended 9/30/2013		Nine months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	42,840	$	65,118	$	(22,278	)		(34	)%
Exclusive Franchise Stores	$	302,873	$	226,706	$	76,167			34	%
Company-Owned Stores	$	2,349,249	$	3,013,771	$	(664,522	)		(22	)%

Sales and Average Per Store Sales of New Stores

New Stores are defined as stores that were newly opened or with which we entered into a franchise agreement in either ~~2013~~2014 or ~~2012~~2013 that are in existence under normal business operations as of ~~September~~March 3031, ~~2013~~2014 and excluding stores that closed in ~~2013~~2014 or ~~2012~~2013 (“New Stores”). New Store Sales are defined as sales from the New Stores. ~~2012~~2013 New Store Sales refer to the sales from New Stores opened or with which we entered into a franchise agreement in ~~2012~~2013 and not closed in ~~2013~~2014. ~~2013~~2014 New Store Sales refer to the sales generated in ~~2013~~2014 from both New Stores opened or with which we entered into a franchise agreement in ~~2012~~2013 and ~~2013~~2014 that have not closed as of the end of ~~September~~March 3031, ~~2013~~2014.

43New Stores Sales operating in three months ended March 31, 2014 and 2013, and the increase experiences at a percentage are as follows:

New Stores Sales operating in both 2012 and 2013, and the increase experiences at a percentage are as follows:

New Store Sales	Three Months-Ended 03/31/2014		Three Months-Ended 03/31/2013		Difference		Change
Non-Exclusive Franchise Stores	$	38,958	$	-	$	38,958		100	%
Exclusive Franchise Stores	$	2,949,212	$	-	$	2,949,212		100	%
Company-Owned Stores	$	-	$	-	$	-		-	%
Total	$	2,988,170	$	-	$	2,988,170		100	%

New Store Sales	Nine months-Ended 9/30/2013		Nine months-Ended 9/30/2012		Difference		Change
Non-Exclusive Franchise Stores	$	367,411	$	92,451	$	274,960		297	%
Exclusive Franchise Stores	$	5,565,075	$	2,717,240	$	2,847,835		105	%
Company-Owned Stores	$	-	$	-	$	-		-	%
Total	$	5,932,486	$	2,809,691	$	3,122,795		111	%

The primary reason for the increase in New Stores Sales was the increase of sales from new exclusive franchise stores (the “New Exclusive Franchise Stores”) and the increase in sales from new non-exclusive franchise stores (the “New Non-Exclusive Franchise Stores). The increase of sales from New Non-Exclusive Franchise Stores resulted from the addition of one (1) New Non-exclusive Franchise Stores as of March 31, 2014, as compared to March 31, 2013. Likewise, the increase of sales from exclusive stores resulted from 26 New Exclusive Franchise Stores as of March 31, 2014, as compared to none at March 31, 2013. The Company estimates that the sales from new stores will increase during the next three months ended June 30, 2014 due to opening more new stores and more promotion events and advertising efforts by the Company.

The primary reason for the increase in New Stores Sales was the increase of sales from new exclusive franchise stores (the “New Exclusive Franchise Stores”), the increase in sales from new Non-Exclusive franchise stores (the “New Non-Exclusive Franchise Stores). The increase of sales from New Non-Exclusive Franchise Stores is due to there are 2 more New Non-exclusive Franchise Stores as of September 30, 2013 compared to September 30, 2012 and due to increased average per-store sales for New Non-Exclusive Franchise Stores. The increase of sales from exclusive stores is because there are 112 New Exclusive Franchise Stores as of September 30, 2013 compared to 81 as of September 30, 2012 and due to increased average per-store sales for New Exclusive Stores.

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

Number of New Stores	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013
Non-Exclusive Franchise Stores		211		19-
Exclusive Franchise Stores		~~112~~26		81-
Company-Owned Stores		-		-

Table of Contents

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

Average Per-Store New Store Sales	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference		Change
Non-Exclusive Franchise Stores	$	1738,~~496~~958	$	~~4,866~~-	$	1238,~~630~~958		~~260~~100	%
Exclusive Franchise Stores	$	49113,~~688~~431	$	~~33,546~~-	$	16113,~~142~~431		48100	%
Company-Owned Stores	$	-	$	-	$	-		-	%

Sales and Average Per Store Sales of Closed Stores

Closed Stores are defined as stores that were closed or with which the Company terminated its agreement in either ~~2013~~2014 or ~~2012~~2013 (the “Closed Stores”). Closed Store Sales are defined as sales from the Closed Stores. ~~2012~~2013 Closed Store Sales refer to sales generated in ~~2012~~2013 from stores whose franchise agreements were terminated or which closed in ~~2012~~2013 or ~~2013~~2014. ~~2013~~2014 Closed Store Sales refer to sales generated in ~~2013~~2014 from stores whose franchise agreements were terminated or which closed in ~~2013~~2014.

Closed Store Sales in ~~2012~~three months ended March 31, 2014 and 2013, and the change experienced as a percentage are as follows:

Closed Store Sales	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	~~505,591~~-	$	13310,~~096,861~~053	$	(12310,~~591,270~~053	)		(96100	)%
Exclusive Franchise Stores	$	~~1,629,567~~-	$	171,~~154~~222,~~686~~364	$	(151,~~525~~222,~~119~~364	)		(91100	)%
Company-Owned Stores	$	~~309,436~~-	$	~~418~~161,~~211~~475	$	(~~108~~161,~~775~~475	)		(26100	)%
Total	$	~~2,444,594~~-	$	301,~~669~~693,~~758~~892	$	(281,~~225~~693,~~164~~892	)		(92100	)%

~~The~~Franchise ~~decrease~~agreements ~~in Closed Store Sales results from the fact~~ that ~~Stores whose franchise agreements~~ were terminated or which closed in ~~2012~~2013 generated no sales for the Company in the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014. ~~The~~Going forward, the Company is resolved to close or terminate additional franchise arrangements, focusing on (i) those exclusive franchise stores that sold merchandise supplied by other wholesalers in breach of the exclusive franchise agreement; (ii) those exclusive and non-exclusive franchise stores that failed to obey the Company’s pricing strategies, resulting in lower profit margins; (iii) those stores located remotely from Lu An City that resulted in higher transportation and logistics expenses to us; and (iv) those stores that sold brands of merchandise not supplied by us. The Company estimates that the sales from closed stores will decrease during the next three months ended June 30, 2014 due to our termination of contracts with those stores and the decline of their own business due to less customer demand.

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Table of Contents

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

Number of Closed Stores	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 303/31/~~202~~2013
Non-Exclusive Franchise Stores		~~357~~161		~~357~~161
Exclusive Franchise Stores		~~322~~198		~~322~~198
Company-Owned Stores		10		1

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

Average Per-Store Closed Store Sales	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	~~1,416~~-	$	361,~~686~~926	$	(351,~~270~~926	)		(96100	)%
Exclusive Franchise Stores	$	~~5,061~~-	$	536,~~275~~174	$	(486,~~214~~174	)		(91100	)%
Company-Owned Stores	$	~~309,436~~-	$	~~418~~161,~~211~~475	$	(~~108~~161,~~775~~475	)		(26100	)%

Other information

The following is a summary of revenue by product line for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013:

	Nine months-Ended 9/30/2013		Nine months-Ended 9/30/2012
	Three Months-Ended 03/31/2014		Three Months-Ended 03/31/2013
Solar Power Products	$	1647,~~451,146~~594	$	8738,~~797,957~~771
Air Conditioner	$	71,~~581~~218,~~372~~848	$	161,~~424~~542,~~114~~936
Refrigerator	$	1403,~~792,748~~116	$	5389,~~319,899~~491
TV	$	6707,~~047,821~~790	$	111,~~922~~421,~~106~~471
Washer	$	2251,~~224,476~~464	$	1969,~~668,736~~349
Others	$	1,~~660~~215,~~419~~790	$	~~365~~442,~~063~~242
Total	$	204,~~757~~444,~~982~~602	$	445,~~497~~504,~~875~~260

The decrease of revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 compared to the same period last year is mainly due to the decreased sales ~~from~~of ~~Solar-powered products,~~ Air-conditioners, ~~Refrigerators~~Washer and TV offset by increased sales from other products.

Solar-powered products sales decreased by $7,346,811, or 83.5%, from $8,797,957 in the nine months ended September 30, 2012 to $1,451,146 in the same period in 2013. The decrease is mainly due to decreased solar-powered products sales of Huayang Brand. The decrease is due to increased market competition of solar-powered products, fulfilled market, and Huayang’s failure to increase its sales in the market.37

~~Air-conditioners~~Table ~~sales~~of ~~decreased~~Contents ~~by $8,842,742, or 53.8%, from $16,424,114 in the nine months ended September 30, 2012 to $7,581,372 in the same period in 2013.~~

~~Refrigerators~~Air-conditioners sales decreased by $3324,~~527~~088,~~151,~~ or 6621.30%, from $51,~~319~~542,~~899~~936 in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~ 2013 to $1,~~792~~218,~~748~~848 in the same period in 2014. ~~2013~~The decrease is due to more competition, especially from Internet sales providers. The Company predicts that the market demand will keep decreasing and that the sales of air-conditioners products will continue decreasing in the three months ended June 30, 2014.

TVWasher sales decreased by $5717,~~874~~885,~~285,~~ or 4974.31%, from $11969,~~922,106~~349 in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~ 2013 to $6251,~~047,821~~464 in the same period in 2014. ~~2013~~The decrease is due to more competition, especially from Internet sales providers. The Company predicts that the market demand will keep decreasing and that the sales of washer products will continue decreasing in the three months ended June 30, 2014.

~~The~~TV ~~decrease~~sales ofdecreased ~~these~~by ~~products~~$713,681, ~~are~~or 50.2%, from $1,421,471 in the three months ended March 31, 2013 to $707,790 in the same period in 2014. The decrease is due to ~~decreased~~more competition, especially from Internet sales providers. The Company predicts that the market demand will keep decreasing and ~~increased~~that ~~competition~~the sales of TV products will continue decreasing in the three months ended June 30, 2014.

Cost of Goods Sold

Our cost of goods sold for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 was $194,~~016~~309,~~237~~140, a decrease of $22711,~~155~~378,~~814,~~ or 5314.82%, compared to $415,~~172~~020,~~051~~518 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The decrease was mainly due to the decrease in sales.

	Nine months-Ended 9/30/2013		Nine months-Ended 9/30/2012
	Three Months-Ended 03/31/2014		Three Months-Ended 03/31/2013
Cost of goods sold from non-exclusive stores	$	1538,~~391,398~~040	$	13368,~~137,960~~957
Cost of goods sold from exclusive franchise stores		153,~~228~~405,~~323~~206		243,~~941~~584,~~217~~331
Cost of goods sold from company-owned stores		2365,~~396,516~~894		31,~~092~~067,~~874~~230
Cost of goods sold	$	194,~~016~~309,~~237~~140	$	415,~~172~~020,~~051~~518

For the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, cost of goods sold from non-exclusive stores was $1538,~~391~~040,~~398,~~ aan ~~decrease~~increase of 8945.48%, or $11169,~~746~~083,~~562,~~ from $13368,~~137,960~~957 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The ~~decrease~~increase was in line with the ~~decrease~~increase in sales from non-exclusive stores.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, cost of goods sold from company-owned stores was $2365,~~396~~894,~~516,~~ a decrease of 2265.57%, or $~~696~~701,~~358~~336, from $31,~~092~~067,~~874~~230 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The decrease was in line with the decrease in sales from company-owned stores.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, cost of goods sold from exclusive franchise stores was $153,~~228~~405,~~323~~206, a decrease of 385.90%, or $9179,~~712~~125,~~894,~~ from $243,~~941~~584,~~217~~331 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The decrease was in line with the decrease in sales from exclusive stores.

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

Same Store Cost of Goods Sold	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	~~589~~481,~~806~~264	$	~~904~~84,~~276~~219	$	~~(314~~397,~~470~~045	)		~~(35~~471	)%
Exclusive Franchise Stores	$	8685,~~619,429~~666	$	62,~~543~~463,~~287~~129	$	2(1,~~076~~777,~~142~~463	)		32(72	)%
Company-Owned Stores	$	2365,~~114,554~~894	$	21,~~713~~067,~~597~~230	$	(~~599~~701,~~043~~336	)		(2266	)%
Total	$	111,~~323~~532,~~789~~824	$	103,~~161~~614,~~160~~578	$	1(2,~~162~~081,~~629~~754	)		11(58	)%

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

Average Per-Store Same Store Cost of Goods Sold	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	3932,~~320~~084	$	605,~~285~~615	$	~~(20~~26,~~965~~469	)		~~(35~~471	)%
Exclusive Franchise Stores	$	~~278~~6,~~046~~349	$	~~211~~22,~~074~~807	$	66(16,~~972~~458	)		32(72	)%
Company-Owned Stores	$	2365,~~114,554~~894	$	21,~~713~~067,~~597~~231	$	(~~599~~701,~~043~~337	)		(2266	)%

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

New Store Cost of Goods Sold

~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014

~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013

Difference

Change

Non-Exclusive Franchise Stores

~~337~~56,~~317~~776

~~85,358~~-

~~251~~56,~~959~~776

~~295~~100

Exclusive Franchise Stores

52,~~108~~719,~~571~~540

~~2,497,338~~-

2,~~611~~719,~~233~~540

~~105~~100

Company-Owned Stores

Total

52,~~445~~776,~~888~~316

~~2,582,696~~-

2,~~863~~776,~~192~~316

~~111~~100

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

Average Per-Store New Store Cost of Goods Sold	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference		Change
Non-Exclusive Franchise Stores	$	1656,~~063~~776	$	~~4,493~~-	$	1156,~~570~~776		~~258~~100	%
Exclusive Franchise Stores	$	45104,~~612~~598	$	~~30,831~~-	$	14104,~~781~~598		48100	%
Company-Owned Stores	$	-	$	-	$	-		-	%

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

Closed Store Cost of Goods Sold	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	~~464,274~~-	$	12284,~~148,326~~738	$	(11284,~~684,052~~738	)		(96100	)%
Exclusive Franchise Stores	$	~~1,500,324~~-	$	151,~~900~~121,~~592~~202	$	(141,~~400~~121,~~268~~202	)		(91100	)%
Company-Owned Stores	$	~~281,962~~-	$	~~379,277~~-	$	~~(97,315~~-	)		~~(26~~-	)%
Total	$	~~2,246,560~~-	$	281,~~428~~405,~~195~~940	$	(261,~~181~~405,~~635~~940	)		(92100	)%

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

Average Per-Store Closed Store Cost of Goods Sold	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	~~1,300~~-	$	341,~~029~~769	$	(321,~~729~~769	)		(96100	)%
Exclusive Franchise Stores	$	~~4,659~~-	$	495,~~381~~663	$	(445,~~722~~663	)		(91100	)%
Company-Owned Stores	$	~~281,962~~-	$	~~379,277~~-	$	~~(97,315~~-	)		~~(26~~-	)%

Other information

The following is a summary of cost of goods sold by product line for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013:

	Nine months-Ended 9/30/2013		Nine months-Ended 9/30/2012
	Three Months-Ended 03/31/2014		Three Months-Ended 03/31/2013
Solar Power Products	$	1597,~~337,983~~223	$	8681,~~197,287~~169
Air Conditioner	$	61,~~932~~157,~~079~~528	$	151,~~119~~397,~~881~~260
Refrigerator	$	1458,~~642,933~~008	$	4353,~~935,783~~194
TV	$	5688,~~547,352~~983	$	111,~~033~~301,~~522~~785
Washer	$	2242,~~027,048~~801	$	1880,~~549,848~~593
Others	$	1,~~528~~164,~~842~~597	$	~~335~~406,~~730~~517
Total	$	194,~~016~~309,~~237~~140	$	415,~~172~~020,~~051~~518

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Gross Profit

Gross profit for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 was $1135,~~741~~462,~~745,~~ a decrease of $1348,~~584~~280,~~079,~~ or approximately 4772.60%, compared to $3483,~~325,824~~742 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, gross profit for non-exclusive stores was a loss of $~~124~~134,~~208~~737, a decrease of 87511.96%, or $~~903~~167,~~908~~470, from $132,~~028,116~~733 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The decrease was mainly due to certain of our products were caused by water damage and the ~~decreased~~company ~~sales~~disposed ~~from~~those ~~non-exclusive~~products ~~stores~~at lower or discounted price.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, gross profit for exclusive franchise stores was $1349,~~355~~743,~~367,~~ aan ~~decrease~~increase of 307.87%, or $~~603~~25,~~232~~005, from $1324,~~958,599~~738 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The ~~decrease~~increase was mainly due to that the ~~decreased~~ sales from exclusive franchise stores decreased less than the decrease of cost of goods sold of exclusive franchise stores.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, gross profit for company-owned stores was loss of $~~262~~(79,~~170~~544), a decrease of 22163.70%, or $76205,~~939~~815, from $~~339~~126,~~109~~271 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The decrease was mainly due to decreased sales from company-owned stores.

Gross profit and Average Per Store Gross Profit of Same Stores

Same Store Gross Profit	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014			~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013			Difference			Change
Non-Exclusive Franchise Stores	$	52(116,~~798~~919	)	$	727,~~489~~418		$	(19124,~~691~~337	)		(271,676	)%
Exclusive Franchise Stores	$	~~769~~120,~~619~~071		$	~~484~~223,~~603~~576		$	~~285~~(103,~~016~~505	)		59(46	)%
Company-Owned Stores	$	~~234~~(79,~~696~~544	)	$	~~300~~(35,~~174~~204	)	$	(6544,~~478~~340	)		~~(22~~126	)%
Total	$	1(76,~~057,113~~392	)	$	~~857~~195,~~266~~790		$	~~199~~(272,~~847~~182	)		23(139	)%

~~The average gross profit per-store of same Stores and its trend as a percentage of Same Store gross profit are as follows:~~41

Average Per-Store Same Store Gross Profit	Nine months-Ended 9/30/2013		Nine months-Ended 9/30/2012		Difference			Change
Non-Exclusive Franchise Stores	$	3,520	$	4,833	$	(1,313	)		(27	)%
Exclusive Franchise Stores	$	24,826	$	15,632	$	9,194			59	%
Company-Owned Stores	$	234,696	$	300,174	$	(65,478	)		(22	)%

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

Average Per-Store Same Store Gross Profit	Three Months-Ended 03/31/2014			Three Months-Ended 03/31/2013			Difference			Change
Non-Exclusive Franchise Stores	$	(7,795	)	$	495		$	(8,290	)		(1,676	)%
Exclusive Franchise Stores	$	1,112		$	2,070		$	(958	)		(46	)%
Company-Owned Stores	$	(79,544	)	$	(35,204	)	$	(44,340	)		126	%

Gross Profit and Average Per Store Gross Profit of New Stores

New Store Gross Profit

~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014

~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013

Difference

Change

Non-Exclusive Franchise Stores

30(17,~~094~~818

)

~~7,093~~-

23(17,~~001~~818

)

~~324~~(100

Exclusive Franchise Stores

~~456~~229,~~504~~672

~~219,902~~-

~~236~~229,~~602~~672

~~108~~100

Company-Owned Stores

Total

~~486~~211,~~598~~854

~~226,995~~-

~~259~~211,~~603~~854

~~114~~100

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

Average Per-Store New Store Gross Profit	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014			~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	1(17,~~433~~818	)	$	~~373~~-	$	1(17,~~060~~818	)		~~284~~(100	)%
Exclusive Franchise Stores	$	48,~~076~~834		$	~~2,715~~-	$	18,~~361~~834			50100	%
Company-Owned Stores	$	-		$	-	$	-			-	%

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Gross Profit and Average Per Store Gross Profit of Closed Stores

Closed Store Gross Profit	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	~~41,317~~-	$	~~948~~25,~~535~~315	$	(~~907~~25,~~218~~315	)		(96100	)%
Exclusive Franchise Stores	$	~~129,243~~-	$	1101,~~254,094~~162	$	(1101,~~124,851~~162	)		(90100	)%
Company-Owned Stores	$	~~27,475~~-	$	38161,~~935~~475	$	(11161,~~460~~475	)		(29100	)%
Total	$	~~198,035~~-	$	2287,~~241,564~~952	$	(2287,~~043,529~~952	)		(91100	)%

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

Average Per-Store Closed Store Gross Profit	~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2013~~2014		~~Nine~~Three ~~months~~Months-Ended 903/3031/~~2012~~2013		Difference			Change
Non-Exclusive Franchise Stores	$	~~116~~-	$	~~2,657~~157	$	(~~2,541~~157	)		(96100	)%
Exclusive Franchise Stores	$	~~401~~-	$	~~3,895~~511	$	(~~3,494~~511	)		(90100	)%
Company-Owned Stores	$	~~27,475~~-	$	38161,~~935~~475	$	(11161,~~460~~475	)		(29100	)%

Other information

The following is a summary of gross profit by product line for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013:

	Nine months-Ended 9/30/2013			Nine months-Ended 9/30/2012
	Three Months-Ended 03/31/2014			Three Months-Ended 03/31/2013
Solar Power Products	$	~~113~~50,~~163~~371		$	~~600~~57,~~670~~602
Air Conditioner	$	~~649~~61,~~294~~320		$	1145,~~304,233~~676
Refrigerator	$	~~149~~(54,~~815~~892	)	$	~~384~~36,~~117~~297
TV	$	~~500~~18,~~469~~807		$	~~888~~119,~~584~~686
Washer	$	~~197~~8,~~428~~663		$	~~118~~88,~~888~~756
Others	$	~~131~~51,~~576~~193		$	2935,~~332~~725
Total	$	1135,~~741,745~~462		$	3483,~~325,824~~742

Gross Profit Rate

Gross profit rate for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 was 83.3905%, ana ~~increase~~decrease of approximately 05.9274%, compared to 78.4779% for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The ~~increase~~decrease of gross profit rate is because the change of product portfolios in our sales during the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 compared to the same period last year. ~~We sold less low margin products during the nine months ended September 30, 2013 compared to the same period last year.~~ The Company continues to improve managing its sales network as well as products offered, which continuously requires us to review pricing on existing products and existing sales channels. We expect that our pricing strategies will continue to evolve to market conditions and expect improvements to have a marginalizing effect on the noted increase in gross profit rates at exclusive franchise stores as changes in product offerings mature along with their related pricing strategies.

For the nine months ended September 30, 2013, gross profit rate for exclusive franchise stores was 8.17%, an increase of 0.89% compared to 7.28% for the nine months ended September 30, 2012. The increase of gross profit rate is because the change of product portfolios in our sales during the nine months ended September 30, 2013 compared to the same period last year.43

49Table of Contents

For the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, gross profit rate for ~~non-~~exclusive franchise stores was 89.2031%, an increase of 01.9410%, compared to 78.2631% for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The increase of gross profit rate is because the change of product ~~mix~~portfolios in our sales during the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 compared to the same period last year.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, gross profit rate for ~~company~~non-~~owned~~exclusive stores was 9(33.8641)%, a decrease of 041.0256%, compared to 98.8815% for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The decrease of gross profit rate is because the change of product mix in our sales during the three months ended March 31, 2014 compared to the same period last year.

For the three months ended March 31, 2014, gross profit rate for company-owned stores was (27.78)%, a decrease of 38.36%, compared to 10.58% for the three months ended March 31, 2013.

Operating Expenses

Operating expenses for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 were $53,~~093~~113,~~022~~671, an increase of $12,~~669~~377,~~349~~536, or 48322.89%, from $3736,~~423,673~~135 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013.

Selling expenses for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 were $1391,~~950~~932,~~360,~~ an increase of $~~399~~35,~~570~~367, or 259.89%, from $1356,~~550,790~~565 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The increase of selling expenses is primarily due to the increase of marketing and promotion expenses.

General and administrative expenses for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 were $1175,~~111~~689,~~472,~~ a decrease of $~~407~~284,~~900~~199, or 26 61.8%, from $1459,~~519,372~~888 for ~~nine~~the three months ended ~~September~~March 3031, ~~2012~~2013. The decrease is mainly due to the decrease of overhead expenses related to drop of sales. The Company reduced the overhead expenses by imposing more strict internal control policy to reduce the travelling, administrative, entertaining and advertising expenses.

During the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013, ~~bad~~recovery of debt ~~allowance~~expenses ~~for accounts receivable~~ of $~~2,595,~~368,363 and $~~353~~80,~~511~~318 were recorded as a reduction of operating expenses.

During the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013, ~~recovery~~bad of debt ~~expenses~~allowance ofaccrued for accounts receivable were $~~564~~1,~~178~~245,764 and $0 ~~were recorded as reduction of operating expenses~~respectively.

In October 2013, during the rainy season, our warehouse was leaking. Some of our inventories were damaged. In order to promote the sales of those malfunction items, the Company sold them in discount. The price difference between the product cost and fair market value was $1,668,649 (RMB 10,204,789). Total $1,668,649 and $0 inventory loss of lower cost or market value was recorded under operating expenses for the three months ended March 31, 2014 and 2013, respectively.

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Net Operating Loss

Our net operating loss for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 was $32,~~351~~978,~~277~~209, an increase of $32,~~253~~725,~~428~~816, or 31,~~324~~080.90%, from $97252,~~849~~393 for the same period in ~~2012~~2013. The increase was mainly due to the decrease of sales and gross profit and the increase of operating expenses.

Other Income (Expense)

Our net other ~~expense~~income for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 was $306,~~559~~463,~~621,~~ ana ~~increase~~decrease of $30254,~~309~~526,~~218,~~ or ~~12,104~~ 97.25%, from net other ~~expense~~income $~~250~~260,~~403~~989 for the same period in ~~2012~~2013. The ~~increase~~decrease of other ~~expense~~income was mainly due to ~~increase~~decrease in interest ~~impairment loss for long-term assets held for sale~~ income of $30261,~~640,293~~ 759 during the ~~nine~~three months ended ~~September~~March 3031, 2014 compared to the same period 2013.

Provision for Income Taxes

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 ~~December~~September 102, ~~2011~~2007 providing that Guoying iswas ~~subject~~eligible to ~~income~~enjoy a reduced tax ~~and~~rate ~~VAT~~valid ~~benefit~~from ~~treatment~~October ~~out~~1, of2007 auntil ~~reduced~~December ~~rate~~31, of2010. ~~RMB~~On 7January 10,~~500~~ ~~tax~~2011, ~~payment~~the ~~per~~State ~~year~~Tax ~~(including~~Bureau ~~income~~of ~~tax~~Lu’an ~~and~~City ~~VAT)~~has ~~valid~~renewed ~~from~~the ~~December~~term 1,of ~~2011~~tax benefit approval until ~~December~~March 31, ~~2013~~2014. ~~subject~~However, according to the approval, Guoying's has an option to pay more intax ~~taxes~~per ~~should~~year itat ~~elect~~its ~~to do so~~discretion. Therefore, currently, Guoying is charged at a fixed annual amount of reduced tax rate of no less than ~~RMB7,~~RMB 7,500 per year that changes ~~every year~~ to cover all types of taxes including income ~~taxes~~tax and VAT. ~~The~~ ~~income~~There were no significant book and tax ~~expenses~~basis ~~for~~differences. On January 1, 2014, the ~~nine~~State ~~months~~Tax ~~ended~~Bureau ~~September~~of ~~30,~~Lu'an ~~2013~~City ~~and~~renewed ~~2012~~the ~~are~~term $0of ~~and~~tax ~~$287,~~benefit ~~respectively~~approval. ~~There~~ ~~were~~Pursuant noto ~~significant~~the ~~book~~renewal ~~and~~approval, Guoying will continue to enjoy the same tax ~~basis~~benefits ~~differences~~until December 31, 2017.

Net Income (Loss) Attributable to China Electronics Holdings, Inc.

Our net loss attributable to China Electronics Holdings, Inc. for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 was $332,~~910~~971,~~906~~746, an increase of $332,~~562~~979,~~367~~967, or 9$36,~~629~~248.42%, from net ~~loss~~income attributable to China Electronics Holdings, Inc. of $~~348~~8,~~539~~221 for the same period in ~~2012~~2013. The increase was mainly due to ~~impairment~~the ~~loss~~increase ~~for~~in ~~long-term~~operating ~~assets~~expenses ~~held~~andthe ~~for~~decrease ~~sale~~in sales, interest income during the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 or during the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Liquidity and Capital Resources

As of ~~September~~March 3031, ~~2013~~2014, we had cash and cash equivalents of $6628,~~694~~805, an increase of $572,~~229~~536 from $926,~~465~~269 as of December 31, ~~2012~~2013. We have historically funded our working capital needs with amounts from operations, advance payments from customers, bank borrowings, and capital from shareholders. Our working capital requirements are influenced by the level of our operations, and the timing of accounts receivable collections.

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

	September 30, 2013			September 30, 2012
	March 31, 2014			March 31, 2013
Net cash (used in) provided by operating activities	$	(1,079,724	)	$	1,291,334
Net cash provided by/(used in) operating activities	$	(1,392,136	)	$	131,208
Net cash used in investing activities		-			(2,405,898	)
Net cash (used in) investing activities		(4,253	)		(805	)
Net cash provided by financing activities		~~647~~1,~~159~~298,301			142,~~589,546~~751
Effect of rate changes on cash		~~489~~100,~~794~~624			~~7,313~~423
Increase) in cash and cash equivalents		57,229			482,295
Increase in cash and cash equivalents		2,536			173,577
Cash and cash equivalents, beginning of periods		926,~~465~~269			~~171~~9,~~838~~465
Cash and cash equivalents, end of periods	$	6628,~~694~~805		$	~~654~~183,~~133~~042

Net cash used in operating activities was $1,079,724 for the nine months ended September 30, 2013, compared to net cash provided by operating activities of $1,291,334 for the nine months ended September 30, 2012, an increase of $2,371,058 or 183.6%. The increase of net cash used in operating activities was primarily due to increased payments to purchase inventories and more increase of accounts receivables and other receivables, offset by decreased payments advanced to our suppliers for the purchase of inventories.45

OnTable July 28, 2013, the Company through its indirectly wholly owned subsidiary Guoying executed an assets 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 ~~$3,239,810~~Contents (RMB 20,000,000). Three installments in the amounts of: a) $809,952 (RMB 5,000,000), b) $1,619,906 (RMB 10,000,000) and c) $809,952 (RMB 5,000,000) are due by the ends of 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% of the outstanding balance monthly.

~~The~~Net ~~land~~cash used ~~use rights acquired through Pingqiao Industrial Park~~ in operating ~~Lu’an~~activities ~~City~~was ~~were~~$1,392,136 ~~re-appraised~~for bythe anthree ~~independent~~months ~~appraisal~~ended ~~firm~~March ~~Luan Shiji Land Price Evaluation Consultantive Co.~~31, ~~Ltd. on April 24~~2014, ~~2013.~~compared ~~The~~to ~~appraisal~~net ~~firm~~cash provided ~~concluded~~by ~~the~~operating ~~fair~~activities ~~value~~ of ~~the 38~~$131,~~449~~208 ~~square~~for ~~meters portion of~~ the ~~land~~three ~~that~~months ~~the~~ended ~~Company~~March ~~has~~31, ~~received a land use rights certificate issued by Yu An people’s government on April 16~~2013, ~~2012~~an ~~with~~increase ~~a term~~ of ~~50 years until 2062 was~~ $1,~~774~~523,~~722 (RMB 11,073,378)~~344. The ~~appraisal~~increase ~~firm~~of ~~further~~net ~~concluded~~cash ~~that~~used ~~pursuant~~in tooperating ~~the~~activities ~~Sales~~was ~~Agreement,~~primarily ~~Opto-Electronics~~due ~~will carry a contractual obligation~~ to ~~negotiate with~~ the Yusignificant Anincrease ~~government for purchase price to be paid to the Company to obtain the land use rights certificate~~ of ~~the~~net ~~remaining126, 534 square meters of Pingqiao land~~loss.

51On July 28, 2013, the Company through its indirectly wholly owned subsidiary Guoying executed an assets 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 $3,231,488 (RMB 20,000,000). Three installments in the amounts of: a) $807,872 (RMB 5,000,000), b) $1,615,744 (RMB 10,000,000) and c) $807,872 (RMB 5,000,000) are due by the ends of 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% of the outstanding balance monthly.On December 26, 2013, the Company agreed Opto-Electronics' buyer Mr. Li Xiaoyu's request to extend the payment schedule. The company has received first installment of payment in amount of 990,000RMB (approximately $160,665) from Mr. Li on May 16. The rest of loan has been deferred and will be paid continuously in the future.

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 was $1,774,722 (RMB 11,073,378). 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 leave the building at a favorable rent.

The Company entered into a loan agreement with Rural Credit Cooperative of Lu’an in amount of $1,298,301 at interest rate of 8.40% per annum due by January 3, 2015. Such loan is guaranteed by Lu'an Senyuan Ecological Park Ltd. and secured by the forestry plants grown on its land. Rural Credit Cooperative of Lu’an does not implement restrictive covenants such as minimum bank balance, level of working capital, or net income requirement on above loan.

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Growth Strategies

We funded our growth strategy from our working capital and below are a summary of approximately how much we have spent in year 2013 and estimates for 2014 to achieve our growth strategies:

Growth Strategies	Spent in ~~2013~~2014		~~Estimate~~Spent in 2013		Estimate in 2014
Develop new company-owned stores in Anhui Province	$	-		162,962		244,443
Develop new company-owned stores	$	0		-		163,398
Develop new exclusive franchise stores in Anhui, Hunan and Hubei Provinces	$	102,666		488,886		1,222,215
Develop new exclusive franchise stores	$	52,578		102,241		326,797
Develop new non-exclusive stores in Anhui, Hunan and Hubei Provinces	$	4,889		-		48,889
Develop new non-exclusive stores	$	0		4,869		0

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

In order to improve its cash flows from operations and working capital, the Company decided to redeploy its capital to meet 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. 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 includes: a) construction in progress, b) advance for construction of property and equipment, and c) land use rights the Company acquired through Pingqiao Industrial Park in Lu’an City. 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 its 99% ownership interest in its subsidiary Opto-Electronics for total consideration of $962,224 (RMB 5,940,000).

On July 28, 2013, the Company through its indirectly wholly owned subsidiary Guoying executed an assets sales agreement (the “Sales Agreement”) with Opto-Electronics. Pursuant to the Sales Agreement, Opto-Electronics agreed to purchase the Company’s capital assets associated with the logistics and transportation centers for total consideration of $3,239,810 (RMB 20,000,000). Three installments in the amounts of: a) $809,952 (RMB 5,000,000), b) $1,619,906 (RMB 10,000,000) and c) $809,952 (RMB 5,000,000) are due by the ends of 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% of the outstanding balance monthly.

The land use rights acquired through Pingqiao Industrial Park in Lu’an City were re-appraised by an independent appraisal firm Luan Shiji Land Price Evaluation Consultantive Co., Ltd. on April 24, 2013. The appraisal firm concluded the fair value of the 38,449 square meter portion of the land that the Company has 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 was $1,774,722 (RMB 11,073,378). The appraisal firm further concluded that pursuant to the Sales Agreement, Opto-Electronics will carry a contractual obligation to negotiate with the Yu An government for purchase price to be paid to the Company to obtain the land use rights certificate of the remaining126, 534 square meters of Pingqiao land.

The Company has assessed its long-term assets held for sale and determined that write-down was necessary because the sales price of the long-term assets held for sale was significant less than its carrying value. Therefore, as of June 30, 2013, the Company has written-down the long-term assets held for sale to $3,239,810 (RMB 20,000,000), the same value as sales price, in the consolidated balance sheets and has recorded $30,511,118 impairment loss in the consolidated statements of operations and comprehensive income for the six months ended June 30, 2013. As of September 30, 2013, the Company has classified the long-term assets held for sale as receivable from Buyer of Opto-Electronics because the assets associated with the logistics and transportation centers has been disposed on July 28, 2013.

Investing Activities

Net cash used in investing activities was $04,253 for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, compared to $~~2,405,898~~805 used in investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, aan ~~decrease~~increase of $23,~~405~~448,~~898,~~ or ~~100~~428.03%. The ~~decrease~~increase of net cash used in investing activities was primarily ~~due~~because towe ~~less~~paid ~~investment~~more infor ~~construction~~purchases inof ~~progress~~plant and equipment in the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014. The ~~compared~~Company toestimates that it will spend $16,366 and $0 on acquisition of property and equipment and construction in progress for the ~~same~~next ~~period~~three ~~2012~~months ended June 30, 2014.

Financing Activities

Net cash provided by financing activities was $~~647~~1,~~159~~298,301 for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014, compared to $142,~~589,546~~751 provided by for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The ~~decrease~~increase was mainly ~~due~~because towe ~~less~~borrowed ~~net~~$1.3 million bank ~~loan~~loans ~~proceeds~~ in the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014. ~~compared~~The toCompany estimates that it may borrow additional $1.1 million loans for the ~~same~~next ~~period~~three ~~2012~~months ended June 30, 2014.

Inflation and Changing Prices

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. Fluctuations in inflation in China compared to inflation in the U.S. is likely to result in fluctuations in the exchange rate between U.S. dollars and RMB, which will in turn affect our financial position and results of operations.

Contractual Obligations

Our significant contractual obligations are as follows:

The Company ~~incurred~~leases ~~rent~~various ~~expenses~~facilities for use of ~~$69,363~~warehouse and ~~$39,859~~operation ~~for~~of ~~the~~company-owned ~~three~~stores ~~months~~under ~~ended~~operating ~~September~~leases ~~30,~~that ~~2013~~terminate ~~and~~on ~~2012,~~various ~~respectively~~dates. The Company incurred rent expenses of $~~144~~35,~~086~~338 and $~~119~~40,~~882~~384 for the ~~nine~~three months ended ~~September~~March 3031, ~~2013~~2014 and ~~2012,~~2013 respectively.

~~The lease expenses for the next five years are estimated to be as follows:~~47

2014	$	95,329
2015		11,365
2016		-
2017		-
2018		-
Total	$	106,694

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

Three Months Ended March 31,
2015	$	141,090
2016		117,732
2017		117,732
	$	376,554

Application of Critical Accounting Policies

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

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

Revenue Recognition

a) Product Sales

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.

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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 more than approximately $1,200 for both its income tax and value added taxes.

b) Franchise Fees

Currently, in connection with promotional efforts aimed at network growth, the Company has ceased charging initial franchise fee, continuing fee and royalty to exclusive franchise stores. As such, total franchise fees for the ~~nine~~three months ~~periods~~period ended ~~September~~March 3031, ~~2013~~2014 and ~~2012~~2013 were $0.

Legal and Other Contingencies

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

Income Taxes

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

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Stock-Based Compensation

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

Recent Accounting Pronouncements

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures as required under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of ~~September~~March 3031, ~~2013~~2014, the Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of ~~September~~March 3031, ~~2013~~2014. The Company does not have a Chief Financial Officer that is familiar with the accounting and reporting requirements of a U.S. publicly-listed company, nor does it have a financial staff with accounting and financial expertise in U.S. generally accepted accounting principles (“US GAAP”) reporting. In addition, the Company does not believe it has sufficient documentation concerning its existing financial processes, risk assessment and internal controls. There are also certain deficiencies in the design or operation of the Company’s internal control over financial reporting that has adversely affected its disclosure controls that may be considered to be “material weaknesses.”

We plan to designate individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources on our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1A. Risk Factors

The purchase of our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2012~~2013 (the “~~2012~~2013 Form 10-K”), our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this report, and our consolidated financial statements and related notes included in Item 1 of Part I of this report. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the Securities and Exchange Commission.

Item 6 - Exhibits

The following exhibits are filed with this report:

2.1		Share Transfer Agreement of Opto-Electronics between Lu’an Guoying Electronics Sales Co., Ltdand Mr. Li Xiao Yu dated June 29, 2013
2.2		Asset Sale 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
31.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements 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: ~~December~~August 215, ~~2013~~2014

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Filing Compare · China Electronics Holdings, Inc.