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~~

oFor ~~Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for~~ the ~~Transition~~Fiscal ~~Period~~Year ~~from~~Ended ~~_______~~December to31, ~~_______~~2013

~~Commission~~o ~~File~~Transition ~~Number:~~Report ~~__________~~Under Section 13 or 15(d) of The Securities Exchange Act of 1934

For the Transition Period from _______ to _______

Commission File Number: 000-53833

_________________________

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 $41,~~354~~741,~~190~~676, computed by reference to the price at which the common equity was last sold, which was $0.0502 on ~~February~~May 2829, ~~2013~~2014.

Number of shares of common stock, par value $.001, outstanding as of ~~April 15~~July15, ~~2013~~ 2014: 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	10
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	10
Item 2.	Properties	16
Item 3	Legal Proceedings	12
Item 3	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	12
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	1913
Item 6.	Selected Financial Data	2014
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2014
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	2520
Item 8.	Financial Statements and Supplementary Data	2520
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	2621
Item 9A.	Controls and Procedures	2621
Item 9B.	Other Information	2722
PART III:
Item 10.	Directors, Executive Officers and Corporate Governance	2823
Item 11.	Executive Compensation	3126
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	3328
Item 13.	Certain Relationships and Related Transactions, and Director Independence	3329
Item 14.	Principal Accounting Fees and Services	3329
PART IV:
Item 15.	Exhibits, Financial Statement Schedules	3531
SIGNATURES:		3632

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 totransfering ~~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~~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..

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 Yellow-river Bay Wenquan Lake Park Co., Ltd. ("Yellow-river Bay Park"). Since January 2012, Xidenghui also distributes liquor that is manufactured by Shannxi Baishui Dukang Liquor ~~Brand Management~~ Co., Ltd. (“~~Brand~~Baishui ~~Management~~Dukang”), one of our operating subsidiaries.

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~~spirits 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.~~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 the 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~~subsequently extended to 30 ~~year~~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.

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~~offered 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.

On December 10, 2013, the Board of Directors of China Du Kang Co. Ltd., authorized a restructuring of the equity ownership and capital of its Shaanxi XiBai ~~Deng~~Shui ~~Hui~~Du ~~Stock~~Kang Liquor Co., Ltd. ~~holds~~subsidiary (“Du Kang Liquor Co.”), which is the Chinese subsidiary that is the exclusive manufacturing facility that distills the Company’s proprietary line of white wines and liquors.

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

Prior to the restructuring, Shaanxi Xi Deng Hui Science & Technology Industrial Stock Co., Ltd. owned

·	90.51% and controls Shaanxi Bai Shui Du Kang Liquor Co., Ltd. with $5,071,463 (RMB 41,970,000) capital investment

·	70% Shaanxi Bai Shui Du Kang Brand Management Co., Ltd. with $95,706 (RMB 1,000,000) capital investment

·	7.9% Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd. with $1,950,775 (RMB 12,000,000) capital investment

As a result of the restructuring, the capital investment in Du Kang Liquor Co. increased from 46,380,000 RMB to 82,300,000 RMB. In addition, Xi Deng Hui will dispose of its investment in Bashui Liquor Brand Management.

Shaanxi Xi Deng Hui Stock Co. Ltd. owns

·	51% and controls Shaanxi Bai Shui Du Kang Liquor Co., Ltd., with $5,071,463 (RMB 41,976,500) capital investment

·	18% Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd. with $2,013,641 (RMB 12,311,398)

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 ~~Jiu~~present, ZuDu ~~Gong~~Kang has a 6,000 ton production capacity per year including brewing and packaging. Liquor product 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.

AtThrough ~~present~~its subsidiaries in China, Duthe ~~Kang~~Company ~~has~~sells 6and develops new and additional liquors,~~000~~ ~~ton~~liquor ~~production~~raw ~~capacity~~materials, ~~per~~deep ~~year~~processing ~~including~~of ~~(brewing~~agricultural and ~~packaging).~~sideline ~~Liquor~~ products ~~unit~~and ~~prices~~research ~~range~~and ~~from~~development ~~$2.00~~of tohigh-tech ~~$150.00.~~products ~~Our~~and Dubrewing ~~Kang~~methods. ~~Liquor~~We ~~products~~were ~~are~~the ~~sold~~first company, in ~~most~~cooperation ~~cities~~with inthe ~~China.~~Chinese InAcademy ~~northeast,~~of ~~north~~Sciences, ~~south~~to ~~coastal~~ship ~~region~~Du Kang yeast and ~~middle~~grain ~~areas~~aboard of#3 ~~China~~and we#7 ~~sell~~Shenzou ~~liquor~~spaceflights ~~through~~for ~~long-term~~a ~~liquor~~series ~~distributors.~~of Inscientific ~~Shaanxi~~experiments ~~province~~designed weto ~~sell~~improve ~~liquor~~yield toand ~~agent~~flavors. ~~stores~~No innewly ~~Xi’an,~~developed ~~Bai~~products ~~Shui,~~have ~~Hua~~entered ~~yin,~~the ~~Han~~market ~~Cheng,~~since Fu2008. ~~Ping~~We Puare ~~Cheng,~~currently Dafocusing ~~Li,~~on ~~Wei~~expanding ~~Nan~~distribution ~~city.~~of ~~Throughout~~existing ~~China~~brands, ~~the~~so Duwe ~~Kang~~have ~~market~~devoted ~~sales,~~only ~~awareness~~minimal resources to research and ~~brand~~development ~~image~~activities isin ~~broadening~~the past two years.

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~~principally ~~following three ways~~from:

● Sales of liquor within China generally through long-term liquor distributors (“~~distributor~~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 which the ~~liquor~~Company ~~(or~~entered ~~white~~into ~~spirits)~~distributorship ~~production standard of PRC~~agreements.

~~Accordingly,~~o The Company’s distribution agreements grant the distributor the exclusive right to distribute the Company’s ~~enters~~products ~~into~~within ~~three~~a ~~different~~defined ~~types~~territory. ofEach ~~agreements:~~distributor ~~Distributorship~~agreement ~~Agreements,~~provides ~~Agency~~an ~~Agreements,~~area ~~and~~within ~~Licensing~~the ~~Agreements~~PRC that is exclusive to the distributor for a 5-year exclusive period. ~~All~~Each ~~are~~Distributor ~~designed~~Agreement specifies the Du Kang products that are to ~~expand~~be sold, with the ~~distribution~~Thirteen ofDynasties series being the ~~Company’s~~most prevalent. Pricing of the products is according to the China Du Kang pricing policies. ~~The~~Terms ~~material~~include ~~terms~~account settlement procedures, duties pertaining to licenses, packaging and ~~differences~~sales ~~among~~conduct. ~~the~~The ~~agreements~~distributors are asrequired ~~follows:~~to provide reports, protect the trademarks and copyrights and dispute resolution procedures.

1.Dependence ~~The~~on ~~Company’s~~Major 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.Customers

2.Shaanxi ~~The~~Dukang ~~Company’s~~Group ~~agency~~Co., ~~agreements grant the agent the exclusive right to sell the Company’s products within a defined territory~~Ltd., ~~The~~accounted ~~agency agreements grant an agent to exclusively sell particular products of the Company in exchange~~ for aapproximately ~~pre-determined royalty~~36.64% ~~The Royalty payments for agency agreements range from $44,000 to $126,000 in 2012~~ and ~~2011~~41.59% ~~The~~of ~~Company will produce specific liquors for sale stated under~~ the ~~terms~~sales 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~~for ~~than~~ the ~~specific products that are subject to the Agency agreement. For agency agreements last for one~~ year ~~and~~ended ~~may~~December be31, ~~renewed~~2013 ~~annually. The agent must pay an upfront fee that varies from product to product~~ and ~~the~~2012, ~~agent must minimum sales requirements during the term of the agreement~~respectively.

3. The Company’s ~~licensing~~has ~~agreements~~all ~~grant~~ the ~~licensee~~certificates arequired ~~non-exclusive right~~ to ~~use~~be ~~the~~issued ~~Company’s~~by ~~trademarks, logos, and brand names in connection with~~ the ~~development,~~Chinese ~~marketing,~~government ~~and~~pertaining ~~sale of the licensee’s independently manufactured products. The licensing agreements grant a license~~ to ~~use~~production 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~~sales ~~continues the rights~~ of ~~certain~~liquor, ~~third~~such ~~parties~~as ~~to market products using~~ the ~~China~~Production DuLicense, ~~Kang~~Trade ~~name,~~Mark ~~patterns,~~Registration ~~logos~~Certificate, ~~trademarks and other proprietary assets for sub-branding of products~~etc. ~~Licensing~~All ~~agreements~~these ~~are~~certificates ~~for specific zones with the PRC and may overlap territories that~~ are ~~included~~ in ~~other agreements~~force. 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.

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.

We derive revenue from distributors and agents as following:

		For the Year Ended December 31,
		2013					2012
Major Customers	Type of Customer	Revenue		Percentage of Total Revenue			Revenue		Percentage of Total Revenue
Shaanxi Dukang Group Co., Ltd.	Distributor	$	1,611,999		36.64	%	$	1,764,543		41.59	%
Customer A	Distributor		949,621		21.59	%		541,798		12.77	%
Customer B	Distributor		-		-			393,068		9.26	%
Total		$	2,561,620		58.23	%	$	2,699,409		63.62	%

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 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~~The ~~2010,~~Company ~~China's~~believes ~~high-end~~that ~~liquor~~its ~~(wine~~Du ~~and~~Kang ~~spirit)~~series ~~consumption~~is ~~will~~positioned ~~grow~~well byagainst ~~more~~the ~~than~~larger ~~"30~~sellers ~~percent"~~and ~~from~~should aenjoy ~~year~~increased ~~earlier,~~sales ~~higher~~if ~~than~~ the liquor market asoverall ~~a whole, which will see a "20 to 25" percent rise~~improves.”

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.

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.

9· manufacturing delays caused by such lack of availability or interruptions in delivery;

We· ~~generally~~fluctuations doin ~~not~~the ~~have~~quality ~~any~~and ~~long-term~~the orprice ~~exclusive purchase commitments with any~~ of ~~our~~components ~~suppliersHunan Xinshiji Taochi Co., Ltd., Hunan Liling Liangyou Geramacs Co., Ltd.,~~ and ~~Mr.~~raw ~~Jianguo Wang each accounted for 5.00%~~materials, ~~8.90%,~~in ~~and~~particular ~~5.31%,~~due ~~respectively,~~to ofthe ~~our~~petroleum ~~purchases~~price ofimpact ~~components~~on ~~for~~such ~~our~~materials; ~~products for the year ended December 31, 2011.~~and

~~Hunan~~· ~~Xinshiji~~risks ~~Taochi~~related ~~Co.,~~to ~~Ltd.,~~foreign ~~Hunan Fengling Liangyou China Co~~operations., 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.8

We generally do not have any long-term or exclusive purchase commitments with any of our suppliers.

Our major suppliers consist of the following:

		For the Year Ended December 31,
		2013					2012
Major	Type of			Percentage of					Percentage of
Suppliers	Goods	Purchase		Total Purchase			Purchase		Total Purchase
Shaanxi Dukang Group Co., Ltd.	Packing materials		286,561		12.30	%		187,410		5.00	%
Supplier A	Packing materials		132,114		5.67	%		187,410		5.00	%
Supplier B	Packing materials		-		-			333,655		8.90	%
Supplier C	Packing materials		152,225		6.53	%		-		-
Supplier D	Raw materials		255,317		10.96	%		-		-
Supplier E	Raw materials		-		5.31	%		199,058		5.31	%
Total		$	826,218		40.77	%		907,534		24.20	%

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~~Peoples 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~~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~~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 asand ~~well as~~ air, to improve its efficiency. In addition, the Company has invested in recovery processing of the ~~distiller’s~~distillers grains produced in liquor-making, in order to produce the fodder.

109

ITEM 1A.

RISK FACTORS

~~RISKS~~Not ~~RELATED TO OUR BUSINESS~~applicable.

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~~411,~~503~~216 and $~~471~~448,~~809~~446 for the years ended December 31, ~~2012~~2013 and ~~2011~~2012, 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
	2013			2012
Building and warehouses	$	35,~~185~~888,~~704~~332		$	3,~~274~~185,~~587~~704
Machinery and equipment		2,~~278~~407,~~147~~299			2,~~306~~278,~~197~~147
Office equipment and furniture		~~281~~269,~~718~~815			~~191~~257,~~972~~435
Motor vehicles		~~373~~395,~~732~~373			~~370~~373,~~878~~732
Leased assets		2,~~561~~800,~~674~~301			2,~~457~~561,~~187~~674
Total		811,~~680~~761,~~975~~120			8,~~600~~656,~~821~~692
Less: Accumulated depreciation		(45,~~821~~368,~~423~~472	)		(4,~~460~~805,~~944~~032	)
		3,859,552			4,139,877
		6,392,648			3,851,660
Add: Construction in progress		~~385~~631,~~744~~068			~~311~~385,~~792~~744
Total property, plant and equipment, net	$	47,~~245~~023,~~296~~716		$	4,~~451~~237,~~669~~404

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~~subsequently 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, 2013 (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=RMB¥6.15140 @12/31/2013
	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)
2014	16,125	4%	20%	268	864,312	12,846	4%	2.50%	268	86,065	950,377	154,498	646,811	122,645
2015	16,770	4%	20%	258	865,344	13,359	4%	2.50%	258	86,168	951,512	154,682	599,614	113,696
2016	17,441	4%	20%	244	851,123	13,894	4%	2.50%	244	84,752	935,875	152,140	546,074	103,544
2017	18,139	4%	20%	228	827,124	14,449	4%	2.50%	228	82,362	909,486	147,850	491,367	93,171
2018	18,864	4%	20%	215	811,162	15,027	4%	2.50%	215	80,772	891,935	144,997	446,189	84,604
2019	19,619	4%	20%	199	780,828	15,629	4%	2.50%	199	77,752	858,580	139,575	397,689	75,408
2020	20,404	4%	20%	173	705,963	16,254	4%	2.50%	173	70,297	776,260	126,192	332,925	63,128
2021	21,220	4%	20%	148	628,103	16,904	4%	2.50%	148	62,544	690,647	112,275	274,265	52,005
2022	22,068	4%	20%	135	595,849	17,580	4%	2.50%	135	59,332	655,182	106,509	240,909	45,680
2023	22,951	4%	20%	113	518,698	18,283	4%	2.50%	113	51,650	570,348	92,718	194,181	36,820
2024	23,869	4%	20%	102	486,933	19,015	4%	2.50%	102	48,487	535,420	87,040	168,787	32,005
2025	24,824	4%	20%	77	382,290	19,775	4%	2.50%	77	38,067	420,357	68,335	122,698	23,265
2026	25,817	4%	20%	52	268,497	20,566	4%	2.50%	52	26,736	295,233	47,994	79,792	15,130
2027	26,850	4%	20%	41	220,167	21,389	4%	2.50%	41	21,923	242,091	39,355	60,583	11,487
2028	27,924	4%	20%	25	139,618	22,244	4%	2.50%	25	13,903	153,521	24,957	35,573	6,745
2029	29,041	4%	20%	18	104,546	23,134	4%	2.50%	18	10,410	114,957	18,688	24,664	4,677
2030	30,202	4%	20%	12	72,485	24,059	4%	2.50%	12	7,218	79,703	12,957	15,834	3,002
2031	31,410	4%	20%	6	37,692	25,022	4%	2.50%	6	3,753	41,446	6,738	7,624	1,446
2032	32,667	4%	20%	1	6,533	26,023	4%	2.50%	1	651	7,184	1,168	1,224	232
Total					10,939,256					1,089,290	12,028,546	1,945,963	6,176,988	1,142,297

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
											(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 on South Dukang Street, Town of Dukang, Baishui County, the city of Weinan, Shaanxi Province, 715600.

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, 715600.11

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~~fully access to the distiller's yeast

- Brewing equipment: which is also called Liquor distillation equipment. The well fermented, ~~semifinished~~semi-finished 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 ~~there~~ is no pending or threatened litigation for which the adverse effect, assuming an unfavorable outcome, would ~~exceed~~have ~~$25,000~~a material impact on our operations or finances.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

1812

PART II

ITEM 5. MARKET FOR ~~REGISTRANT’S~~REGISTRANTS 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~~	COMMON STOCK
CALENDAR YEARS	~~QUARTER ENDED~~	QUARTER ENDED	~~HIGH~~	HIGH		~~LOW~~	LOW
2012	March 31		$	0.03		$	0.004
2013		March 31		$	0.10		$	0. 05
	~~June 30~~	June 30		~~0.05~~	0.05		~~0.03~~	0.03
	~~September 30~~	September 30		~~0.06~~	0.14		~~0.04~~	0.03
	~~December 31~~	December 31		~~0.10~~	0.04		~~0.05~~	0.004

2011	March 31	$	0.06	$	0.01
2012	March 31	$	0.03	$	0.004
	June 30		0.02045		0.~~003~~025
	September 30		0.0306		0.~~004~~03
	December 31		0.0310		0.~~004~~05

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~~July ~~15 2013~~13, 2014, we had 9,778 common shareholders of record.

1913

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~~15500 ~~Second~~Roosevelt ~~Avenue South~~Boulevard, Suite ~~705S~~301, ~~St. Petersburg~~Clearwater, Florida ~~33701~~33760.

ITEM 6.

SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. ~~MANAGEMENT’S~~MANAGEMENTS 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.

20The Company’s 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.

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.

WeRESULTS ~~authorize~~OF ~~liquor~~OPERATIONS ~~manufacturers~~FOR ~~who~~THE ~~comply~~YEARS ~~with~~ENDED ~~our~~DECEMBER 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 executed31, ~~and~~2013 ~~then~~AND ~~recognize~~DECEMBER ~~licensing fee revenue over the beneficial period described by the contract~~31, 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 earned2012

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~~were ~~from~~ $34,~~090~~399,~~754~~126 toand $54,~~076~~243,~~665~~040 for the years ended December 31, ~~2011~~2013 and 2012, respectively ~~due~~representing ~~primarily~~an ~~to the~~ increase ~~in sales~~ of ~~liquor. We recognize revenue when the earning process is complete which generally occurs when products are shipped~~$156, ~~both title and the risks and rewards of ownership are transferred~~086, or ~~services have been rendered and accepted, the selling price is fixed or determinable, and collectability is reasonably assured~~3. ~~We do not provide unconditional rights of return and other concessions to our customers~~7%. ~~Sales returns and other allowances have been immaterial in our operation.~~

The ~~amount~~breakdown ~~revenues~~for ~~increased was $1,985,911 or 64.3%, which was attributable to an increase in~~ sales ofrevenues ~~liquor where we to expanded our sales strategy. Sales of liquor improved $2,299,176, or 118.3% from $1,943,864~~ for ~~the~~related ~~year~~parties ~~ended~~and ~~December~~non-related ~~31,~~parties ~~2011~~is ~~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.~~follows:

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.

		For the Year Ended
		December 31,
		2013			2012
	Related Party		43.6	%		45.6	%
Distributor	Third Party		56.4	%		54.4	%
			100	%		100	%

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~~2013 was 4936.79% as compared to 4939.58% for the comparable period of ~~2011. Gross margin on sales of liquor was 39.8% for the year ended December 31,~~ 2012, representing ana ~~increase~~decrease of ~~102~~2.89%~~, 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
		December 31, 2013									December 31, 2012
		Revenue		Costs of sales		Gross Profit		Gross Profit %			Revenue		Costs of sales		Gross Profit		Gross Profit %
	Related Party		1,~~918~~920,~~595~~084		1,~~595~~496,~~242~~137		~~323~~423,~~353~~947		1622.8508	%		1,~~721~~918,~~030~~595		1,~~499~~595,~~806~~242		~~221~~323,~~224~~353		1716.0185	%
Distributor	Third Party		2,~~324~~479,~~445~~042		~~958~~1,~~460~~296,674		1,~~365~~182,~~985~~368		5847.7669	%		~~222~~2,~~834~~324,445		62958,~~394~~460		~~160~~1,~~440~~365,985		7258.0076	%
	Subtotal		4,243,040		2,553,702		1,689,338		39.81	%		1,943,864		1,562,200		381,664		19.63	%
	Total		4,399,126		2,792,811		1,606,315		36.51	%		4,243,040		2,553,702		1,689,338		39.81	%
	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~~094,~~778~~696 for the year ended December 31, ~~2011~~2012 to $1,~~788~~398,~~477~~969 for the year ended December 31, ~~2012~~2013, representing an increase of $~~683~~304,~~699~~273 or approximately 6127.98%. The increase in operating expenses was largely due to the increase in selling expenses of $~~185~~562,~~406 as well as general administrative expenses of $498,293~~278.

Selling expenses increased $~~185~~562,~~406~~278 or ~~107~~255.72% from $~~172~~220,~~179~~313 in the year ended December 31, ~~2011~~2012 to $~~357~~782,~~585~~591 for the year ended December 31, ~~2012~~2013. 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, 2013		For the Year Ended December 31, 2012
Advertising expenses	$	151,193	$	37,024
Office expenses		30,783		-
Promotion expenses		384,923		177,003
Sales commission		143,968		-
Travel and entertainment		71,724		6,286
Total Selling Expenses	$	782,591	$	220,313

~~For~~The ~~the~~Company ~~year~~was ~~ended~~providing ~~December~~various ~~31,~~sales ~~2012,~~promotions wesuch ~~recognize bad debt expense of $215,494~~ as ~~compared~~giveaways to $0consumers ~~for~~to ~~the~~try ~~same~~and ~~period~~test inour ~~2011~~products. We ~~started~~continued ~~to increase~~ our ~~sales~~spending toon ~~unrelated~~various ~~third~~media ~~party~~advertising into ~~2011~~create ~~and~~awareness asof aour ~~result~~Company's weproduct ~~have~~and ~~estimated~~brand ~~an allowance for uncollectibles of customers accounts receivable~~name.

~~Other~~Our general and administrative expenses ~~that~~decreased ~~increased~~from ~~over~~$874,383 for the year ~~include~~ended ~~office~~December ~~expenses~~31, 2012 to $616,378 for the year ended December 31, 2013. The decrease was largely attributed to the decrease of $88,550 in repair and maintenance, ~~and~~$42,537 ~~travel~~in ~~and~~office ~~entertainment~~expenses, ~~which~~and ~~resulted~~$34,351 in ~~total~~travel ~~increase~~and ofentertainment ~~$186,555~~expenses.

22For the year ended December 31, 2013, we recognized bad debt expense of $94,862 as compared to $158,232 for the same period in 2012, a decrease of $63,370.

Other general and administrative expenses that increased over the year include depreciation and amortization expenses, while other general administrative expenses decreased $2,629, or 22.32%.

OTHER INCOME AND EXPENSES

We have incurred total interest expense ~~and imputed interest expense~~ of $3241,~~194~~106 and $~~985~~32,~~231~~194 for the years ended December 31, ~~2012~~2013 and ~~2011~~2012, respectively. The ~~decrease~~increase in interest expense was primarily due to the ~~decrease~~increased ~~in the~~ interest expenses related to ~~bank~~a ~~loans and imputed interest expenses related to the related parties’ loans for working~~ capital ~~purposes~~lease. ~~We have repaid our bank loans and converted the related parties' debt into equity in the year ended 2011.~~

InFor the years ended December 31, 2013 and 2012, we ~~also~~ received $306,542 and $273,741, respectively, from the local government as a subsidy to encourage growth and for expansion of our business in the local area of China.

~~INCOME/LOSS FROM OPERATIONS~~16

~~The~~INCOME/(LOSS) ~~Company~~FROM 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.OPERATIONS

The Company experienced income from continuing operations of $391,437 and $826,968 in the years ended December 31, 2013 and 2012, respectively. The net income was $300,136 and $924,661, which was offset by net income (loss) from discontinued operations of $(91,301) and $97,693 for the years ended December 31, 2013 and 2012, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

	For the year ended December 31, 2012			For the year ended December 31, 2011
	For the year ended December 31, 2013			For the year ended December 31, 2012
Net Cash provided by Operating Activities	$	15586,~~627~~057		$	~~291~~107,~~103~~392
Net Cash used in Investing Activities	$	(~~210~~390,~~434~~922	)	$	(2203,~~301,145~~332	)
Net Cash provided by (used in) Financing Activities	$	(99,603	)	$	942,579
Net Cash used in Financing Activities	$	(72,924	)	$	(191,368	)
Net Increase (Decrease) in Cash	$	~~(294~~122,~~410~~211	)	$	(1294,~~067,463~~410	)

Net cash provided by operating activities ~~in 2011~~ was $~~291~~586,~~103,~~057 asand ~~cash provided by operating activities was~~ $15107,~~627~~392 for ~~year~~the years ended December 31, 2013 and 2012, respectively. The ~~Changes~~changes ~~were~~in ~~primarily~~cash ~~due~~provided toby ~~the~~operating activities primarily consist of increase in inventory of $1,~~647~~335,~~197,~~331 and accounts ~~receivable~~payables of $~~484~~1,~~225~~192,226, with a decrease in prepaid expenses of $803,851. WeOur ~~have~~accounts payable increased ~~our~~as ~~inventory~~a ~~due~~result toof ~~new~~purchases ~~business~~of ~~model~~raw ~~developed~~materials infor ~~2011~~production. ~~and~~Our ~~our~~prepaid ~~accounts~~expenses ~~receivable~~decreased ~~increased~~as ~~resulted~~our ~~from~~construction ~~increase~~projects ~~sales~~were tocompleted ~~unrelated~~and ~~third~~converted ~~party~~to fixed assets. WeNet ~~also~~cash ~~decreased~~provided ~~our~~by ~~accounts~~(used ~~payables,~~in) ~~accrued~~operating ~~liabilities~~activities of discontinued operations were $(155,690) and ~~other~~$587,129 ~~liabilities~~for bythe anyears ~~amount~~ended ofDecember ~~$242~~31,~~510~~ 2013 and 2012, respectively.

~~Cash~~Net ~~flows~~cash used in ~~investment~~investing activities ~~decreased~~increased from $2210,~~301,145~~434 to $~~210~~390,~~434~~922 for the years ended December 31, ~~2011~~2012 ~~and~~to December ~~2012~~31, 2013, respectively. WeThe ~~purchased~~Company ~~land~~has ~~used~~invested ~~right~~in a new factory building and warehouse as well as machinery and equipment to increase its production capacity. The Company experienced net cash provided by investing activities of discontinued operations in the amount of $1114,~~988,380~~506 for ~~our~~the ~~manufacturing~~disposal ~~facility~~of insubsidiary ~~2011~~for the year ended December 31, 2013.

Net cash ~~provided~~used byin financing activities for the years ended December 31, ~~2012~~2013 and ~~2011~~2012 ~~were~~was $172,~~421,284~~924 and $~~942~~191,~~579~~368, respectively. The majority of the change was attributed to ~~net~~repayment ~~proceeds~~ of ~~our~~capital ~~related~~lease ~~parities~~principal ~~loan~~and ofrelated ~~$1,674,848~~parties ~~with an offset of our repayment to such loans of $253,564~~advances.

2317

Working Capital

	At December 31, 2012		At December 31, 2011
	At December 31,		At December 31,
Current Assets	$	9,456,149	$	7,254,737
	2013		2012
Current Liabilities	$	6,470,431	$	5,309,183
Current Assets	$	10,020,259	$	9,456,149
Working Capital (Deficit)	$	2,985,718	$	1,945,554
Current Liabilities	$	4,618,833	$	6,470,431
Working Capital (Deficit)	$	5,401,246	$	2,985,718

Total assets at the periods ending ~~2012~~December 31, 2013 and ~~2011~~2012 were $1721,~~608~~036,~~341~~597 and $1517,~~626~~608,~~040~~341, ~~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~~fixed ~~expenses~~assets.

Property, plant and equipment increased ~~slightly~~ from $4,~~451~~237,~~669~~404 at December 31, ~~2011~~2012 to $47,~~245~~023,~~296~~716 at December 31, ~~2011~~2013. ~~For~~The ~~the~~increase ~~same~~was ~~respective~~primarily ~~periods~~attributed ~~long~~to ~~term~~the ~~investment~~addition ~~increased~~of ~~slightly~~an ~~from~~office ~~$1,885,399~~building toas ~~$1,899,907~~a ~~due~~capital tocontribution ~~the~~of ~~changes~~Baishui ~~in currency exchange rate~~Dukang.

Total liabilities ~~increased~~decreased from $6,~~156~~470,~~606~~431 at December 31, ~~2011~~2012 to $74,~~240~~618,~~447~~833 at December 31, ~~2012~~2013, aswhich weresulted ~~increased our loans~~ from ~~related~~the ~~parties~~disposition of ~~$1,657,840~~subsidiary’s ~~for working capital~~liabilities. ~~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~~527,~~702~~521 and $~~968~~541,~~370~~246 at December 31, ~~2012~~2013 and ~~2011~~2012, 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~~People’s Republic of China and are heavily dependent on the economy, exchange rates, and consumption habits within the ~~Peoples~~People’s 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~~effect on our operations and financial condition.

Loans from these related- parties are unsecured, non-interest bearing and have no fixed terms of repayment, and 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.

2418

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 ifof 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~~2013, the ~~Financial~~FASB ~~Accounting~~issued ~~Standards~~ASU ~~Board~~2013-11, (“~~FASB”)~~Presentation ~~released~~of ~~Accounting~~an ~~Standards~~Unrecognized ~~Update~~Tax ~~No.~~Benefit ~~2012-02~~When ~~(“ASU~~a ~~2011-12”)~~Net Operating Loss Carryforward, ~~Testing~~a ~~Indefinite-Lived~~Similar ~~Intangible~~Tax ~~Assets~~Loss, ~~for~~or ~~Impairment.~~a ~~Under~~Tax ~~this~~Credit Carryforward Exists.” This standard, ~~entities~~requires ~~testing~~that ~~long-lived~~an ~~intangible~~unrecognized ~~assets~~tax ~~for~~benefit, ~~impairment~~or ~~now~~a ~~have~~portion of an ~~option~~unrecognized oftax ~~performing~~benefit abe ~~qualitative~~presented ~~assessment~~on a reduction to ~~determine~~a ~~whether~~deferred ~~further~~tax ~~impairment~~asset ~~testing~~for isan ~~necessary.~~NOL Ifcarryforward, ana ~~entity~~similar ~~determines~~tax loss, onor ~~the~~a ~~basis~~tax ofcredit ~~qualitative~~carryforward ~~factors,~~with ~~that~~certain ~~the~~exceptions ~~fair~~to ~~value~~this ofrule. ~~the~~If ~~indefinite-lived~~certain ~~intangible~~exception ~~asset~~conditions isexist, ~~more-likely-than-not~~an ~~less~~entity ~~than~~should ~~the~~present ~~carrying~~an ~~amount,~~unrecognized tax benefit in the ~~existing~~financial ~~quantitative~~statements ~~impairment~~as ~~test~~a isliability ~~required.~~and ~~Otherwise,~~should nonot ~~further~~net ~~impairment~~the ~~testing~~unrecognized istax ~~required~~benefit with a deferred tax asset. This ~~ASU~~standard is effective ~~beginning~~for ~~January~~fiscal 1,years ~~2013,~~and ~~with~~interim ~~early~~periods ~~adoption~~within ~~permitted~~those ~~under~~years ~~certain~~beginning ~~conditions~~after December 15, 2013. The adoption of this ~~standard~~provision isdid not ~~expected to~~ have a material impact on ~~the~~our ~~Company’s~~ financial ~~position,~~condition or results of operations~~, and cash flows~~.

In ~~February~~March 2013, the FASB issued ASU No. 2013-0205, ~~Comprehensive~~Foreign ~~Income~~Currency ~~(Topic~~Matters. ~~220):~~This ~~Reporting~~standard ofprovides ~~Amounts~~additional ~~Reclassified~~guidance ~~out~~with ofrespect ~~Accumulated~~to ~~Other~~the ~~Comprehensive~~reclassification ~~Income.~~into ~~Under~~income ~~this~~of ~~standard,~~the ancumulative ~~entity~~translation isadjustment ~~required~~(CTA) torecorded ~~provide~~in ~~information~~accumulated ~~about~~other ~~the~~comprehensive ~~amounts~~income ~~reclassified~~associated ~~out~~with a foreign entity of ~~accumulated~~a ~~other~~parent ~~comprehensive~~company. ~~income~~The ~~(“AOCI”)~~ASU bydifferentiates ~~component.~~between Intransactions ~~addition,~~occurring anwithin a foreign entity isand ~~required~~transactions/events toaffecting ~~present,~~an ~~either~~investment onin ~~the~~a ~~face~~foreign ofentity. For transactions within a foreign entity, the ~~financial~~full ~~statements~~CTA orassociated inwith the ~~notes,~~foreign ~~significant~~entity ~~amounts~~would be reclassified ~~out~~into ofincome ~~AOCI~~only bywhen the ~~respective~~sale ~~line~~of ~~items~~a subsidiary or group of net ~~income,~~assets ~~but~~within ~~only~~the ifforeign entity represents the ~~amount~~substantially ~~reclassified~~complete isliquidation ~~required~~of tothat beforeign ~~reclassified~~entity. For transactions/events affecting an investment in ~~its~~a ~~entirety~~foreign entity (for example, control or ownership of shares in ~~the~~a ~~same~~foreign ~~reporting~~entity), ~~period.~~the ~~For~~full ~~amounts~~CTA ~~that~~associated ~~are~~with ~~not~~the ~~required~~foreign toentity would be reclassified ininto ~~their~~income ~~entirety~~only toif ~~net~~the ~~income,~~parent anno ~~entity~~longer ishas ~~required~~a tocontrolling ~~cross-reference~~interest toin ~~other~~that ~~disclosures~~foreign ~~that~~entity ~~provide~~as ~~additional~~a ~~details~~result ~~about~~of ~~those~~the ~~amounts~~transaction/event. ~~ASU~~In ~~2013-02~~addition, ~~does~~acquisitions ~~not~~of ~~change~~a ~~the~~foreign ~~current~~entity ~~requirements~~completed ~~for~~in ~~reporting~~stages ~~net~~will ~~income~~trigger orrelease ~~other~~of ~~comprehensive~~the ~~income~~CTA associated with an equity method investment in that entity at the ~~financial~~point ~~statements.~~a ~~For~~controlling interest in the ~~Company,~~foreign ~~this~~entity is obtained. This ASU is effective prospectively beginning January 1, ~~2013~~2014, ~~and~~with ~~interim~~early ~~periods~~adoption ~~within~~permitted. ~~those~~This ~~annual~~ASU ~~periods.~~would ~~The~~impact ~~adoption~~the ofCompany’s ~~this~~consolidated ~~standard~~results isof ~~not~~operations ~~expected~~and tofinancial ~~have~~condition anonly ~~impact~~in on the ~~Company’s~~instance ~~financial~~of ~~results~~an orevent/transaction ~~disclosures~~as described above.

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 did not have an impact on the Company’s financial results or disclosures.

The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.

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~~F-1.

(b)	Supplementary Data

None

2520

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~~2013.

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 or disposition of our assets that could have a material effect on the financial statements.

2621

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~~2013. 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~~2013, 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~~year ended December 31, ~~2012~~2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None

2722

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	4142	President and Chief Executive Officer	January 5, 2008		100	%
Liu, Su Ying	6364	Chief Financial Officer	January 5, 2008		70	%
Nie, Fen Ying	4849	Director	January 5, 2008		100	%

Wang Yongsheng, 4142, ~~Preisdent~~President 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~~Peoples 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, 6364, 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~~Ms. Liu was deputy section chief of the 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 the 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.

2823

Nie Fen Ying, 4849, 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~~Peoples 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~~2013 and ~~2011~~2012.

Director Compensation

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

2924

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~~31, 2013. 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.

3025

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.

3126

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~~2013	$	13,780		0		0		0		0		0		0	$	13,780
Yongsheng	~~2011~~2012	$	1113,~~250~~780		0		0		0		0		0		0	$	11,250
CEO	~~2010~~2011	$	911,~~707~~250		0		0		0		0		0		0	$	9,707
Liu Su Ying	~~2012~~2013	$	3.280		0		0		0		0		0		0	$	3,280
CFO	~~2011~~2012	$	~~1.875~~3,280		0		0		0		0		0		0	$	1,875
	2010	$	2,964		0		0		0		0		0		0	$	2,964
	2011	$	1,875		0		0		0		0		0		0	$	2,964
Ni Fen Ying	2012	$	0		0		0		0		0		0		0	$	0
Nie Fen Ying	2013	$	0		0		0		0		0		0		0	$	0
Director	~~2011~~2012	$	0		0		0		0		0		0		0	$	0
	2010	$	0		0		0		0		0		0		0	$	0
	2011	$	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~~2013 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.

3227

ITEM 12.

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

The following table contains certain information as of ~~April~~July 1513, ~~2013~~2014 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
Name and Position (1)	Common Shares (2)(3)		Percentage
Wang Yongsheng Chief Executive Officer		9,030,000		9.052	%
Liu Su Ying Chief Financial Officer		-		-	%
Nie Feng Ying		-		-	%
Deng Guo Gang		8,800,000		8.28	%
Totals		17,830,000		17.33	%

(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.

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~~presents the aggregate fees billed for professional audit services rendered toby ~~the~~ independent auditor, Keith Zhen CPA (“Zhen”), for ~~our~~the audit of ~~the~~our annual financial statements for the years ended December 31, ~~2012~~2013 and ~~2011~~ 2012. Audit fees and other fees of ~~auditors~~the auditor are listed as follows:

Year Ended December 31	~~2012~~2013		~~2011(2)~~2012
Audit Fees (1)	$	55 ,000	$	68 55,000
Audit-Related Fees (4)		--		--
Audit-Related Fees (2)		--		--
Tax Fees (5)		--		--
Tax Fees (3)		--		--
All Other Fees (6)		--		--
All Other Fees (4)		--		--
Total Accounting Fees and Services	$	55 ,000	$	68 55,000

3329

(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~~Audit-Related ~~amounts~~Fees. ~~shown~~These inare ~~2012~~fees ~~and 2011 relate to (i) the audit of our annual financial statements~~ for the ~~fiscal~~assurance ~~years ended December 31, 2012~~ and ~~2011.~~related Weservices ~~did~~reasonably ~~not~~related ~~become~~to athe ~~reporting~~performance ~~company~~of ~~until~~the ~~January~~audit ~~2010 so there were no quarterly reports~~ or ~~other~~the ~~reports that required~~ review ~~prior~~of toour ~~this~~financial ~~filing~~statements.

(43) ~~Audit-Related~~Tax Fees. These are fees for ~~the~~professional ~~assurance and related~~ services ~~reasonably~~with ~~related~~respect to ~~the~~tax ~~performance~~compliance, oftax ~~the~~advice, ~~audit~~and ortax ~~the review of our financial statements~~planning.

(54) ~~Tax~~All Other Fees. These are fees for ~~professional~~permissible ~~services~~work ~~with~~that ~~respect~~does tonot ~~tax~~fall ~~compliance~~within any of the other fee categories, ~~tax~~i.e., ~~advice~~Audit Fees, ~~and~~Audit-Related ~~tax~~Fees, ~~planning~~or Tax Fees.

(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 ~~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.

We plan to work with our legal counsel to establish formal pre-approval policies and procedures for future engagements of our accountants. 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.

3430

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 37F-1:

Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets at December 31, 2012 and 2011			F-3
Consolidated Balance Sheets at December 31, 2013 and 2012			F-3
Consolidated Statements of Operations - for the years ended December 31, 2012 and 2011			F-4
Consolidated Statements of Operations - for the years ended December 31, 2013 and 2012			F-4
Consolidated Statements of Stockholders’ Equity - for the years ended December 31, 2012 and 2011			F-6
Consolidated Statements of Stockholders Equity - for the years ended December 31, 2013 and 2012			F-5
Consolidated Statements of Cash Flows - for the years ended December 31, 2012 and 2011			F-7
Consolidated Statements of Comprehensive Income - for the years ended December 31, 2013 and 2012			F-6
Notes to Financial Statements			F-8
Consolidated Statements of Cash Flows - for the years ended December 31, 2013 and 2012			F-7
Notes to Financial Statements			F-8 - F-42

2. Financial Statement Schedules

None.

3. Exhibits

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

(b) See the Exhibit Index on page 34.

None.

3531

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
Date: July 29, 2014	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~~July 1629, ~~2013~~2014
Wang Yongsheng
/s/ Liu Su Ying	Chief Financial Officer (Principal Financial and Accounting Officer)	~~April~~July 1629, ~~2013~~2014
Liu Su Ying
/s/ Nie Fin Ying	Director	~~April~~July 1629, ~~2013~~2014
Nie Fin Ying

3632

CHINA DU KANG CO., LTD. AND SUBSIDIARIES FINANCIAL REPORT At December 31, 2013 and 2012 and For the Years Ended December 31, 2013 and 2012

~~FINANCIAL REPORT~~33

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

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-4042

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~~

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~~2013 and ~~2011~~2012, 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~~2013 and ~~2011~~2012, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, ~~2012~~2013 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~~June 1518, ~~2013~~2014

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

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2013			2012
ASSETS
Current Assets:
Cash and cash equivalents	$	573,546		$	525,765
Notes receivable		32,712			-
Accounts receivable (Note 4)		527,521			541,246
Others receivable		30,581			19,689
Prepaid expenses (Note 5)		470,409			1,244,199
Inventories (Note 6)		8,385,490			6,962,485
Current assets of discontinued operations		-			162,765
Total current assets		10,020,259			9,464,041

Property, Plant and Equipment, net (Note 7)		7,023,716			4,237,404
Intangible assets, net (Note 8)		1,978,981			2,006,989
Long-term investment		2,013,641			1,899,907
Other assets of discontinued operations		-			7,892

Total Assets	$	21,036,597		$	17,608,341

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	2,290,540		$	1,047,283
Accrued expenses (Note 9)		138,805			218,870
Others payable		96,494			43,027
Taxes payable (Note 10)		68,987			49,506
Deferred revenue		297,544			495,917
Security deposit		31,946			35,781
Due to related parties		1,617,625			1,576,095
Lease liability-current		76,892			83,926
Current liabilities of discontinued operations		-			2,920,026
Total Current Liabilities		4,618,833			6,470,431

Long-term Liabilities:
Lease liability-long-term		689,677			770,016
Total Long-term Liabilities		689,677			770,016
Total Liabilities		5,308,510			7,240,447

Commitments and Contingencies (Note 18)		-			-

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, 2013 and December 31, 2012		-			-
Common stock, par value $0.001, 250,000,000 shares authorized;
100,113,791 shares issued and outstanding as of December 31, 2013 and 2012		100,114			100,114
Additional paid-in capital		26,593,393			27,385,386
Accumulated deficit		(21,088,319	)		(21,345,293	)
Accumulated other comprehensive income		(436,436	)		(767,180	)
Total China Du Kang Co., Ltd. Shareholders' equity (deficit)		5,168,752			5,373,027
Noncontrolling Interest		10,559,335			4,994,867
Total Equity (Deficit)		15,728,087			10,367,894
Total Liabilities and Equity (Deficit)	$	21,036,597		$	17,608,341

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

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended
	December 31,
	2013			2012

Revenues
Sales of Liquor	$	4,399,126		$	4,243,040
Costs of Liquor Sold		2,792,811			2,553,702
Gross Profit		1,606,315			1,689,338

Operating Expenses

Selling Expenses
Advertising expenses		151,193			37,024
Office expenses		30,783			-
Promotion expenses		384,923			177,003
Sales commission		143,968			-
Travel and entertainment		71,724			6,286
Total Selling Expenses		782,591			220,313

General and Administrative Expenses
Payroll		206,157			222,473
Employee benefit and pension		45,883			55,287
Depreciation and amortization expenses		123,014			120,665
Repair and maintenance		2,288			90,838
Office expenses		83,072			125,609
Vehicle expenses		27,456			30,653
Bad debt expenses		94,862			158,232
Travel and entertainment		24,498			58,849
Other general and administrative expenses		9,148			11,777
Total General and Administrative Expenses		616,378			874,383

Total Operating Expenses		1,398,969			1,094,696

Income from Operations		207,346			594,642

Other Income (Expenses)
Interest income		1,413			2,375
Interest Expenses-capital lease		(41,106	)		(32,194	)
Governmental subsidy		306,542			273,741
Other income (expense)		(82,758	)		(11,596	)
Total Other Income (Expenses)		184,091			232,326

Net Income (loss) for continuing operations		391,437			826,968

Provision for Income Tax (Note 16)		-			-

Net Income (Loss) before discontinued operations		391,437			826,968

Discontinued Operations
Income (loss) from operations of discontinued-Brand Management		(91,015	)		141,982
Income tax benefit (expense)		(286	)		(44,289	)
Net income (loss) from discontinued operations		(91,301	)		97,693

Net Income (Loss)		300,136			924,661

Less: Net (loss) income attributable to noncontrolling interest		(43,056	)		3,507

Net Income (Loss) attributable to China Du Kang Co., Ltd.	$	257,080		$	928,168

Basic and Fully Diluted Income (Loss) per Share	$	0.00		$	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

~~CHINA DU KANG CO., LTD. AND SUBSIDIARIES~~ CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME

	For the Years Ended
	December 31,
	2012			2011
	2013			2012
Net Income (Loss)	$	924,661		$	(696,001	)
Net Income	$	300,136		$	924,661
Other comprehensive income (loss), net of tax:
Effects of foreign currency conversion		73386,~~402~~494			~~(150~~73,~~966~~402	)
Total other comprehensive income (loss), net of tax		73386,~~402~~494			~~(150~~73,~~966~~402	)
Comprehensive loss		~~998~~686,~~063~~630			~~(846~~998,~~967~~063	)
Comprehensive income (loss) attributable to the noncontrolling interest		3(98,~~510~~912	)		~~(132~~3,~~336~~510	)
Comprehensive income (loss) attributable to China Du Kang Co., Ltd.	$	1587,~~001,573~~718		$	~~(979~~1,~~303~~001,573	)

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

	China Du Kang Co., Ltd. Shareholders
	Common Stock			Additional						Accumulated 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, 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

Discontinued a subsidiary-
Brand Management	-		-		(791,993	)		-			-			-		(791,993	)		(395,794	)				(1,187,787	)

Registered capital contribution from
non-controlling interest of Baishui Dukang	-		-		-			-			-			-		-			5,861,350					5,861,350

Comprehensive income
Net income	-		-		-			256,975			-			-		256,975			43,161		$	300,136		300,136
Other comprehensive income, net of tax:
Effects of foreign currency conversion	-		-		-			-			330,743			-		330,743			55,751			386,494		386,494
Total other comprehensive income																						386,494
Total comprehensive income																					$	686,630
Balances at
December 31, 2013	100,113,791	$	100,114	$	26,593,393		$	(21,088,318	)	$	(436,437	)	$	-	$	5,168,752		$	10,559,335				$	15,728,087

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended
	December 31,
	2013			2012
Cash Flows from Operating Activities

Net income including non-controlling interest	$	300,136		$	924,661
Adjustments to reconcile net income
including non-controlling interest to net cash
provided (used) by operating activities:
Loss (income) from discontinued operations		91,301			(97,693	)
Depreciation		411,216			448,446
Amortization		42,827			42,873
Bad debt expense		94,862			158,232
Obsolete inventory write-down		158,672			61,839
Changes in operating assets and liabilities:
(Increase)/Decrease in notes receivable		(32,268	)		-
(Increase)/Decrease in accounts receivable		(690,139	)		283,200
(Increase)/Decrease in others receivable		(10,102	)		(17,756	)
(Increase)/Decrease in prepaid expenses		803,851			(560,118	)
(Increase)/Decrease in inventories		(1,335,331	)		(1,647,197	)
Increase/(Decrease) in accounts payable		1,192,226			(156,440	)
Increase/(Decrease) in accrued expenses		(86,114	)		(46,931	)
Increase/(Decrease) in other payable		51,338			(42,677	)
Increase/(Decrease) in taxes payable		17,602			(1,518	)
Increase/(Decrease) in deferred revenue		(222,274	)		1,342,034
Increase/(Decrease) in security deposit		(4,950	)		35,760
Increase/(Decrease) in capital lease interest payable		(41,106	)		(32,194	)
Net cash provided (used) by operating activities of continued operations		741,747			694,521
Net cash provided (used) by operating activities of discontinued operations		(155,690	)		(587,129	)
Net cash provided by operating activities		586,057			107,392

Cash Flows from Investing Activities

Purchase of fixed assets		(503,831	)		(203,332	)
Proceeds from sales of discontinued operations		114,506			-
Net cash provided (used) by investing activities of continued operations		(389,325	)		(203,332	)
Net cash provided (used) by investing activities of discontinued operations		(1,597	)		(7,102	)
Net cash used by investing activities		(390,922	)		(210,434	)

Cash Flows from Financing Activities

Repayments to related parties		-			(99,603	)
Repayment for a capital lease principal		(72,924	)		(91,765	)
Net cash provided (used) by financing activities of continued operations		(72,924	)		(191,368	)
Net cash provided (used) by financing activities of discontinued operations		-			-
Net cash provided (used) by financing activities		(72,924	)		(191,368	)

Increase (decrease) in cash		122,211			(294,410	)
Effects of exchange rates on cash		(74,430	)		7,742
Cash at beginning of period		525,765			968,370
Cash at end of period		573,546			681,702
Less: Cash at end of period-discontinued operations		-			155,937
Cash at end of period	$	573,546		$	525,765

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	(41,106	)	$	32,194
Income tax	$	285		$	55,088
Non-cash financing activities:
Contribution to registered capital of Baishui Dukang as noncontrolling interest	$	3,329,312		$	-
Debt converted to registered capital of Baishui Dukang as noncontrolling interest	$	2,532,038		$	-

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.

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.

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). 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. Due to the related party debt conversion into registered capital of Xidenghui, as more fully disclosed in Note 15, Huitong's equity ownership interest in Xidenghui was reduced from 98.24% to 83.75% in October 2011.

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.

Note 1- ORGANIZATION AND BUSINESS BACKGROUND (continued)

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 PRC operating subsidiaries. Beginning from January 2012, Xidenghui also distributes liquor that is manufactured by Shannxi Baishui Dukang Liquor Co., Ltd. (“Baishui Dukang”), one of our operating subsidiaries.

Xidenghui's Investment in Baishui Dukang--Majority owned Subsidiary

Baishui Dukang was incorporated in Baishui County, Shanxi 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 (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 July 29, 2003, Baishui Dukang increased its registered capital to $5,603,479 (RMB 46,380,000). Xidenghui retains 90.51% equity ownership interest in Baishui Dukang, while its investment amount in Baishui Dukang increased from $ 4,470,219 (RMB 37,000,000) to $5,071,463 (RMB 41,976,500).

On November 16, 2013, Baishui Dukang increased its registered capital of $5,861,350 (RMB 35,950,000) from $5,603,479 (RMB 46,380,000) to $11,464,829 (RMB 82,330,000), of which Baishui Dukang converted debt of $3,329,312 (RMB 20,420,000) owed to Shaanxi Du Kang Group Co., Ltd. (“Du Kang Group”), a related party, into registered capital, and Shaanxi Bai Shui Du Kang Marketing Management Co., Ltd. (“Du Kang Marketing Management”), another related party, contributed a property with a fair market value of $2,532,038 (RMB 15,530,000) to Baishui Dukang toward registered capital. While Xidenghui retains its investment amount of $5,071,463 (RMB 41,976,500), its equity ownership interest in Baishui Dukang was reduced from 90.51% to 51%.

Xidenghui's Investment in Shaanxi Baishui Dukang Liquor Brand Management Co., Ltd.--Discontinued Operation

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.

On December 10, 2013, Xidenghui transferred its 70% equity ownership interest in Brand Management to Mr. Zhang, Hongjun for $114,506 (RMB 700,000), and accordingly, Brand Management is no longer a subsidiary of Xidenghui. Since this disposal is a transaction between entities under common control, the Company recorded the transaction on the historical carrying values. No gain or loss is recognized for the disposal.

F-9

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1- ORGANIZATION AND ~~OPERATIONS~~BUSINESS BACKGROUND (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

Before the disposal of Brand Management, the Company derived license fees from liquor manufactures and liquor stores.

~~Under the PRC regulations on acquisition of businesses, commonly referred to as "SAFE" regulations~~ (~~State Administration of Foreign Exchange~~a), ~~which~~License ~~were~~fees ~~jointly~~from ~~adopted~~liquor 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”).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.

As the Company disposed of Brand Management in December 10, 2013, the Company no longer generates revenue from license fees.

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.

Xidenghui's Investment in Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd.--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 a joint-venture named Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd., ("Yellow-river Bay Park") 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.

On October 8, 2013, Xidenghui exchanged its right to a piece of land, approximately 657 acres located in Weinan City, Shaanxi Province, with Mr. Zhang, Hongjun for approximately 10% equity ownership interest in Yellow-river Bay Park. Upon completion of the transaction, Xidenghui owns 18% equity ownership interest in Yellow-river Bay Park. Since this is a transaction between entities under common control, the Company recorded the transaction on the historical carrying values. No gain or loss is recognized for transaction. The Company uses the cost method to record the investment.

As detailed above, the restructuring of Xidenghui's equity ownership interest in PRC operating subsidiaries in the fourth quarter 2013 is summarized as following charts:

F-10

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.

Note 1- ORGANIZATION AND OPERATIONS (continued)

	Organization Chart Before the Restructuring in the Fourth Quarter 2013:


		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 15

		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 Disposing of 70% equity interest on December 10, 2013

	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

F-11

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.

Note 1- ORGANIZATION AND OPERATIONS (continued)

	Organization Chart After the Restructuring in the Fourth Quarter 2013:


		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 15

		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 The equity interest reduced to 51% on 11/16/2013				Acquiring 7.9% equity interest on 11/12/2007 The equity interest increased to 18% on 10/8/2013

	Shaanxi Baishui Dukang Liquor Co., Ltd. “Baishui Dukang” Incorporated in Shaanxi Province, PRC on March 1, 2002		Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd. ("Yellow-river Bay Park") Incorporated in Shaanxi Province, PRC on August 11, 2005

F-12

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):

Note 1 - ORGANIZATION AND OPERATIONS (continued)

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

The restructuring of Xidenghui in the fourth quarter 2013 is subject to the local government's approval, which was subsequently obtained in early 2014. Also, because the restructuring is a transaction between entities under common control, the Company recorded the restructuring on the historical carrying values. No gain or loss is recognized for the restructuring.

~~Statement~~Under the PRC regulations on acquisition of ~~Cash~~businesses, ~~Flows~~commonly Inreferred ~~accordance~~to ~~with~~as ~~FASB~~"SAFE" ~~ASC~~regulations ~~830-230,~~(State ~~“Statement~~Administration of ~~Cash~~Foreign ~~Flows~~Exchange),” ~~cash~~which ~~flows~~were ~~from~~jointly adopted ~~the~~on ~~Company’s~~August ~~operations~~8, is2006 ~~calculated~~by ~~based~~six ~~upon~~PRC ~~the~~regulatory ~~functional~~agencies ~~currency.~~with Asjurisdictional Authority, a ~~result,~~Chinese ~~amounts~~entity ~~related~~may tonot ~~assets~~be ~~and~~owned ~~liabilities~~or ~~reported~~controlled ondirectly ~~the~~by ~~statement~~foreign ofinvestors ~~cash~~or ~~flows~~shareholders but may ~~not~~be ~~necessarily~~acquired ~~agree~~in ~~with~~a ~~changes~~two-step intransaction ~~the~~with ~~corresponding~~a ~~balances~~wholly onowned ~~the~~foreign ~~balance~~enterprise ~~sheet~~(“WOFE”).

China Du Kang is the U.S. holding company for Merit, a Hong Kong entity organized under the Companies Ordinance 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 one subsidiary, Baishui Dukang, and has an 18% equity interest in Yellow-river Bay Park.

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.

Xidenghui and Baishui Dukang are the two of these affiliated companies that are engaged in business operations. China Du Kang, Merit, and Huitong are holding companies, whose business is to hold an equity ownership interest in Xidenghui and Baishui Dukang. 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.”

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.

F-13

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.

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 year's consolidated financial statements and notes have been revised to conform to the current year presentation.

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.

F-14

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.

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, 2013		6.11400		6.19817
Year ended December 31, 2012		6.31610		6.31984

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.

F-15

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:

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.

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.

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.

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.

F-16

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Others Receivable

Others receivable principally includes advances 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.

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.

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 called “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, 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:

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

F-16

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.

F-17

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
	A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

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 two pieces of land, approximately 2.4 acres and 7.8 acres, located in Weinan City, Shaanxi Province through March 2055 and May 2059, respectively. 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.

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 $151,193 and $37,024 for the years ended December 31, 2013 and 2012, respectively.

F-18

CHINA DU KANG CO., LTD. AND SUBSIDIARIES ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)
	Due from/to Related Parties
	Due to related parties represent temporally short-term loans from related parties to finance the Company’s operation due to lack of cash resources. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flows from due to related parties are classified as cash flows from financing activities. On July 1, 2011, the related parties agreed to convert their loans to the Company into paid-in capital, as more fully disclosed in Note 16.
	Imputed Interest
	The Company has financed it business operations through short-term borrowings from various related parties. These short-term borrowings are non-secured, non-interest bearing with no fixed repayment date. The imputed interests are assessed as an expense to the business operation and an addition to the paid-in capital. The calculation is performed quarterly based on the average outstanding balance and the market interest rate. The interest rate used in the calculation of imputed interest for the year ended December 31, 2011 was 6.375%, which approximates the interest rate of our bank loans. On July 1, 2011, the related parties agreed to convert their loans to the Company into paid-in capital, as more fully disclosed in Note 16.
	Pension and Employee Benefits
	Full time employees of the PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to accrue for these benefits based on certain percentages of the employees' salaries. The Management believes full time employees who have passed the probation period are entitled to such benefits. The total provisions for such employee benefits were $74,504 and $106,925 for the years ended December 31, 2012 and 2011, respectively.
	Government Subsidies
	The Company records government grants as current liabilities upon reception. A government subsidy revenue is recognized only when there is reasonable assurance that the Company has complied with all conditions attached to the grant. The Company recognized government subsidy of $273,741 and $0 for the years ended December 31, 2012 and 2011, respectively.

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, 2013 and 2012, 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

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

F-19

CHINA DU KANG CO., LTD. AND SUBSIDIARIES ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)
	Income Taxes
	The Company accounts for income tax in accordance with FASB ASC 740-10-25, which requires the asset and liability approach for financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
	The Company has net operating losses carried forward from prior years. Although the PRC Income Tax Law allows enterprises to offset their future taxable income with operating losses carried forward in a 5-year period, enterprises need approval from the local tax authority before they can claim such tax benefit, and the outcome of the application is generally uncertain. Therefore, Management established a 100% valuation allowance for the operation losses carried forward and no deferred tax assets have been recorded as a result of these losses.
	Effective January 1, 2007, the Company adopted a new FASB guidance, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The new FASB guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new FASB guidance also provides guidance on de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. In accordance with the new FASB guidance, the Company performed a self-assessment and concluded that there were no significant uncertain tax positions requiring recognition in its consolidated financial statements.
	The Company accounts for income taxes in interim periods in accordance with FASB ASC 740-270, "Interim Reporting." The Company has determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during the Company's fiscal year to its best current estimate. The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.
	The Company may from time to time be assessed interest or penalties by major tax jurisdictions. In the event it receives an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Due from/to Related Parties

Before July 1, 2011, Due to related parties represents temporary short-term loans from related parties to finance the Company’s operation due to lack of cash resources. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flows from due to related parties are classified as cash flows from financing activities. On July 1, 2011, the related parties agreed to convert their loans to the Company into paid-in capital, as more fully disclosed in Note 15.

After July 1, 2011, Due from/to related parties was caused by the related party transaction of sales of liquor. Since the Company sells liquor to the related parties, due from/to related parties represents accounts receivable from or deferred revenue from these related parties. Cash flows from due from/to related parties are classified as cash flows from operating activities.

Imputed Interest

The Company has financed it business operation through short-term borrowings from various related parties. These short-term borrowings are non-secured, non-interest bearing with no fixed repayment date. The imputed interests are assessed as an expense to the business operation and an addition to the paid-in capital. The calculation is performed quarterly based on the average outstanding balance and the market interest rate. The interest rate used in the calculation of imputed interest for the year ended December 31, 2011 was 6.375%, which approximates the interest rate of our bank loans. On July 1, 2011, the related parties agreed to convert their loans to the Company into paid-in capital, as more fully disclosed in Note 15.

Pension and Employee Benefits

Full time employees of the PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to accrue for these benefits based on certain percentages of the employees' salaries. The Management believes full time employees who have passed the probation period are entitled to such benefits. The total provisions for such employee benefits were $45,883 and $55,287 for the year ended December 31, 2013 and 2012, respectively.

Government Subsidies

The Company records government grants as current liabilities upon reception. A government subsidy revenue is recognized only when there is reasonable assurance that the Company has complied with all conditions attached to the grant. The Company recognized government subsidy of $306,542 and $273,741 for the year ended December 31, 2013 and 2012, respectively.

F-20

CHINA DU KANG CO., LTD. AND SUBSIDIARIES ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)
	Statutory Reserves
	Pursuant to the applicable laws in PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the PRC GAAP, after offsetting any prior years’ losses. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of the Company's registered capital. Appropriation to the statutory public welfare fund is 5% to 10% of the after-tax net earnings. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. Beginning from January 1, 2006, enterprise is no longer required to make appropriation to the statutory public welfare fund. The Company does not make appropriations to the discretionary surplus reserve fund.
	Since the Company has been accumulating deficiency, no contribution has been made to the statutory surplus reserve fund and statutory public welfare reserve fund to date. The company will be required to make contributions to the statutory surplus reserve fund and statutory public welfare reserve fund upon the achievement of positive retained earnings, which means elimination of accumulated deficit and making further positive net income.
	Comprehensive Income
	FASB ASC 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statements of changes in owners' equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
	Segment Reporting
	FASB ASC 820, “Segments Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company currently operates in two principal business segments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

The Company accounts for income tax in accordance with FASB ASC 740-10-25, which requires the asset and liability approach for financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company has net operating losses carried forward from prior years. Although the PRC Income Tax Law allows the enterprises to offset their future taxable income with operating losses carried forward in a 5-year period, enterprises need approval from the local tax authority before they can claim such tax benefit, and the outcome of the application is generally uncertain. Therefore, the Management established a 100% valuation allowance for the operation losses carried forward and no deferred tax assets have been recorded as a result of these losses.

The Company accounts for income taxes in interim periods in accordance with FASB ASC 740-270, "Interim Reporting". The Company has determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during the Company's fiscal year to its best current estimate. The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.

The Company may from time to time be assessed interest or penalties by major tax jurisdictions. In the event it receives an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.

F-21

CHINA DU KANG CO., LTD. AND SUBSIDIARIES ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)
	Earnings (Loss) Per Share
	The Company reports earnings per share in accordance with FASB ASC 260, “Earnings Per Share,” which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There are no potentially dilutive securities outstanding (options and warrants) for the years ended December 31, 2012 and 2011, respectively.
	Fair Value of Measurements
	Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
	Level 1:	Unadjusted quoted prices in active markets for identical assets or liabilities.
	Level 2:	Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.
	Level 3:	Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.
	An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Statutory Reserves

Pursuant to the applicable laws in PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the PRC GAAP, after offsetting any prior years’ losses. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of the Company's registered capital. Appropriation to the statutory public welfare fund is 5% to 10% of the after-tax net earnings. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. Beginning from January 1, 2006, enterprise is no longer required to make appropriation to the statutory public welfare fund. The Company does not make appropriations to the discretionary surplus reserve fund.

Since the Company has been accumulating deficit, no contribution has been made to the statutory surplus reserve fund and statutory public welfare reserve fund to date. The Company will be required to make contributions to the statutory surplus reserve fund and statutory public welfare reserve fund upon the achievement of positive retained earnings, which means elimination of accumulated deficit and making further positive net income.

Comprehensive Income

FASB ASC 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statements of changes in owners' equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

Segment Reporting

FASB ASC 820, “Segments Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company currently operates in one principal business segments.

F-22

CHINA DU KANG CO., LTD. AND SUBSIDIARIES ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note 3-	SIGNIFICANT ACCOUNTING POLICIES (continued)
	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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings (Loss) Per Share

The Company reports earnings per share in accordance with FASB ASC 260, “Earnings Per Share” , which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There are no potentially dilutive securities outstanding (options and warrants) for the year ended December 31, 2013 and 2012, respectively.

Fair Value of Measurements

Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1:

Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2:

Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3:

Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

F-23

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 43 - ~~ACCOUNTS~~SIGNIFICANT ~~RECEIVABLE~~ACCOUNTING ~~Accounts~~POLICIES ~~receivable consists of the following:~~(continued)

	December 31,			December 31,
	2012			2011
Accounts receivable	$	602,688		$	265,729
Accounts receivable-related party		154,052			66,981
Less: Allowance for doubtful accounts		(215,494	)		-
Accounts receivable, net	$	541,246		$	270,276

Recent Accounting Pronouncements

~~Bad~~In ~~debt~~July ~~expense~~2013, ~~charged~~the toFASB ~~operations~~issued ~~was~~ASU ~~$215~~2013-11,~~494~~ ~~and~~“Presentation $0of ~~for~~an ~~the~~Unrecognized ~~year~~Tax ~~ended~~Benefit ~~December~~When 31a Net Operating Loss Carryforward, ~~2012~~a ~~and~~Similar ~~2011~~Tax Loss, ~~respectively~~or a Tax Credit Carryforward Exists.” ~~Refer~~This tostandard ~~Note~~requires 13that -an ~~Sales~~unrecognized tax benefits, or a portion of ~~Liquor~~an unrecognized tax benefit be presented on a reduction to ~~Related~~a ~~Party~~deferred tax asset for ~~accounts~~an ~~receivable~~NOL carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions to this rule. If certain exception conditions exists, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset. This standard is effective for fiscal years and interim periods within those years beginning after December 15, 2013. The adoption of ~~related~~the ~~party~~this provision did not have a material impact on our financial condition or results of operations.

~~Note~~In 5March 2013, the FASB issued ASU No. 2013-05, ~~PREPAID~~Foreign ~~EXPENSES~~Currency ~~Prepaid~~Matters. ~~expenses~~This ~~consist~~standard provides additional guidance with respect to the reclassification into income of the ~~following:~~cumulative translation adjustment (CTA) recorded in accumulated other comprehensive income associated with a foreign entity of a parent company. The ASU differentiates between transactions occurring within a foreign entity and transactions/events affecting an investment in a foreign entity. For transactions within a foreign entity, the full CTA associated with the foreign entity would be reclassified into income only when the sale of a subsidiary or group of net assets within the foreign entity represents the substantially complete liquidation of that foreign entity. For transactions/events affecting an investment in a foreign entity (for example, control or ownership of shares in a foreign entity), the full CTA associated with the foreign entity would be reclassified into income only if the parent no longer has a controlling interest in that foreign entity as a result of the transaction/event. In addition, acquisitions of a foreign entity completed in stages will trigger release of the CTA associated with an equity method investment in that entity at the point a controlling interest in the foreign entity is obtained. This ASU is effective prospectively beginning January 1, 2014, with early adoption permitted. This ASU would impact the Company’s consolidated results of operations and financial condition only in the instance of an event/transaction as described above.

	December 31,		December 31,
	2012		2011
Machinery and parts	$	135,222	$	20,520
Raw materials and supplies		49,477		519,629
Packing and supply materials		74,343		138,379
Advance to contraction project		985,157		-
Total	$	1,244,199	$	678,528

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 was effective beginning January 1, 2013, and interim periods within those annual periods. The adoption of this standard did not have an impact on the Company’s financial results or disclosures.

~~Note~~The 6-Company ~~INVENTORIES~~believes ~~Inventories~~that ~~consist~~there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of ~~following:~~operations.

	December 31,			December 31,
	2012			2011
Finished goods	$	2,982,436		$	1,799,934
Work-in-progress		3,001,300			2,700,921
Raw materials and supplies		65,565			154,603
Supplies and packing materials		1,046,624			751,279
Less: Allowance for obsolte inventory		(133,440	)		(71,601	)
Total	$	6,962,485		$	5,335,136

Obsoelete/Slow moving inventory was $61,839 and $71,601 for the years ended December 31, 2012 and 2011, respectively, and these amounts were included in costs of goods sold.

F-24

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 74 - ~~PROPERTY,~~ACCOUNTS ~~PLANT AND EQUIPMENT The following is a summary of property, plant and equipment:~~RECEIVABLE

	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

Accounts receivable consists of the following:

Total depreciation expense was $450,503 and $471,809 for the years ended December 31, 2012 and 2011, respectively. Depreciation expense with respect to production equipment that was charged to cost of sales was $370,654 and $361,298 for years ended December 31, 2012 and 2011, respectively. The remainder, depreciation expense attributable to equipment used in administration, was $79,849 and $109,881 for years ended December 31, 2012 and 2011, respectively, and was included in general and administration expenses.

	December 31,			December 31,
	2013			2012

Accounts receivable	$	314,853		$	602,688
Accounts receivable-related party		523,024			154,052
Less: Allowance for doubtful accounts		(310,356	)		(215,494	)
Accounts receivable, net	$	527,521		$	541,246

~~Note~~Bad 8-debt ~~INTANGIBLE~~expense ~~ASSETS~~charged ~~The~~to ~~following~~operations iswas a$94,862 ~~summary~~and of$158,232 ~~intangible~~for ~~assets~~the year ended December 31, ~~less~~2013 ~~amortization:~~and 2012, respectively.

	December 31,			December 31,
	2012			2011
Land use right	$	2,101,388		$	2,085,341
Trade Mark of "Xidenghui"		71,246			70,702
Trade Mark of "Baishui Du Kang"		26,124			25,924
Total intangible assets		2,198,758			2,181,967
Less: Accumulated amortization		(191,769	)		(147,732	)
Total intangible assets, net	$	2,006,989		$	2,034,235

Refer to Note 13 - Sales of Liquor to Related Party for accounts receivable of related party.

	Amortization expense charged to operations was $42,873and $45,717 for years ended December 31, 2012 and 2011, respectively.
Note 9-	ACCRUED EXPENSES
	Accrued expenses consist of the following:

Note 5 - PREPAID EXPENSES

	December 31,		December 31,
	2012		2011
Accrued payroll	$	98,532	$	84,933
Accrued employee benefits		59,422		59,000
Accrued pension and employee benefit		140,892		138,643
Accrued office expenses		37,284		70,388
Total	$	336,130	$	352,964

Prepaid expenses consist of the following:

	December 31,		December 31,
	2013		2012

Machinery and parts	$	81,912	$	135,222
Raw materials and supplies		89,136		49,477
Packing and supply materials		216,795		74,343
Advance to construction project		41,748		985,157
Taxes		39,952		-
Rent		866		-
Total	$	470,409	$	1,244,199

Note 6 - INVENTORIES

Inventories consist of following:

	December 31,			December 31,
	2013			2012

Finished goods	$	4,048,070		$	2,982,436
Work-in-progress		3,451,217			3,001,300
Raw materials and supplies		278,595			65,565
Supplies and packing materials		899,721			1,046,624
Less: Allowance for obsolete inventory		(292,112	)		(133,440	)
Total	$	8,385,491		$	6,962,485

Obsolete/Slow moving inventory was $158,672 and $61,839 for the years ended December 31, 2013 and 2012, respectively, and these amounts were included in costs of goods sold.

F-25

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 107 - ~~TAXES~~PROPERTY, ~~PAYABLE~~PLANT ~~Taxes~~AND ~~payable consists of the following:~~EQUIPMENT

	December 31,		December 31,
	2012		2011
Income tax	$	469,513	$	469,626
Sales tax and sales tax affixation		142,687		142,148
Excise taxes		42,797		44,694
Value-added Tax ("VAT")		3,715		2,429
Other taxes		3,126		2,399
Total taxes payable	$	661,838	$	661,296

The following is a summary of property, plant and equipment:

Note 11- DEFERRED REVENUE Deferred revenue consist of the following:

	December 31,			December 31,
	2013			2012

Building and warehouses	$	5,888,332		$	3,185,704
Machinery and equipment		2,407,299			2,278,147
Office equipment and furniture		269,815			257,435
Motor vehicles		395,373			373,732
Leased assets		2,800,301			2,561,674
Total		11,761,120			8,656,692
Less: Accumulated depreciation		(5,368,472	)		(4,805,032	)
		6,392,648			3,851,660
Add: Construction in progress		631,068			385,744
Total property, plant and equipment, net	$	7,023,716		$	4,237,404

	December 31,		December 31,
	2012		2011
Deferred revenue	$	2,498,357	$	2,140,638
Deferred revenue-related party		1,675,840		644,753
Total	$	4,174,197	$	2,785,391

Depreciation expense charged to operations was $411,216 and $448,446 for the year ended December 31, 2013 and 2012, respectively. Depreciation expense with respect to production equipment that was charged to cost of sales was $331,029 and $370,654 for year ended December 31, 2013 and 2012, respectively. The remainder, depreciation expense attributable to equipment used in administration, was $80,187 and $77,792 for year ended December 31, 2013 and 2012, respectively, and was included in general and administration expenses.

~~Refer to~~ Note 138 - ~~Sales~~INTANGIBLE ~~of Liquor to Related Party for deferred revenues of related party.~~ASSETS

~~Note 12- SEGMENT REPORTING~~ The ~~Company~~following ~~operates~~is ina ~~two~~summary ~~reportable~~of ~~business~~intangible ~~segments~~assets, ~~that~~less ~~are determined based upon differences in products and services. Summarized information by business segment is as follows~~amortization:

	For the year Ended
	December 31,			December 31,
	December 31,
	2013			2012
	2012			2011
Land use right	$	2,105,299		$	2,101,388
REVENUE
Trade Mark of "Xidenghui"		73,602			71,246
Sales of Liquor	$	4,243,040		$	1,943,864
Trade Mark of "Baishui Du Kang"		26,987			26,124
Franchise Fees	$	833,625		$	1,146,890
Total intangible assets		2,205,888			2,198,758
COST OF SALES
Less: Accumulated amortization		(226,907	)		(191,769	)
Sales of Liquor	$	2,553,702		$	1,562,200
Total intangible assets, net	$	1,978,981		$	2,006,989
Franchise Fees	$	-		$	-
GROSS PROFITS
Sales of Liquor	$	1,689,338		$	381,664
Franchise Fees	$	833,625		$	1,146,890

	December 31,		December 31,
	2012		2011
TOTAL ASSETS OF LIQUOR PRODUCTION AND DISTRIBUTION	$	29,157,214	$	12,139,862
TOTAL ASSETS OF BRAND NAME FRANCHISE	$	4,361,566	$	4,201,880

Amortization expense charged to operations was $42,827 and $42,873 for years ended December 31, 2013 and 2012, respectively.

F-26

CHINA DU KANG CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note ~~13-~~9 SALES OF LIQUOR TO RELATED PARTIES The Company generally sells liquor to liquor distributors. Some of these liquor distributors are our affiliates, which are directly or indirectly, beneficially and in the aggregate, majority-~~owned~~ ACCRUED ~~and controlled by directors and principal shareholders of the Company. The price will be different if we sell to third parties. The amounts sold to these affiliates are as follows:~~EXPENSES

		December 31,		December 31,
Name of Related Party	Description	2012		2011
Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd.,	Non-consolidated,
F/K/A Shaanxi Yellow-river Wetlands Park Co., Ltd.	7.9% owned subsidiary	$	34,113	$	-
Shaanxi Zhongke Spaceflight Agriculture
Development Stock Co., Ltd.	Affiliate 1		119,939		-
Shaanxi Dukang Group Co., Ltd.	Affiliate 2		1,764,543		1,474,019
Shaanxi Baishui Shiye Co., Ltd.
(F/K/A Shaanxi Baishui Dukang Trade Co., Ltd.)	Affiliate 3		16,008		247,012
Total		$	1,934,603	$	1,721,031

Accrued expenses consist of the following:

In related to sales to related-parties, our subsidiaries have accounts receivable and deferred revenue from related parties, as disclosed in the following: Accounts receivables-related parties Accounts receivables of related parties consists of the following:

	December 31,		December 31,
	2013		2012

Accrued payroll	$	56,435	$	69,745
Accrued pension and employee benefit		61,598		134,941
Accrued office expenses		20,772		14,184
Total	$	138,805	$	218,870

		December 31,		December 31,
Name of Related Party	Description	2012		2011
Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd.,	Non-consolidated,
F/K/A Shaanxi Yellow-river Wetlands Park Co., Ltd.	7.9% owned subsidiary	$	34,113	$	-
Shaanxi Zhongke Spaceflight Agriculture
Development Stock Co., Ltd.	Affiliate 1		119,939		66,981
Total		$	154,052	$	66,981

Note 10 -

TAXES PAYABLE

~~The~~Taxes ~~nature~~payable of the affiliation of each related party is as follows: Affiliate 1--This company is indirectly, majority owned, and controlled by the Company's sole director's siblings. Deferred revenues-related parties Deferred revenues of related parties consists of the following:

	December 31,		~~December 31,~~		December 31,		~~December 31,~~
Name of Related Party	Description		2012				2011
	2013				2012
Shaanxi Dukang Group Co., Ltd.	Affiliate 2		$	1,258,241			$	644,753
Sales tax and sales tax affixation	$	5,814			$	4,456
Shaanxi Baishui Shiye Co., Ltd.
Excise taxes		48,271				42,797
(F/K/A Shaanxi Baishui Dukang Trade Co., Ltd.)	Affiliate 3			325,770				-
Value-added Tax ("VAT")		14,512				1,762
Shaanix Mining New Energy Co., Ltd.	Affiliate 4			91,829				-
Other taxes		390				491
Total			$	1,675,840			$	644,753
Total taxes payable	$	68,987			$	49,506

The nature of the affiliation of each related party is as follows: Affiliate 1--This company is indirectly, majority owned, and controlled by the Company's sole director's siblings. Affiliate 2--The CEO of the Company is a director of Shaanxi Dukang Group Co., Ltd. and has significant influence on the operations therein. Affiliate 3--The CEO of the Company is the sole director of Shaanxi Baishui Shiye Co., Ltd. and has significant influence on the operations therein. Affiliate 4--The Company's sole director's spouse is a director of Shaanxi Mining New Energy Co., Ltd., and has significant influence on the operation therein.

F-27

CHINA DU KANG CO., LTD. AND SUBSIDIARIES ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note 14-	CONCENTRATIONS AND CREDIT RISKS
	The Company operates in the PRC and grants credit to its customers in this geographic region based on an evaluation of the customer's financial condition. Although the PRC is economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company’s operations.
	Major Customers
	The following major customers accounted for approximately 5% or more of the Company’s total sales as summarized in the following:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			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	%

Note 11 -

DISCONTINUED OPERATION

~~Major~~On ~~Suppliers~~October ~~The~~30, ~~following~~2007, ~~major~~Xidenghui ~~suppliers~~executed ~~accounted~~an ~~for~~agreement ~~approximately~~with 5Mr. 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% orequity ~~more~~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 ~~Company’s~~Xidenghui. ~~total~~Brand ~~purchase~~Management asis ~~summarized~~principally engaged in the ~~following:~~business of managing the franchise of the “Baishui Du Kang” brand name.

		For the Year Ended December 31,
		2012					2011
	Major			Percentage of					Percentage of
	Suppliers	Purchase		Total Purchase			Purchase		Total Purchase
	Guang an Detai Glass Co., Ltd.	$	-		-		$	105,768		7.29	%
	Hunan Xinshiji Taochi Co., Ltd.		187,410		5.00	%		430,317		29.68	%
	Hunan Liling Liangyou Geramacs Co., Ltd.		333,655		8.90	%		-		-
	Hunan Fengling Liangyou China Co., Ltd.		-		-			141,768		9.78	%
	Shanxi Wenxiyingfa Glass Co., Ltd.		-		-			135,671		9.36	%
	Hunan Dexing China Co., Ltd.		-		-			101,743		7.02	%
	Mr. Jianguo Wang		199,058		5.31	%		-		-
	Yuncheng Aofeng Glass Co., Ltd.		-		-			158,216		10.91	%
	Total	$	720,124		19.20	%	$	1,073,485		74.03	%
*	Shaanxi Dukang Group Co., Ltd. and Shaanxi Baishui Duking Shiye Co., Ltd are related parties of the Company, see the nature of the affiliation relationship in Note 12.

On December 10, 2013, Xidenghui transferred its 70% equity ownership interest in Brand Management to Mr. Zhang, Hongjun for $114,506 (RMB 700,000), which equals to 70% of Brand Management's registered capital. Upon completion of the transaction, Brand Management is no longer a subsidiary of Xidenghui. Since this disposal is a transaction between entities under common control, the Company recorded the transaction on the historical carrying values. No gain or loss is recognized for the disposal.

The carrying amount of the assets and liabilities of the discontinued operation were as follows:

	December 10,		December 31,
	2013		2012
Assets
Cash	$	1,379	$	155,937
Other current assets		16,922		6,828
Property and equipment, net		6,275		7,892
Assets of discontinued operations	$	24,576	$	170,657

Liabilities
Accounts payables and accrued expenses	$	115,755	$	159,599
Deferred revenue		1,930,284		2,002,437
Other current liabilities		668,624		658,245
Due to related parties		177,298		99,745
Liabilities of discontinued operations	$	2,891,961	$	2,920,026

Due from related parties were $4,264,018 and $4,190,910 as of December 10, 2013 and December 31, 2012, respectively. Due to related parties were $115,383 and $111,691 as of December 10, 2013 and December 31, 2012, respectively. These due from related parties and due to related parties were intercompany accounts which were eliminated in the consolidation.

Discontinued operations for the period January 1, 2013 through December 10, 2013 and the year ended December 31, 2012 were summarized as follows:

	For the Period From January 1, 2013 through December 10, 2013			For the Year Ended December 31, 2012
Revenue from license fees	$	243,307			833,625
Cost of license Fess		-		$	-
Gross profit		243,307			833,625
Operating expenses
Selling expenses		101,568			137,271
General and administrative expenses		233,425			556,511
Total operating expenses		334,993			693,782
Income from operations		(91,686	)		139,843
Other expenses (income)
Interest income		196			2,139
Other expenses		475			-
Total other expenses (income)		671			2,139
Income (loss) before tax		(91,015	)		141,982
Income tax		286			44,289
Net income (loss)	$	(91,301	)	$	97,693

F-28

CHINA DU KANG CO., LTD. AND SUBSIDIARIES ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Note 15-	INCOME TAX
	Merit is a holding company registered in Hong Kong and has no operating profit or tax liabilities during the period. The Company is subject to 16.5% income tax on its taxable income generated from operations in Hong Kong. Merit had no income during the periods presented.
	PRC income tax
	The Company’s PRC subsidiaries, Huitong, Xidenghui, Dukang, and Brand Management, are governed by the Enterprise Income Tax Law of PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws ("the Income Tax Laws").
	Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the old laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”).
	The key changes are:
	a. The new standard EIT rate of 25% replaces the 33% rate applicable to both DES and FIEs, except for High Tech companies that pay a reduced rate of 15%;
	b. Companies established before March 16, 2007 continue to enjoy tax holiday treatment approved by local government for a grace period of either the next 5 years or until the tax holiday term is completed, whichever is sooner.
	In addition, the new EIT also grants tax holidays to entities operating in certain beneficial industries, such as the agriculture, fishing, and environmental protection. Entities in beneficial industries enjoy a three-year period tax exempt and a three-year period with 50% reduction in the income tax rates.
	The Company’s PRC subsidiaries, Huitong Xidenghui, Dukang, and Brand Management are subject to effective income tax rate of 25% beginning from January 1, 2008.
	The provision for income taxes consisted of the following:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	For the Year Ended
	December 31,
	2012		2011
Provision for US Income Tax	$	-	$	-
Provision for PRC national income tax		44,289		144,647
Provision for PRC local income tax		-		-
Total provision for income taxes	$	44,289	$	144,647

Note 12 -

SALES OF LIQUOR TO RELATED PARTIES

~~One~~The ofCompany ~~our~~generally ~~subsidiaries,~~sells ~~Brand~~liquor ~~Management,~~to ~~incurred~~liquor adistributors. ~~profit~~Some inof ~~2012~~these ~~and~~liquor ~~2011,~~distributors ~~and~~are ~~accordingly~~our ~~accrued~~affiliates, awhich ~~income~~are ~~tax~~directly ofor ~~$44~~indirectly,~~289~~ beneficially and ~~$144,647~~in ~~for~~ the ~~years ended December 31~~aggregate, ~~2012~~majority-owned and ~~2011,~~controlled ~~respectively.~~by ~~Another~~directors ~~subsidiary,~~and ~~Xidenghui,~~principal ~~incurred~~shareholders ~~a profit~~ of ~~$1,173,567 in~~ the ~~year ended December 31, 2012~~Company. ~~Due~~The toprice ~~the~~will ~~net~~be ~~operating~~different ~~losses~~if ~~carried~~we ~~forward~~sell ~~from~~to ~~the~~third ~~prior~~parties. ~~years,~~The ~~the~~amount ~~local~~sold ~~tax~~to ~~authority~~these ~~approved~~affiliates ~~that~~are noas ~~income tax was paid or accrued for the profit in the year ended December 31, 2012.~~follows:

		For the Year Ended December 31,
Name of Related Party	Description	2013		2012

Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd.,	Non-consolidated,
F/K/A Shaanxi Yellow-river Wetlands Park Co., Ltd.	18% owned subsidiary	$	2,114	$	34,113
Shaanxi Zhongke Spaceflight Agriculture
Development Stock Co., Ltd.	Affiliate 1		86,076		119,939
Shaanxi Baishui Dukang Marketing Management Co., Ltd.	Affiliate 6		100,690		-
Shaanxi Baishui Dukang Commercial and Trade Co., Ltd.	Affiliate 7		88,607		-
Shaanxi Dukang Group Co., Ltd.	Affiliate 2		1,611,999		1,764,543
Shaanxi Baishui Shiye Co., Ltd.
(F/K/A Shaanxi Baishui Dukang Trade Co., Ltd.)	Affiliate 3		30,598		16,008
Total		$	1,920,084	$	1,934,603

We also make purchase, principally packing material, from the related parties, as more fully disclosed in Note 13. In related to sales to and purchase from related-parties, our subsidiaries have accounts receivable, accounts payable, and deferred revenue from related-parties, as disclosed in the following:

Due from related parties

Due from related parties consists of the following:

Name of Related Party	Description	December 31, 2013		December 31, 2012

Shaanxi Yellow-river Bay Wenquan Lake Park Co., Ltd.,	Non-consolidated,
F/K/A Shaanxi Yellow-river Wetlands Park Co., Ltd.	18% owned subsidiary	$	33,444	$	34,113
Shaanxi Baishui Dukang Liquor Brand Management Co., Ltd.	Affiliate 5		115,383		-
Shaanxi Baishui Dukang Marketing Management Co., Ltd.	Affiliate 6		88,876		-
Shaanxi Baishui Dukang Commercial and Trade Co., Ltd.	Affiliate 7		79,306		-
Shaanxi Zhongke Spaceflight Agriculture
Development Stock Co., Ltd.	Affiliate 1		206,015		119,939
Total		$	523,024	$	154,052

Due to related parties

Due to related parties consists of the following:

Name of Related Party	Description	December 31, 2013		December 31, 2012

Shaanxi Dukang Group Co., Ltd.	Affiliate 2	$	1,513,574	$	1,258,241
Shaanxi Baishui Shiye Co., Ltd.
(F/K/A Shaanxi Baishui Dukang Trade Co., Ltd.)	Affiliate 3		104,051		325,770
Shaanxi Mining New Energy Co., Ltd.	Affiliate 4		-		91,829
Total		$	1,617,625	$	1,675,840

The nature of the affiliation of each related party is as follows:

Affiliate 1--This company is indirectly, majority owned, and controlled by the Company's sole director's siblings.

Affiliate 2--The CEO of the Company is a director of Shaanxi Dukang Group Co., Ltd. and has significant influence on the operations therein.

Affiliate 3--The CEO of the Company is the sole director of Shaanxi Baishui Shiye Co., Ltd. and has significant influence on the operations therein.

Affiliate 4--The Company's sole director's spouse is a director of Shaanxi Mining New Energy Co., Ltd., and has significant influence on the operation therein.

Affiliate 5--Former subsidiary. The CEO of the Company is the sole director of Shaanxi Baishui Dukang Liquor Brand Management Co., Ltd. and has significant influence on the operations therein.

Affiliate 6--This company is wholly owned and controlled by the Company's sole director's siblings.

Affiliate 7--The CEO of the Company is the sole director of Shaanxi Baishui Dukang Commercial and Trade Co., Ltd. and has significant influence on the operations therein.

F-29

CHINA DU KANG CO., LTD. AND SUBSIDIARIES ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note~~NOTES ~~15-~~TO ~~INCOME~~CONSOLIDATED ~~TAX~~FINANCIAL ~~(continued) The following table reconciles the PRC statutory rates to the Company’s effective tax rate:~~STATEMENTS

	For the Year Ended
	December 31,
	2012			2011
U.S. Statutory rate		34.00	%		34.00	%
Foreign income not recognized in USA		-34.00	%		-34.00	%
PRC income tax rate		25.00	%		25.00	%
Effective income tax rate		25.00	%		25.00	%

Filing Compare · CHINA DU KANG CO. LTD.