U.S. Securities and Exchange Commission

Washington, D.C. 20549

_________________________

FORM 10-K

_________________________

x	Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Fiscal Year Ended December 31, 2012

o	Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from _______ to _______

Commission File Number: __________

_________________________

CHINA DU KANG CO., LTD

(Exact name of small business issuer as specified in its charter)

_________________________

Nevada		90-0531621
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Town of Dukang, Baishui County,

A-28,Van Metropolis,#35 Tangyan Road,

Xi'an, Shaanxi, PRC, 710065

(Address of principal executive offices)

8629-88830106-822

(Issuer's telephone number)

_________________________

Securities registered under Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
None		Not Applicable

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 par value

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark whether Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 if Regulation S-K (229.405 of this Chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. x

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

Large accelerated filer	o
Non-accelerated filer	o (Do not check if a smaller reporting company)
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

The aggregate market value of the registrant's voting common equity held by non-affiliates was $4,354,190 by reference to the price at which the common equity was last sold, which was $0.05 on February 28, 2013.

Number of shares of common stock, par value $.001, outstanding as of April 15, 2013 : 100,113,791

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

PART I:

Item 1.	Business	4
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	16
Item 3	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18

PART II:

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 8.	Financial Statements and Supplementary Data	25
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	26
Item 9A.	Controls and Procedures	26
Item 9B.	Other Information	27

PART III:

Item 10.	Directors, Executive Officers and Corporate Governance	28
Item 11.	Executive Compensation	31
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13.	Certain Relationships and Related Transactions, and Director Independence	33
Item 14.	Principal Accounting Fees and Services	33

PART IV:

Item 15.	Exhibits, Financial Statement Schedules	35

SIGNATURES:		36

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

The discussion contained in this 10-K under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this Form 10-K. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them.

PART I

ITEM 1.

BUSINESS

China Du Kang Co., Ltd (“Du Kang” or the “Company”) was incorporated as U.S. Power Systems, Inc., in the State of Nevada on January 16, 1987. On or about June 8, 2006 the Company’s name was changed to Premier Organic Farms Group, Inc. On or about November 30, 2006 the name was changed to Amstar Financial Holdings, Inc. (“AFLH”). On or about March 18, 2008 the name was changed to its current name of China Du Kang Co., Ltd. with its corporate charter still residing in Nevada. The Company changed its fiscal year ending from September 30 to December 31 in February 2008.

Overview

The Company had been engaged in the business of providing various financial services since its incorporation. The Company was not successful and discontinued the majority of its operation by December 31, 2007.

On January 10, 2008, the Company entered into a Plan of Exchange Agreement (the “Agreement”) with Hong Kong Merit Enterprise Limited (“Merit”), a holding company incorporated in Hong Kong. Pursuant to the terms of the Agreement, the Company agreed to issue post split 88,000,000 shares of its common stock to the shareholder(s) of Merit in exchange for Merit to transfer all of its issued and outstanding shares of common stock to the Company, thereby causing Merit to become a wholly-owned subsidiary of the Company. Merit also agreed to pay $260,000 to the Company at closing. The parties closed the transaction contemplated by the Agreement on February 11, 2008.

This transaction was accounted for as a reverse merger, since the shareholders of Merit own a majority of the outstanding shares of the Company’s common stock immediately following the share exchange. Merit is deemed to be the acquirer in the reverse merger. Consequently, the assets, liabilities and thistorical operations that are reflected in the consolidated financial statements for periods prior to the share exchange are those of Merit and its subsidiaries and are recorded at the historical cost basis. After completion of the share exchange, the Company‘s consolidated financial statements include the assets and liabilities of both Du Kang and Merit, the historical operations of Merit and the operations of the Company and its subsidiaries from the closing date of the share exchange.

Merit was incorporated on September 8, 2006 in Hong Kong under the Companies Ordinances as a limited liability company. Merit was formed for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship..

On January 22, 2008, Merit entered into a Share Purchase Agreement (the “Purchase Agreement”) with the owners of Shaanxi Huitong Food Co., Inc. ("Huitong"), a limited liability company incorporated in the People's Republic of China ("PRC") on August 9, 2007 with a registered capital of $128,200 (RMB1,000,000). Pursuant to the Purchase Agreement, Merit agreed to purchase 100% of the equity ownership in Huitong for a cash consideration of $136,722 (RMB 1,000,000). Subsequent to the completion of the Agreement, Huitong became a wholly-owned subsidiary of Merit.

Huitong was formed for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship. On December 26, 2007 Huitong executed a share exchange agreement (the "Exchange Agreement") with the owners of Shaanxi Xidenghui Technology Stock Co., Ltd. ("Xidenghui"), whereby Huitong exchanged 100% of its issued and outstanding capital for 98.24% of the equity ownership in Xidenghui. Subsequent to completion of the Share Exchange, Xidenghui became a majority-owned subsidiary of Huitong.

Xidenghui was incorporated in Weinan City, Shaanxi Province, PRC on March 29, 2001 under the Company Law of PRC. Xidenghui was engaged in the business of production and distribution of distilled spirit with a brand name of “Xidenghui”. Currently, its principal business is to hold an equity ownership interest in Shannxi Baishui Dukang Liquor Co., Ltd. (“Baishui Dukang”) and Shaanxi Baishui Dukang Liquor Brand Management Co., Ltd. (“Brand Management”).

Baishui Dukang was incorporated in Baishui County, Shaanxi Province, PRC on March 1, 2002 under the Company Law of PRC. Baishui Dukang was principally engaged in the business of production and distribution of distilled spirit with a brand name of “Baishui Dukang”. On May 15, 2002, Xidenghui invested inventory and fixed assets, with a total fair value of $4,470,219 (RMB 37,000,000) to Baishui Dukang and owns 90.51% of Baishui Dukang’s equity interest ownership, thereby causing Baishui Dukang to become a majority-owned subsidiary of Xidenghui.

On October 30, 2007, Xidenghui executed an agreement with Mr. Zhang Hongjun, a PRC citizen, to establish a joint venture, Shaanxi Baishui Dukang Liquor Brand Management Co., Ltd. ("Brand Management"). Pursuant to the agreement, Xidenghui contributed cash of $769,200 (RMB 700,000), and owns 70% equity interest ownership therein. Brand Management was subsequently incorporated on November 12, 2007. Upon the completion of incorporation, Brand Management became a majority-owned subsidiary of the Xidenghui. Xidenghui is principally engaged in the business of distribution of Baishui Dukang’s liquor and management of the “Baishui Dukang” brand name.

Baishui Dukang and Brand Management are the two affiliated companies that are engaged in business operations. Du Kang, Merit, Huitong, and Xidenghui are holding companies, whose business is to hold an equity ownership interest in Baishui Dukang and Brand Management. All these affiliated companies are hereafter referred to as the "Company." Currently the Company is principally engaged in the business of production and distribution of distilled spirits with the brand name of “Baishui Dukang.” The Company also licenses the brand name to other liquor producers. The Company's structure is summarized in the flow chart found in Note 1 to the Consolidated Financial Statements.

Previous to this, on or about October 25, 2006 a Definitive Agreement was entered into by Premier Organic Farms Group, Inc. and Amstar International, Inc. On or about December 19, 2006, the merger defined in this agreement was closed. In the definitive agreement Amstar International, Inc. was to merge with Premier Organic Farms Group, Inc. (PFOG). Prior to the merger PFOG was to change its name to Amstar Financial Holdings, inc., dilute their shares down to approximately 608,771 shares with 96.12% of the ownership passing to Amstar International Stockholders. In addition, as part of the terms of this agreement a favorable hearing before a judge of competent jurisdiction, regarding a petition of fairness subject to section 3(a)(10) of the Securities Act of 1933 was to be approved. An order granting this petition of fairness was signed on December 18, 2006 by a judge in State of Nevada, County of Elko, Case number CV-C-06-1016. This transaction closed on December 19, 2006, in Phoenix, Arizona.

Baishui Dukang Liquor Factory was built as a State owned enterprise in the middle of 1970s with about 400 employees. By the early 1990’s it was no longer profitable and Baishui stopped manufacturing in the early 90’s. The Sanjiu Group acquired the facility in 1995, restarted and attempted to operate for one year. Unable to attain profitability, the Sanjiu Group closed the facility in 1998 and it remained closed until Baishui Dukang leased the facility on March 4, 2002.

On March 4, 2002, Baishui Dukang signed a lease agreement with Shaanxi Sanjiu Dukang Liquor Production Co., Ltd ("Sanjiu"), pursuant to which Baishui Dukang agreed to lease the liquor production facility of Sanjiu, including all the fixed assets and the piece of land that the fixed assets attached, for a period of 20 years, which was latterly extended to 30 year. On February 3, 2005, Sanjiu was acquired by Shannxi Baishui Dukang Liquor Development Co., Ltd, an affiliate of the Company. On April 30, 2005, Baishui Dukang signed a complementary lease agreement with Shannxi Baishui Dukang Liquor Development Co., Ltd, pursuant to which Baishui Dukang agreed to continue to lease the liquor production facility for the rest of the original 30-year period. Baishui Dukang also agreed to pay $362,450 (RMB 3,000,000) to the local government to continue the lease and to absorb the pension and unemployment insurance expenses of Sanjiu's original employees. All the pension and unemployment insurance payments were to be made directly to the local China Social Security Administration to satisfy all of the pension and unemployment insurance expenses that were required in connection with the original Sanjiu employees.

From that time until the present, the Baishui facility has been the Company’s exclusive manufacturing facility and the Company has continued to market the lines that were originally proffered by the Baishui Dukang Liquor Factory. The Company has made significant improvements to the facility and expects to continue to improve the facility.

Current Operations

Hong Kong Merit Enterprise Limited (“Merit”), a Hong Kong holding company, wholly owns Shaanxi Huitong Food Development Co., Inc. (“Huitong”), a PRC holding company, which majority owns Shaanxi Xidenghui Technology Stock Co., Ltd.(“Xidenghui”), which in turn majority owns Shaanxi Bai Shui Du Kang Liquor Co., Ltd. (“Bai Shui Du Kang”) and Shaanxi Bai Shui Du Kang Brand Management Co., Ltd.(“ Brand Management”).

On or about January 31, 2008, Merit purchased a majority interest in Amstar Financial Holdings, Inc. (formerly AFLH) in a reverse merger. The Company’s new name is China Du Kang Company Limited now listed as CDKG.

On the date of the reverse merger, Xidenghui’s registered capital was $19,485,320 (RMB 161,280,000) and Merit owed 98.24% of Xidenghui. On October 1, 2011, Xidenghui increased it registered capital to $ $23,901,671 (RMB 189,174,108) and Merit owns 83.75% Xidenghui.

Shaanxi Xi Deng Hui Stock Co. Ltd. holds

●	90.51% and controls Shaanxi Bai Shui Du Kang Liquor Co., Ltd., and holds
●	70% Shaanxi Bai Shui Du Kang Brand Management Co., Ltd.

Principal Products

The Company manufactures, sells, licenses and distributes a proprietary line of white wines that are generally known in China under the heading Du Kang. The largest sellers are currently collections called the “Baishui Dukang” series, the Thirteen Dynasties series and Jiu Zu Gong.

Du Kang is a generic description, like “vodka” or “merlot” and is one of the most famous Chinese white wine brands. The Company’s subsidiaries Shaanxi Bai Shui Du Kang Liquor Co. Ltd and Shaanxi Bai Shui Du Kang own the “Bai Shui Du Kang” brand, while another subsidiary, owns three brands:

●	Bai Shui Du Kang
●	Thirteen Dynasties and

●	Jiu Zu Gong.

At present, Du Kang has 6,000 ton production capacity per year including (brewing and packaging). Liquor products unit prices range from $2.00 to $150.00. Our Du Kang Liquor products are sold in most cities in China. In northeast, north, south coastal region and middle areas of China we sell liquor through long-term liquor distributors. In Shaanxi province we sell liquor to agent stores in Xi’an, Bai Shui, Hua yin, Han Cheng, Fu Ping Pu Cheng, Da Li, Wei Nan city. Throughout China, the Du Kang market sales, awareness and brand image is broadening.

Through its subsidiaries in China, the Company sells and develops new and additional liquors, liquor raw materials, deep processing of agricultural and sideline products and research and development of high-tech products and brewing methods. We were the first company, in cooperation with the Chinese Academy of Sciences, to ship Du Kang yeast and grain aboard #3 and #7 Shenzou spaceflights for a series of scientific experiments designed to improve yield and flavors. No newly developed products have entered the market since 2008. We are currently focusing on expanding distribution of existing brands so we have devoted only minimal resources to research and development activities in the past two years.

Major products include the Baishui Dukang series, Thirteen Dynasties series, Shen Zhou Nectar, Guo Bin Special, and Jiu Zu Gong.

Distribution methods of the products or services

The Company set a new sales strategy, including sales territory that covers many counties in China since July 2007. Du Kang Liquor products previously have been sold mostly in the larger cities in China. Beginning from 2008 , we put in place distributorship agreements in the form of agencies or licensing that now includes the northeast, north, south coastal region and middle areas of China.

We derive our revenue from following three ways:

●	Sales of liquor within China generally through long-term liquor distributors (“distributor”).
●	Fees from agent liquor stores/retailers (“agent”)
●	Our subsidiary, Shaanxi Bai Shui Du Kang Brand Management Co., Ltd. grants permission to use “Baishui Dukang” trademark to white spirits manufactures (“licensee”) who comply with the liquor (or white spirits) production standard of PRC.

Accordingly, the Company enters into three different types of agreements: Distributorship Agreements, Agency Agreements, and Licensing Agreements. All are designed to expand the distribution of the Company’s products. The material terms and differences among the agreements are as follows:

The Company’s distribution agreements grant the distributor the exclusive right to distribute the Company’s products within a defined territory. Each distributor agreement provides an area within the PRC that is exclusive to the distributor for a 5-year exclusive period. Each Distributor Agreement specifies the Du Kang products that are to be sold, with the Thirteen Dynasties series being the most prevalent. Pricing of the products is according to the China Du Kang pricing policies. Terms include account settlement procedures, duties pertaining to licenses, packaging and sales conduct. The distributors are required to provide reports, protect the trademarks and copyrights and dispute resolution procedures.

The Company’s agency agreements grant the agent the exclusive right to sell the Company’s products within a defined territory. The agency agreements grant an agent to exclusively sell particular products of the Company in exchange for a pre-determined royalty. The Royalty payments for agency agreements range from $44,000 to $126,000 in 2012 and 2011. The Company will produce specific liquors for sale stated under the terms of the agency agreement, and the agent has the exclusive right to sell certain products as designated by the agreement. The agreement does not private label the specific products, but we agree that we will not sell those products through our distributors or other arrangements. The agency agreement does not entitle the agent to sell any other China Du Kang products other than the specific products that are subject to the Agency agreement. For agency agreements last for one year and may be renewed annually. The agent must pay an upfront fee that varies from product to product and the agent must minimum sales requirements during the term of the agreement.

The Company’s licensing agreements grant the licensee a non-exclusive right to use the Company’s trademarks, logos, and brand names in connection with the development, marketing, and sale of the licensee’s independently manufactured products. The licensing agreements grant a license to use the Company’s trademarks in exchange for a pre-determined royalty. The Royalty payments for licensing agreements ranged from $131,000 to $190,000. Licensing agreements typically date back to a period before the current Company acquired the assets and essentially continues the rights of certain third parties to market products using the China Du Kang name, patterns, logos, trademarks and other proprietary assets for sub-branding of products. Licensing agreements are for specific zones with the PRC and may overlap territories that are included in other agreements. Each agreement specifies the products covered, types of uses permitted, and the method and scope of sub-branding. The Agreements cover sales literature, pricing, quality controls and standards for packaging.

Our major customers are disclosed below:

			For the Year Ended December 31,
			2012					2011
	Major	Type of			Percentage of					Percentage of
	Customers	Customer	Revenue		Total Revenue			Revenue		Total Revenue
*	Shaanxi Dukang Group Co., Ltd.	Distributor	$	1,764,543		34.76	%	$	1,474,019		47.69	%
*	Shaanxi Baishui Dukang Shiye Co., Ltd.	Distributor		16,008		0.32	%		247,012		7.99	%
	Xinhui Shanghang Co., Ltd.	Distributor		541,798		10.67	%		-		-
	Sanhe Commercial Trading Co., Ltd.	Distributor		393,068		7.74	%		-		-
	Ms. Xiaoyan Shi	Agent		-		-			204,737		6.62	%
	Mr. Anxian Xie	Agent		-		-			175,488		5.68	%
	Ms. Sue Dong	Agent		-		-			170,614		5.52	%
	Total		$	2,715,417		53.49	%	$	2,271,869		73.51	%

We derive revenue from distributors, licensees, and agents as following:

	For the Year Ended
	2012					2011
			Percentage					Percentage
			of Total					of Total
Type of Customer	Revenue		Revenue			Revenue		Revenue
Distributor	$	4,762,164		83.57	%	$	1,943,864		62.89	%
Licensee		243,942		4.32	%		293,821		9.51	%
Agent		638,202		11.31	%		853,069		27.60	%
	$	5,076,665		100.00	%	$	3,090,754		100.00	%

We derive revenue from PRC region as further disclosed in the following:

	For the Year Ended
	2012					2011
			Percentage					Percentage
			of Total					of Total
Name of Province	Revenue		Revenue			Revenue		Revenue
Shaanxi Province	$	3,352,304		59.39	%	$	2,777,434		89.86	%
Henan Province		0		0	%		87,744		2.84	%
Shandong Province		117,355		2.08	%		50,575		1.64	%
Hebei Province		0			%		23,886		0.77	%
Anhui Province
Hubei Province		126,585		2.24	%		126,742		4.10	%
Gansu Province
Zhejiang Province
Heilongjiang Province
Shanxi Province		131,860		2.34	%		23,383		0.79	%
Shanxi Province		189,594		3.36	%		23,383		0.79	%
Other location		1,004,915		19.80	%		0		0	%

	$	5,076,665		100.00	%	$	3,090,754		100.00	%

Competitive Business Conditions

While management is pleased at the progress of the distribution of its Du Kang liquors, it remains a relatively insignificant participant in the liquor and beverage industry. Many of our competitors are larger and have significantly more financial resources. We were recently awarded inclusion in China’s top 500 large and medium sized beverage manufacturers. An article in the April 15, 2009 edition of “The Atlantic”magazine (Risen,The Atlantic, April 15, 2009) reported that “Maotai,” a “baijiu” type of white liquor that is competitive, was the largest selling liquor in the world. The article notes that Maotai is somewhat expensive – the bottle tested cost $115 USD, smells of ammonia, and has a bitter taste.

Both a February, 2010, issue of the newspaper China Daily (Qingfen and Yue,China Daily, February 2, 2010) also noted that "Moutai and Wuliangye,” two higher end liquors were selling briskly, Both Moutai and Wuliangy are products that compete with the Company’s liquors. The article quoted a report from a China investment firm that said,

“In 2010, China's high-end liquor (wine and spirit) consumption will grow by more than "30 percent" from a year earlier, higher than the liquor market as a whole, which will see a "20 to 25" percent rise.”

The Company believes that its Du Kang series is positioned well against the larger sellers and should enjoy increased sales if the liquor market overall improves as expected.

Sources and Availability of Raw Materials

The raw material needed in our production is mainly grain. The Company purchases sorghum from farmers in the northeast and other wholesalers. While its price fluctuates in response to market conditions, availability has never been an issue. In addition, the Company expects to enter into a contract of quota system for the production by local farmers to purchase some of the other required raw materials such as wheat and corn.

Dependence on Major Customers

Shaanxi Dukang Group Co., Ltd., accounted for approximately 34.8% of the sales of our products for the year ended December 31, 2012. Shaanxi Dukang Group Co., Ltd., accounted for approximately 47.7% of the sales of our products for the year ended December 31, 2011.

The Company has received all the certificates required to be issued by the Chinese government pertaining to production and sales of liquor, such as the Production License, Trade Mark Registration Certificate, etc. All these certificates are in force.

We believe we have full rights to the intellectual property required for sales in China. We have been contacted by a U.S. group that indicates that they have a prior right to the name “Du Kang” within the United States.

Dependence on Major Suppliers

We rely on a limited number of suppliers for our component parts and raw materials. Although there are many suppliers for each of our component parts and raw materials, we are dependent on a limited number of suppliers for many of the significant components and raw materials. This reliance involves a number of significant potential risks, including:

●	lack of availability of materials and interruptions in delivery of components and raw materials from our suppliers;
●	manufacturing delays caused by such lack of availability or interruptions in delivery;
●	fluctuations in the quality and the price of components and raw materials, in particular due to the petroleum price impact on such materials; and
●	risks related to foreign operations.

We generally do not have any long-term or exclusive purchase commitments with any of our suppliersHunan Xinshiji Taochi Co., Ltd., Hunan Liling Liangyou Geramacs Co., Ltd., and Mr. Jianguo Wang each accounted for 5.00%, 8.90%, and 5.31%, respectively, of our purchases of components for our products for the year ended December 31, 2011.

Hunan Xinshiji Taochi Co., Ltd., Hunan Fengling Liangyou China Co., Ltd., Shanxi Wenxiyingfa Glass Co., Ltd., and Yuncheng Aofeng Glass Co., Ltd. each accounted for 29.7%, 9.8%, 9.4% and 10.9%, respectively, of our purchases of components for our products for the year ended December 31, 2012.

Our failure to maintain existing relationships with our suppliers or to establish new relationships in the future could also negatively affect our ability to obtain our components and raw materials used in our products in a timely manner. If we are unable to obtain ample supply of products from our existing suppliers or alternative sources of supply, we may be unable to satisfy our customers’ orders which could materially and adversely affect our revenues and our relationship with our customers.

Regulation

We are currently regulated by People’s Government of Shaanxi Province approved Business License, Organization Code of PRC. We have obtained and maintain China Manufacture Certificate, Sanitation License and Food Security permits for Shaanxi Bai Shui Du Kang Liquor Co., Ltd.

The greatest impact of government regulation for our business is the change of tax policy. In China, white spirit production belongs to a traditionally high tax industry. However, the Company’s location, Bai Shui county, is rated as a national level poor county. The Company is considered to be a pillar enterprise and major enterprise tax payer in Bai Shui county.

Employees

The Company currently has 192 full time employees. During peak seasons, the Company hires temporary workers and typically has approximately 250 part time employees during these periods. The Company currently has no part time employees.

All officers and directors except Liu Su Ying are employed on a full time basis and devote their full time of at least 40 hours per week to the Company. Ms. Liu devotes approximately 70% of her time each week to the Company as its CFO.

Costs and effects of compliance with environmental laws

Company’s main product is liquor, and the raw material for liquor production is grain and water. The water is taken from Dukang spring, a fresh water aquifer that has a history of thousands of years. The Company’s manufacturing process meets the national standard for environmental protection. Moreover, the Company was commended as a “Manufacturing Enterprise to Recycle Energy” by the government of the Shaanxi province.

In recent years, the Company has refurbished its production equipment, factory, building, boiler, water line, electricity as well as air, to improve its efficiency. In addition, the Company has invested in recovery processing of the distiller’s grains produced in liquor-making, in order to produce the fodder.

ITEM 1A.

RISK FACTORS

RISKS RELATED TO OUR BUSINESS

WE MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS.

We expect to incur significant costs associated with our public company reporting requirements, costs associated with applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all of these applicable rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We estimate that these additional costs will total approximately $100,000 per year. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

RISKS RELATING TO OUR SECURITIES

WE HAVE NEVER PAID DIVIDENDS ON OUR COMMON STOCK AND YOU MAY NEVER RECEIVE DIVIDENDS. THERE IS A RISK THAT AN INVESTOR IN OUR COMPANY WILL NEVER SEE A RETURN ON INVESTMENT AND THE STOCK MAY BECOME WORTHLESS.

We have never paid dividends on our common stock. We intend to retain earnings, if any, to finance the development and expansion of our business. Future dividend policy will be at the discretion of the Board of Directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions and other factors. Future dividends may also be affected by covenants contained in loan or other financing documents, which may be executed by us in the future. Therefore, there can be no assurance that cash dividends of any kind will ever be paid. If you are counting on a return on your investment in the common stock, the shares are a risky investment.

THERE IS CURRENTLY NO SUBSTANTIAL MARKET FOR OUR COMMON STOCK AND NO ASSURANCE THAT ONE WILL DEVELOP.

There is currently on an extremely limited trading market for our shares of Common Stock, under the symbol “CDKG.” We are filing this information partly to provide such information to the public although there can be no assurance that a more substantial market will ever develop or be maintained. Any market price for shares of our Common Stock is likely to be very volatile, and numerous factors beyond our control may have a significant adverse effect. In addition, the stock markets generally have experienced, and continue to experience, extreme price and volume fluctuations which have affected the market price of many small capital companies and which have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions, may also adversely affect the market price of our Common Stock. Further, there is no correlation between the present limited market price of our Common Stock and our revenues, book value, assets or other established criteria of value. The present limited quotations of our Common Stock should not be considered indicative of the actual value of the Company or our Common Stock.

Future sales of our common stock could put downward selling pressure on our shares, and adversely affect the stock price. There is a risk that this downward pressure may make it impossible for an investor to sell his shares at any reasonable price.

Future sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could put downward selling pressure on our shares, and adversely affect the market price of our common stock. Such sales could be made pursuant to Rule 144 under the Securities Act of 1933, as amended, as shares become eligible for sale under the Rule.

BECAUSE OUR SHARES ARE DEEMED HIGH RISK “PENNY STOCKS,” YOU MAY HAVE DIFFICULTY SELLING THEM IN THE SECONDARY TRADING MARKET.

The Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as therein defined) less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. Additionally, if the equity security is not registered or authorized on a national securities exchange, the equity security also constitutes a "penny stock." As our common stock falls within the definition of penny stock, these regulations require the delivery, prior to any transaction involving our common stock, of a risk disclosure schedule explaining the penny stock market and the risks associated with it. These regulations generally require broker-dealers who sell penny stocks to persons other than established customers and accredited investors to deliver a disclosure schedule explaining the penny stock market and the risks associated with that market. Disclosure is also required to be made about compensation payable to both the broker-dealer and the registered representative and current quotations for the securities. These regulations also impose various sales practice requirements on broker-dealers. In addition, monthly statements are required to be sent disclosing recent price information for the penny stocks. The ability of broker/dealers to sell our common stock and the ability of shareholders to sell our common stock in the secondary market is limited. As a result, the market liquidity for our common stock is severely and adversely affected. We can provide no assurance that trading in our common stock will not be subject to these or other regulations in the future, which would negatively affect the market for our common stock.

IF A MARKET DEVELOPS FOR OUR SECURITIES, IT COULD BE VOLATILE AND MAY NOT APPRECIATE IN VALUE.

If a market should develop for our securities, of which we have no assurance, the market price is likely to fluctuate significantly. Fluctuations could be rapid and severe and may provide investors little opportunity to react. Factors such as changes in results from our operations, and a variety of other factors, many of which are beyond the control of the Company, could cause the market price of our common stock to fluctuate substantially. Also, stock markets in penny stock shares tend to have extreme price and volume volatility. The market prices of shares of many smaller public companies securities are subject to volatility for reasons that frequently unrelated to the actual operating performance, earnings or other recognized measurements of value. This volatility may cause declines including very sudden and sharp declines in the market price of our common stock. We cannot assure investors that the stock price will appreciate in value, that a market will be available to resell your securities or that the shares will retain any value at all.

RISKS RELATING TO DOING BUSINESS IN THE PEOPLE'S REPUBLIC OF CHINA

WE ARE SUBJECT TO THE POLITICAL AND ECONOMIC POLICIES OF THE PEOPLES REPUBLIC OF CHINA, AND GOVERNMENT REGULATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR INTENDED BUSINESS.

All of our assets and operations are in the PRC. As a result our operating results and financial performance as well as the value of our securities could be affected by any changes in economic, political and social conditions in China.

The Chinese government adopted an “open door” policy to transition from a planned economy to a market driven economy in 1978. Since then the economy of the PRC has undergone rapid modernization although the Chinese government still exerts a dominant force in the nation’s economy. There has historically been a substantial market in liquor consumption in China.

The Chinese government operates the economy in many industries through various five-year plans and even annual plans. A large degree of uncertainty is associated with potential changes in these plans. Since the economic reforms have no precedent, there can be no assurance that future changes will not create materially adverse conditions on our business.

Due to the limited effectiveness of judicial review, public opinion and popular voting there are few avenues available if the governmental action has a negative effect. Any adverse changes in the economic conditions, in government policies, or in laws and regulations in China could have a material adverse effect on the overall economic growth, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our business.

THERE ARE RISKS INHERENT IN DOING BUSINESS IN CHINA OVER WHICH WE HAVE NO CONTROL.

The political and economic systems of the PRC are very different from the United States and more developed countries. China remains volatile in its social, economic and political issues which could lead to revocation or adjustment of reforms. There are also issues between China and the United States that could result in disputes or instabilities. Both domestically and internationally the role of China and its government remain in flux and could suffer shocks, or setbacks that may adversely affect our business.

THE CHINESE LEGAL SYSTEM IS MUCH DIFFERENT FROM THAT OF THE UNITED STATES WITH CONSIDERABLY LESS PROTECTION FOR INVESTORS, AND IT MAY BE EXTREMELY DIFFICULT FOR INVESTORS TO SEEK LEGAL REDRESS IN CHINA AGAINST US OR OUR OFFICERS AND DIRECTORS, INCLUDING CLAIMS THAT ARE BASED UPON U.S. SECURITIES LAWS.

All of our current operations are conducted in China. All of our current directors and officers are nationals or residents of China. It may be difficult for shareholders to serve us with service of process in legal actions. All of the assets of these persons are located outside the United States in China. The PRC legal system is a civil law system. Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little value as precedents. As a result there is no established body of law that has precedential value as is the case in most western legal systems. Differences in interpretations and rulings can occur with little or no opportunity for redress or appeal.

As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon our officers and directors. Even if service of process was successful, considerable uncertainty exists as to whether Chinese courts would enforce U. S. laws or judgments obtained in the United States. Federal and state securities laws in the U. S. confer substantial rights to investors and shareholders that have no equivalent in China. Therefore a claim against us or our officers and/or directors or even a final judgment in the U. S. based on U. S. may not be heard or enforced by the Chinese courts.

In 1979, the PRC began to adopt a complex and comprehensive system legal system and has approved many laws regulating economic and business practices in the PRC including foreign investment. Currently many of the approvals required for our business can be obtained at a local or provincial level. We believe that it is generally easier and faster to obtain provincial approval than central government approval. Changes to existing laws that repeal or alter the local regulatory authority and replacements by national laws could negatively affect our business and the value of our securities.

THE CHINESE ACCOUNTING SYSTEM IS DIFFERENT FROM THAT OF THE UNITED STATES AND WE MAY NOT HAVE ADEQUATE SAFEGUARDS IN PLACE TO ASSURE THAT OUR BOOKS AND RECORDS COMPLY WITH U. S. REQUIREMENTS.

All of our current operations are conducted in China and we record all of our transactions in accordance with the generally accepted rules of accounting applicable in the People’s Republic of China. These rules are different from the generally accepted rules of accounting applicable (“GAAP”) in the United States. In order to report our financial performance, we must first convert our financial information to the U. S. rules. Only our Chief Financial Officer is familiar with the GAAP rules of the United States and she has limited experience. Currently we have no checks and balances in place to assure that the conversions made by our CFO are accurate. Therefore, there is a risk that our financial statements may not be accurate if the conversions are inaccurate. The Company is currently negotiating with third party accounting concerns to add additional persons who will review and confirm the accuracy of the conversions. We expect to have these persons in place prior to the next quarterly financial reporting period.

FAILURE TO COMPLY WITH THE UNITED STATES FOREIGN CORRUPT PRACTICES ACT COULD SUBJECT US TO PENALTIES AND OTHER ADVERSE CONSEQUENCES.

As our ultimate holding company is a Nevada corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the PRC. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

IF WE MAKE EQUITY COMPENSATION GRANTS TO PERSONS WHO ARE PRC CITIZENS, THEY MAY BE REQUIRED TO REGISTER WITH THE STATE ADMINISTRATION OF FOREIGN EXCHANGE OF THE PRC, OR SAFE. WE MAY ALSO FACE REGULATORY UNCERTAINTIES THAT COULD RESTRICT OUR ABILITY TO ADOPT AN EQUITY COMPENSATION PLAN FOR OUR DIRECTORS AND EMPLOYEES AND OTHER PARTIES UNDER PRC LAW.

On April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company, also known as “Circular 78.” It is not clear whether Circular 78 covers all forms of equity compensation plans or only those which provide for the granting of stock options. For any plans which are so covered and are adopted by a non-PRC listed company after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation in the plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and filings if they participated in an overseas listed company’s covered equity compensation plan prior to April 6, 2007. We intend to adopt an equity compensation plan in the future and make option grants to our officers and directors, most of whom are PRC citizens. Circular 78 may require our officers and directors who receive option grants and are PRC citizens to register with SAFE. We believe that the registration and approval requirements contemplated in Circular 78 will be burdensome and time consuming. If it is determined that any of our equity compensation plans are subject to Circular 78, failure to comply with such provisions may subject us and participants of our equity incentive plan who are PRC citizens to fines and legal sanctions and prevent us from being able to grant equity compensation to our PRC employees. In that case, our ability to compensate our employees and directors through equity compensation would be hindered and our business operations may be adversely affected.

UNDER THE NEW ENTERPRISE INCOME TAX LAW, WE MAY BE CLASSIFIED AS “RESIDENT ENTERPRISES” OF CHINA FOR TAX PURPOSES, WHICH MAY SUBJECT US TO PRC INCOME TAX ON TAXABLE GLOBAL INCOME.

Under the new PRC Enterprise Income Tax Law (the “New EIT Law”) and it’s implementing rules, both of which became effective on January 1, 2008. Under the New EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. An enterprise established outside of China with its “de facto management bodies” located within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese domestic enterprise for enterprise income tax purposes. The implementing rules of the New EIT Law define de facto management body as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. Due to the short history of the New EIT law and lack of applicable legal precedents, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment of a foreign company. Our members of management are located in China. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income, including interest income on the proceeds from this offering, as well as PRC enterprise income tax reporting obligations. Second, the New EIT Law provides that dividend paid between “qualified resident enterprises” is exempted from enterprise income tax. A recent circular issued by the State Administration of Taxation regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese group enterprises and established outside of China as “resident enterprises” clarified that dividends and other income paid by such “resident enterprises” will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by non-PRC shareholders. We are actively monitoring the possibility of “resident enterprise” treatment for the applicable tax years and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible. As a result of the New EIT Law, our historical operating results will not be indicative of our operating results for future periods and the value of our common stock may be adversely affected.

NEW CHINESE LAWS MAY RESTRICT OUR ABILITY TO CONTINUE TO MAKE ACQUISITIONS OF BUSINESSES IN CHINA.

New regulations on the acquisition of businesses commonly referred to as “SAFE” regulations (State Administration of Foreign Exchange) were jointly adopted on August 8, 2006 by six Chinese regulatory agencies with jurisdictional authority. Known as the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors the new Rule requires creation of offshore Special Purpose Ventures, or SPVs, for overseas listing purposes. Acquisitions of domestic Chinese companies require approval prior to listing securities on foreign exchanges.

We obtained the approvals that we believe are required in making the acquisitions that formed the present company. Nonetheless, our growth has largely been by acquisition and we intend to continue to make acquisitions of Chinese businesses. Since the “SAFE” rules are very recent there are many ambiguities and uncertainties as to interpretation and requirements. These uncertainties and any changes or revisions to the regulations could limit or eliminate our ability to make new acquisitions of Chinese businesses in the future.

CHINA CONTROLS THE CURRENCY CONVERSION AND EXCHANGE RATE OF ITS CURRENCY, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.

The Chinese government imposes control over the conversion of the Chinese currency, the Renminbi, into foreign currencies, although recent pronouncements indicate that this policy may be relaxed. Under the current system, the People's Bank of China publishes a daily exchange rate based on the prior day's activity which controls the inter-bank foreign exchange market. Financial institutions are permitted a narrow range above or below the exchange rate based on then current market conditions. Since 1997, the State Council has prohibited restrictions on certain international payments or transfers for current account items. The regulations also permit conversion for distributions of dividends to foreign investors. Investment in securities, direct investment, and loans, and security investment, are still subject to certain restrictions.

For more than a decade the exchange rate for the Renminbi (“RMB”) was pegged against the United States dollar leaving the exchange rates relatively stable at roughly 8 RMB for 1 US Dollar. The Chinese government announced in 2005 that it would begin pegging the Renminbi exchange rate against a basket of currencies, instead of relying solely on the U.S. dollar. This has recently caused the dollar to depreciate as against the RMB. As of December 31, 2012, the rate was 6.31610 RMB for 1 US Dollar. Since all of our expected operations are in China, significant fluctuations in the exchange rate may materially and adversely affect our revenues, cash flow and overall financial condition.

CHINESE LAW REQUIRES APPROVAL BY CHINESE GOVERNMENT AGENCIES AND COULD LIMIT OR PROHIBIT THE PAYMENT OF DIVIDENDS FROM ANY PROCEEDS OBTAINED FROM LIQUIDATION OF OUR ASSETS.

All of our assets are located inside the Peoples Republic of China. Chinese law governs the distributions that can be made in the event of liquidation of assets of foreign invested enterprises. While dividend distribution is allowed it is subject to governmental approval. Liquidation proceeds would also be subject to foreign exchange control. We are unable to predict the outcome in the event of liquidation insofar as it affects dividend payment to non- Chinese nationals.

CHINA HAS BEEN THE LOCALE FOR THE OUTBREAK OF VARIOUS DISEASES AND A PANDEMIC CAUSED BY DISEASES SUCH AS SARS, THE AVIAN FLU, OR SIMILAR DISEASES COULD HAVE A MATERIALLY ADVERSE EFFECT ON OUR WORKERS AND EVEN THE CHINESE ECONOMY IN GENERAL, WHICH MAY ADVERSELY AFFECT BUSINESS.

The World Health Organization reported in 2004 that large scale outbreaks of avian flu throughout most of Asia, including China, had nearly caused a pandemic that would have resulted in high mortality rates and which could cause wholesale civil and societal disruption. There have also been several potential outbreaks of similar pathogens in China with the potential to cause large scale disruptions, such as SARS, pneumonia and influenza. Any future outbreak which infiltrates the areas of our operations would likely have an adverse effect on our ability to conduct normal business operations.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES.

Total depreciation expense was $450,503 and $471,809 for the years ended December 31, 2012 and 2011, respectively. The property, plant and equipment shown in the following chart are those held directly by the Company and the remaining properties are owned per a capital lease.

	December 31,			December 31,
	2012			2011

Building and warehouses	$	3,185,704		$	3,274,587
Machinery and equipment		2,278,147			2,306,197
Office equipment and furniture		281,718			191,972
Motor vehicles		373,732			370,878
Leased assets		2,561,674			2,457,187
Total		8,680,975			8,600,821
Less: Accumulated depreciation		(4,821,423	)		(4,460,944	)
		3,859,552			4,139,877
Add: Construction in progress		385,744			311,792
Total property, plant and equipment, net	$	4,245,296		$	4,451,669

Leased Assets

On March 4, 2002, Baishui Dukang signed a lease agreement with Shaanxi Sanjiu Dukang Liquor Production Co., Ltd ("Sanjiu"), pursuant to which Baishui Dukang agreed to lease the liquor production facility of Sanjiu, including all the fixed assets and the piece of land that the fixed assets attached, for a period of 20 years, which was latterly extended to 30 years. On February 3, 2005, Sanjiu was acquired by Shannxi Baishui Dukang Liquor Development Co., Ltd, an affiliate of the Company. On April 30, 2005, Baishui Dukang signed a complementary lease agreement with Shannxi Baishui Dukang Liquor Development Co., Ltd, pursuant to which Baishui Dukang agreed to continue to lease the liquor production facility for the rest of the original 30-year period. Baishui Dukang also agreed to pay $362,450 (RMB 3,000,000) to the local government to continue the lease and to absorb the pension and unemployment insurance expenses of Sanjiu's original employees. All the pension and unemployment insurance payments were to be made directly to the local China Social Security Administration to satisfy all of the pension and unemployment insurance expenses that were required in connection with the original Sanjiu employees.

Pursuant to the lease agreement, Baishui Dukang is required to absorb the pension and unemployment insurance expenses of Sanjiu's original employees until they all reach their retirement age. Pursuant to the applicable laws in PRC, male employees retire when they reach 60 years old, while female employees retire when they reach 55 years old. Accordingly, Sanjiu’s original employees will gradually retire until Year 2032. The pension and unemployment insurance expenses are based on a certain percentage of the employees’ gross payroll. The percentage may be changed as the applicable law is amended. In practice, the expenses can be based on the local average salary published by the local government. Over the life of the lease, Management anticipates the percentage will remain the same while the local average salary will increase 4% annually. The number of employees for which we need to absorb pension and unemployment insurance expenses will gradually decrease as Sanjiu’s original employees reach their retirement ages. To the best of our estimation, we anticipate the future payment for pension and unemployment insurance expenses for Sanjiu’s original employees as rental payments as follows:

Year	Pension Insurance Expense					Unemployment Insurance Expense					Total		Present Value as of December 31, 2012 (the incremental interest rate is 8%)
	Province average salary (RMB)	Annual increase rate	Percentage	No. of employees	Estimated pension insurance expense (RMB)	City average salary (RMB)	Annual increase rate	Percentage	No. of employees	Estimated pension insurance expense	USD$1.00=RMB6.31610 @12/31/2012
	Province average salary (RMB)	Annual increase rate	Percentage	No. of employees	Estimated pension insurance expense (RMB)	City average salary (RMB)	Annual increase rate	Percentage	No. of employees	Estimated pension insurance expense	(RMB)	(USD)	(RMB)	(USD)
2013	15,505	4%	20%	282	874,483	12,351	4%	2.50%	282	87,078	961,561	152,240	706,776	130,521
2014	16,125	4%	20%	268	864,312	12,846	4%	2.50%	268	86,065	950,377	150,469	646,811	119,447
2015	16,770	4%	20%	258	865,344	13,359	4%	2.50%	258	86,168	951,512	150,649	599,614	110,731
2016	17,441	4%	20%	244	851,123	13,894	4%	2.50%	244	84,752	935,875	148,173	546,074	100,844
2017	18,139	4%	20%	228	827,124	14,449	4%	2.50%	228	82,362	909,486	143,995	491,367	90,741
2018	18,864	4%	20%	215	811,162	15,027	4%	2.50%	215	80,772	891,935	141,216	446,189	82,398
2019	19,619	4%	20%	199	780,828	15,629	4%	2.50%	199	77,752	858,580	135,935	397,689	73,442
2020	20,404	4%	20%	173	705,963	16,254	4%	2.50%	173	70,297	776,260	122,902	332,925	61,482
2021	21,220	4%	20%	148	628,103	16,904	4%	2.50%	148	62,544	690,647	109,347	274,265	50,649
2022	22,068	4%	20%	135	595,849	17,580	4%	2.50%	135	59,332	655,182	103,732	240,909	44,489
2023	22,951	4%	20%	113	518,698	18,283	4%	2.50%	113	51,650	570,348	90,301	194,181	35,860
2024	23,869	4%	20%	102	486,933	19,015	4%	2.50%	102	48,487	535,420	84,771	168,787	31,170
2025	24,824	4%	20%	77	382,290	19,775	4%	2.50%	77	38,067	420,357	66,553	122,698	22,659
2026	25,817	4%	20%	52	268,497	20,566	4%	2.50%	52	26,736	295,233	46,743	79,792	14,735
2027	26,850	4%	20%	41	220,167	21,389	4%	2.50%	41	21,923	242,091	38,329	60,583	11,188
2028	27,924	4%	20%	25	139,618	22,244	4%	2.50%	25	13,903	153,521	24,306	35,573	6,569
2029	29,041	4%	20%	18	104,546	23,134	4%	2.50%	18	10,410	114,957	18,201	24,664	4,555
2030	30,202	4%	20%	12	72,485	24,059	4%	2.50%	12	7,218	79,703	12,619	15,834	2,924
2031	31,410	4%	20%	6	37,692	25,022	4%	2.50%	6	3,753	41,446	6,562	7,624	1,408
2032	32,667	4%	20%	1	6,533	26,023	4%	2.50%	1	651	7,184	1,137	1,224	226
Total					10,939,256					1,089,290	12,028,546	1,903,233	6,176,988	1,119,124

The manufacturing facility of the Company is Shaanxi Bai Shui Du Kang Liquor Co., Ltd. The plant is located in South of Dukang Street, Town of Dukang, Baishui County, the city of Weinan, Shaanxi Province, 715600.

Much equipment is used in our manufacturing process. The main equipment is as follows:

-	Fermenter: grain fermentation

-	Crasher: before the fermentation of the grain, it is better to have it crashed and then it can fullly access to the distiller's yeast

-	Brewing equipment: which is also called Liquor distillation equipment. The well fermented semifinished products can be poured into it. After heating, the Ethanol, water and various organic compounds can be fractioned by distillation.

-	Cellar: for the storage of the liquor after it is brewed

-	Liquid filling machine: filling the liquor into the containers, such as the bottles

-	Capping machine: cover the bottle shutters

-	Labeling machine: affix labels on the products

-	Packaging machine: put the bottles into the boxes.

-	Carton sealing machine seal the boxes

-	Progressive assembly line: it can help to make the liquid filling, capping, labeling and packaging, etc be completed in an assembly line so it can speed up the production efficiency.

ITEM 3.

LEGAL PROCEEDINGS.

We are not presently involved in any litigation that is material to our business. We are not aware of any pending or threatened legal proceedings. In addition, none of our officers, directors, promoters or control persons has filed or been involved for the past five years:

●	in any bankruptcy petition
●	in any conviction of a criminal proceeding or involved in a pending criminal proceeding (excluding traffic violations and minor offenses)
●	is subject to any order, judgment or decree enjoining, barring suspending or otherwise limiting their involvement in any type of business, securities, or banking activities,
●	has been found to have violated a federal or state securities or commodities law.

There have been no securities trading suspensions by any regulator, and there is no pending or threatened litigation for which the adverse effect, assuming an unfavorable outcome, would exceed $25,000.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Trading Market for Common Equity

Our common stock is currently quoted on the OTCQB tier of the OTC Markets Group under the trading symbol “CDKG.” The OTCQB is an inter-dealer quotation and trading system and only market makers can apply to quote securities on the OTCQB. Trading in our common stock on the OTCQB has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. Further, these prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions.

The following table sets forth the high and low sale prices for our common stock as reported on Nasdaq.com for the periods indicated.

		COMMON STOCK
CALENDAR YEARS	QUARTER ENDED	HIGH		LOW
2012	March 31	$	0.03	$	0.004
	June 30		0.05		0.03
	September 30		0.06		0.04
	December 31		0.10		0.05

2011	March 31	$	0.06	$	0.01
	June 30		0.02		0.003
	September 30		0.03		0.004
	December 31		0.03		0.004

Dividends

We have never paid a cash dividend on our common stock. The payment of dividends may be made at the discretion of our Board of Directors, and will depend upon, among other things, our operations, capital requirements, and overall financial condition. There are no contractual restrictions on our ability to declare and pay dividends.

Number of Holders

As of April 15 2013, we had 9,778 common shareholders of record.

Securities Authorized for Issuance under Equity Compensation Plans

As of the date of this Report, we have not authorized any equity compensation plan, nor has our Board of Directors authorized the reservation or issuance of any securities under any equity compensation plan.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers

None

Transfer Agent

Our transfer agent is Island Stock Transfer, Inc. located at 100 Second Avenue South, Suite 705S St. Petersburg, Florida 33701

ITEM 6.

SELECTED FINANCIAL DATA

Not applicable.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying financial statements, as well as information relating to the plans of our current management and should be read in conjunction with the accompanying financial statements and their related notes included in this Report. References in this section to “we,” “us,” “our,” or the “Company” are to the business of China Du Kang Co., Ltd. and its subsidiaries.

This Report contains forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expects,” “intends,” “estimates,” “continues,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

OVERVIEW

China Du Kang Co., Ltd (“China Du Kang” or the “Company”) was incorporated as U.S. Power Systems, Inc., in the State of Nevada on January 16, 1987. On or about June 8, 2006 the Company’s name was changed to Premier Organic Farms Group, Inc. On or about November 30, 2006 the name was changed to Amstar Financial Holdings, Inc. (“AFLH”). On or about March 18, 2008 the name was changed to its current name of China Du Kang Co., Ltd. with its corporate charter still residing in Nevada. The Company changed its fiscal year ending from September 30 to December 31 in February 2008.

The Company’ operations currently consist of sales of a line of proprietary liquors known generally in China as the Baishui Dukang series. These are clear liquors sold under a variety of trade names including Thirteen Dynasty, Jiu Zu Gong and Baishui. The Company’s products are sold mostly in larger urban areas in China through three long term marketing agreements.

We manufacture products for distribution under certain labels that are proprietary to the Company and which are also distributed through agencies. We also permit third parties to manufacture similar products under distinguishable names.

We authorize liquor manufacturers who comply with our requirements to use certain sub brand names of “Baishui Dukang” to process the production of liquor and to sell to customers within a designated area in a certain period of time. The amount of licensing fee varies based on the sales territory and the number of sub brand names. We generally collect the entire licensing fee when the licensing contract is executed, and then recognize licensing fee revenue over the beneficial period described by the contract, as the revenue is realized or realizable and earned. We also authorize liquor stores who comply with our requirements to exclusively sell certain sub brand names of “Baishui Dukang” products within the designated area in a certain period of time. The amount of agency fee varies based on the sales territory and the number of sub brand names. We generally collect the entire agency fee when the agency contract is executed, and then recognize agency fee revenue over the beneficial period described by the contract, as the revenue is realized or realizable and earned

The company’s annual income increased from $3,090,754 in 2011 to $5,076,665 in 2012, which included $2,299,176, or a 118.3% increase in sales of liquor, and $(313,265), or 27.3% decrease in license fees.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 2012 AND DECEMBER 31, 2011

REVENUES

Gross revenues improved from $3,090,754 to $5,076,665 for the years ended December 31, 2011 and 2012 respectively due primarily to the increase in sales of liquor. We recognize revenue when the earning process is complete which generally occurs when products are shipped, both title and the risks and rewards of ownership are transferred, or services have been rendered and accepted, the selling price is fixed or determinable, and collectability is reasonably assured. We do not provide unconditional rights of return and other concessions to our customers. Sales returns and other allowances have been immaterial in our operation.

The amount revenues increased was $1,985,911 or 64.3%, which was attributable to an increase in sales of liquor where we to expanded our sales strategy. Sales of liquor improved $2,299,176, or 118.3% from $1,943,864 for the year ended December 31, 2011 to $4,243,040 for the year ended December 31, 2012. We expect to continue to expand our customer base for liquor as we increase our marketing and selling effort.

License fees decreased from $1,146,890 for the year ended December 31, 2011 to $833,625 for the year ended December 31, 2012, representing a decrease of $313,265, or 27.3%. License fees include fees payable by our licensees and agents. The decrease resulted from our modification of business strategy to emphasis increasing the sale of liquor to more customers especially third party customers in 2012.

The breakdown for sales revenues for related parties and non-related parties as follows:

		For the Year Ended
		December 31,
		2012			2011
	Related Party		40.3	%		88.5	%
Distributor	Third Party		59.7	%		11.5	%
			100	%		100	%

	Related Party		-	%		-	%
Licensee	Third Party		100	%		100	%
			100	%		100	%

	Related Party		-	%		-	%
Agent	Third Party		100	%		100	%
			100	%		100	%

GROSS MARGIN

The overall gross margin for the year ended December 31, 2012 was 49.7% as compared to 49.5% for the comparable period of 2011. Gross margin on sales of liquor was 39.8% for the year ended December 31, 2012, representing an increase of 102.8%, compared to gross margin of 19.6% for the comparable period in 2011. The significant increase in gross margin resulted from the increase of sales to unrelated third party customers as we modified our sales strategy and mission in 2012.

		For the Year Ended									For the Year Ended
		December 31, 2012									December 31, 2011
		Revenue		Costs of sales		Gross Profit		Gross Profit %			Revenue		Costs of sales		Gross Profit		Gross Profit %
	Related Party		1,918,595		1,595,242		323,353		16.85	%		1,721,030		1,499,806		221,224		17.01	%
Distributor	Third Party		2,324,445		958,460		1,365,985		58.76	%		222,834		62,394		160,440		72.00	%
	Subtotal		4,243,040		2,553,702		1,689,338		39.81	%		1,943,864		1,562,200		381,664		19.63	%

	Related Party		-		-							-		-
Licensee	Third Party		243,941		-		243,941		100	%		293,821		-		293,821		100	%
	Subtotal		243,941		-		243,941		100	%		293,821		-		293,821		100	%

	Related Party		-		-							-		-
Agent	Third Party		589,684		-		589,684		100	%		853,069		-		853,069		100	%
	Subtotal		589,684		-		589,684		100	%		853,069		-		853,069		100	%
	Total		5,076,665		2,553,702		2,552,963		49.45	%		3,090,754		1,562,200		1,528,554		49.45	%

OPERATING EXPENSES

Total operating expenses increased from $1,104,778 for the year ended December 31, 2011 to $1,788,477 for the year ended December 31, 2012, representing an increase of $683,699 or approximately 61.9%. The increase in operating expenses was largely due to the increase in selling expenses of $185,406 as well as general administrative expenses of $498,293.

Selling expenses increased $185,406 or 107.7% from $172,179 in the year ended December 31, 2011 to $357,585 for the year ended December 31, 2012. The increase is due to a significant increase of $175,068 in promotion expenses from $69,143 in the year ended December 31, 2011 to $244,211 for the same period in 2012, as the Company was providing various sales promotions such as giveaways to consumers to try and test our products. We continued our spending on various media advertising to create awareness of our Company's product and brand name. Advertising expense for the years ended December 21, 2012 and 2011 were $74,350 and $88,896, respectively.

Our general and administrative expenses increased from $932,599 for the year ended December 31, 2011 to $1,430,892 for the year ended December 31, 2012. The increase was largely attributed to the increase of $115,925 in salaries and wages from $323,861 for the year ended 2011 to $439,786 for the same period in 2012. As we expand our operations, we expect our payroll related expenses to increase in the short term.

For the year ended December 31, 2012, we recognize bad debt expense of $215,494 as compared to $0 for the same period in 2011. We started to increase our sales to unrelated third party in 2011 and as a result we have estimated an allowance for uncollectibles of customers accounts receivable.

Other general and administrative expenses that increased over the year include office expenses, repair and maintenance, and travel and entertainment which resulted in total increase of $186,555.

OTHER INCOME AND EXPENSES

We have incurred total interest expense and imputed interest expense of $32,194 and $985,231 for the years ended December 31, 2012 and 2011, respectively. The decrease in interest expense was primarily due to the decrease in the interest expenses related to bank loans and imputed interest expenses related to the related parties’ loans for working capital purposes. We have repaid our bank loans and converted the related parties' debt into equity in the year ended 2011.

In 2012, we also received $273,741 from the local government as a subsidy to encourage growth and expansion of our business in the local area of China.

INCOME/LOSS FROM OPERATIONS

The Company experienced income from operations of $968,950 in the year ended December 31, 2012 and a net income of $924,661, which reflects an improvement of $1,520,304 in the year ended December 31, 2012. The improvement was attributable to an increase in gross profit from $1,528,554 to $2,522,963 from the year ended December 31, 2011 to 2012 resulting from the increase in sales to third parties at a higher gross margin. The Company expects that sales to third parties will continue to grow gradually over the next few years.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

	For the year ended December 31, 2012			For the year ended December 31, 2011
Net Cash provided by Operating Activities	$	15,627		$	291,103
Net Cash used in Investing Activities	$	(210,434	)	$	(2,301,145	)
Net Cash provided by (used in) Financing Activities	$	(99,603	)	$	942,579
Net Increase (Decrease) in Cash	$	(294,410	)	$	(1,067,463	)

Net cash provided by operating activities in 2011 was $291,103, as cash provided by operating activities was $15,627 for year ended December 31, 2012. The Changes were primarily due to the increase in inventory of $1,647,197, accounts receivable of $484,225. We have increased our inventory due to new business model developed in 2011 and our accounts receivable increased resulted from increase sales to unrelated third party. We also decreased our accounts payables, accrued liabilities, and other liabilities by an amount of $242,510.

Cash flows used in investment activities decreased from $2,301,145 to $210,434 for the years ended December 31, 2011 and December 2012, respectively. We purchased land used right of $1,988,380 for our manufacturing facility in 2011.

Net cash provided by financing activities for the years ended December 31, 2012 and 2011 were $1,421,284 and $942,579, respectively. The majority of the change was attributed to net proceeds of our related parities loan of $1,674,848 with an offset of our repayment to such loans of $253,564.

Working Capital

	At December 31, 2012		At December 31, 2011
Current Assets	$	9,456,149	$	7,254,737
Current Liabilities	$	6,470,431	$	5,309,183
Working Capital (Deficit)	$	2,985,718	$	1,945,554

Total assets at the periods ending 2012 and 2011 were $17,608,341 and $15,626,040, respectively. Total current assets increased for the same periods from $7,254,737 to $9,456,149, which was primarily attributable to the increase of inventory and prepaid expenses.

Property, plant and equipment increased slightly from $4,451,669 at December 31, 2011 to $4,245,296 at December 31, 2011. For the same respective periods long term investment increased slightly from $1,885,399 to $1,899,907 due to the changes in currency exchange rate.

Total liabilities increased from $6,156,606 at December 31, 2011 to $7,240,447 at December 31, 2012, as we increased our loans from related parties of $1,657,840 for working capital. Meanwhile, we also decreased our accounts payables, accrued expense, and other payables by paying $225,073 to our suppliers and creditors in 2012.

We have cash of $681,702 and $968,370 at December 31, 2012 and 2011, respectively. We believe that we have sufficient cash to fund operations for approximately 12 months assuming that sales and margins remain constant.

Our liquidity is dependent upon the continuation of and expansion of our operations, receipt of revenues and additional infusions of capital provided by equity and debt financing. Management believes that the current program of sales through distributorship agreements will improve throughout 2013 and that margins overall will continue to improve thereby. Demand for our products is dependent on market acceptance of our liquor and conditions in the liquor and general beverage markets, and general economic conditions. All of our products are currently sold in the Peoples Republic of China and are heavily dependent on the economy, exchange rates, and consumption habits within the Peoples Republic of China. Many of these factors are cyclical and beyond the control of management.

We have historically funded our cash needs through a series of debt transactions, primarily with related parties. These related party loans have operated as informal lines of credit since the inception of the Company, and related parties have extended credit as needed which the Company has repaid at its convenience. Our officers and directors and related parties have assured us that they will continue to provide capital infusions sufficient to fund operations over the next 12 months as needed, but they are under no legal obligation to do so. If our related parties are unable or unwilling to provide additional capital infusions we would likely require additional financing which would likely be on more unfavorable terms. If we are unable to attain additional capital there would likely be a material adverse affect on our operations and financial condition.

Loans from these related-parties are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Accordingly, we have not paid any interest for these loans, as more fully disclosed in the footnotes to our consolidated financial statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 3 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2012-02 (“ASU 2011-12”), Testing Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities testing long-lived intangible assets for impairment now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. This ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions. The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations, and cash flows.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. Under this standard, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. For the Company, this ASU is effective beginning January 1, 2013, and interim periods within those annual periods. The adoption of this standard is not expected to have an impact on the Company’s financial results or disclosures.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)	Financial Statements

The information required by this Item is submitted as a separate section of this Report commencing on page 37, attached hereto.

(b)	Supplementary Data

None

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and our Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

As of the end of the period covered by this Annual Report on Form 10-K, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of December 31, 2012.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that as of December 31, 2012, our internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in the our internal control over financial reporting that occurred during during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The following table sets forth the names, ages, and positions of our executive officers and directors. Executive officers are appointed by our Board of Directors. Under the Bylaws of the Company, directors are elected at each annual meeting of the stockholders and serve until a successor has been duly elected and qualified except upon death, resignation, or removal. Vacancies on the Board of Directors may be filled by appointment by the remaining directors until the next shareholder meeting.

NAME	AGE	TITLE	DATE OF APPOINTMENT	PERCENT OF TIME DEVOTED
Wang, Yongsheng	41	President and Chief Executive Officer	January 5, 2008		100	%
Liu, Su Ying	63	Chief Financial Officer	January 5, 2008		70	%
Nie, Fen Ying	48	Director	January 5, 2008		100	%

Wang Yongsheng, 41, Preisdent and Chief Executive Officer

Mr. Wang studied EMBA in Xi’an Jiao Tong University, and obtained his degree. He served as the purchasing and supplying manager and the vice producing director of Xi Deng Hui Alcohol Co. Ltd. in 1996. He left the prior position and held the post of the vice general manager of Du Kang Liquor Limited Liability Company in 2002. In 2004, he was promoted to be the Chairman of Du Kang Liquor Limited Liability Company and he is still the chairman of that company. On February 18, 2008, Mr. Wang was appointed to be the Chief Executive Officer of China Dukang Co., Ltd. and has continued in that position since his appointment.

Mr. Wang has nearly fifteen years experience as a director of alcoholic beverage sales companies in the People’s Republic of China. He has been associated with Dukang Liquor since 2002, and has been associated with the Company since its acquisition of the liquor producing facilities. He has served as CEO since 2008, and has directed our efforts to expand our distribution methods and increase the revenues of the Company.

Liu Su Ying, 63, Chief Financial Officer

Ms. Liu passed the Adult Self-Study Examination in Shaanxi from 1987 to 1990 major in Accounting.

Ms. Liu is a certified public accountant in the PRC, having passed her examination in 1990. Since that time she has been continuously engaged in various accounting positions. She became familiar with US GAAP while preparing reports for those companies, leading to her selection as the Company’s CFO in 2008.

From 1990 to 1998 she was deputy section chief of accounting department of Shaanxi Wei Nan Textile Factory. From1999 to 2001 she worked in Shaanxi Hui Huang Construction and Building Material Company as manager of accounting department. In 2001, she was appointed as the CFO of Shannxi Xidenghui Technology Co., Ltd and she is still holds that position. Ms. Liu has held the position of CFO of China Dukang Co., Ltd. since her appointment on February 18, 2008.

Nie Fen Ying, 48, Director

Ms. Nie Fen Ying graduated from Xian Yang Normal University majoring in physical distribution management. After three years of studying, she served as sales manager in Shaanxi Bai Shui Dukang Liquor Co., Ltd., a liquor production and sales company, from 2001 to 2003. From 2003 until present, Ms. Nie has been sales manager of Shaanxi Xi Deng Hui Stock Co., Ltd., a holding company of Shaanxi Bai Shui Dukang Liquor Co., Ltd.. Ms Nie has been a Director of China Dukang Co., Ltd. since being appointed to the position on February 18, 2008.

Ms. Nie has nearly a decade of experience in production and sales of liquor in the People’s Republic of China. She was familiar with the Company’s predecessor and has served as a director since 2008. She has been instrumental in guiding the dedicated liquor sales segment of the business.

Family Relationships

Mr. Wang is the nephew of Ms. Nie.

Involvement in Legal Proceedings

None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

●	any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

●	any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

●	being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

●	being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Meetings of Our Board of Directors

Our Board of Directors took all actions by unanimous written consent without a meeting during the fiscal years ended December 31, 2012 and 2011.

Director Compensation

We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors.

Significant Employees

Other than the directors and officers described above, we do not expect any other individuals to make a significant contribution to our business.

Audit Committee and Other Committees

We do not have a separately designated standing audit committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit committee for the purpose of overseeing the accounting and financial reporting processes, and audits of our financial statements. The Commission recently adopted new regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these new requirements, our Board of Directors examined the Commission's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. We have had minimal operations for the past two (2) years. Presently, there are only one (1) director serving on our Board, and we are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current directors meets the qualifications of an "audit committee financial expert", each of our directors, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current director capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert.

Code of Ethics

We have adopted a code of ethic (the "Code of Ethics") that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is designed with the intent to deter wrongdoing, and to promote the following:

●	Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships
●	Full, fair, accurate, timely and understandable disclosure in reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by the small business issuer

●	Compliance with applicable governmental laws, rules and regulations

●	The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code

●	Accountability for adherence to the code

Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report, in this Form 10-K, any failure to comply therewith during the fiscal year ended December 2012. We believe that all of these filing requirements were satisfied by our executive officers, directors and by the beneficial owners of more than 10% of our common stock. In making this statement, we have relied solely on copies of any reporting forms received by us, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be filed under applicable rules of the Commission.

ITEM 11.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

We maintain a peer-based executive compensation program comprised of fixed and performance variable elements. The design and operation of the program reflect the following objectives:

●	Recruiting and retaining talented leadership.
●	Implementing measurable performance targets.
●	Correlating compensation directly with shareowner value.
●	Emphasizing performance based compensation, progressively weighted with seniority level.
●	Adherence to high ethical, safety and leadership standards.

Designing a Competitive Compensation Package

Recruitment and retention of leadership to manage our Company requires a competitive compensation package. Our Board of Directors emphasizes (i) fixed compensation elements of base salary that compare with our compensation peer group of companies, and (ii) variable compensation contingent on above-target performance. The compensation peer group consists of those companies in the Guangdong region that we deem to compete with our Company for executive talent. Individual compensation will vary depending on factors such as performance, job scope, abilities, tenure, and retention risk.

Fixed Compensation

The principal element of fixed compensation not directly linked to performance targets is based salary. We target the value of fixed compensation generally at the median of our compensation peer group to facilitate a competitive recruitment and retention strategy.

Incentive Compensation

Our incentive compensation programs are linked directly to earnings growth, cash flow, and total shareowner return. Annual bonuses are tied to the current year’s performance of our company. Restrictive stock awards are tied to an individual’s success in exceeding targeted results set by management.

No compensation was awarded to or paid to any executive officer or director of the Company other than as shown in the table below.

The following table and the accompanying notes provide summary information for each of the last three fiscal years concerning cash and non-cash compensation paid or accrued.

SUMMARY COMPENSATION TABLE
Name and principal position (a)	Year (b)	Salary ($) (c)		Bonus ($) (d)		Stock Awards ($) (e)		Option Awards ($) (f)		Non-Equity Incentive Plan Compensation ($) (g)		Nonqualified Deferred Compensation Earnings ($) (h)		All Other Compensation ($) (i)		Total ($) (j)
Wang	2012	$	13,780		0		0		0		0		0		0	$	13,780
Yongsheng	2011	$	11,250		0		0		0		0		0		0	$	11,250
CEO	2010	$	9,707		0		0		0		0		0		0	$	9,707

Liu Su Ying	2012	$	3.280		0		0		0		0		0		0	$	3,280
CFO	2011	$	1.875		0		0		0		0		0		0	$	1,875
	2010	$	2,964		0		0		0		0		0		0	$	2,964

Ni Fen Ying	2012	$	0		0		0		0		0		0		0	$	0
Director	2011	$	0		0		0		0		0		0		0	$	0
	2010	$	0		0		0		0		0		0		0	$	0

(1) Unless stated otherwise, the business address for each person named is c/o China Du Kang Co., Ltd., Town of Dukang, Baishui County, A-28,Van Metropolis,#35 Tangyan Road, Xi'an, Shaanxi, PRC, 710065

(2) Calculated pursuant to Rule 13d-3(d) (1) of the Securities Exchange Act of 1934

(3) We believe that each individual or entity named has sole investment and voting power with respect to the shares of common stock indicated as beneficially owned by them (subject to community property laws where applicable) and except where otherwise noted.

Employment Agreements

We have not entered into any other employment agreements with our employees, Officers or Directors.

Stock Option Plan

We have not implemented a stock option plan at this time and since inception, have issued no stock options, SARs or other compensation. We may decide, at a later date, and reserve the right to, initiate such a plan as deemed necessary by the Board.

Change of Control

As of December 31, 2012 we had no pension plans or compensatory plans or other arrangements which provide compensation on the event of termination of employment or change in control of us.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER MATTERS

The following table contains certain information as of April 15, 2013 as to the number of shares of Common Stock beneficially owned by (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock, (ii) each person who is a Director of the Company, (iii) all persons as a group who are Directors and Officers of the Company, and as to the percentage of the outstanding shares held by them on such dates and as adjusted to give effect to this Offering.

Name and Position	Common Shares		Percentage
Wang Yongsheng Chief Executive Officer		9,030,000		9.052	%
Liu Su Ying Chief Financial Officer		-		-	%
Deng Guo Gang		8,800,000		8.28	%
Totals		17,830,000		17.33	%

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The Company had transactions with related parties as provided in the Financial Statements, Note 13 for sales of liquor to related parties and Note 16 for conversion of loans from related parties.

Director Independence

The Company does not have a separately designated Audit, Nominating, or Compensation committee, and those functions are currently being provided by the members of the Board of Directors.

The OTCQB tier of the OTC Markets Group inter-dealer quotation and trading system does not have any director independence requirements. However, the Company’s sole director, Ms. Nie Fen Ying, is considered “independent” as defined under the rules of the NASDAQ.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees Billed For Audit and Non-Audit Services

The following table represents the aggregate fees billed for professional audit services rendered to the independent auditor, Keith Zhen CPA (“Zhen”), for our audit of the annual financial statements for the years ended December 31, 2012 and 2011 . Audit fees and other fees of auditors are listed as follows:

Year Ended December 31	2012		2011(2)

Audit Fees (1)	$	55 ,000	$	68 ,000
Audit-Related Fees (4)		--		--
Tax Fees (5)		--		--
All Other Fees (6)		--		--
Total Accounting Fees and Services	$	55 ,000	$	68 ,000

(1)	Audit Fees. These are fees for professional services for the audit of our annual financial statements, , and for services that are normally provided in connection with statutory and regulatory filings or engagements.

(2)

The amounts shown in 2012 and 2011 relate to (i) the audit of our annual financial statements for the fiscal years ended December 31, 2012 and 2011. We did not become a reporting company until January 2010 so there were no quarterly reports or other reports that required review prior to this filing.

(4)	Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements.

(5)	Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.

(6)	All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.

Pre-Approval Policy for Audit and Non-Audit Services

We do not have a standing audit committee, and the full Board performs all functions of an audit committee, including the pre-approval of all audit and non-audit services before we engage an accountant. All of the services rendered to us by Keith Zhen CPA were pre-approved by our Board of Directors.

The new policies and procedures will be detailed as to the particular service, will require that the Board or an audit committee thereof be informed of each service, and will prohibit the delegation of pre-approval responsibilities to management. It is currently anticipated that our new policy will provide (i) for an annual pre-approval, by the Board or audit committee, of all audit, audit-related and non-audit services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement letter, and (ii) that additional engagements of the auditor, which were not approved in the annual pre-approval process, and engagements that are anticipated to exceed previously approved thresholds, will be presented on a case-by-case basis, by the President or Controller, for pre-approval by the Board or audit committee, before management engages the auditors for any such purposes. The new policy and procedures may authorize the Board or audit committee to delegate, to one or more of its members, the authority to pre-approve certain permitted services, provided that the estimated fee for any such service does not exceed a specified dollar amount (to be determined). All pre-approvals shall be contingent on a finding, by the Board, audit committee, or delegate, as the case may be, that the provision of the proposed services is compatible with the maintenance of the auditor's independence in the conduct of its auditing functions. In no event shall any non-audit related service be approved that would result in the independent auditor no longer being considered independent under the applicable rules and regulations of the Securities and Exchange Commission.

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as a part of this Form 10-K:

1. Financial Statements

The following financial statements are included in a separate section of this Report beginning on page 37:

Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets at December 31, 2012 and 2011			F-3
Consolidated Statements of Operations - for the years ended December 31, 2012 and 2011			F-4
Consolidated Statements of Stockholders’ Equity - for the years ended December 31, 2012 and 2011			F-6
Consolidated Statements of Cash Flows - for the years ended December 31, 2012 and 2011			F-7
Notes to Financial Statements			F-8

2. Financial Statement Schedules

None.

3. Exhibits

The Exhibits listed in the Exhibit Index, which appears immediately following the Financial Statement Schedules and is incorporated herein by reference, are filed as part of this Report.

(b) See the Exhibit Index.

None.

SIGNATURES

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

	China Du Kang Co., Ltd.

Date: April 16, 2013	By:	/s/ Wang Yongsheng
		Wang Yongsheng,
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the following capacities on the dates indicated and by a majority of the Board of Directors.

Signature	Title	Date

/s/ Wang Yongsheng	Chief Executive Officer (Principal Executive Officer)	April 16, 2013
Wang Yongsheng

/s/ Liu Su Ying	Chief Financial Officer (Principal Financial and Accounting Officer)	April 16, 2013
Liu Su Ying

/s/ Nie Fin Ying	Director	April 16, 2013
Nie Fin Ying

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

FINANCIAL REPORT

At December 31, 2012 and 2011 and

For the Years Ended December 31, 2012 and 2011

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

INDEX

	PAGE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2

CONSOLIDATED BALANCE SHEETS		F-3

CONSOLIDATED STATEMENTS OF OPERATIONS		F-4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		F-5

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)		F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS		F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-8 - F-40

F-1

KEITH K. ZHEN, CPA

CERTIFIED PUBLIC ACCOUNTANT

2070 WEST 6TH STREET - BROOKLYN, NY 11223 - TEL (347) 408-0693 - FAX (347) 602-4868 - EMAIL :KEITHZHEN@GMAIL.COM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

China Du Kang Co., Ltd.

We have audited the accompanying consolidated balance sheets of China Du Kang Co., Ltd. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the two-year period ended December 31, 2012. China Du Kang Co., Ltd.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Du Kang Co., Ltd. and subsidiaries as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

/s/ Keith K. Zhen, CPA

Keith K. Zhen, CPA

Brooklyn, New York

April 15, 2013

F-2

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2012			2011
ASSETS
Current Assets:
Cash and cash equivalents	$	681,702		$	968,370
Accounts receivable, net (Note 4)		541,246			270,276
Others receivable		26,517			2,427
Prepaid expenses (Note 5)		1,244,199			678,528
Inventories, net (Note 6)		6,962,485			5,335,136
Total current assets		9,456,149			7,254,737

Property, Plant and Equipment, net (Note 7)		4,245,296			4,451,669
Intangible assets, net (Note 8)		2,006,989			2,034,235
Long-term investment		1,899,907			1,885,399

Total Assets	$	17,608,341		$	15,626,040

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	1,068,104		$	1,215,285
Accrued expenses (Note 9)		336,130			352,964
Others payable		64,541			125,599
Taxes payable (Note 10)		661,838			661,296
Deferred revenue (Note 11)		4,174,197			2,785,391
Security deposit		81,695			45,564
Lease liability-current		83,926			123,087
Total Current Liabilities		6,470,431			5,309,186

Long-term Liabilities:
Lease liability-long-term		770,016			847,420
Total Long-term Liabilities		770,016			847,420
Total Liabilities		7,240,447			6,156,606

Commitments and Contingencies (Note 19)		-			-

Shareholders' Equity:
China Du Kang Co., Ltd. Shareholders' Equity
Preferred stock, par value $0.001, 5,000,000 shares authorized;
no shares issued and outstanding as of
December 31, 2012 and December 31, 2011		-			-
Common stock, par value $0.001, 250,000,000 shares authorized;
100,113,791 shares issued and outstanding as of
December 31, 2012 and 2011		100,114			100,114
Additional paid-in capital		27,385,386			27,385,386
Accumulated deficit		(21,345,293	)		(22,292,346	)
Accumulated other comprehensive income		(767,180	)		(821,700	)
Total China Du Kang Co., Ltd. Shareholders' equity (deficit)		5,373,027			4,371,454
Noncontrolling Interest		4,994,867			5,097,980
Total Equity (Deficit)		10,367,894			9,469,434
Total Liabilities and Equity (Deficit)	$	17,608,341		$	15,626,040

See Notes to Consolidated Financial Statements

F-3

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended
	December 31,
	2012			2011

Revenues
Sales of Liquor	$	4,243,040		$	1,943,864
License Fees		833,625			1,146,890
Gross Revenues		5,076,665			3,090,754

Costs of Revenues
Costs of Liquor Sold		2,553,702			1,562,200
Costs of License Fees		-			-
Total Costs of Sales		2,553,702			1,562,200

Gross Profit		2,522,963			1,528,554

Operating Expenses

Selling Expenses
Advertising expenses		74,350			88,896
Office expenses		1,709			3,244
Promotion expenses		244,211			69,143
Travel and entertainment		37,315			10,896
Total Selling Expenses		357,585			172,179

General and Administrative Expenses
Payroll		439,786			323,861
Employee benefit and pension		74,504			106,925
Depreciation and amortization expenses		122,722			155,598
Professional fees and consultancy fees		129,951			105,851
Repair and maintenance		91,073			13,158
Office expenses		131,885			75,852
Vehicle expenses		42,216			34,012
Bad debt expenses		215,494			-
Travel and entertainment		163,483			110,876
Other general and administrative expenses		19,778			6,466
Total General and Administrative Expenses		1,430,892			932,599

Total Operating Expenses		1,788,477			1,104,778

Income from Operations		734,486			423,776

Other Income (Expenses)
Interest income		4,516			5,657
Interest Expenses-bank loan		-			(34,844	)
Interest Expenses-capital lease		(32,194	)		(21,468	)
Imputed interest		-			(928,919	)
Governmental subsidy		273,741			-
Other income (expense)		(11,599	)		4,444
Total Other Income (Expenses)		234,464			(975,130	)

Income (Lose) before Provision for Income Tax		968,950			(551,354	)

Provision for Income Tax (Note 16)		(44,289	)		(144,647	)

Net Income (Loss)		924,661			(696,001	)

Less: Net loss (income) attributable to noncontrolling interest		(3,507	)		127,811

Net Income (Loss) attributable to China Du Kang Co., Ltd.	$	928,168		$	(823,812	)

Basic and Fully Diluted Loss per Share	$	0.01		$	(0.01	)

Weighted average shares outstanding		100,113,791			100,113,791

See Notes to Consolidated Financial Statements

F-4

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	For the Years Ended
	December 31,
	2012		2011

Net Income (Loss)	$	924,661	$	(696,001	)
Other comprehensive income (loss), net of tax:
Effects of foreign currency conversion		73,402		(150,966	)
Total other comprehensive income (loss), net of tax		73,402		(150,966	)
Comprehensive loss		998,063		(846,967	)
Comprehensive income (loss) attributable to the noncontrolling interest		3,510		(132,336	)
Comprehensive income (loss) attributable to China Du Kang Co., Ltd.	$	1,001,573	$	(979,303	)

See Notes to Consolidated Financial Statements

F-5

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

	China Du Kang Co., Ltd. Shareholders
										Accumulated
	Common Stock				Additional					Other			Due from			Total
	$0.001 Par Value				Paid-in		Accumulated			Comprehensive			Related			Shareholders'			Noncontrolling			Comprehensive			Total
	Shares		Amount		Capital		Deficit			Income			Parties			Equity			Interest			Income			Equity
Balances at
December 31, 2010		100,113,791	$	100,114	$	14,699,903	$	(21,449,649	)	$	(685,094	)	$	(2,577,187	)	$	(9,911,913	)	$	102,051					$	(9,809,862	)

Imputed interest allocated		-		-		928,919		-			-			-			928,919									928,919

Debt conversion		-		-		11,756,564		-			-			-			11,756,564			4,863,593						16,620,157

Comprehensive income
Net income		-		-		-		(823,812	)		-			-			(823,812	)		127,811		$	(696,001	)		(696,001	)
Other comprehensive income, net of tax:
Effects of foreign currency conversion		-		-		-		-			(155,491	)		-			(155,491	)		4,525			(150,966	)		(150,966	)
Total other comprehensive income																							(150,966	)
Total comprehensive income																						$	(846,967	)

Due from related parties		-		-		-		-			-			2,577,187			2,577,187			-						2,577,187
Balances at
December 31, 2011		100,113,791	$	100,114	$	27,385,386	$	(22,273,461	)	$	(840,585	)	$	-		$	4,371,454		$	5,097,980					$	9,469,434

Reverse of debt conversion		-		-		-		-			-			-			-			(99,603	)					(99,603	)

Comprehensive income
Net income		-		-		-		928,168			-			-			928,168			(3,507	)	$	924,661			924,661
Other comprehensive income, net of tax:
Effects of foreign currency conversion		-		-		-		-			73,405			-			73,405			(3	)		73,402			73,402
Total other comprehensive income																							73,402
Total comprehensive income																						$	998,063
Balances at
December 31, 2012		100,113,791	$	100,114	$	27,385,386	$	(21,345,293	)	$	(767,180	)	$	-		$	5,373,027		$	4,994,867					$	10,367,894

See Notes to Consolidated Financial Statements

F-6

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended
	December 31,
	2012			2011
Cash Flows from Operating Activities

Net loss including noncontrolling interest	$	924,661		$	(696,001	)
Adjustments to reconcile net loss
including noncontrolling interest to net cash
provided (used) by operating activities:
Imputed interest		-			928,919
Depreciation		450,503			471,809
Amortization		42,873			45,717
Bad debt expense		215,494			-
Obsolete inventory write-down		61,839			71,601
Changes in operating assets and liabilities:
(Increase)/Decrease in accounts receivable		(484,225	)		(265,733	)
(Increase)/Decrease in others receivable		(24,057	)		73,409
(Increase)/Decrease in prepaid expenses		(560,118	)		(28,061	)
(Increase)/Decrease in inventories		(1,647,197	)		(1,973,128	)
Increase/(Decrease) in accounts payable		(156,440	)		284,406
Increase/(Decrease) in accrued expenses		(19,538	)		183,090
Increase/(Decrease) in other payable		(61,988	)		57,982
Increase/(Decrease) in taxes payable		(4,544	)		148,552
Increase/(Decrease) in deferred revenue		1,366,564			1,117,553
Increase/(Decrease) in security deposit		35,759			-
Increase/(Decrease) in lease liabilities		(123,959	)		(129,012	)
Net cash provided by (used in) operating activities		15,627			291,103

Cash Flows from Investing Activities

Purchase of fixed assets		(210,434	)		(312,765	)
Purchase of land use right		-			(1,988,380	)
Net cash used by investing activities		(210,434	)		(2,301,145	)

Cash Flows from Financing Activities

Bank loans		-			(772,379	)
Proceeds from related parties		-			1,714,958
Repayments to related parties		(99,603	)		-
Net cash provided by financing activities		(99,603	)		942,579

Increase (decrease) in cash		(294,410	)		(1,067,463	)
Effects of exchange rates on cash		7,742			41,707
Cash at beginning of period		968,370			1,994,126
Cash at end of period	$	681,702		$	968,370

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	32,194		$	56,312
Income tax	$	55,088		$	-

Noncash Investing and Financing Activities:
Related party debt converted to equity	$	-		$	16,620,157

See Notes to Consolidated Financial Statements

F-7

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1-	ORGANIZATION AND BUSINESS BACKGROUND

	China Du Kang Co., Ltd (“China Du Kang” or the “Company”) was incorporated as U. S. Power Systems, Inc., in the State of Nevada on January 16, 1987. On or about June 8, 2006 the Company’s name was changed to Premier Organic Farms Group, Inc. On or about November 30, 2006 the name was changed to Amstar Financial Holdings, Inc. (“AFLH”). On or about March 18, 2008 the name was changed to its current name of China Du Kang Co., Ltd. with its corporate charter still residing in Nevada. The Company changed its fiscal year ending from September 30 to December 31 in February 2008.

	The Company had been engaged in the business of providing various financial services since it's incorporation. The Company was not successful and discontinued the majority of its operation by December 31, 2007.

	On January 10, 2008, the Company entered into a Plan of Exchange Agreement (the “Exchange Agreement”) with Hong Kong Merit Enterprise Limited (“Merit”), a holding company incorporated in Hong Kong. Pursuant to the terms of the Exchange Agreement, the Company agreed to issue post split 88,000,000 shares of its common stock to the shareholders of Merit in exchange for Merit to transfer all of its issued and outstanding shares of common stock to the Company, thereby causing Merit to become a wholly-owned subsidiary of the Company. The parties closed the transaction contemplated by the Agreement on February 11, 2008.

	This transaction is being accounted for as a reverse merger, since the shareholders of Merit own a majority of the outstanding shares of the Company’s common stock immediately following the share exchange. Merit is deemed to be the acquirer in the reverse merger. Consequently, the assets, liabilities and historical operations that are reflected in the consolidated financial statements for periods prior to the share exchange are those of Merit and its subsidiaries and are recorded at the historical cost basis. After completion of the share exchange, the Company‘s consolidated financial statements include the assets and liabilities of both Du Kang and Merit, the historical operations of Merit and the operations of the Company and its subsidiaries from the closing date of the share exchange.

	Merit was incorporated on September 8, 2006 in Hong Kong under the Companies Ordinances as a Limited Liability company. Merit was formed for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship.

F-8

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1-	ORGANIZATION AND BUSINESS BACKGROUND (continued)

	On January 22, 2008, Merit entered into a Share Purchase Agreement (the “Purchase Agreement”) with the owners of Shaanxi Huitong Food Co., Inc. ("Huitong"), a limited liability company incorporated in the People's Republic of China ("PRC") on August 9, 2007 with a registered capital of $128,200 (RMB1,000,000). Pursuant to the Purchase Agreement, Merit agreed to purchase 100% of the equity ownership in Huitong for a cash consideration of $136,722 (RMB 1,000,000). The local government approved the transaction on February 1, 2008. Subsequent to the completion of the acquisition, Huitong became a wholly-owned subsidiary of Merit.

	Huitong was formed for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship. On December 26, 2007, Huitong executed an acquisition agreement with shareholders of Shaanxi Xidenghui Technology Stock Co., Ltd. ("Xidenghui"), whereby Huitong agreed to acquire 98.24% of the equity ownership of Xidenghui from the shareholders. Subsequent to completion of the acquisition agreement, Xidenghui became a majority-owned subsidiary of Huitong.

	Xidenghui was incorporated in Weinan City, Shaanxi Province, PRC on March 29, 2001 under the Company Law of PRC. Xidenghui was engaged in the business of production and distribution of distilled spirit with a brand name of “Xidenghui”. Currently, its principal business is to hold an equity ownership interest in Shannxi Baishui Dukang Liquor Co., Ltd. (“Baishui Dukang”) and Shaanxi Baishui Dukang Liquor Brand Management Co., Ltd. (“Brand Management”). Beginning from January 2012, Xidenghui also distributes liquor that is manufactured by Baishui Dukang.

	Baishui Dukang was incorporated in Baishui County, Shanxi Province, PRC on March 1, 2002 under the Company Law of PRC. Baishui Dukang is principally engaged in the business of production and distribution of distilled spirits (liquor) with a brand name of “Baishui Du Kang”. On May 15, 2002, Xidenghui invested inventory and fixed assets with a total fair value of $4,470,219 (RMB 37,000,000) to Baishui Dukang and owns 90.51% of Baishui Dukang’s equity interest ownership, thereby causing Baishui Dukang to become a majority-owned subsidiary of Xidenghui.

	On October 30, 2007, Xidenghui executed an agreement with Mr. Zhang Hongjun, a PRC citizen, to establish a joint venture, Shaanxi Baishui Dukang Liquor Brand Management Co., Ltd. ("Brand Management"). Pursuant to the agreement, Xidenghui contributed cash of $95,704 (RMB 700,000), and owns 70% equity interest ownership therein. Brand Management was subsequently incorporated on November 12, 2007. Upon the completion of incorporation, Brand Management became a majority-owned subsidiary of Xidenghui. Brand Management is principally engaged in the business of distribution of Baishui Dukang’s liquor and managing the franchise of the “Baishui Du Kang” brand name.

F-9

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1-	ORGANIZATION AND OPERATIONS (continued)

	Xidenghui, Baishui Dukang, and Brand Management are the three affiliated companies that are engaged in business operations. Du Kang, Merit, and Huitong are holding companies whose business is to hold an equity ownership interest in Xidenghui, Baishui Dukang, and Brand Management. All these affiliated companies are hereafter referred to as the "Company." Currently the Company is principally engaged in the business of production and distribution of distilled spirits with the brand name of “Baishui Dukang.” The Company also licenses the brand name to other liquor manufactures and liquor stores. The Company's structure is summarized in the following chart.


		China Du Kang Co., Ltd. ("China Du Kang") F/K/A Amstar Financial Holdings, Inc. ("AFLH") Incorporated in the State of Nevada on January 16, 1987

			Acquiring 100% equity interest on 2/11/2008

		Hong Kong Merit Enterprise Limited “Merit" Incorporated in Hong Kong on September 8, 2006

			Acquiring 100% equity interest on 1/22/2008

		Shaanxi Huitong Food Development Co., Inc. “Huitong” Incorporated in Shaanxi Province, PRC on August 9, 2007

			Acquiring 98.24% equity interest on 12/26/2007
			The equity interest changed to 83.75% on October 1, 2011, see Note 16

		Shaanxi Xidenghui Technology Stock Co., Ltd. “Xidenghui” Incorporated in Shaanxi Province, PRC on March 29, 2001

Acquiring 90.51% equity interest on 5/15/2002				Acquiring 70% equity interest on 11/12/2007

	Shaanxi Baishui Dukang Liquor Co., Ltd. “Baishui Dukang” Incorporated in Shaanxi Province, PRC on March 1, 2002		Shaanxi Baishui Dukang Liquor Brand Management Co., Ltd. “Brand Management” Incorporated in Shaanxi Province, PRC on November 12, 2007


	Under the PRC regulations on acquisition of businesses, commonly referred to as "SAFE" regulations (State Administration of Foreign Exchange), which were jointly adopted on August 8, 2006 by six PRC regulatory agencies with jurisdictional Authority, a Chinese entity may not be owned or controlled directly by foreign investors or shareholders but may be acquired in a two-step transaction with a wholly owned foreign enterprise (“WOFE”).

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CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1-	ORGANIZATION AND OPERATIONS (continued)

	China Du Kang is the US holding company for Merit, a Hong Kong entity organized under the Companies Ordinances as a limited liability company. Merit was established as a WOFE corporation for the purpose of effecting an acquisition transaction with Huitong, a WOFE corporation incorporated in PRC. Huitong in turn majority owns Xidenghui, which is a Chinese holding company. Xidenghui has two subsidiaries, Baishui Dukang and Brand Management.

	This arrangement provides separate holding companies for the United States, Hong Kong, and PRC. This allows the Company to lawfully conduct operations in China while ownership is represented in shares of the U. S. holding company.

Note 2-	CONTROL BY PRINCIPAL OWNERS

	The directors, executive officers, their affiliates, and related parties own, directly or indirectly, beneficially and in the aggregate, the majority of the voting power of the outstanding capital of the Company. Accordingly, directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital and the dissolution, merger or sale of the Company's assets.

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CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES

	Basis of Presentation

	The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the "Accounting Principles of China " ("PRC GAAP"). Certain accounting principles, which are stipulated by US GAAP, are not applicable in the PRC GAAP. The difference between PRC GAAP accounts of the Company and its US GAAP consolidated financial statements is immaterial.

	The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries which require consolidation. Inter-company transactions have been eliminated in consolidation.

	Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on any previously reported income or losses.

	Use of Estimates

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

	Subsequent Events

	The Company evaluated subsequent events through the date of issuance of these financial statements. We are not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our consolidated financial statements.

	Concentrations of Credit Risk

	Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents with high-quality institutions. Deposits held with banks in PRC may not be insured or exceed the amount of insurance provided on such deposits. Generally these deposits may be redeemed upon demand and therefore bear minimal risk.

	Fair Value of Financial Instruments

	The carrying value of financial instruments including cash and cash equivalents, receivables, prepaid expenses, accounts payable, and accrued expenses, approximates their fair value due to the relatively short-term nature of these instruments.

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CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Foreign Currencies Translation

	The Company maintains its books and accounting records in PRC currency "Renminbi" ("RMB"), which is determined as the functional currency. Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (“PBOC”) prevailing at the date of the transactions. Monetary assets and liabilities denominated in currencies other than RMB are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. Exchange differences are included in the statements of changes in owners' equity. Gain and losses resulting from foreign currency transactions are included in operations.

	The Company’s financial statements are translated into the reporting currency, the United States Dollar (“US$”). Assets and liabilities of the Company are translated at the prevailing exchange rate at each reporting period end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting from translation of these consolidated financial statements are reflected as accumulated other comprehensive income (loss) in the consolidated statements of changes in shareholders’ equity.

	The exchange rates used for foreign currency translation were as follows (USD$1 = RMB):

Period Covered	Balance Sheet Date Rates		Average Rates

Year ended December 31, 2012		6.31610		6.31984
Year ended December 31, 2011		6.36470		6.47351

	Statement of Cash Flows

	In accordance with FASB ASC 830-230, “Statement of Cash Flows,” cash flows from the Company’s operations is calculated based upon the functional currency. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

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CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Revenue Recognition

	The Company recognizes revenue when the earnings process is complete, both title and the risks and rewards of ownership are transferred or services have been rendered and accepted, the selling price is fixed or determinable, and collectability is reasonably assured.

	(1) Sales of Liquor

	The Company generally sells liquor to liquor distributors with which the Company executed an exclusive distributor contract, pursuant to which the distributor cannot act as a distributor for any other products of a third party. The Company recognizes liquor sales revenue when the significant risks and rewards of ownership have been transferred pursuant to PRC law, including such factors as when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, sales and value-added tax laws have been complied with, and collectability is reasonably assured. The Company generally recognizes revenue from sales of liquor when its products are shipped.

	The Company does not provide an unconditional right of return, price protection or any other concessions to its customers. Sales returns and other allowances have been immaterial in our operation.

	(2) License Fees

	(a) License fees from liquor manufactures

	We authorize liquor manufacturers who comply with our requirements to use certain sub brand names of “Baishui Dukang” to process the production of liquor and to sell to customers within the designated area in a certain period of time. The amount of license fee varies based on the sales territory and the number of sub brand names. We generally collect the entire license fee when the license agreement is executed, and then recognize license fee revenue over the beneficial period described by the agreement, as the revenue is realized or realizable and earned.

	(b) License fees from liquor stores

	We also authorize liquor stores who comply with our requirements to exclusively sell certain sub brand names of “Baishui Dukang” products within the designated area in a certain period of time. The amount of license fee varies based on the sales territory and the number of sub brand names. We generally collect the entire license fee when the agency agreement is executed, and then recognize license fee revenue over the beneficial period described by the agreement, as the revenue is realized or realizable and earned.

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CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Deferred Revenue

	Deferred revenue consists of prepayments to the Company for products that have not yet been delivered to the customers and franchise fees received upfront for services have not yet been rendered and accepted. Payments received prior to satisfying the Company’s revenue recognition criteria are recorded as deferred revenue.

	Cost of License Fees

	Costs of franchise fees principally include the costs to prepare the franchise contracts and the payroll to employees who are responsible for inspection and monitoring the franchisees. These expenses are immaterial and therefore included in the general and administrative expenses.

	Cash and Cash Equivalents

	Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments that are unrestricted as to withdrawal or use, and which have original maturities of three months or less.

	Accounts receivable

	The Company carries accounts receivable at the invoiced amount without bearing interest, less an allowance for doubtful accounts. Allowances for doubtful accounts are recorded as a general and administrative expense. Management regularly reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the collectability of accounts receivable and the adequacy of the allowance. Management also performs a subjective review of specific large accounts to determine if an additional reserve is necessary. In circumstances in which we receive payment for accounts receivable that have previously been written off, we reverse the allowance and bad debt expenses.

	Others Receivable

	Others receivable principally includes advance to employees who are working on projects on behalf of the Company. After the work is finished, they will submit expense reports with supporting documents to the accounting department. Upon being properly approved, the expenses are debited into the relevant accounts and the advances are credited out. Cash flows from these activities are classified as cash flows from operating activities.

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CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Inventories

	Inventories are stated at the lower of cost or market value. Actual cost is used to value raw materials and supplies. Finished goods and work-in-progress are valued on the weighted-average-cost method. Elements of costs in finished good and work-in-progress include raw materials, direct labor, and manufacturing overhead. The management writes down the inventories to market value if it is below cost. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.

	Baishui Dukang, one of our subsidiaries, is engaged in the distillery business. Pursuant to the production requirement, all spirits that are newly distilled from sorghum, so call “liquor base”, must be barrel-aged for several years, so we bottle and sell only a portion of our liquor base inventory each year. We classify barreled liquor base as work-in-progress. Following industry practice, we classify all barreled liquor base as a current asset.

	Property, Plant and Equipment

	Property, plant and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.

	When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

	Depreciation is calculated on a straight-line basis over the estimated useful life of the assets without residual value. The percentages or depreciable life applied are:

Building and warehouses	20 years
Machinery and equipment	7-10 years
Office equipment and furniture	5 years
Motor vehicles	5 years
Leased assets	Lease duration

	Intangible Assets

	Intangible assets are carried at cost. Amortization is calculated on a straight-line basis over the estimated useful life of the assets without residual value. The percentages or amortizable life applied are:

Land use right	50 years
Trade Mark	10 years

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CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Land Use Right

	All land belongs to the State in PRC. Enterprises and individuals can pay the State a fee to obtain a right to use a piece of land for commercial purpose or residential purpose for an initial period of 50 years or 70 years, respectively. The land use right can be sold, purchased, and exchanged in the market. The successor owner of the land use right will reduce the amount of time which has been consumed by the predecessor owner.

	The Company owns the right to use three pieces of land, approximately 657 acres, 2.4 acres, and 7.8 acres, located in Weinan City, Shaanxi Province for through February, 2051, March 2055, and May 2059. The costs of these land use rights are amortized over their prospective beneficial period, using the straight-line method with no residual value.

	Valuation of Long-Lived assets

	Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

	Long-term Investment

	On March 1, 2006, Xidenghui executed an investment agreement with Shaanxi Yichuan Nature Park Co., Inc., pursuant to which, Xidenghui agreed to invest cash of $1,596,254 (RMB 12,000,000) to establish a joint-venture named Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd., F/K/A Shaanxi Yellow-river Wetlands Park Co., Ltd., and owns 7.9% equity ownership interest therein. Shaanxi Yellow-river Wetlands Park Co., Ltd. is engaged in the business of recreation and entertainment.

	Xidenghui finished the investment contribution in September 2007. As the project is currently ongoing, the Management believes the amount invested approximates the fair value and uses the cost method to record the investment.

	Advertising Costs

	The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with the FASB ASC 720-35, “Advertising Costs". The advertising costs were $74,350, and $88,896 for the years ended December 31, 2012 and 2011, respectively.

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CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)

	Research and Development Costs

	Research and development costs relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed when incurred in accordance with the FASB ASC 730, "Research and Development." Research and development costs were immaterial for the years ended December 31, 2012 and 2011, respectively.

	Value-added Tax ("VAT")

	Sales revenue represents the invoiced value of goods, net of a value-added tax (VAT). All of the Company’s products that are sold in PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT may be offset by VAT paid on purchase of raw materials included in the cost of producing the finished goods. The Company presents VAT on a net basis.

	Sales Tax and Sales Tax Affixation

	Brand Management derives license fees revenue, which is subject to sales tax and sales tax affixation in PRC. Sales tax rate is 5% of the gross sales, and sales tax affixation is approximately 10% of the sales tax, or 0.05% of the gross sales. The Company presents sales tax and sales tax affixation on a net basis.

	Excise Tax

	Baishui Dukang produces and distributes distilled liquor, which is subject to excise tax in PRC. Excise tax rate is $0.14 (RMB1.00) per kilogram and 10%-20% of gross sales revenue. The Company presents excise tax on a net basis.

	Related Parties

CHINA DU KANG CO. LTD. 10-K