10-Q

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2015

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 0-54205

HUAYUE ELECTRONICS, INC. (Name of Registrant in its Charter)
Delaware	20-2188353
(State of Other Jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)
51 Huilingxi Road, Zhouhuizheng, Wujin District Changzhou, Jiangsu Province, P.R. China 213022
(Address of Principal Executive Offices)
Issuer's Telephone Number: 86-519-83630688

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes [ ] No [X]

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company [X]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

April 20, 2015

Common Voting Stock: 31,325,241

HUAYUE ELECTRONICS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED FEBRUARY 28, 2015

TABLE OF CONTENTS

		Page No
Part I	Financial Information
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets – February 28, 2015 and May 31, 2014	2
	Consolidated Statements of Income and Comprehensive Income for the Three and Nine Month Periods Ended February 28, 2015 and 2014	3
	Consolidated Statements of Cash Flows – for the Nine Months Ended February 28, 2015 and 2014	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23
Part II	Other Information
Item 1.	Legal Proceedings	24
Items 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults upon Senior Securities	24
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25

1

Huayue Electronics Inc
Consolidated Balance Sheets
(In US Dollars)
	February 28,		May 31,
	2015		2014
	(Unaudited)		(Restated)
ASSETS
CURRENT ASSETS
Cash	$	58,073	$	344,636
Accounts receivable, net		3,157,486		5,753,108
Other receivables, net		1,432,183		1,662,856
Inventory, net		697,803		448,449
Advances to suppliers		1,796,028		288,183
Investment in sales-type lease-current		2,356,899		1,000,168
Deferred tax assets		1,152,895		393,131
Total current assets		10,651,367		9,890,531
PROPERTY AND EQUIPMENT, net		11,895,951		12,740,996
OTHER ASSETS
Investment in sales-type lease-non current		2,916,506		1,184,000
Deferred tax assets		68,330		34,486
Total other assets		2,984,836		1,218,486
TOTAL ASSETS	$	25,532,154	$	23,850,013
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short term loans	$	2,950,794	$	2,960,474
Accounts payable and accrued expenses		2,919,214		3,062,789
Taxes payable		850,187		2,940,416
Advances from customers		891,933		411,268
Deferred revenue-current		226,334		71,771
Due to related parties		2,086,600		592,095
Total current liabilities		9,925,062		10,038,813
LONG TERM LIABILITIES-DEFERRED REVENUE		390,323		164,487
TOTAL LIABILITIES		10,315,385		10,203,300
STOCKHOLDERS' EQUITY
Common stock, $0.001 Par value; 60,000,000 shares authorized; 31,325,241 shares issued and outstanding		31,328		31,328
Additional paid in capital		6,866,352		6,866,352
Statutory reserves		799,881		636,097
Accumulated other comprehensive income		71,828		139,612
Retained earnings		7,447,380		5,973,324
Total stockholders' equity		15,216,769		13,646,713
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	25,532,154	$	23,850,013

2

Huayue Electronics Inc

Consolidated Statements of Operations and Comprehensive Income (loss)

 (In US Dollars)

	For the Three Months Ended February 28,						For the Nine Months Ended February 28,
	2015			2014			2015			2014
Net sales	$	656,297		$	2,716,495		$	6,939,869		$	10,512,539
Cost of goods sold		525,768			2,051,864			3,848,928			5,702,963
Gross profit		130,529			664,631			3,090,941			4,809,576
Selling expenses		16,077			19,425			29,568			45,272
General and administrative expenses		2,705,562			1,467,067			5,256,279			2,882,597
Total expenses		2,721,639			1,486,492			5,285,847			2,927,869
Income (loss) from operations		(2,591,110	)		(821,861	)		(2,194,906	)		1,881,707
Non-operating income (expenses):
Interest expense, net		202			(96,809	)		1,117			(219,633	)
Other income		4,110,924			64,901			4,120,660			212,067
Total non-operating income (expenses)		4,111,126			(31,908	)		4,121,777			(7,566	)
Income (loss) before income taxes		1,520,016			(853,769	)		1,926,871			1,874,141
Income tax provision (benefit)
Current		822,346			241,059			1,095,439			867,248
Deferred		(599,149	)		(195,377	)		(806,408	)		(437,244	)
Total income tax provision		223,197			45,682			289,031			430,004
Net income (loss)		1,296,819			(899,451	)		1,637,840			1,444,137
Other comprehensive income (loss) item:
Foreign currency translation gain		(304,594	)		(4,098	)		(67,784	)		119,299
Comprehensive income	$	992,225		$	(903,549	)	$	1,570,056		$	1,563,436
Basic and diluted earnings per common share	$	0.04		$	-0.03		$	0.05		$	0.05
Weighted average number of common shares		31,325,241			31,327,741			31,325,241			31,327,741

3

Huayue Electronics Inc
Consolidated Statements of Cash Flows
(In US Dollars)
(Unaudited)
	Nine months ended February 28,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	1,637,840		$	1,444,137
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation		803,384			439,438
Provision for doubtful accounts		4,918,861			2,238,873
Inventory valuation allowance		-			17,757
Deferred tax (benefit)		(795,005	)		(437,245	)
Decrease (increase) in assets:
Accounts receivable		(969,635	)		(5,252,279	)
Other receivable		(1,052,059	)		45,468
Advances to suppliers		(1,603,908	)		(1,531,435	)
Inventory		(250,821	)		148,036
Investment in lease type sale		(3,096,379	)		-
Increase (decrease) in liabilities:
Accounts payables and accrued expenses		(133,561	)		1,147,595
Advances from customers		482,010			(108,909	)
Taxes payable		(2,080,614	)		2,060,717
Deferred revenue		381,172			265,021
Net cash provided by (used in) operating activities		(1,758,715	)		477,174
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit made for equipment purchase		-			(814,730	)
Net cash used in investing activities		-			(814,730	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash		-			(48,884	)
Repayments of bank notes		-			(114,062	)
Proceeds from bank loans		-			81,473
Proceeds from related parties loans		1,496,441			181,007
Net cash provided by financing activities		1,496,441			99,534
EFFECT OF EXCHANGE RATE CHANGE ON CASH		(24,289	)		2,237
NET INCREASE (DECREASE) IN CASH		(286,563	)		(235,785	)
CASH  - beginning of period		344,636			269,065
CASH - end of period	$	58,073		$	33,280
SUPPLEMENTAL CASH FLOW DISCLOSURE
Income tax paid	$	-		$	-
Interest paid	$	6,949		$	136,365
Non-cash investing activities:
Taxes payable	$	(3,995,806	)	$	-

4

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Huayue Electronics, Inc. (“Huayue Electronics” or the “Company”) have been prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the interim period ended February 28, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2015. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and the financial statements and notes thereto included in our Form 10-K/A for the fiscal year ended May 31, 2014, filed with the SEC on December 28, 2014.

NOTE 1A – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the filing of its Annual Report on Form 10-K for the year ended May 31, 2014, the Company reviewed its measurement for inventory valuation, and determined that the estimate for the inventory valuation had been understated.  Certain sales transactions occurred through the date the financial statements were issued in which the sales price of certain products was substantially lower than its cost, indicating that the book value of all similar inventory should be reduced. In accordance with ASC 855, “Subsequent Event”, management reassessed and recorded a loss of $1,553,366 on reduction of inventory to the lower of cost or market for the fiscal year ended May 31, 2014.

The effects of the adjustments on the Company’s previously issued balance sheet as of May 31, 2014 is summarized as follows:

	Previously Reported		Impact of Restatement			Restated
	$		$			$
Assets
Inventory, net		1,972,209		(1,523,760	)		448,449
Deferred tax assets		164,567		228,564			393,131
Total current assets		11,185,727		(1,296,196	)		9,890,531
Total assets		25,145,209		(1,295,196	)		23,850,013
Stockholders’ equity
Statutory reserves		768,133		(132,036	)		636,097
Accumulated other comprehensive income		114,447		25,165			139,612
Retained earnings		7,161,649		(1,188,325	)		5,973,324
Total Stockholders’ equity		14,941,909		(1,295,196	)		13,646,713
Total liabilities and stockholders’ equity		25,145,209		(1,295,196	)		23,850,013

5

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying unaudited consolidated financial statements include the financial statements of the Company's subsidiaries, China Metal Holding, Inc. and Changzhou Huayue Electronics Company, Ltd. All significant inter-company balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include: the allowance for doubtful accounts, the valuation of inventory, and estimated useful lives and impairment of property and equipment. Actual results could differ from those estimated by management.

Cash and cash equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. All cash balances are in bank accounts in PRC and are not insured by the Federal Deposit Insurance Corporation or other programs.

Restricted Cash

Restricted cash represents required cash deposits as a part of collateral for bankers acceptance notes payable and letters of credit. The Company is required to maintain 50% to 100% of the balance of the bank’s acceptance notes payable to ensure future credit availability.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at net realizable value. An allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current credit worthiness of each customer and the related aging analysis. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

Inventory

Inventory is composed of raw materials and packing materials for manufacturing, work in process, and finished goods. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower than cost. As of February 28, 2015 and May 31, 2014, the Company reserved allowances for inventory valuation of $0 and $1,523,760, respectively.

6

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Plant, property and equipment

Plant, property and equipment are stated at cost. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and locations for its intended use. Depreciation is calculated using the straight-line method over the following useful lives:

Buildings	20 years
Machinery and equipment	5-10 years
Transportation equipment	5 years

Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.

Impairment of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. An impairment loss, measured based on the fair value of the asset, is recognized if expected future undiscounted cash flows are less than the carrying amount of the assets. As of February 28, 2015 and May 31, 2014, no impairment of long-lived assets is believed to exist.

Fair value of financial instruments

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements”, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.

The three levels are defined as follows:

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

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - inputs to the valuation methodology are unobservable.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, restricted cash, accounts receivable, advances to suppliers, accounts payable, due to related parties, advances from customers, accrued expenses, short term bank loans and notes payable approximates their recorded values due to their short-term maturities.

7

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue recognition

The Company’s revenue is derived from the sale of products. The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin 104, included in the Accounting Standards Codification ("ASC") as ASC 605, Revenue Recognition. Our determination to recognize revenue is based on the following:

· Persuasive evidence that an arrangement (sales contract) exists between a willing customer and us that outlines the terms of the sale (including customer information, product specification, quantity of goods, purchase price and payment terms).

· Delivery is considered to have occurred when the risks, rewards and ownership of the products are transferred from us to our customers.

· Our price to the customer is fixed and determinable as specifically outlined in the sales contract.

· For customers to whom credit terms are extended, we assess a number of factors to determine whether collection from them is probable, including past transaction history with them and their credit-worthiness. All credit extended to customers is pre-approved by management. If we determine that collection is not reasonably assured, we defer the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of payment.

Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as advance from customers.

The Company currently does not offer customers a right of return. Therefore, uncertainty regarding customer acceptance does not exist and delivered elements are not subject to general or customer-specified return or refund privileges.

The Company commenced an “Energy management contract” program in fiscal year 2014. Under the program, the Company provides the lighting products and the installation for the customers and the Company is compensated by a fee based on an agreement regarding the anticipated energy bill savings. The lighting products will belong to the customer at the end of the term, which is one to five years for current signed contracts. These agreements are classified as sales type leases in accordance with ASC 840, Leases.  The present value of the aggregate lease payment receivable is recorded as sales type lease revenue. For balance sheet purposes, the aggregate lease payments receivable are recorded net of unearned income as net investment in leases. The Company amortizes unearned income, or deferred revenue, to interest income over the lease term on an internal rate of return method.  The interest income for the quarters ended February 28, 2015 and 2014 were $146,014 and $ 67,932, respectively.

8

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income taxes

The Company’s subsidiaries in China are subject to the income tax laws of the PRC. No taxable income was generated outside the PRC during the quarters ended February 28, 2015 and 2014. The Company accounts for income tax under the asset and liability method as stipulated by ASC 740 , which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes will be recognized if significant temporary differences between tax and financial statements occur. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of February 28, 2015 and May 31, 2014, no valuation allowance is considered necessary.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the nine months ended February 28, 2015 and 2014.

Value-added tax

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 the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product.

The Company recorded $0 and $985,580 VAT payable in the financial statements as of February 28, 2015 and May 31, 2014, respectively.

Foreign currency translation

The functional currency of the U.S. parent company is USD. The functional currency of the Company’s Chinese subsidiary is RMB and its reporting currency is U.S dollars for the purpose of these financial statements. The accounts of the Chinese subsidiary were translated into USD in accordance with ASC Topic 830 “Foreign Currency Matters.” According to Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income and other comprehensive income. The company has recorded other comprehensive loss of $304,594 and $4,098 for the three months ended February 28, 2015 and 2014, respectively,and loss of $67,784 and gain of $119,299 for the nine months ended February 28, 2015 and 2014, respectively.

9

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the reporting periods:

	February 28,		February 28,
	2015		2014
Period End RMB Exchange Rate (RMB/USD$)		6.2695		6.1246
Average Period RMB Exchange Rate (RMB/USD$)		6.1808		6.1370

Concentrations of credit risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. All of the Company’s cash is maintained with banks within the People’s Republic of China in which no deposits are covered by insurance. The Company has not experienced any losses in such accounts. A significant portion of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in their markets. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

NOTE 3 – ACCOUNTS RECEIVABLE, NET

The Company provides an allowance for doubtful accounts related to its receivables. The receivables and allowance balances as of February 28, 2015 and May 31, 2014 are as follows:

		February 28,			May 31,
		2015			2014
Accounts receivable	$	7,610,548		$	6,662,699
Less: Allowance for doubtful accounts		(4,453,062	)		(909,591	)
Accounts receivable, net	$	3,157,486		$	5,753,108

10

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 – INVENTORY, NET

Inventory consists of finished goods and raw materials, net of valuation allowance. An allowance of $0 and $1,523,760 for inventory was made as of February 28, 2015 and May 31, 2014, respectively.

The components of inventories as of February 28, 2015 and May 31, 2014 were as follows:

	February 28,		May 31,
	2015		2014
Raw materials	$	498,134		$	1,581,409
Finished goods		199,669			390,800
		-			(1,523,760)
Total inventory	$	697,803		$	448,449

NOTE 5 – PLANT, PROPERTY AND EQUIPMENT, NET

The components of property and equipment as of February 28, 2015 and May 31, 2014 were as follows:

	February 28,			May 31,
	2015			2014
Machinery equipment	$	7,992,023		$	8,307,078
Building		5,391,180			5,408,865
Electronic equipment		928,449			642,658
Transportation equipment		287,307			288,250
Subtotal		14,598,959			14,646,851
Less: Accumulated depreciation	$	(2,703,008	)		(1,905,855)
Total Total plant, property and equipment, net	$	11,895,951		$	12,740,996

The depreciation expense for the three months ended February 28, 2015 and 2014 was $231,420 and $146,834, respectively, and for the nine months ended February 28, 2015 and 2014 was $ 803,384 and $439,438, respectively.

11

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - RELATED PARTY TRANSACTIONS AND BALANCES

The related parties of the company with whom transactions are reported in these financial statements are as follows:

Name of entity or individual	Relationship with the Company
Changzhou Wujin Hengtong Metal Steel Wires Co. Ltd.	Entity controlled by Ms. Pan Yile’s family members
Changzhou Hanyu Electronic Co.,Ltd	Entity controlled by Mr. Pan Shudong’s sister
Chuangzhou Ruiyuan Steel Pipe Co. Ltd	Entity controlled by Mr. Pan Shudong’s sister
Changzhou Shiji Jinyue Packaging Co.,Ltd	Entity controlled by Mr. Pan Shudong’s brother in law
Changzhou Laiyue Electronic Co.,Ltd	Entity controlled by Mr. Pan Shudong
Changzhou Jinyue Electronic Co.,Ltd	Entity controlled by Mr. Pan Shudong’s brother in law

(i) Due from Related Parties: 

The Company had zero due from related parties as of both February 28, 2015 and May 31, 2014.

(ii) Due to Related Parties: 

Due to related parties at February 28, 2015 and May 31, 2014 consisted of the following:

	February 28,		May 31,
	2015		2014
Changzhou Wujin Hengtong Metal Steel Wires Co. Ltd.	$	279,129		320,051
Changzhou Ruiyuan Steel Pipe Co. Ltd		-		192,031
Changzhou Hanyu Electronic Co.,Ltd		-		80,013
Changzhou Shiji Jinyue Packaging Co.,Ltd		829,412
Changzhou Laiyue Electronic Co.,Ltd		129,506
Changzhou Jinyue Electronic Co.,Ltd		848,553
Total Due to related parties	$	2,086,600	$	592,095

Amounts due to related parties were unsecured, had no written agreement, were due on demand, and bore no interest.

12

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – SHORT-TERM LOANS

The Company’s short term bank loans consisted of the follows:

	February 28,		May 31,
	2015		2014
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on September 27, 2014, renewed on September 4, 2014 with annual interest rate of 6.3% and maturity date on August 26, 2015)	$	845,362	$	848,136
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on October 28, 2015, renewed on September 9, 2014 with annual interest rate of 6.3% and maturity date on June 1, 2015)		478,507		480,077
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on July 21, 2014, renewed on July 17, 2014 with maturity date on April 15, 2015)		478,507		480,077
Loan from Changzhou Wujinyingfeng Agriculture Credit Union (1.86% monthly interest rate, due on September 16, 2014, renewed on September 17, 2014 with maturity date on March 16, 2015)		478,507		480,077
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on September 25, 2014, renewed on September 9, 2014 with annual interest rate of 6.3% and maturity date on August 6, 2015)		350,906		352,056
Loan from China Huaxia Bank (8.4% annual interest rate, due on June 6, 2015)		319,005		-
Loan from China Merchant Bank (7.80% annual interest rate, due on June 18, 2014)		-		320,051
Total	$	2,950,794	$	2,960,474

The above loans are guaranteed by affiliate companies controlled by the CEO or his family members. The interest expense for the nine months ended February 28, 2015 and 2014 was $144,897 and $183,743, respectively.

13

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 - TAXES PAYABLE

Taxes payable as of February 28, 2015 and May 31, 2014 are as follows:

	February 28,		May 31,
	2015		2014
Corporate income tax	$	-	$	1,694,388
Value-added tax		590,895		985,580
Other taxes & fees		259,292		260,448
Total	$	850,187	$	2,940,416

NOTE 9 - INCOME TAXES

Changzhou Huayue Electronics Co., Ltd was registered in the PRC and qualified as a high-tech company, and is entitled to a preferential tax rate of 15% through November, 2014.

For the three months ended February 28, 2015 and 2014, Changzhou Huayue Electronics Co., Ltd recorded income tax expense of $223,197 and $45,682, respectively, and for the nine months ended February 28, 2015 and 2014 were $289,031 and $430,004, respectively.

(i) The components of the income tax expense (benefit) are as follows:

	For the Three Months Ended February 28,
	2015		2014
Current	$	822,346	$	241,059
Deferred		(599,149)		(195,377 )
Total income tax expense (benefit)	$	223,197	$	45,682

14

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 9 - INCOME TAXES (Continued)

	For the Nine Months Ended February 28,
	2015		2014
Current	$	1,095,439	$	867,248
Deferred		(806,408)		(437,244 )
Total income tax expense (benefit)	$	289,031	$	430,004

 (ii) The following table summarizes deferred taxes resulting from differences between financial accounting basis and tax basis of assets and liabilities:

	February 28,		May 31,
	2015		2014
			(Restated)
Current assets and liabilities
Accounts receivable allowances	$	857,654	$	135,378
Advances to supplies allowances		32,691		18,423
Inventory reserve		228,564		228,564
Deferred revenue		33,986		10,766
Total deferred tax assets - current		1,152,895		393,131
Long term assets and liabilities
Deferred revenue		58,629		24,673
Accumulative depreciation		9,701		9,813
Total deferred tax assets - non current		68,330		34,486
Total deferred tax assets, net	$	1,221,225	$	427,617

NOTE 10 – CONCENTRATIONS

For the nine months ended February 28, 2015, two major customers accounted for approximately 17.9% and 13.9% of the total sales. For the three months ended February 28, 2015, three major customers accounted for more than 10% of the Company’s total sales.

For the nine months ended February 28, 2015, one major supplier accounted for approximately 88% of the Company’s total purchases. For the three months ended February 28, 2015, one major supplier accounted for approximately 47% of the Company’s total purchases.

15

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 11 - CONTINGENCIES

Guarantee:

On March 13, 2013, the Company signed an agreement with China Industry and Commerce Bank under which the Company guaranteed borrowings of Changzhou Hanyu Electronics Inc, a related party, for bank credit (including loans, notes payable, letter of credit and other credit forms) up to RMB 5.1 million, approximately $823,000 USD. The guarantee is effective from March 16, 2014 to March 15, 2015.

Shares to be issued

On March 12, 2013 the Company entered into a written agreement with Buckman, Buckman & Reid, Inc. (“BB&R”). The agreement provides that for a one year term BB&R will serve as exclusive consultant to the Company in connection with corporate structure, public market strategies and fundraising activities. In partial compensation for the services of BB&R, the Company committed to sell to BB&R for nominal consideration common stock equal to five percent of the outstanding shares of Company common stock on a fully-diluted basis. Such agreement has been fulfilled through transfer of shares from Ms. Li Xinmei, a Director of the Company and Mr. Pan Shudong’s wife, to BB&R during the nine months ended February 28, 2015.

16

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

Forward-Looking Statements: No Assurances Intended

In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Huayue Electronics, Inc. Whether those beliefs become reality will depend on many factors that are not under Management’s control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Section 1A titled “Risk Factors” in the Amendment No. 1 to the Company’s Annual Report on Form 10-K/A filed on January 7, 2015. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

Outline of Our Business

Huayue Electronics, Inc. is a Delaware corporation that functions as a holding company. Through a wholly-owned subsidiary, we own all of the registered capital of Changzhou Huayue Electronic Co., Ltd. (“Changzhou Huayue”), a corporation organized and located in The People’s Republic of China (“PRC”). Since 1999 Changzhou Huayue has been engaged in the production and sale of electrolytic capacitors. Since 2008, however, the growing portion of our business has been the production and sale of energy efficient lighting products.

We first entered the market for energy efficient lighting in 2008 with a line of induction lights. In contrast to traditional lamps, induction lights do not involve either filaments or electrodes, and no electrical connection goes on inside the glass tube. Instead, energy is transferred through the glass tube solely by electromagnetic induction. Power to create the light is transferred from outside the glass tube by means of a magnetic field. As with a conventional fluorescent lamp, the power excites mercury or a mercury alloy, producing ultraviolet light which hits the phosphors resulting in visible light.

After several years of research and development, in 2011 we added a line of LED lights to our product offerings. An LED light contains diodes comprised of a negatively charged semiconductor paired with a positively charged semiconductor. When exposed to a power source, the diode becomes electrically unbalanced, which causes its electrons to seek a different energy level, thus emitting light. The primary advantage of LED lights is efficiency: energy waste is reduced by 50% to 90% compared to conventional incandescent bulbs. In addition, LED lights have a far longer lifetime than conventional lights, are environmentally friendly, and do not produce the infrared radiation that makes incandescent bulbs hot to the touch.

               Our participation in the market for lighting benefits from our intellectual property. From 2008 to 2010, we obtained 60 patents from the PRC government relating to the induction lighting business, of which 33 are currently in use. Since that time, we have added 37 patents relating to lighting products. Our lighting products also benefit from representing high quality at a low cost. The incorporation of smart cards into our lamps provides constant power control and the ability to automatically adjust brightness. We have the facilities to mass produce 300 watt induction lamps with long lives that do not require frequent maintenance, as backed up by our warranties.

A growing aspect of our lighting business is our participation in energy management contracts (“EMC”). In this business model, energy efficient equipment is sold to an end user on a payment plan designed to net no cost to the customer: payments by the customer are scheduled to conform to the savings realized from use of the energy efficient equipment. Changzhou Huayue offers this option to customers directly as well as to contractors as part of a broader EMC program. Although an EMC sale results in significantly longer payment terms than a conventional net-90 day’s sale, profit margins on EMC sales are far higher than on conventional sales, as customers are much less price-resistant in the EMC model.

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During the recently completed third quarter of fiscal year 2015, we effected the conversion of our business to a fully-EMC model. We have terminated our capacitor sales. And our lighting sales are now almost exclusively made through EMC relationships. We believe that this focus offers us the best opportunity to compete successfully with the massive international lighting companies that are making inroads into the China marked.

Historically, Changzhou Huayue had exported its electrolytic capacitors and related products to the United States, Europe and other countries in Asia, creating global brand awareness. For our induction lighting products, we have been securing the government approvals necessary to engage in export, and are currently in the process of negotiating terms with prospective international sales agents. Our plan is to price our products sold internationally at a 20% premium to our domestic sales, in order to provide a margin for adverse currency movements. In addition, once we receive approval for international marketing, we will be eligible to purchase receivables insurance that the Chinese government offers for eligible offshore sales. Besides significantly reducing the risk of international sales, the government insurance facilitates receivables financing, which is generally difficult in China.

Results of Operations

The following data is derived from the Company’s Consolidated Statements of Income and Comprehensive Income for the three months and nine months ended February 28, 2015 and 2014:

	For the Three Months Ended February 28,
	2015			2014			Change			Percentage
Net sales		656,297			2,716,495			(2,060,198	)		-76	%
Cost of goods sold		525,768			2,051,864			(1,526,096	)		-74	%
Gross profit		130,529			664,631			(534,102	)		-80	%
Gross Profit Margin %		20	%		24	%		-5	%		-19	%
Selling expenses		16,077			19,425			(3,348	)		-17	%
General and administrative expenses		2,705,562			1,467,067			1,238,495			84	%
Income (loss) from operations		(2,591,110	)		(821,861	)		(1,769,249	)		215	%
Interest expense, net		202			(96,809	)		97,011			-100	%
Other income		4,110,924			64,901			4,046,023			6234	%
Income (loss) before income taxes		1,520,016			(853,769	)		2,373,785			-278	%
Total income tax provision		223,197			45,682			177,515			389	%
Net income (loss)		1,296,819			(899,451	)		2,196,270			-244	%
Basic and diluted earnings per common share		0.04			(0.03	)		0.07			-244	%
	For the Nine Months Ended February 28,
		2015			2014		Change			Percentage
Net sales		6,939,869			10,512,539			(3,572,670	)		-34	%
Cost of goods sold		3,848,928			5,702,963			(1,854,035	)		-33	%
Gross profit		3,090,941			4,809,576			(1,718,635	)		-36	%
Gross Profit Margin %		45	%		46	%		-1	%		-3	%
Selling expenses		29,568			45,272			(15,704	)		-35	%
General and administrative expenses		5,256,279			2,882,597			2,373,682			82	%
Income (loss) from operations		(2,194,906	)		1,881,707			(4,076,613	)		-217	%
Interest expense, net		1,117			(219,633	)		220,750			-101	%
Other income		4,120,660			212,067			3,908,593			1843	%
Income (loss) before income taxes		1,926,871			1,874,141			52,730			3	%
Total income tax provision		289,031			430,004			(140,973	)		-33	%
Net income (loss)		1,637,840			1,444,137			193,703			13	%
Basic and diluted earnings per common share		0.05			0.05			0.01			13	%

18

Sales

As noted above, the quarter completed on February 28, 2015 marked our new business model:  a full commitment to EMC marketing. We terminated our capacitor business, and focused lighting marketing almost exclusively on developing EMC relationships. The disruption caused by this re-focusing, combined with the occasion of the two-week Spring Festival in February, when little work is performed throughout China, resulted in markedly low sales volume during the quarter. The following table shows the effect of these two factors on our sales volume and the components of sales during the third quarter and first nine months of fiscal 2015 and fiscal 2014:

	For the Three Months Ended February 28,
	2015		% of total sales of 2015			2014		% of total sales of 2014			Change			Percentage
Electrolytic capacitors		3,570		1	%		476,932		18	%		(473,362	)		-99	%
Energy efficient lighting		150,624		23	%		2,195,217		80	%		(2,044,593	)		-93	%
EMC		502,103		77	%		44,346		2	%		457,757			1032	%
Total		656,297					2,716,495					(2,060,197	)		-76	%
	For the Nine Months Ended February 28,
		2015	% of total sales of 2015				2014	% of total sales of 2014			Change			Percentage
Electrolytic capacitors		1,025,762		15	%		1,204,491		11	%		(178,729	)		-15	%
Energy efficient lighting		2,430,645		35	%		6,903,260		66	%		(4,472,615	)		-65	%
EMC		3,483,462		50	%		2,404,788		23	%		1,078,674			45	%
Total		6,939,869					10,512,539					(3,572,670	)		-34	%

 Our decision to reduce conventional sales of lighting products in favor of developing EMC relationships was caused by our perception of the lighting market in China.  Recently we have been finding our standard lighting sales to be increasingly difficult due to competition. More and more competitors are entering into this market and lighting products are innovating rapidly.  New lighting products, such as WIFI, mobile phone and internet controlled lightings, are becoming the new trend in the market. To gain competitive traction in these circumstances, we now focus the greater part of our sales effort on our program to generate lighting sales in connection with an energy management contract (“EMC”). The EMC extends the payment term for the sale over the period when energy savings will allow the customer to recoup the cost of the lighting. Because the EMC promises our customer new lighting with no impact on the customer's cash flow, we are better able to attract customers away from our larger competitors.

We entered into a number of EMC contracts during fiscal 2014 and during the nine months ended February 28, 2015. As a result, $3,483,462 revenue from those contracts (50% of our lighting revenue) was recognized during the nine months ended February 28, 2015. However, unlike sales with conventional net-90 terms, the revenue from EMC sales is recorded over an extended period of time. For example, during the nine months ended February 28, 2015, in addition to the $3,483,462 revenue that we recorded, EMC sales caused the investment in sales-type lease item on our balance sheet to increase by $3,089,237. So changing our marketing focus to the EMC program, while slowing the growth of our lighting products revenue in the near term, will help us build a foundation for future profitability.

19

We are committed to continue our innovations and to becoming the market leader for the new generation of energy efficient lighting products. We expect the sales from our new lighting products will continue to grow in the remainder of fiscal 2015 and beyond. The principal factors that will contribute to the future growth of lighting sales will be:

	Our domestic distribution network continues to grow, particularly for the sale of LED lights, a massive market that we have only recently begun to penetrate.
	We are in the final stages of securing an international distribution network and the governmental approvals necessary for international sales. We expect international sales to yield a significant portion of our revenue in fiscal 2016.
	The EMC program, although it delays our revenue recognition, allows us to demand very high margins on EMC sales. We have entered into a number of EMC contracts during fiscal 2014 and for the nine months ended February 28, 2015, and we expect more EMC contracts will be signed in future periods.
	Our engineers continue to enhance our existing products and develop new lighting products, each of which opens a new submarket for us.

Gross profit

The profitability of our sales decreased for the three months ended February 28, 2015, during which we achieved a gross margin of 20% compared to 24% gross margin recorded for the same period in 2014. The primary reason for the decreased profit margin was the inefficiency resulting from our re-focusing of operations. As a result of the decrease in gross margin and the 76% decrease in sales, gross profit for the three months ended February 28, 2015 decreased to $130,528, a decrease of $534,103, or 80%, from the third quarter of fiscal 2014

Because of the disruption in the third quarter, the profitability of our sales also decreased for the nine months ended February 28, 2015, during which we achieved a gross margin of 45% compared to 46% gross margin recorded for the same period in 2014.  The decreased profitability was also caused by our liquidation of capacitor inventory at low margins. As a result of the decrease in gross margin and the 34% decrease in sales, gross profit for the nine months ended February 28, 2015 decreased to $3,090,940, a decrease of $1,718,636, or 36%, from $4,809,576 recorded during the nine months ended February 28, 2015.

Expenses

Total operating expenses for the three months ended February 28, 2015 were $2,721,639, an increase of $1,235,147, or 83%, from $1,486,492 recorded for the same period in 2014. Total operating expenses for the nine months ended February 28, 2015 were $5,285,847, an increase of $2,357,978, or 81%, from $2,927,869 recorded for the same period in 2014. The primary reason for the increases was the bad debt expense of $2,542,144 recorded during the three months ended February 28, 2015 and bad debt expense of $4,918,861 recorded during the recent nine months. The bad debt expense included advances to vendors and other receivables, but was primarily related to accounts receivable. The Company evaluates the collectability of its receivables by aging schedules. The provision for doubtful accounts was increased as of February 28, 2015 due to the increased balance of accounts receivable aged over one year.

Because of our increased G&A expenses, we realized an operating loss of $2,591,110 for the three months ended February 28, 2015, compared to an operating loss of $821,861 for the three months ended February 28, 2014. We realized an operating loss of $2,194,906 for the nine months ended February 28, 2015, compared to an operating profit of $1,881,707 for the nine months ended February 28, 2014.”

20

We rely on short-term bank debt for our liquidity. For the three months ended February 28, 2015, interest expense was $58,474, compared to $96,809 for the same period in 2014. For the nine months ended February 28, 2015, interest expense was $144,897, compared to $219,633 for the same period of fiscal 2014. The decrease in interest expense is primarily due to a decrease of principal balances. As discussed below, we hope to access the international capital markets to obtain equity funding to pay off the debt and further reduce this cost and our exposure to increasing interest rates.

We entered into a number of EMC contracts during fiscal 2014 and during the nine months ended February 28, 2015. Unlike sales with conventional net-90 terms, the revenue from EMC sales is recorded per present value, the unrecorded revenue will be recorded as interest income over an extended period of time. For the three months ended February 28, 2015, interest income was $58,676 and for the nine months ended February 28, 2015, interest expense was $146,014. As a result, on our Statements of Operations, we recorded net interest income of $202 for the quarter ended February 28, 2015 compared to net interest expense of $96,809 for the quarter ended February 28, 2014, and net interest income of $1,117 for the nine months ended February 28, 2015 compared to net interest expense of $218,633 for the nine months ended February 28, 2014.

For the reasons described above, our net income before tax for the three months ended February 28, 2015 was $1,520,016, compared to net loss before income tax of $853,769 for the three months ended February 28, 2014. Our net income before tax for the nine months ended February 28, 2015 was $1,926,871, an increase from net income before income tax of $1,874,141 for the nine months ended February 28, 2014. Due to the significant temporary difference between taxable income and accounting income, we had an income tax expense of $223,197 for the three months ended February 28, 2015, compared to $45,682 income tax expense for the three months ended February 28, 2014. We had an income tax expense of $289,031 for the nine months ended February 28, 2015, compared to $430,004 income tax expense for the nine months ended February 28, 2015.”

Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars will result in translation adjustments. While our net income will be added to the retained earnings on our balance sheet, the translation adjustments will be added to a line item labeled “accumulated other comprehensive income,” since they will be more reflective of changes in the relative values of U.S. and PRC currencies than the success of our business.  During the three months ended February 28, 2015,  “accumulated other comprehensive income” was  reduced by $304,594. During the nine months then-ended,  “accumulated other comprehensive income” was reduced by $67,784.” Liquidity and Capital Resources

Until recently the operations of the Company had been funded by contributions and short-term loans from our founder, Mr. Shudong Pan, and his family. In recent periods, however, we have developed bank lending relationships, which are now our primary source of liquidity. Today, our current liabilities are in large part made up of short term debt. Most of these debts have been guaranteed by related entities or secured by property owned by related parties. The proceeds of these loans have been utilized primarily to finance the development of our lighting business and the expanded sales effort for the new LED lighting products.

Throughout our history, in our efforts to achieve a substantial beachhead in the induction lighting market, we have offered our customers generous payment terms. Our standard payment terms are 90 days after delivery. However, for particularly attractive customers, with strong credit histories, we have applied a variety of payment practices. Our accrual of a $ $6,172,810 allowance for doubtful accounts, primarily related to aged accounts receivable, demonstrates the risk inherent in our practice of offering generous payment terms. In addition, our generous payment terms reduce our liquidity. The practice is harmful to our cash flow, particularly in light of the requirement that we prepay many of our vendors for raw materials and components, as discussed below.  Therefore, in connection without review of our financial condition at February 28, 2015, we have adopted a policy of writing-off any account that is more than one year old. This has significantly reduced our working capital, but makes our balance sheet stronger going forward. After taking into account the impairment of all but $3,157,486 of our accounts receivable, our working capital surplus at February 28, 2015 totaled $726,305.”

21

During the nine months ended February 28, 2015, we had net cash used in operating activities of $1,758,715 compared to cash provided by operating activities of $477,174 in the nine months ended February 28, 2014. The decrease of cash flow is primarily due to the increase in our investment in sales-type leases arising from EMC sales as well as sizeable advances that we have made to suppliers. In China, to secure a guaranteed supply of raw materials and components, it is common practice to make prepayments to your principal suppliers, often to the extent of several months’ requirements. That security is the purpose for the advances to suppliers totaling $1,796,028 on our February 28, 2015 balance sheet.

We used no cash in investing activities during the nine months ended February 28, 2015, compared to cash used in investing activities of $814,730 during same period in fiscal year 2014, when we were building out our manufacturing facility. Cash provided by financing activities was $1,496,441 during the nine months ended February 28, 2015, compared to cash provided by financing activities of $99,534 of same period in fiscal year 2014. The increase in net cash provided by financing activities was attributable to the  proceeds from related party loans..

We believe our cash flow is enough for the working capital needs for the next twelve months. We are actively seeking for equity financing in US capital market to further expand our business. If we are forced to finance our capital needs through the issuance of debt or long term borrowing, the interest rates we pay and our interest cost of financing would increase.

We believe growth of our production capacity is critical. If we are unable to raise additional funds through any means, we will be forced to postpone our expansion plans and the growth and profitability of the Company would be reduced.

Critical Accounting Policies and Estimates

Estimates

In preparing our financial statements we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for the nine months ended February 28, 2015, there was one estimate made subject to a high degree of uncertainty and material to our results, which was the determination to make increases of $ $3,546,445,$1,277,295 and $95,121 in our allowance for bad debt on Accounts Receivable,Other Receivable and Advance to Suppliers, respectively.

Revenue Recognition for Energy Management Contract (“EMC”)

The Company commenced an “Energy management contract” program in fiscal 2014. Under the program, the Company provides the lighting products and the installation for the customers and the Company is compensated by a fee based on an agreement regarding the anticipated energy bill savings. The lighting products will belong to the customer at the end of the term, which is one to five years for current signed contracts. These agreements are classified as sales type leases in accordance with ASC 840, Leases.  The present value of the aggregate lease payment receivable is recorded as sales type lease revenue. For balance sheet purposes, the aggregate lease payments receivable are recorded net of unearned income as net investment in leases. The Company amortizes unearned income, or deferred revenue, to interest income over the lease term on an internal rate of return method.  The interest income for the nine months ended February 28, 2015 and 2014 were $143,472 and $67,932, respectively.

22

Impact of Accounting Pronouncements

There were no recent accounting pronouncements that have had a material effect on the Company’s financial position or results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule13a-15(e) promulgated by the Securities and Exchange Commission) as of February 28, 2015. Based on that evaluation, as well as the subsequent restatement of our financial statements as of May 31, 2014, as described in Note 1A to the Consolidated Financial Statements, our management determined that there are material weaknesses in our disclosure controls, specifically:

· The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system.

· Our accounting personnel lack expertise in identifying and addressing complex accounting issued under U.S. Generally Accepted Accounting Principles.

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of February 28, 2015.

Changes in Internal Controls. There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during the Company’s third fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

23

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

            None.

Item 1A Risk Factors

            There have been no material changes from the risk factors included in Section 1A of Amendment #1 to our Annual Report on Form 10-K filed on January 7, 2015.

Item 2. Unregistered Sale of Securities and Use of Proceeds

(a) Unregistered sales of equity securities

None.

(c) Purchases of equity securities

The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the 3nd quarter of fiscal 2015.

Item 3. Defaults Upon Senior Securities.

            None.

24

Item 4. Mine Safety Disclosures

            None.

Item 5. Other Information.

            None.

Item 6. Exhibits

31.1	Rule 13a-14(a) Certification – CEO
31.2	Rule 13a-14(a) Certification – CFO
32	Rule 13a-14(b) Certification
101.INS	XBRL Instance
101.SCH	XBRL Schema
101.CAL	XBRL Calculation
101.DEF	XBRL Definition
101.LAB	XBRL Label
101.PRE	XBRL Presentation

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 20, 2015 HUAYUE ELECTRONICS, INC.   By: /s/ Pan Shudong Pan Shudong, Chief Executive Officer  

By: /s/ Han Zhou

Han Zhou, Chief Financial Officer, Chief Accounting Officer

26

EX-31.1

EXHIBIT 31.1

Rule 13a-14(a) Certification

I, Pan Shudong, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Huayue Electronics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material informa­tion relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

April 20, 2015	/s/ Pan Shudong
	Pan Shudong
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Rule 13a-14(a) Certification

I, Han Zhou, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Huayue Electronics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material informa­tion relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

April 20, 2015	/s/ Han Zhou
	Han Zhou
	Chief Financial Officer

EX-32.1

EXHIBIT 32

Rule 13a-14(b) Certification

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of Huayue Electronics, Inc. (the “Company”) certify that:

1. The Quarterly Report on Form 10-Q of the Company for the quarter ended February 28, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

April 20, 2015	/s/ Pan Shudong
	Pan Shudong, Chief Executive Officer
April 20, 2015	/s/ Han Zhou
	Han Zhou, Chief Financial Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Note 2 - Summary of Significant Accounting Policies: Principles of Consolidation (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Principles of Consolidation

Principles of consolidation

The accompanying unaudited consolidated financial statements include the financial statements of the Company's subsidiaries, China Metal Holding, Inc. and Changzhou Huayue Electronics Company, Ltd. All significant inter-company balances and transactions have been eliminated in consolidation.

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Note 6 - Related Party Transactions and Balances: Schedule of Related Party Transactions (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Accounts Payable, Related Parties, Current	$ 2,086,600	$ 592,095
Due to Related Parties 1
Accounts Payable, Related Parties, Current	279,129	320,051
Due to Related Parties 2
Accounts Payable, Related Parties, Current		192,031
Due to Related Parties 3
Accounts Payable, Related Parties, Current		80,013
Due to Related Parties 4
Accounts Payable, Related Parties, Current	829,412
Due to Related Parties 5
Accounts Payable, Related Parties, Current	129,506
Due to Related Parties 6
Accounts Payable, Related Parties, Current	$ 848,553

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (USD $)	3 Months Ended		9 Months Ended
	Feb. 28, 2015	Feb. 28, 2014	Feb. 28, 2015	Feb. 28, 2014
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Net sales	$ 656,297	$ 2,716,495	$ 6,939,869	$ 10,512,539
Cost of goods sold	525,768	2,051,864	3,848,928	5,702,963
Gross profit	130,529	664,631	3,090,941	4,809,576
Selling expenses	16,077	19,425	29,568	45,272
General and administrative expenses	2,705,562	1,467,067	5,256,279	2,882,597
Total expenses	2,721,639	1,486,492	5,285,847	2,927,869
Income (loss) from operations	(2,591,110)	(821,861)	(2,194,906)	1,881,707
Interest expense, net	202	(96,809)	1,117	(219,633)
Other income	4,110,924	64,901	4,120,660	212,067
Total non-operating income (expenses)	4,111,126	(31,908)	4,121,777	(7,566)
Income (loss) before income taxes	1,520,016	(853,769)	1,926,871	1,874,141
Current	822,346	241,059	1,095,439	867,248
Deferred	(599,149)	(195,377)	(806,408)	(437,244)
Total income tax provision	223,197	45,682	289,031	430,004
Net income (loss)	1,296,819	(899,451)	1,637,840	1,444,137
Foreign currency translation gain	(304,594)	(4,098)	(67,784)	119,299
Comprehensive income	$ 992,225	$ (903,549)	$ 1,570,056	$ 1,563,436
Basic and diluted earnings per common share	$ 0.04	$ (0.03)	$ 0.05	$ 0.05
Weighted average number of common shares	31,325,241	31,327,741	31,325,241	31,327,741

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Note 5 - Plant, Property and Equipment, Net

9 Months Ended

Feb. 28, 2015

Notes

Note 5 - Plant, Property and Equipment, Net

NOTE 5 – PLANT, PROPERTY AND EQUIPMENT, NET

The components of property and equipment as of February 28, 2015 and May 31, 2014 were as follows:

	February 28,			May 31,
	2015			2014
Machinery equipment	$	7,992,023		$	8,307,078
Building		5,391,180			5,408,865
Electronic equipment		928,449			642,658
Transportation equipment		287,307			288,250
Subtotal		14,598,959			14,646,851
Less: Accumulated depreciation		($2,703,008	)		(1,905,855)
Total plant, property and equipment, net	$	11,895,951		$	12,740,996

The depreciation expense for the three months ended February 28, 2015 and 2014 was $231,420 and $146,834, respectively, and for the nine months ended February 28, 2015 and 2014 was $803,384 and $439,438, respectively.

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Note 2 - Summary of Significant Accounting Policies: Impairment of Long-lived Assets (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Impairment of Long-lived Assets

Impairment of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. An impairment loss, measured based on the fair value of the asset, is recognized if expected future undiscounted cash flows are less than the carrying amount of the assets. As of February 28, 2015 and May 31, 2014, no impairment of long-lived assets is believed to exist.

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Note 8 - Taxes Payable: Schedule Of Tax Payable (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Taxes payable	$ 850,187	$ 2,940,416
Corporate Income Tax
Taxes payable		1,694,388
Value-Added Tax
Taxes payable	590,895	985,580
Other Taxes & Fees
Taxes payable	$ 259,292	$ 260,448

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Note 2 - Summary of Significant Accounting Policies: Use of Estimates (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Use of Estimates

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include: the allowance for doubtful accounts, the valuation of inventory, and estimated useful lives and impairment of property and equipment. Actual results could differ from those estimated by management.

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Note 2 - Summary of Significant Accounting Policies: Foreign Currency Translation: Comprehensive Income (Loss) (Details)	Feb. 28, 2015	Feb. 28, 2014
Details
Foreign Currency Exchange Rate, Translation	6.2695	6.1246
Average Foreign currency exchange rate translation	6.1808	6.1370

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Note 9 - Income Taxes: Schedule of Components of Income Tax Expense (Benefit) (Details) (USD $)	3 Months Ended		9 Months Ended
	Feb. 28, 2015	Feb. 28, 2014	Feb. 28, 2015	Feb. 28, 2014
Details
Current	$ 822,346	$ 241,059	$ 1,095,439	$ 867,248
Deferred	(599,149)	(195,377)	(806,408)	(437,244)
Total income tax provision	$ 223,197	$ 45,682	$ 289,031	$ 430,004

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Note 7 - Short-term Bank Loans: Schedule of Short-term Debt (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Schedule of Short-term Debt

	February 28,		May 31,
	2015		2014
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on September 27, 2014, renewed on September 4, 2014 with annual interest rate of 6.3% and maturity date on August 26, 2015)	$	845,362	$	848,136
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on October 28, 2015, renewed on September 9, 2014 with annual interest rate of 6.3% and maturity date on June 1, 2015)		478,507		480,077
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on July 21, 2014, renewed on July 17, 2014 with maturity date on April 15, 2015)		478,507		480,077
Loan from Changzhou Wujinyingfeng Agriculture Credit Union (1.86% monthly interest rate, due on September 16, 2014, renewed on September 17, 2014 with maturity date on March 16, 2015)		478,507		480,077
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on September 25, 2014, renewed on September 9, 2014 with annual interest rate of 6.3% and maturity date on August 6, 2015)		350,906		352,056
Loan from China Huaxia Bank (8.4% annual interest rate, due on June 6, 2015)		319,005		-
Loan from China Merchant Bank (7.80% annual interest rate, due on June 18, 2014)		-		320,051
Total	$	2,950,794	$	2,960,474

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Note 2 - Summary of Significant Accounting Policies: Income Taxes (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Income Taxes

Income taxes

The Company’s subsidiaries in China are subject to the income tax laws of the PRC. No taxable income was generated outside the PRC during the quarters ended February 28, 2015 and 2014. The Company accounts for income tax under the asset and liability method as stipulated by ASC 740, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes will be recognized if significant temporary differences between tax and financial statements occur. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of February 28, 2015 and May 31, 2014, no valuation allowance is considered necessary.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the nine months ended February 28, 2015 and 2014.

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Note 2 - Summary of Significant Accounting Policies: Revenue Recognition (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Revenue Recognition

Revenue recognition

The Company’s revenue is derived from the sale of products. The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin 104, included in the Accounting Standards Codification ("ASC") as ASC 605, Revenue Recognition. Our determination to recognize revenue is based on the following:

· Persuasive evidence that an arrangement (sales contract) exists between a willing customer and us that outlines the terms of the sale (including customer information, product specification, quantity of goods, purchase price and payment terms).

· Delivery is considered to have occurred when the risks, rewards and ownership of the products are transferred from us to our customers.

· Our price to the customer is fixed and determinable as specifically outlined in the sales contract.

· For customers to whom credit terms are extended, we assess a number of factors to determine whether collection from them is probable, including past transaction history with them and their credit-worthiness. All credit extended to customers is pre-approved by management. If we determine that collection is not reasonably assured, we defer the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of payment.

Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as advance from customers.

The Company currently does not offer customers a right of return. Therefore, uncertainty regarding customer acceptance does not exist and delivered elements are not subject to general or customer-specified return or refund privileges.

The Company commenced an “Energy management contract” program in fiscal year 2014. Under the program, the Company provides the lighting products and the installation for the customers and the Company is compensated by a fee based on an agreement regarding the anticipated energy bill savings. The lighting products will belong to the customer at the end of the term, which is one to five years for current signed contracts. These agreements are classified as sales type leases in accordance with ASC 840, Leases.  The present value of the aggregate lease payment receivable is recorded as sales type lease revenue. For balance sheet purposes, the aggregate lease payments receivable are recorded net of unearned income as net investment in leases. The Company amortizes unearned income, or deferred revenue, to interest income over the lease term on an internal rate of return method.  The interest income for the quarters ended February 28, 2015 and 2014 were $146,014 and $67,932, respectively.

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Note 2 - Summary of Significant Accounting Policies: Value-added Tax (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Details
Value-added tax rate	17.00%
VAT payable	$ 0	$ 985,580

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Note 3 - Accounts Receivable, Net: Schedule of Accounts, Notes, Loans and Financing Receivable (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Schedule of Accounts, Notes, Loans and Financing Receivable

		February 28,			May 31,
		2015			2014
Accounts receivable	$	7,610,548		$	6,662,699
Less: Allowance for doubtful accounts		(4,453,062	)		(909,591	)
Accounts receivable, net	$	3,157,486		$	5,753,108

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Note 9 - Income Taxes: Schedule of Components of Income Tax Expense (Benefit) (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Schedule of Components of Income Tax Expense (Benefit)

	For the Three Months Ended February 28,
	2015		2014
Current	$	822,346	$	241,059
Deferred		(599,149)		(195,377)
Total income tax expense (benefit)	$	223,197	$	45,682

	For the Nine Months Ended February 28,
	2015		2014
Current	$	1,095,439	$	867,248
Deferred		(806,408)		(437,244)
Total income tax expense (benefit)	$	289,031	$	430,004

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Note 3 - Accounts Receivable, Net: Schedule of Accounts, Notes, Loans and Financing Receivable (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Details
Accounts Receivable	$ 7,610,548	$ 6,662,699
Less: Allowance for Doubtful Accounts	(4,453,062)	(909,591)
Accounts Receiveable, Net	$ 3,157,486	$ 5,753,108

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Note 1 - Basis of Presentation: Restatement to Prior Year Income (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Restatement to Prior Year Income

	Previously Reported		Impact of Restatement			Restated
	$		$			$
Assets
Inventory, net		1,972,209		(1,523,760	)		448,449
Deferred tax assets		164,567		228,564			393,131
Total current assets		11,185,727		(1,296,196	)		9,890,531
Total assets		25,145,209		(1,295,196	)		23,850,013
Stockholders’ equity
Statutory reserves		768,133		(132,036	)		636,097
Accumulated other comprehensive income		114,447		25,165			139,612
Retained earnings		7,161,649		(1,188,325	)		5,973,324
Total Stockholders’ equity		14,941,909		(1,295,196	)		13,646,713
Total liabilities and stockholders’ equity		25,145,209		(1,295,196	)		23,850,013

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Note 2 - Summary of Significant Accounting Policies: Inventory (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Details
Lower of cost or market adjustment - Inventory	$ 0	$ 1,523,760

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Note 2 - Summary of Significant Accounting Policies: Fair Value of Financial Instruments (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Fair Value of Financial Instruments

Fair value of financial instruments

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements”, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.

The three levels are defined as follows:

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

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - inputs to the valuation methodology are unobservable.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, restricted cash, accounts receivable, advances to suppliers, accounts payable, due to related parties, advances from customers, accrued expenses, short term bank loans and notes payable approximates their recorded values due to their short-term maturities.

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Note 1 - Basis of Presentation

9 Months Ended

Feb. 28, 2015

Notes

Note 1 - Basis of Presentation

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Huayue Electronics, Inc. (“Huayue Electronics” or the “Company”) have been prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the interim period ended February 28, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2015. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and the financial statements and notes thereto included in our Form 10-K/A for the fiscal year ended May 31, 2014, filed with the SEC on December 28, 2014.

NOTE 1A – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the filing of its Annual Report on Form 10-K for the year ended May 31, 2014, the Company reviewed its measurement for inventory valuation, and determined that the estimate for the inventory valuation had been understated.  Certain sales transactions occurred through the date the financial statements were issued in which the sales price of certain products was substantially lower than its cost, indicating that the book value of all similar inventory should be reduced. In accordance with ASC 855, “Subsequent Event”, management reassessed and recorded a loss of $1,553,366 on reduction of inventory to the lower of cost or market for the fiscal year ended May 31, 2014.

 The effects of the adjustments on the Company’s previously issued balance sheet as of May 31, 2014 is summarized as follows:

	Previously Reported		Impact of Restatement			Restated
	$		$			$
Assets
Inventory, net		1,972,209		(1,523,760	)		448,449
Deferred tax assets		164,567		228,564			393,131
Total current assets		11,185,727		(1,296,196	)		9,890,531
Total assets		25,145,209		(1,295,196	)		23,850,013
Stockholders’ equity
Statutory reserves		768,133		(132,036	)		636,097
Accumulated other comprehensive income		114,447		25,165			139,612
Retained earnings		7,161,649		(1,188,325	)		5,973,324
Total Stockholders’ equity		14,941,909		(1,295,196	)		13,646,713
Total liabilities and stockholders’ equity		25,145,209		(1,295,196	)		23,850,013

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Note 3 - Accounts Receivable, Net

9 Months Ended

Feb. 28, 2015

Notes

Note 3 - Accounts Receivable, Net

NOTE 3 – ACCOUNTS RECEIVABLE, NET

The Company provides an allowance for doubtful accounts related to its receivables. The receivables and allowance balances as of February 28, 2015 and May 31, 2014 are as follows:

		February 28,			May 31,
		2015			2014
Accounts receivable	$	7,610,548		$	6,662,699
Less: Allowance for doubtful accounts		(4,453,062	)		(909,591	)
Accounts receivable, net	$	3,157,486		$	5,753,108

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Note 6 - Related Party Transactions and Balances

9 Months Ended

Feb. 28, 2015

Notes

Note 6 - Related Party Transactions and Balances

NOTE 6 - RELATED PARTY TRANSACTIONS AND BALANCES

The related parties of the company with whom transactions are reported in these financial statements are as follows:

Name of entity or individual	Relationship with the Company
Changzhou Wujin Hengtong Metal Steel Wires Co. Ltd.	Entity controlled by Ms. Pan Yile’s family members
Changzhou Hanyu Electronic Co.,Ltd	Entity controlled by Mr. Pan Shudong’s sister
Chuangzhou Ruiyuan Steel Pipe Co. Ltd	Entity controlled by Mr. Pan Shudong’s sister
Changzhou Shiji Jinyue Packaging Co.,Ltd	Entity controlled by Mr. Pan Shudong’s brother in law
Changzhou Laiyue Electronic Co.,Ltd	Entity controlled by Mr. Pan Shudong
Changzhou Jinyue Electronic Co.,Ltd	Entity controlled by Mr. Pan Shudong’s brother in law

(i) Due from Related Parties: 

 The Company had zero due from related parties as of both February 28, 2015 and May 31, 2014.

 (ii) Due to Related Parties: 

Due to related parties at February 28, 2015 and May 31, 2014 consisted of the following:

	February 28,			May 31,
	2015			2014
Changzhou Wujin Hengtong Metal Steel Wires Co. Ltd.	$	279,129		320,051
Changzhou Ruiyuan Steel Pipe Co. Ltd		-		192,031
Changzhou Hanyu Electronic Co.,Ltd		-		80,013
Changzhou Shiji Jinyue Packaging Co.,Ltd		829,412
Changzhou Laiyue Electronic Co.,Ltd		129,506
Changzhou Jinyue Electronic Co.,Ltd		848,553
Total Due to related parties	$	2,086,600	$	592,095

Amounts due to related parties were unsecured, had no written agreement, were due on demand, and bore no interest. 

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Note 4 - Inventory, Net

9 Months Ended

Feb. 28, 2015

Notes

Note 4 - Inventory, Net

NOTE 4 – INVENTORY, NET

Inventory consists of finished goods and raw materials, net of valuation allowance. An allowance of $0 and $1,523,760 for inventory was made as of February 28, 2015 and May 31, 2014, respectively.

The components of inventories as of February 28, 2015 and May 31, 2014 were as follows:

	February 28,		May 31,
	2015		2014
Raw materials	$	498,134		$	1,581,409
Finished goods		199,669			390,800
		-			(1,523,760)
Total inventory	$	697,803		$	448,449

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Note 9 - Income Taxes: Schedule of Difference between Accounting Basis and Tax Basis of Assets and Liabilites (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Schedule of Difference between Accounting Basis and Tax Basis of Assets and Liabilites

	February 28,		May 31,
	2015		2014
			(Restated)
Current assets and liabilities
Accounts receivable allowances	$	857,654	$	135,378
Advances to supplies allowances		32,691		18,423
Inventory reserve		228,564		228,564
Deferred revenue		33,986		10,766
Total deferred tax assets - current		1,152,895		393,131
Long term assets and liabilities
Deferred revenue		58,629		24,673
Accumulative depreciation		9,701		9,813
Total deferred tax assets - non current		68,330		34,486
Total deferred tax assets, net	$	1,221,225	$	427,617

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Note 2 - Summary of Significant Accounting Policies: Value-added Tax (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Value-added Tax

Value-added tax

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 the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product.

The Company recorded $0 and $985,580 VAT payable in the financial statements as of February 28, 2015 and May 31, 2014, respectively.

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Note 2 - Summary of Significant Accounting Policies: Plant, Property and Equipment: Schedule of Property, Plant and Equipment, Useful Life (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Schedule of Property, Plant and Equipment, Useful Life

Buildings	20 years
Machinery and equipment	5-10 years
Transportation equipment	5 years

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Note 6 - Related Party Transactions and Balances: Schedule of Related Party Transactions (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Schedule of Related Party Transactions

	February 28,			May 31,
	2015			2014
Changzhou Wujin Hengtong Metal Steel Wires Co. Ltd.	$	279,129		320,051
Changzhou Ruiyuan Steel Pipe Co. Ltd		-		192,031
Changzhou Hanyu Electronic Co.,Ltd		-		80,013
Changzhou Shiji Jinyue Packaging Co.,Ltd		829,412
Changzhou Laiyue Electronic Co.,Ltd		129,506
Changzhou Jinyue Electronic Co.,Ltd		848,553
Total Due to related parties	$	2,086,600	$	592,095

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Note 7 - Short-term Bank Loans (Details) (USD $)	9 Months Ended
	Feb. 28, 2015	Feb. 28, 2014
Details
Interest Expense, Short-term Borrowings	$ 144,897	$ 183,743

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Note 4 - Inventory, Net: Schedule Of Inventory Components (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Details
Raw materials	$ 498,134	$ 1,581,409
Finished goods	199,669	390,800
Lower of cost or market adjustment - Inventory	0	(1,523,760)
Inventory, net	$ 697,803	$ 448,449

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Note 2 - Summary of Significant Accounting Policies: Revenue Recognition (Details) (USD $)	3 Months Ended
	Feb. 28, 2015	Feb. 28, 2014
Details
Finance Income	$ 146,014	$ 67,932

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BALANCE SHEET PARENTHETICAL (USD $)	Feb. 28, 2015	May 31, 2014
BALANCE SHEET PARENTHETICAL
Common stock par value	$ 0.001	$ 0.001
Common stock shares authorized	60,000,000	60,000,000
Common stock shares issued	31,325,241	31,325,241
Common stock shares outstanding	31,325,241	31,325,241

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Note 9 - Income Taxes

9 Months Ended

Feb. 28, 2015

Notes

Note 9 - Income Taxes

NOTE 9 - INCOME TAXES

Changzhou Huayue Electronics Co., Ltd was registered in the PRC and qualified as a high-tech company, and is entitled to a preferential tax rate of 15% through November, 2014.

For the three months ended February 28, 2015 and 2014, Changzhou Huayue Electronics Co., Ltd recorded income tax expense of $223,197 and $45,682, respectively, and for the nine months ended February 28, 2015 and 2014 were $289,031 and $430,004, respectively.

(i)                  The components of the income tax expense (benefit) are as follows:

	For the Three Months Ended February 28,
	2015		2014
Current	$	822,346	$	241,059
Deferred		(599,149)		(195,377)
Total income tax expense (benefit)	$	223,197	$	45,682

	For the Nine Months Ended February 28,
	2015		2014
Current	$	1,095,439	$	867,248
Deferred		(806,408)		(437,244)
Total income tax expense (benefit)	$	289,031	$	430,004

(ii) The following table summarizes deferred taxes resulting from differences between financial accounting basis and tax basis of assets and liabilities:

	February 28,		May 31,
	2015		2014
			(Restated)
Current assets and liabilities
Accounts receivable allowances	$	857,654	$	135,378
Advances to supplies allowances		32,691		18,423
Inventory reserve		228,564		228,564
Deferred revenue		33,986		10,766
Total deferred tax assets - current		1,152,895		393,131
Long term assets and liabilities
Deferred revenue		58,629		24,673
Accumulative depreciation		9,701		9,813
Total deferred tax assets - non current		68,330		34,486
Total deferred tax assets, net	$	1,221,225	$	427,617

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	9 Months Ended
	Feb. 28, 2015	Feb. 28, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$ 1,637,840	$ 1,444,137
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	803,384	439,438
Provision for doubtful accounts	4,918,861	2,238,873
Inventory valuation allowance		17,757
Deferred tax (benefit)	(795,005)	(437,245)
Decrease (increase) in assets:
Change in Accounts receivable	(969,635)	(5,252,279)
Change in Other receivable	(1,052,059)	45,468
Change in Advances to suppliers	(1,603,908)	(1,531,435)
Change in Inventory	(250,821)	148,036
Change in Investment in lease type sale	(3,096,379)
Increase (decrease) in liabilities:
Change in Accounts payables and accrued expenses	(133,561)	1,147,595
Change in Advances from customers	482,010	(108,909)
Change in Taxes payable	(2,080,614)	2,060,717
Change in Deferred revenue	381,172	265,021
Net cash provided by (used in) operating activities	(1,758,715)	477,174
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit made for equipment purchase		(814,730)
Net cash used in investing activities		(814,730)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted Cash		(48,884)
Repayments of bank notes		(114,062)
Proceeds from bank loans		81,473
Proceeds from related parties loans	1,496,441	181,007
Net cash provided by financing activities	1,496,441	99,534
EFFECT OF EXCHANGE RATE CHANGE ON CASH	(24,289)	2,237
NET INCREASE (DECREASE) IN CASH	(286,563)	(235,785)
CASH - beginning of period	344,636	269,065
CASH - end of period	58,073	33,280
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for interest
Cash paid for income taxes	6,949	136,365
Non-cash investing activities:
Taxes payable, non-cash	$ (3,995,806)

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Note 9 - Income Taxes: Schedule of Difference between Accounting Basis and Tax Basis of Assets and Liabilites (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Details
Accounts receivable allowances	$ 857,654	$ 135,378
Advances to suppliers allowances	32,691	18,423
Inventory Reserve	228,564	228,564
Deferred Tax Asset Deferred Revenue - Current	33,986	10,766
Deferred tax assets	1,152,895	393,131
Deferred Tax Asset Deferred Revenue - Noncurrent	58,629	24,673
Accumulative depreciation	9,701	9,813
Deferred tax assets-non current	68,330	34,486
Deferred Tax Assets, Net of Valuation Allowance	$ 1,221,225	$ 427,617

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CONSOLIDATED BALANCE SHEETS (USD $)	Feb. 28, 2015	May 31, 2014
CURRENT ASSETS
Cash	$ 58,073	$ 344,636
Accounts receivable, net	3,157,486	5,753,108
Other receivables, net	1,432,183	1,662,856
Inventory, net	697,803	448,449
Advances to suppliers	1,796,028	288,183
Investment in Sales-type lease-current	2,356,899	1,000,168
Deferred tax assets	1,152,895	393,131
Total current assets	10,651,367	9,890,531
PROPERTY AND EQUIPMENT, net	11,895,951	12,740,996
OTHER ASSETS
Investment in Sales-type lease-non current	2,916,506	1,184,000
Deferred tax assets-non current	68,330	34,486
Total other assets	2,984,836	1,218,486
TOTAL ASSETS	25,532,154	23,850,013
CURRENT LIABILITIES
Short term loans	2,950,794	2,960,474
Accounts payable and accrued expenses	2,919,214	3,062,789
Taxes payable	850,187	2,940,416
Advances from customers	891,933	411,268
Deferred revenue-current	226,334	71,771
Due to related parties	2,086,600	592,095
Total current liabilities	9,925,062	10,038,813
LONG TERM LIABILITIES-DEFERRED REVENUE	390,323	164,487
TOTAL LIABILITIES	10,315,385	10,203,300
STOCKHOLDERS' EQUITY
Common stock, $0.001 Par value; 60,000,000 shares authorized; 31,325,241 shares issued and outstanding	31,328	31,328
Additional paid in capital	6,866,352	6,866,352
Statutory Reserves	799,881	636,097
Accumulated other comprehensive income	71,828	139,612
Retained earnings	7,447,380	5,973,324
Total stockholders' equity	15,216,769	13,646,713
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 25,532,154	$ 23,850,013

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Note 5 - Plant, Property and Equipment, Net: Property, Plant and Equipment (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Subtotal	$ 14,598,959	$ 14,646,851
Less: Accumulated Depreciation	(2,703,008)	(1,905,855)
PROPERTY AND EQUIPMENT, net	11,895,951	12,740,996
Machinery and Equipment
Subtotal	7,992,023	8,307,078
Building
Subtotal	5,391,180	5,408,865
Technology Equipment
Subtotal	928,449	642,658
Transportation Equipment
Subtotal	$ 287,307	$ 288,250

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Note 2 - Summary of Significant Accounting Policies: Foreign Currency Translation (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Foreign Currency Translation

Foreign currency translation

The functional currency of the U.S. parent company is USD. The functional currency of the Company’s Chinese subsidiary is RMB and its reporting currency is U.S dollars for the purpose of these financial statements. The accounts of the Chinese subsidiary were translated into USD in accordance with ASC Topic 830 “Foreign Currency Matters.” According to Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income and other comprehensive income. The company has recorded other comprehensive loss of $304,594 and $4,098 for the three months ended February 28, 2015 and 2014, respectively, and loss of $67,784 and gain of $119,299 for the nine months ended February 28, 2015 and 2014, respectively.

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the reporting periods:

	February 28,			February 28,
		2015		2014
Period End RMB Exchange Rate (RMB/USD$)			6.2695		6.1246
Average Period RMB Exchange Rate (RMB/USD$)			6.1808		6.1370

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Note 2 - Summary of Significant Accounting Policies: Plant, Property and Equipment (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Plant, Property and Equipment

Plant, property and equipment

Plant, property and equipment are stated at cost. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and locations for its intended use. Depreciation is calculated using the straight-line method over the following useful lives:

Buildings	20 years
Machinery and equipment	5-10 years
Transportation equipment	5 years

Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.

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Note 2 - Summary of Significant Accounting Policies: Plant, Property and Equipment: Schedule of Property, Plant and Equipment, Useful Life (Details)	9 Months Ended
	Feb. 28, 2015
Building
Property, Plant and Equipment, Useful Life	20 years
Machinery and Equipment | Minimum
Property, Plant and Equipment, Useful Life	5 years
Machinery and Equipment | Maximum
Property, Plant and Equipment, Useful Life	10 years
Transportation Equipment
Property, Plant and Equipment, Useful Life	5 years

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Note 7 - Short-term Bank Loans: Schedule of Short-term Debt (Details) (USD $)	Feb. 28, 2015	May 31, 2014
Short term loans	$ 2,950,794	$ 2,960,474
Note 1
Short term loans	845,362	848,136
Note 2
Short term loans	478,507	480,077
Note 3
Short term loans	478,507	480,077
Note 4
Short term loans	478,507	480,077
Note 5
Short term loans	350,906	352,056
Note 6
Short term loans	319,005
Note 7
Short term loans		$ 320,051

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Note 8 - Taxes Payable: Schedule Of Tax Payable (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Schedule Of Tax Payable

	February 28,		May 31,
	2015		2014
Corporate income tax	$	-	$	1,694,388
Value-added tax		590,895		985,580
Other taxes & fees		259,292		260,448
Total	$	850,187	$	2,940,416

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Note 4 - Inventory, Net: Schedule Of Inventory Components (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Schedule Of Inventory Components

	February 28,		May 31,
	2015		2014
Raw materials	$	498,134		$	1,581,409
Finished goods		199,669			390,800
		-			(1,523,760)
Total inventory	$	697,803		$	448,449

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Note 5 - Plant, Property and Equipment, Net: Property, Plant and Equipment (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Property, Plant and Equipment

	February 28,			May 31,
	2015			2014
Machinery equipment	$	7,992,023		$	8,307,078
Building		5,391,180			5,408,865
Electronic equipment		928,449			642,658
Transportation equipment		287,307			288,250
Subtotal		14,598,959			14,646,851
Less: Accumulated depreciation		($2,703,008	)		(1,905,855)
Total plant, property and equipment, net	$	11,895,951		$	12,740,996

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Note 8 - Taxes Payable

9 Months Ended

Feb. 28, 2015

Notes

Note 8 - Taxes Payable

NOTE 8 - TAXES PAYABLE

Taxes payable as of February 28, 2015 and May 31, 2014 are as follows:

	February 28,		May 31,
	2015		2014
Corporate income tax	$	-	$	1,694,388
Value-added tax		590,895		985,580
Other taxes & fees		259,292		260,448
Total	$	850,187	$	2,940,416

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Note 2 - Summary of Significant Accounting Policies: Concentrations of Credit Risk (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Concentrations of Credit Risk

Concentrations of credit risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. All of the Company’s cash is maintained with banks within the People’s Republic of China in which no deposits are covered by insurance. The Company has not experienced any losses in such accounts. A significant portion of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in their markets. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

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Note 1 - Basis of Presentation (Details) (USD $)	12 Months Ended
	May 31, 2014
Details
Loss on reduction of inventory	$ 1,553,366

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Note 11 - Contingencies

9 Months Ended

Feb. 28, 2015

Notes

Note 11 - Contingencies

NOTE 11 - CONTINGENCIES

Guarantee:

On March 13, 2013, the Company signed an agreement with China Industry and Commerce Bank under which the Company guaranteed borrowings of Changzhou Hanyu Electronics Inc, a related party, for bank credit (including loans, notes payable, letter of credit and other credit forms) up to RMB 5.1 million, approximately $823,000 USD. The guarantee is effective from March 16, 2014 to March 15, 2015.

Shares to be issued

On March 12, 2013 the Company entered into a written agreement with Buckman, Buckman & Reid, Inc. (“BB&R”). The agreement provides that for a one year term BB&R will serve as exclusive consultant to the Company in connection with corporate structure, public market strategies and fundraising activities. In partial compensation for the services of BB&R, the Company committed to sell to BB&R for nominal consideration common stock equal to five percent of the outstanding shares of Company common stock on a fully-diluted basis. Such agreement has been fulfilled through transfer of shares from Ms. Li Xinmei, a Director of the Company and Mr. Pan Shudong’s wife, to BB&R during the nine months ended February 28, 2015.

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Note 7 - Short-term Bank Loans

9 Months Ended

Feb. 28, 2015

Notes

Note 7 - Short-term Bank Loans

NOTE 7 – SHORT-TERM LOANS

The Company’s short term bank loans consisted of the follows:

	February 28,		May 31,
	2015		2014
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on September 27, 2014, renewed on September 4, 2014 with annual interest rate of 6.3% and maturity date on August 26, 2015)	$	845,362	$	848,136
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on October 28, 2015, renewed on September 9, 2014 with annual interest rate of 6.3% and maturity date on June 1, 2015)		478,507		480,077
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on July 21, 2014, renewed on July 17, 2014 with maturity date on April 15, 2015)		478,507		480,077
Loan from Changzhou Wujinyingfeng Agriculture Credit Union (1.86% monthly interest rate, due on September 16, 2014, renewed on September 17, 2014 with maturity date on March 16, 2015)		478,507		480,077
Loan from China Industrial and Commercial Bank (6.0% annual interest rate, due on September 25, 2014, renewed on September 9, 2014 with annual interest rate of 6.3% and maturity date on August 6, 2015)		350,906		352,056
Loan from China Huaxia Bank (8.4% annual interest rate, due on June 6, 2015)		319,005		-
Loan from China Merchant Bank (7.80% annual interest rate, due on June 18, 2014)		-		320,051
Total	$	2,950,794	$	2,960,474

The above loans are guaranteed by affiliate companies controlled by the CEO or his family members. The interest expense for the nine months ended February 28, 2015 and 2014 was $144,897 and $183,743, respectively.

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Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Feb. 28, 2015

Notes

Note 2 - Summary of Significant Accounting Policies

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying unaudited consolidated financial statements include the financial statements of the Company's subsidiaries, China Metal Holding, Inc. and Changzhou Huayue Electronics Company, Ltd. All significant inter-company balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include: the allowance for doubtful accounts, the valuation of inventory, and estimated useful lives and impairment of property and equipment. Actual results could differ from those estimated by management.

Cash and cash equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. All cash balances are in bank accounts in PRC and are not insured by the Federal Deposit Insurance Corporation or other programs.

Restricted Cash

Restricted cash represents required cash deposits as a part of collateral for bankers acceptance notes payable and letters of credit. The Company is required to maintain 50% to 100% of the balance of the bank’s acceptance notes payable to ensure future credit availability.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at net realizable value. An allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current credit worthiness of each customer and the related aging analysis. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

Inventory

Inventory is composed of raw materials and packing materials for manufacturing, work in process, and finished goods. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower than cost. As of February 28, 2015 and May 31, 2014, the Company reserved allowances for inventory valuation of $0 and $1,523,760, respectively.

Plant, property and equipment

Plant, property and equipment are stated at cost. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and locations for its intended use. Depreciation is calculated using the straight-line method over the following useful lives:

Buildings	20 years
Machinery and equipment	5-10 years
Transportation equipment	5 years

Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.

Impairment of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. An impairment loss, measured based on the fair value of the asset, is recognized if expected future undiscounted cash flows are less than the carrying amount of the assets. As of February 28, 2015 and May 31, 2014, no impairment of long-lived assets is believed to exist.

Fair value of financial instruments

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements”, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.

The three levels are defined as follows:

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

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - inputs to the valuation methodology are unobservable.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, restricted cash, accounts receivable, advances to suppliers, accounts payable, due to related parties, advances from customers, accrued expenses, short term bank loans and notes payable approximates their recorded values due to their short-term maturities.

Revenue recognition

The Company’s revenue is derived from the sale of products. The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin 104, included in the Accounting Standards Codification ("ASC") as ASC 605, Revenue Recognition. Our determination to recognize revenue is based on the following:

· Persuasive evidence that an arrangement (sales contract) exists between a willing customer and us that outlines the terms of the sale (including customer information, product specification, quantity of goods, purchase price and payment terms).

· Delivery is considered to have occurred when the risks, rewards and ownership of the products are transferred from us to our customers.

· Our price to the customer is fixed and determinable as specifically outlined in the sales contract.

· For customers to whom credit terms are extended, we assess a number of factors to determine whether collection from them is probable, including past transaction history with them and their credit-worthiness. All credit extended to customers is pre-approved by management. If we determine that collection is not reasonably assured, we defer the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of payment.

Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as advance from customers.

The Company currently does not offer customers a right of return. Therefore, uncertainty regarding customer acceptance does not exist and delivered elements are not subject to general or customer-specified return or refund privileges.

The Company commenced an “Energy management contract” program in fiscal year 2014. Under the program, the Company provides the lighting products and the installation for the customers and the Company is compensated by a fee based on an agreement regarding the anticipated energy bill savings. The lighting products will belong to the customer at the end of the term, which is one to five years for current signed contracts. These agreements are classified as sales type leases in accordance with ASC 840, Leases.  The present value of the aggregate lease payment receivable is recorded as sales type lease revenue. For balance sheet purposes, the aggregate lease payments receivable are recorded net of unearned income as net investment in leases. The Company amortizes unearned income, or deferred revenue, to interest income over the lease term on an internal rate of return method.  The interest income for the quarters ended February 28, 2015 and 2014 were $146,014 and $67,932, respectively.

Income taxes

The Company’s subsidiaries in China are subject to the income tax laws of the PRC. No taxable income was generated outside the PRC during the quarters ended February 28, 2015 and 2014. The Company accounts for income tax under the asset and liability method as stipulated by ASC 740, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes will be recognized if significant temporary differences between tax and financial statements occur. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of February 28, 2015 and May 31, 2014, no valuation allowance is considered necessary.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the nine months ended February 28, 2015 and 2014.

Value-added tax

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 the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product.

The Company recorded $0 and $985,580 VAT payable in the financial statements as of February 28, 2015 and May 31, 2014, respectively.

Foreign currency translation

The functional currency of the U.S. parent company is USD. The functional currency of the Company’s Chinese subsidiary is RMB and its reporting currency is U.S dollars for the purpose of these financial statements. The accounts of the Chinese subsidiary were translated into USD in accordance with ASC Topic 830 “Foreign Currency Matters.” According to Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income and other comprehensive income. The company has recorded other comprehensive loss of $304,594 and $4,098 for the three months ended February 28, 2015 and 2014, respectively, and loss of $67,784 and gain of $119,299 for the nine months ended February 28, 2015 and 2014, respectively.

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the reporting periods:

	February 28,			February 28,
		2015		2014
Period End RMB Exchange Rate (RMB/USD$)			6.2695		6.1246
Average Period RMB Exchange Rate (RMB/USD$)			6.1808		6.1370

Concentrations of credit risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. All of the Company’s cash is maintained with banks within the People’s Republic of China in which no deposits are covered by insurance. The Company has not experienced any losses in such accounts. A significant portion of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in their markets. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

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Note 5 - Plant, Property and Equipment, Net (Details) (USD $)	3 Months Ended		9 Months Ended
	Feb. 28, 2015	Feb. 28, 2014	Feb. 28, 2015	Feb. 28, 2014
Details
Depreciation expense	$ 231,420	$ 146,834	$ 803,384	$ 439,438

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Note 2 - Summary of Significant Accounting Policies: Foreign Currency Translation (Details) (USD $)	3 Months Ended		9 Months Ended
	Feb. 28, 2015	Feb. 28, 2014	Feb. 28, 2015	Feb. 28, 2014
Details
Foreign currency translation gain	$ 304,594	$ 4,098	$ 67,784	$ (119,299)

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Note 2 - Summary of Significant Accounting Policies: Foreign Currency Translation: Comprehensive Income (Loss) (Tables)

9 Months Ended

Feb. 28, 2015

Tables/Schedules

Comprehensive Income (Loss)

	February 28,			February 28,
		2015		2014
Period End RMB Exchange Rate (RMB/USD$)			6.2695		6.1246
Average Period RMB Exchange Rate (RMB/USD$)			6.1808		6.1370

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Note 10 - Concentrations (Details)	9 Months Ended
	Feb. 28, 2015
Details
Concentration Risk, Customer	For the nine months ended February 28, 2015, two major customers accounted for approximately 17.9% and 13.9% of the total sales. For the three months ended February 28, 2015, three major customers accounted for more than 10% of the Company’s total sales.
Concentration Risk, Supplier	For the nine months ended February 28, 2015, one major supplier accounted for approximately 88% of the Company’s total purchases. For the three months ended February 28, 2015, one major supplier accounted for approximately 47% of the Company’s total purchases.

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Note 2 - Summary of Significant Accounting Policies: Cash and Cash Equivalents (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Cash and Cash Equivalents

Cash and cash equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. All cash balances are in bank accounts in PRC and are not insured by the Federal Deposit Insurance Corporation or other programs.

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Note 10 - Concentrations

9 Months Ended

Feb. 28, 2015

Notes

Note 10 - Concentrations

NOTE 10 – CONCENTRATIONS

For the nine months ended February 28, 2015, two major customers accounted for approximately 17.9% and 13.9% of the total sales. For the three months ended February 28, 2015, three major customers accounted for more than 10% of the Company’s total sales.

For the nine months ended February 28, 2015, one major supplier accounted for approximately 88% of the Company’s total purchases. For the three months ended February 28, 2015, one major supplier accounted for approximately 47% of the Company’s total purchases.

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Note 2 - Summary of Significant Accounting Policies: Inventory (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Inventory

Inventory

Inventory is composed of raw materials and packing materials for manufacturing, work in process, and finished goods. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower than cost. As of February 28, 2015 and May 31, 2014, the Company reserved allowances for inventory valuation of $0 and $1,523,760, respectively.

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Note 2 - Summary of Significant Accounting Policies: Restricted Cash (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Restricted Cash

Restricted Cash

Restricted cash represents required cash deposits as a part of collateral for bankers acceptance notes payable and letters of credit. The Company is required to maintain 50% to 100% of the balance of the bank’s acceptance notes payable to ensure future credit availability.

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Document and Entity Information	9 Months Ended
	Feb. 28, 2015	Apr. 20, 2015
Document and Entity Information
Entity Registrant Name	Huayue Electronics, Inc.
Document Type	10-Q
Document Period End Date	Feb. 28, 2015
Amendment Flag	false
Entity Central Index Key	0001315756
Current Fiscal Year End Date	--05-31
Entity Common Stock, Shares Outstanding		31,325,241
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3

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Note 2 - Summary of Significant Accounting Policies: Accounts Receivable and Allowance For Bad Debt (Policies)

9 Months Ended

Feb. 28, 2015

Policies

Accounts Receivable and Allowance For Bad Debt

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at net realizable value. An allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current credit worthiness of each customer and the related aging analysis. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

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Note 11 - Contingencies (Details) (USD $)	Mar. 16, 2013
Details
Line of Credit Facility, Maximum Borrowing Capacity	$ 823,000