UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



(Mark One)



|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------
|  |  | For the fiscal year ended  December 31, 2014                                        



or



|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------
|  |  | For the transition period from  to                                                      



Commission file number: 000-50140



USmart Mobile Device Inc.

(Exact name of Registrant as specified in
its charter)



|Delaware                                                     |  | 16-1642709                             
|------------------------------------------------------------ |  | ---------------------------------------
|State or other jurisdiction of incorporation or organization |  | (I.R.S. Employer Identification Number)



|Room 1703, 17/F., Tower 1, Enterprise Square, 9 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong.
|--------------------------------------------------------------------------------------------------
|(Address of principal executive offices)                                                          



Registrant’s telephone number including area code : 011-852-3666-9939



Securities registered pursuant to Section 12(b) of the Act:



|Title of each class |  | Name of each exchange on which registered
|------------------- |  | -----------------------------------------
|NONE                |  | N/A                                      



|Securities registered pursuant to Section 12(g) of the Act:
|-----------------------------------------------------------
|                                                           
|                                                           
|                                                           



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.  oYes þNo



Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Act.   oYes þNo



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



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§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.) þYes oNo



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K, or any amendment to this Form 10-K.   o



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



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



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





The aggregate market value of the voting
common equity held by non-affiliates of the registrant as of June 30, 2014 was approximately $127,907 based upon the closing price
of $0.01 of the registrant’s common stock on the OTC Bulletin Board. (For purposes of determining this amount, only directors,
executive officers, and 10% or greater stockholders have been deemed affiliates).



The number of shares of Registrant’s
Common Stock outstanding as of April 15, 2015 was 39,684,495.



DOCUMENTS INCORPORATED BY REFERENCE



NONE













Table of Contents

Form 10-K Index



|                                           |                                                                                                                  |     | PAGE
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------- | --- | ----
|                                           |                                                                                                                  |     |     
|                                           | FORWARD LOOKING STATEMENT                                                                                        |     | 1   
|                                          
|PART I                                    
|                                           |                                                                                                                  |     |     
|Item 1.                                    | Business                                                                                                         |     | 1   
|Item 1A.                                   | Risk Factors                                                                                                     |     | 8   
|Item 1B.                                   | Unresolved Staff Comments                                                                                        |     | 16  
|Item 2.                                    | Properties                                                                                                       |     | 17  
|Item 3.                                    | Legal Proceedings                                                                                                |     | 17  
|Item 4.                                    | Mine Safety Disclosures                                                                                          |     | 17  
|                                          
|PART II                                   
|                                          
|Item 5.                                    | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |     | 18  
|Item 6.                                    | Selected Financial Data                                                                                          |     | 19  
|Item 7.                                    | Management’s Discussion and Analysis of Financial Condition and Results of Operations                            |     | 19  
|Item 7A.                                   | Quantitative and Qualitative Disclosures About Market Risk                                                       |     | 26  
|Item 8.                                    | Financial Statements and Supplementary Data                                                                      |     | 26  
|Item 9.                                    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |     | 26  
|Item 9A.                                   | Controls and Procedures                                                                                          |     | 26  
|Item 9B.                                   | Other Information                                                                                                |     | 29  
|                                           |                                                                                                                  |     |     
|PART III                                  
|                                           |                                                                                                                  |     |     
|Item 10.                                   | Directors, Executive Officers and Corporate Governance                                                           |     | 30  
|Item 11.                                   | Executive Compensation                                                                                           |     | 32  
|Item 12.                                   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |     | 35  
|Item 13.                                   | Certain Relationships and Related Transactions, and Director Independence                                        |     | 36  
|Item 14.                                   | Principal Accounting Fees and Services                                                                           |     | 37  
|                                           |                                                                                                                  |     |     
|PART IV                                   
|                                           |                                                                                                                  |     |     
|Item 15.                                   | Exhibits and Financial Statement Schedules                                                                       |     | 38  
|Signatures                                 |                                                                                                                  | 39 
|Index to Consolidated Financial Statements |                                                                                                                  | F-1











FORWARD LOOKING STATEMENTS



This Annual Report on Form 10-K and
the documents incorporated herein contain “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this
Annual Report, statements that are not statements of current or historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words “plan”, “intend”, “may,” “will,” “expect,”
“believe”, “could,” “anticipate,” “estimate,” or “continue” or similar
expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required
by applicable laws, the Company undertakes no obligation to update publicly any forward-looking statements for any reason, even
if new information becomes available or other events occur in the future.



PART I



As used throughout this Annual Report,
the terms “USMART”, “Company”, “we”, “us”, “our” or “Registrant”
refer to USmart Mobile Device Inc. and its subsidiaries.



|Item 1. | Business
|------- | --------



Overview



USmart Mobile Device
Inc. was incorporated under the laws of the State of Delaware on September 17, 2002. The Company has been primarily engaged in
the business of distribution of memory products mainly under “Samsung” brand name which principally comprised Dynamic
Random Access Memory (“DRAM”), Graphic Random Access Memory (“Graphic RAM”) and Flash storage devices in
the Hong Kong Special Administrative Region (“Hong Kong”) and People’s Republic of China (the “PRC”
or “China”) markets formerly through its wholly owned subsidiary Atlantic Components Limited (“Atlantic”),
a Hong Kong incorporated company, and through ATMD (Hong Kong) Limited (“ATMD”) after April 1, 2012. The Company, through
its wholly owned subsidiary ACL International Holdings Limited (“ACL Holdings”), owns 30% equity interest in ATMD,
the joint venture with Tomen Devices Corporation (“Tomen”). ATMD offers a broad range of industry-leading Samsung semiconductor
products, and additional components from SAMCO (such as wifi and camera modules) and SMD (smartphone panels). Atlantic integrated
around 90% of its business relating to procurement of semiconductors and electronic parts from Samsung to ATMD. Subsequent to the
start of the operations of ATMD, the Company’s sales, the cost of sales and operating expenses are expected to evolve in
accordance with the transition of the Company’s business as described above. Through the acquisition of Jussey Investments
Limited (“Jussey”) on September 28, 2012, the Company has diversified its product portfolio and customer network, obtained
design and manufacturing capabilities, and tapped into the blooming telecommunication industry with access to the 3G baseband licenses.
On September 30, 2014, the Company disposed all of the equity interest held in ACL International Holdings Limited (“ACL Holdings”)
to an independent third party Targa Electronics Company Limited (“Targa”). On completion of the disposal, USmart no
longer holds any equity interest in ACL Holdings, and the Company will maintain sales and distribution operation of smartphones,
electronic products and components in a moderate size and will also seek for acquisition of other business opportunity.



1







Background



USmart was primarily
engaged in the business of distribution of memory products mainly under “Samsung” brand name which principally comprised
DRAM, Graphic RAM and Flash for the Hong Kong and PRC markets (“Samsung Business”). After April 1, 2012, the Samsung
Business was transferred to ATMD, a joint venture with Tomen. We indirectly own 30% equity interest in ATMD. On September 27, 2013,
we sold the entire 30% equity interest of ATMD. Through the acquisition of Jussey on September 28, 2012, we have diversified our
product portfolio and customer network, obtained design and manufacturing capabilities, and tapped into the blooming telecommunication
industry with access to the 3G baseband licenses acquired by Jussey’s subsidiaries. On September 30, 2014, the Company
disposed all of the equity interest held in ACL International Holdings Limited (“ACL Holdings”).



After the disposal,
the Company is still engaged in the sales and distribution of smartphones, electronic products and components in Hong Kong Special
Administrative Region (“Hong Kong”) and the People’s Republic of China (“China” or the “PRC”).



ACL International Holdings Limited



ACL Holdings, a holding
company incorporated in Hong Kong, was wholly owned by the Company. ACL Holdings owns 100% equity interest of Atlantic, and 100%
equity interest of Jussey.



Atlantic Components Limited



Atlantic, a company
incorporated in Hong Kong, is indirectly wholly owned by the Company. Atlantic was established in May 1991 by Mr. Chung-Lun Yang
(“Mr. Yang”), the Company’s Chairman, as a regional distributor of memory products of various manufacturers.
In 1993, Samsung Electronics Hong Kong Co., Ltd. (“Samsung”) appointed Atlantic as its authorized distributor and marketer
of Samsung’s memory products in Hong Kong and overseas markets. In 2001, Atlantic established a representative office in
Shenzhen, China, and began concentrating its distribution and marketing efforts in Southern China.



The Company’s
Samsung business was formerly conducted through Atlantic. After April 1, 2012, Atlantic integrated its business relating to procurement
of semiconductors and electronic parts directly from Samsung to the joint venture, ATMD, which was finally sold in November 2013.
The transition of the business integration has been completed by December 31, 2012. During the transitional period, Atlantic extended
its distributor agreement with Samsung to June 30, 2012. After the distributor agreement expired, Atlantic transformed its position
from Samsung memory products distributor to a general memory products distributor, and continues its business by providing various
brands of memory products to its customers.



2







Aristo Technologies Limited



On March 23, 2010,
the Company concluded that Aristo Technologies Limited (“Aristo”), a related company solely owned by Mr. Yang, was
a variable interest entity under FASB ASC 810-10-25 and was therefore subject to consolidation with the Company beginning fiscal
year 2007 under the guidance applicable to variable interest entities. Atlantic used to sell Samsung memory chips to Aristo and
allows long grace periods for Aristo to repay the open accounts receivable. After the establishment of ATMD, the Company will sell
different brands of memory products to Aristo. Being the Company’s biggest creditor, the Company does not require Aristo
to pledge assets or enter into any agreements to bind Aristo to specific repayment terms. The Company does not experience any bad
debt from Aristo. Hence, the Company does not provide any bad debt provision derived from Aristo. Although, the Company is not
involved in Aristo’s daily operation, it believes that there will not be significant additional risk derived from the trading
relationship and transactions with Aristo. Aristo is engaged in the marketing, selling and servicing of computer products and accessories
including semiconductors, LCD products, mass storage devices, consumer electronics, computer peripherals and electronic components
for different generations of computer related products. In addition to Samsung-branded products, Aristo carries various brands
of products, such as Hynix, Micron, Qimonda, Lexar, Dane-Elec, Elixir, SanDisk and Winbond. Aristo also provides value-added services
to its products and resells it to its customers. Aristo’s 2012 and 2011 sales were around $2 million and $14 million; it
was a distributor that accommodated special requirements for specific customers.



Jussey Investments Limited



Jussey, a holding
company incorporated in British Virgin Islands, which was wholly owned by the Company, owns 100% equity interest in eVision Telecom
Limited (“eVision”), a Hong Kong incorporated company, and 80% equity interest in USmart Electronic Products Limited,
a Hong Kong incorporated company, which owns 100% equity interest of Dongguan Kezheng Electronics Limited, a wholly foreign-owned
enterprise (“WFOE”) organized under the laws of the PRC (USmart Electronic Products Limited and Dongguan Kezheng Electronics
Limited are together referring as “UEP” hereafter). Hence, Jussey indirectly owns 80% of Kezheng.



USmart Electronic Products Limited &
Dongguan Kezheng Electronics Limited



UEP was founded in
2006 and it conducts its business through either itself or Kezheng, which has a factory located in Dongguan, PRC. UEP provides
Research and Development (“R&D”) and both ODM (Original Design Manufacturing) and OEM (Original Equipment Manufacturing)
services for the three “C” products – Computers, Communications and Consumer electronics devices, such as tablets,
portable media players, digital photo frames, and smartphones. UEP has its own R&D and production teams. With the support from
eVision, the business of which is described below, UEP is capable of providing its customers with total solutions from design to
manufacturing. UEP holds its own brands – USmart and VSmart, which can be used on a broad spectrum of products including
memory storage devices, visual and audio products such as digital flat screen television, DAB (Digital Audio Broadcasting) radios,
digital photo frames, and other home electronic products. In 2010, UEP began its business development in the telecommunication
industry, and successfully obtained the W-CDMA (Wideband Code Division Multiple Access is one of the third-generation (“3G”)
wireless standards) license from Intel Mobile Communications GmbH., which offers cellular platforms for global phone makers. W-CDMA
baseband is adapted by China Unicom, one of the three major telecommunication carriers in the PRC.



eVision Telecom Limited



Founded in 2011, eVision
is a Hong Kong based solution house that specializes in CDMA2000 (also known as Evolution-Data Optimized or “EV-DO”)
platform. CDMA2000 is one of the 3G wireless standards. This standard was adapted by China Telecom, one of the three major telecommunication
carriers in China. The principal function of eVision is to provide CDMA2000 solutions to UEP. In May 2011, eVision entered into
an exclusive R&D servicing agreement (the “Servicing Agreement”) with an independent third party in the PRC (the
“R&D House”), a solution house that works closely with South China University of Technology and has a R&D team
consisting of members with advanced academic qualifications. On behalf of eVision, the R&D House holds a CDMA2000 software
license granted by VIA Telecom Co. Ltd. According to the Servicing Agreement, the R&D House provides R&D services relating
to CDMA2000 technology exclusively to eVision, and eVision holds the sole and exclusive right, title and interest to and in the
aforementioned license and any R&D results/products obtained or developed by the R&D House during the term of the Servicing
Agreement. eVision will also hold all the intellectual property rights that are obtained or developed by the R&D House in the
course of such research.



3







Key Events



ACL Holdings and its subsidiaries disposed
to Targa



As of September 30,
2014, USmart disposed all the equity interest of ACL Holdings and its subsidiaries an independent third party Targa Electronics
Company Limited (“Targa”). On completion of the disposal, USmart no longer holds any equity interest in ACL Holdings,
and the Company will maintain sales and distribution operation of smartphones, electronic products and components in a moderate
size and will also seek for acquisition of other business opportunity.



Products



The primary products the Company’s
subsidiaries and joint venture distribute and sell for the year ended December 31, 2014 are described as follows:



Atlantic Components Limited



In the year 2014 Atlantic
will provide various brand memory products to its customers.



The primary products
for Atlantic consist of the followings:



DRAM



Dynamic
Random Access Memory (DRAM) is a type of random-access memory that stores each bit of data in a separate capacitor within an integrated
circuit. The capacitor can be either charged or discharged; these two states are taken to represent the two values of a bit, conventionally
called 0 and 1. Since capacitors leak charge, the information eventually fades unless the capacitor charge is refreshed periodically.
Since the application range for DRAM is very broad, it is classified into three main categories, namely Computing DRAM, Consumer
DRAM and Graphics DRAM.



Computing
DRAM



Computing
DRAM is widely used memory component in servers and personal computers (PC) such as desktops and notebooks.



Consumer
DRAM



Consumer
DRAM is the widely used memory components in consumer products such as Set-Top Boxes (STB), Digital TVs, High Definition TVs (HDTV),
Digital Still Cameras (DSC), Video Cameras, Digital Single-Lens Reflex (DSLR) Cameras, Navigation devices (such as Global Positioning
System (GPS), GLONASS and Galileo), and as well as the automotive industry.



Graphics
DRAM



Graphics
DRAM is a special purpose Double Data Rate (DDR) DRAM that is used in graphics-intensive products which require high-speed 3-dimensional
calculation performance and a large memory size to be used as data storage buffer, such as for DVD and computer game displays.



Currently,
the Computing and Consumer DRAM markets have been dominated by DDR3. The Synchronous Dynamic Random Access Memory (SDRAM), DDR
and DDR2 are nearly fading out in the market. The Graphics DRAM market has been dominated by GDDR3 and GDDR5. The GDDR 2 is nearly
fading out in the market.



NAND Flash



NAND Flash
memory is a specialized type of memory component used to store user data and program code; it retains this information even when
the power is off. Although NAND Flash is predominantly used in mobile phones and tablets, it is also commonly used in multimedia
digital storage applications for products such as MP3 players, DSC, Digital Voice Recorders, USB Disks, Flash memory cards, solid-state
drives (SSD), etc. Flash cards such as the micro SD cards, SD cards, and CF cards are widely used for digital cameras, mobile phones,
portable game consoles, MP3 players, etc.



4







LCD Panel



LCD panel
is a major component in visual consumer electronics products such as LCD TVs, tablets, smartphones, notebooks, digital phone frames,
portable game consoles, etc.



USmart Electronic Products Limited,
Dongguan Kezheng Electronics Limited & eVision Telecom Limited



The primary products
for USmart and eVision consist of the followings:



Research &
Development



USmart
primary focus its R&D on providing smartphone solution under the Intel’s 3G baseband license, whereas eVision focus on
providing smartphone solution under the VIA’s 3G baseband license.



Manufacturing Services



OEM (Original
Equipment Manufacturing) services where USmart manufactures products or components to its customers to sell under its customers’
brand name. USmart has provided OEM services for various electronic products such as computer and peripherals, flash storage devices,
smartphones and home electronic products.



ODM (Original
Design Manufacturing) services where USmart designs and manufactures a product which is specified and eventually branded by another
firm for sale. USmart has provided ODM services for various electronic products such as computer and peripherals, flash storage
devices, smartphones and home electronic products.



Industry Background



Memory products are
integral to a wide variety of consumer and industrial applications, including: personal computer systems, workstations and servers,
and handheld devices such as notebooks, netbooks, tablets, smartphones, e-Readers, etc. A market trend of increasingly high-throughput
applications (including data processing applications, mobile applications, digital consumer electronics, graphics applications,
etc) is creating demand for high performance memory products. At present, NAND Flash, DDR2 DRAM, DDR3 DRAM and GDDR5 DRAM are the
dominant memory products used with high-throughput applications and Samsung is the world’s largest developer and manufacturer
of these memory products.



Our Strategy



For the memory products
business, the Company intends to, through operation of USmart and eVision, continue to provide its customers with a reliable source
of memory products. For the R&D and manufacturing businesses, the Company intends to focus on research and development and
manufacturing of smartphone and other mobile device products.



The Company intends
to implement the strategies by:



| | · | Leverage network to become a leading smartphone solution provider;
| | - | ------------------------------------------------------------------



| | · | Capitalize on rapid migration of manufacturers to China and companies seeking to expand their international
market coverage;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | · | Further consolidate leadership position by carrying best-in-class products from highly reputable
brands and providing superior customer service;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Maintain optimal product mix with diversified lifecycles to maximize sales as new and groundbreaking
technology is introduced; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | Provide “Total Memory Solutions” for computer, consumer electronic appliances and communications
devices manufacturers.
| | - | -----------------------------------------------------------------------------------------------------------------------



Competitive Strengths



The Company believes
there are several key factors that will continue to differentiate us from its competitors in Hong Kong and PRC:



| | · | There are currently five types of 3G wireless standards in the telecommunication industry. Three
of them are adapted in China by the major mobile network carriers, China Unicom, China Telecom and China Mobile. The Company, through
USmart and eVision, has access to two of the three 3G wireless standards, namely, WCDMA and CDMA2000 for its smartphones development.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5







| | · | eVision has a strong R&D team specializing in the WCDA mobile network, while exclusively appointed
an R&D House specializing in CDMA2000 mobile network that works closely with South China University of Technology. This R&D
House has a R&D team consisting of members with advanced academic qualifications.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The Company has a very close business relationship with ATMD and Tomen, the majority shareholder
of ATMD. The Company believes this has a competitive advantage over its competitors in Greater China region. As the world’s
largest memory products manufacturer, Samsung’s memory products are competitively priced and have an established reputation
for product quality and brand name recognition in the retail and PC/Server OEM & Consumer Electronic segments. ATMD, as one
of the largest distributors of Samsung’s memory products for Hong Kong and Southern China markets, is expected to be in a
highly competitive position compared to other U.S., European, Japanese and Taiwanese memory products manufacturers and distributors.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Competition



The memory products
industry in Hong Kong and Southern China markets is very competitive. The Company competes with other memory products traders,
consumer electronics manufacturers, and smartphone research and development solution houses, many of which have substantially greater
financial, technical, marketing, distribution channels and other resources.



Memory products, such
as NAND flash, compete on the basis of product availability, price and customer service. We believe that we compete effectively
with respect to each of these competitive factors. Price competition is significant and is expected to continue. Since we have
been in the industry for over 20 years, we have maintained good connections with other distributors and memory products manufacturers
on sourcing the requested products for our customers. In order to distinct from the other competitors, we have maintained high
quality customer service and employed a team of field application engineers to ensure the products we sourced are authentic and
reduce the risk of malfunctioning on our customer’s products. The Company’s principal competitors also include the
other non-exclusive distributors of Samsung memory products in the Hong Kong and Southern China markets.



The smartphones industry
in the China market is also highly competitive and has been characterized by price competition, manufacturing capacity constraints
and product availability constraints at various times. There are currently five types of 3G wireless standards in the telecommunication
industry. Three of them are adopted in China by the major mobile network carriers, China Unicom, China Telecom and China Mobile.
Currently, the Company has access to two of the three 3G wireless standards, namely, WCDMA and CDMA2000 from Intel and VIA respectively
for its smartphones development. Intel and VIA may at its sole discretion increase the number of licensees in China, which would
result in an increased competition for the Company. The Company’s principal competitors are other smartphone solution providers
such as Cellon, Coolpal, and SIMCOM.



Seasonality



The memory products
industry and smartphones industry are increasingly characterized by seasonality and wide fluctuations in supply and demand. Since
a significant portion of our revenue is from consumer markets, our business may be subject to seasonally lower revenues in certain
quarters of our fiscal year. The industry has also been impacted by significant shifts in consumer demand due to economic downturns
or other factors, which may result in diminished product demand and production over-capacity. In recent periods, weakness in the
general economic condition has had a more significant impact on our results than seasonality, and has made it difficult to assess
the impact of seasonal factors on our business.



Suppliers



In the year 2014,
Tomen was our supplier for Samsung memory products provided to Atlantic, and we also had various other PRC and HK suppliers for
the general memory products and the other electronic parts for the manufacturing of smartphones.



Customers



As of April 15, 2015,
the Company has no customers in Hong Kong and Southern China. In order to control the Company’s credit risks, the Company
does not offer any credit terms to its customers. other than a small number of clients who have long-established business relationships
with the Company.



Government Regulation



As of December 31,
2014, the Company’s business operations were not subject to the regulations of any jurisdiction other than Hong Kong SAR
and the PRC. The Company executes its sales contracts and delivers its products in Hong Kong and PRC for its Chinese customers
and there have been no restrictions imposed on the Company by the PRC authorities with respect to the Company’s pursuit of
business growth and opportunities in China.



6







Employees



As of December 31,
2014, the Company had a total of 5 full time employees in Hong Kong and PRC, including 2 employees in sales and marketing, 2 employees
in administration and accounts, 1employee in engineering and quality control. None of the Company employees are represented by
labor unions. The Company has never experienced any work stoppage and believes that our employee relations are favorable.



The Company’s
primary hiring sources for its employees include referrals from existing employees, print and internet advertising and direct recruiting.
All of the Company’s employees are highly skilled and educated and subject to rigorous recruiting standards appropriate for
a company involved in the distribution of brand name memory products. The Company attracts talent from numerous sources, including
higher learning institutions, colleges and industry. Competition for these employees is intense. The Company believes its relationship
with its employees to be good. However, the Company’s ability to achieve its financial and operational objectives depends
in large part upon its continuing ability to attract, integrate, retain and motivate highly qualified personnel, and upon the continued
service of its senior management and key personnel, especially Mr. Ben Wong.



7







|Item 1A. | Risk Factors
|-------- | ------------



We are subject
to a number of risks. Some of these risks are endemic to the high-technology and semiconductor industry and are the same or similar
to those disclosed in our previous SEC filings. This section should be read in conjunction with the consolidated financial statements
and the accompanying notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in this Annual Report. The risks and uncertainties set out below are not the only risks and uncertainties
we face. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of
these risks and investors may lose all or part of their investment. The information included in this Annual Report is provided
as of the filing date with the SEC and future events or circumstances could differ significantly from the forward-looking statements
included herein.



Risks Related to Our Business



Our independent auditor has issued a
going concern opinion after auditing our financial statements; our ability to continue is dependent on our ability to raise additional
capital and our operations could be curtailed if we are unable to obtain required additional funding when needed.



As of December 31,
2014, the Company has total current assets of $128 and current liabilities of $448,055. This raises substantial doubt about the
Company’s ability to continue as a going concern. The Company is attempting to address its lack of liquidity by raising additional
funds, either in the form of debt or equity or some combination thereof. Any additional equity financing may involve substantial
dilution to our then existing shareholders. We currently have no agreements or arrangements with respect to any such financing
and there can be no assurance that any needed funds will be available to us on acceptable terms or at all. Our failure to raise
additional funds in the future will adversely affect our business operations, and may require us to suspend our operations. After
auditing our financial statements, our independent auditor issued a going concern opinion and our ability to continue is dependent
on our ability to raise additional capital. If we are unable to maintain our current level of working capital, we will likely to
face more difficulty in business operation.



If the growth rate of either memory
products or other components sold or the amount of memory or components used in each application decreases, sales of our products
could decrease.



The Company is dependent
on the computer and consumer electronics market as many of the products that we distribute are used in PCs, smartphones, or other
consumer electronics. DRAMs are the most widely used semiconductor components in PCs. Flash products are mostly used in the consumer
electronics products. Wifi and Camera modules are highly used in smartphones. LCD panels are used in many visual products, such
as smartphones, tablets, and netbooks. If there is a continued reduction in the growth rate of the related consumer electronics
markets, sales of our products built for those markets would decrease, and, as a result, our operations, cash flows and financial
condition could be adversely affected.



The
demand from the end-products that uses our solutions depends on many factors.



The
demand from the end-products that use our solutions depend on many factors such as economic climate, change in technology, competiveness
of competitors, etc. If such demand decreases as a result of negative impact from these factors, it will affect revenue, cash flows
and financial conditions of the Company, and may adversely affect the Company’s share price.



The
solutions provided by us rely on the licenses from Intel Mobile Communications GmbH. and VIA Telecom Co., Ltd, which we could lose.



The
majority of solutions provided by USmart are under licenses from Intel Mobile Communications GmbH (“Intel”). Whareas,
the majority of solutions provided by eVision are under licenses from VIA Telecom Co. (“VIA”) Ltd. If such licenses
are revoked or expire without renewal, USmart and eVision will not be able to provide those solutions to its customers and may
result in loss of revenue and profits which will have a negative impact to its financial results and positions.



Competitive
level is uncontrollable.



Business
in telecommunication industry highly relies on the baseband license acquired from Intel. The current CDMA license providers are
Intel, VIA and T3G Technology Co., Ltd. in China. USmart cannot control how many licensees the license providers authorized. If
the number of licensees increases, it may increases the competition and result in loss of revenue and profits which may have a
negative impact to its financial results and positions.



8







Our research and development may be
costly and/or untimely, and there are no assurances that our research and development will either be successful or completed within
the anticipated timeframe, if at all.



Our recent acquired
business relies on research and development activities. The research and development of new products play an important role for
our company. Development of new products requires significant research and development. If we are unable to perform research and
development successfully, our business and results of operations could be negatively impacted.



The research and development
of new products is costly and time consuming, and there are no assurances that our research and development of new products will
either be successful or completed within the anticipated time frame, if at all. There are also no assurances that if the product
is developed, that it will lead to actual commercialization and sales.



9







We are heavily dependent upon the electronics
industry, and excess capacity or decreased demand for products produced by this industry could result in increased price competition
as well as a decrease in our gross margins and unit volume sales.



Our business is heavily
dependent on the electronics industry. The majority of our revenue is generated from the networking, high-end computing and computer
peripherals segments of the electronics industry, which are characterized by intense competition, relatively short product life-cycles
and significant fluctuations in product demand. Furthermore, these segments are subject to economic cycles, which have occurred
in the past and are likely to occur in the future. A recession or any other event leading to excess capacity or a downturn in these
segments of the electronics industry could result in intensified price competition, a decrease in our gross margins and unit volume
sales and materially affect our business, prospects, financial condition and results of operations.



The memory product industry is highly
competitive.



The Company faces
intense competition from a number of companies, some of which are large corporations or conglomerates, that may have greater resources
to withstand downturns in the semiconductor memory market, invest in technology and capitalize on growth opportunities. To the
extent Samsung memory products become less competitive, our ability to effectively compete against distributors of other memory
products will diminish.



We
face competition from other telecommunication and computer manufacturers.



We
face competition from other telecom and computer manufacturers in China, particularly in the telecommunication sector. There are
three major telecommunication companies in China and they can also provide R&D, manufacturing and marketing services to smartphone
and other accessories that we feature. This competition may affect our ability to attract and retain customers and buyers and may
reduce the prices we are able to charge. An inability to compete effectively could adversely affect our business, financial condition
and results of operations.



We
are operating in an industry with very short life cycle.



The
mobile devices industry in which the newly acquired business is operating has a very short product life cycle. Inability to respond
to an end of a product life cycle may result in the loss of revenue and profits which may have a negative impact to its financial
results and positions.



We
are operating in an industry with high demand in product features upgrade and fast generation change.



The
telecommunication industry in which our recently acquired business is operating has high demand in product features upgrade and
fast generation change. Inability to respond to the features upgrade and generation change may result in the loss of revenue and
profits which may have a negative impact to its financial results and positions.



If
our current product strategy and operating system strategy are not successful, our telecommunication business could be negatively
impacted.



Our
current strategy is to concentrate our mobile solution on smartphones and to use third-party and/or open-source operating systems
and associated application ecosystems, predominantly the Google Android operating system (a royalty-free open-source platform).
As a result, we are dependent on third-parties’ continued development of operating systems, software application ecosystem
infrastructures and such third-parties’ approval of our implementations of their operating system and associated applications.
If we had to change our strategy, our financial results could be negatively impacted because a resulting shift away from using
Android and the associated applications ecosystem could be costly and difficult. A strategy shift could increase the burden of
development to the Company and potentially create a gap in our portfolio for a period of time, which could competitively disadvantage
the Company.



We
are at risk if Android-based smartphones do not remain competitive in the marketplace. Even if Android-based smartphones remain
competitive, the Android operating system is an open-source platform and many other companies sell competing Android-based smartphones
solutions. If the Android-based smartphones solutions of our competitors are more successful than ours, our financial results could
be negatively impacted. It is also critical to the success of the Android operating system that third-party developers continue
to develop and offer applications for this operating system that are competitive with applications developed for other operating
systems. From an overall risk perspective, the industry is currently engaged in an extremely competitive phase with respect to
operating system platforms, applications and software generally. If Android does not continue to gain operator and/or developer
adoption, or any updated versions or new releases of Google’s Android operating system or applications are not made available
to us in a timely fashion, the Company could be competitively disadvantaged and our financial results could be negatively impacted.



10







We
may not be able to adequately protect our brand name and intellectual property rights that we developed.



Our
brand names and intellectual property rights are important to our business and we rely on them to conduct our business operations.
Unauthorized use of our brand names and intellectual property rights by third parties may materially adversely affect our business
and reputation. We rely on trademark and copyright laws to protect our intellectual property rights. Despite our precautions, it
may be possible for third parties to obtain and use our brand names or intellectual property rights without authorization.



We
cannot be assured that third parties will not infringe or misappropriate our brand names or intellectual property rights. We may,
at times, have to incur significant legal costs and spend time in defending our trademarks and copyrights. Any defense efforts,
whether successful or not, would divert both time and resources from the operation and growth of our business.



Current economic and political conditions
may harm our business.



Global economic conditions
and the effects of military or terrorist actions may cause significant disruptions to worldwide commerce. If these disruptions
result in delays or cancellations of customer orders, a decrease in corporate spending on information technology or our inability
to effectively market, manufacture or ship our products, our results of operations, cash flows and financial condition could be
adversely affected. There is a risk that the events in Japan could negatively affected semiconductor markets, and may continue
to have severe and unpredictable effects on the price of certain raw materials in the future. In addition, our ability to raise
capital for working capital purposes and ongoing operations is dependent upon ready access to capital markets. During times of
adverse global economic and political conditions, accessibility to capital markets could decrease. If we are unable to access the
capital markets over an extended period of time, we may be unable to fund operations, which could materially adversely affect our
results of operations, cash flows and financial condition.



We believe that we will require additional
equity financing to reduce our long-term debts and implement our business plan.



We anticipate
that we will require additional equity financing in order to reduce our long-term debts and implement our business plan of increasing
sales in the Southern China markets. There can be no assurance that we will be able to obtain the necessary additional capital
on a timely basis or on terms acceptable to us. If we obtain such financing, the holders of our Common Stock may experience substantial
dilution.



To
finance our new business, debt or equity financing may be required and may adversely impact our share price.



In
order to expand the business of USmart and eVision as well as the Company, the Company may need to raise fund in form of equity
and/or debt to incur substantial additional indebtedness to finance such expansion. If we or our subsidiaries incur additional
debt, the risks that we face as a result of an increased indebtedness could have important consequences to you. For example, it
could:



| | • | limit our ability to satisfy our obligations under our borrowings;
| | - | ------------------------------------------------------------------

| | • | increase our vulnerability to adverse general economic and industry conditions;
| | - | -------------------------------------------------------------------------------

| | • | require us to dedicate a substantial portion of our cash flow from operations to servicing and
repaying our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and
other general corporate purposes;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | limit our flexibility in planning for or reacting to changes in our businesses and the industry
in which we operate;
| | - | --------------------------------------------------------------------------------------------------------------------

| | • | place us at a competitive disadvantage compared to our competitors that have less debt;
| | - | ---------------------------------------------------------------------------------------

| | • | limit, along with the restrictive covenants of our indebtedness, among other things, our ability
to borrow additional funds or make guarantees; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | • | increase the cost of additional financing.
| | - | ------------------------------------------



Our
ability to generate sufficient cash to satisfy our outstanding and future debt obligations will depend upon our future operating
performance, which will be affected by prevailing economic conditions and financial, business and other factors, many of which
are beyond our control. We anticipate that our operating cash flow will be sufficient to meet our anticipated operating expenses
and to service our debt obligations as they become due. However, we may not always be able to generate sufficient cash flow for
these purposes. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include
actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking
equity capital. These strategies may not be instituted on satisfactory terms, if at all. As a result, the share price may be adversely
affected due to increase in gearing or shareholder base.



11







Risks
Relating to the Recent Acquisition



The
acquisition may not result in the increase of revenue and profits of the Company.



While
the management expects that the acquisition of Jussey will enable the Company to tap into and expand its operations in mobile devices
and telecommunication business segments through USmart and eVision, USmart and eVision may not be able to contribute an increase
in revenue and profit to the results of the Company as other factors such as changes in future economic climate, intensity of competition
from competitors, ability to adapt due to change in technology, number of orders to be received may not be correctly anticipated,
which will have a significant impact on the results of USmart and eVision that could generate.



Successful
operation of the acquired business is not assured.



Despite
that USmart and eVision have orders / projects on hand and pipeline of orders are anticipated, the Company may not be able to expand
the business of USmart or eVision beyond these orders / projects and may suffer losses after these orders have been fulfilled as
USmart and eVision have operated at a loss making in the past, which may have a significant negative impact to the Company financial
position.



Successful
integration of the USmart and eVision businesses with our other businesses is not assured.



While
management expects that they will be able to integrate the business of USmart and eVision into the Company’s existing trading
business within the expected timeframe which would enables the Company to operate more effectively and efficiently and to create
synergy hence lower costs of operations, such integration may fail or fail to achieve the desired level of synergy and may increase
the overall administrative expenses at a ratio higher than the proportionate revenue and profit contribution from USmart and eVision,
and may have significant negative impact to the Company.



USmart
and eVision may not be able to distribute dividends to the Company.



USmart
and eVision are Hong Kong incorporated company and may distribute retained profits to its shareholders. Since USmart and eVision
have been operating at a loss in the past and does not have retained profits available for distribution to the Company, it may
not be able to generate enough profits to recover losses from prior years and therefore may not be able to distribute dividends
to the Company for further distributions to its shareholders.



A
lack of expertise over USmart and eVision financial reporting in U.S. GAAP could result in an inability to accurately report our
financial results, which may lead to loss of investor confidence in our financial statements and may adversely affect the Company’s
share price.



While
the management will pursue to ensure that the financial results of USmart and eVision will be reported accurately under U.S. GAAP,
the financial results of USmart and eVision may be inaccurately reported under U.S. GAAP due to lack of U.S. GAAP expertise from
USmart and eVision and may adversely affect the Company’s share price, loss of investor confidence and regulatory penalty.



Our
ability to execute on our business strategy and growth will depend in part on the success of the telecommunication industry.



The
acquisition is part of the Company’s business strategy to grow and expand through access to the telecommunication industry.
As a result, the success of USmart and eVision businesses will have a material impact on the overall success of the Company.



12







Risks Associated With Doing Business
in China



There are substantial
risks associated with doing business in China, some of which are addressed in the following risk factors.



Economic, political and social conditions,
as well as government policies in China could have a material adverse effect on our business, results of operations and financial
condition.



Part of our business
is conducted in, and part of our revenues is derived from, the PRC.



The economy of the
PRC differs from the economies of most developed countries in many respects, including, but not limited to structure, governmental
involvement, level of development, growth rate, capital re-investment, allocation of resources, control of foreign currency and
rate of inflation. The economy of the PRC has been transitioning from a planned economy to a market-oriented economy. Although
in recent years the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, a
substantial portion of productive assets in the PRC is still owned by the PRC government. In addition, the PRC government continues
to play a significant role in regulating industries by imposing industrial policies. It also exercises significant control over
the PRC’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular industries or companies.



Policies and other
measures taken by the PRC government to regulate the economy could have a significant negative impact on economic conditions in
the PRC, with a resulting negative impact on our business. For example, our business, results of operations and financial condition
may be materially and adversely affected by:



| | • | new laws and regulations and the interpretations of those laws and regulations;
| | - | -------------------------------------------------------------------------------

| | • | the introduction of measures to control inflation or stimulate growth;
| | - | ----------------------------------------------------------------------

| | • | changes in the rate or method of taxation; or
| | - | ---------------------------------------------

| | • | the imposition of additional restrictions on currency conversions and remittances abroad.
| | - | -----------------------------------------------------------------------------------------



Macroeconomic measures taken by the
PRC government to manage economic growth could have adverse economic consequences.



In response to concerns
about the PRC’s high growth rate in industrial production, bank credit, fixed investment and money supply, the PRC government
has periodically taken measures to slow economic growth to a more manageable level. Among the measures that the PRC government
has taken are restrictions on bank loans in certain sectors. These measures have contributed to a modest slowdown in economic growth
in the PRC and a reduction in demand for consumer goods and real property. These measures and any additional measures, including
an increase in interest rates, could contribute to a further slowdown in the PRC economy, which could result in a decline in demand
for industrial materials and lower revenues for us.



In particular, the
State Council has recently announced further macroeconomic measures to control perceived overinvestment in the real property market.
The detailed regulations issued by central government agencies to implement these measures include, without limitation, restrictions
on foreign investment and strict enforcement of tax collection. We can give you no assurance that these measures and regulations
will not adversely affect our business.



The PRC legal system has inherent uncertainties
that could negatively impact our business.



Our business is operated
through, and our revenues are generated by, our operating subsidiaries in the PRC. Substantially all of our assets are located
in the PRC. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited
precedential value. Since 1979, the PRC government has promulgated laws and regulations dealing with economic matters such as foreign
investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are
relatively new, and because of the limited volume of published cases and their nonbinding nature, interpretation and enforcement
of these laws and regulations involve uncertainties. In addition, as the legal system in China develops, changes in such laws and
regulations, their interpretation or their enforcement may have a negative effect on our business, financial condition and results
of operations.



13







It may be difficult to affect service
of process upon us or our directors or to enforce any judgments obtained from non-PRC courts.



Our operations are
conducted and a substantial part of our assets are located within China. Our key management reside in Hong Kong and China, where
substantially all of their assets are located. Investors may experience difficulties in effecting service of process upon us, our
directors or our senior management as it may not be possible to affect such service of process outside China. In addition, our
PRC counsel has advised us that China does not have treaties with the United States and many other countries providing for reciprocal
recognition and enforcement of court judgments. Therefore, recognition and enforcement in China of judgments of a court in the
United States or certain other jurisdictions may be difficult or impossible.



Restrictions on foreign currency exchange
may limit our ability to obtain and remit foreign currency or to utilize our revenues effectively.



We receive substantially
part of our revenues in Renminbi through our ownership and operation of USmart. As a result, any restriction on currency exchange
may limit our ability to use revenues generated in Renminbi to service and repay our indebtedness. Our ability to satisfy our debt
obligations depends upon the ability of our subsidiaries incorporated in the PRC to obtain and remit sufficient foreign currency.
Our subsidiaries incorporated in the PRC must present certain documents to the designated foreign exchange bank before they can
obtain and remit foreign currency out of the PRC (including, in the case of dividends, evidence that the relevant PRC taxes have
been paid and, in the case of shareholder loans, evidence of the registration of the loan with the State Administration for Foreign
Exchange). There can be no assurance that our subsidiaries incorporated in the PRC will not encounter difficulty in the future
when undertaking these activities. If our subsidiaries in the PRC are unable to remit dividends to us, we could be unable to make
payment of interest on and principal of our indebtedness.



Currency fluctuations and restrictions
on currency exchange may adversely affect our business, including limiting our ability to convert Chinese Renminbi into foreign
currencies and, if Chinese Renminbi were to decline in value, reducing our revenue in US Dollar terms.



Our reporting currency
is the US Dollar and our operations in China use their local currency as their functional currencies.  Part of our revenue
and expenses in China are in the Chinese currency, the Renminbi.  We are subject to the effects of exchange rate fluctuations
with respect to any of these currencies.  For example, the value of the Renminbi depends to a large extent on Chinese government
policies and China’s domestic and international economic and political developments, as well as supply and demand in the
local market.  Since 1994, the official exchange rate for the conversion of the Renminbi to the US Dollar had generally been
stable and the Renminbi had appreciated slightly against the US Dollar.  In July 2005, the Chinese government changed
its policy of pegging the value of the Renminbi to the US Dollar.  Under this policy, which was halted in 2008 due to
the worldwide financial crisis, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain
foreign currencies.  In June 2010, the Chinese government announced its intention to again allow the Renminbi to fluctuate
within the 2005 parameters.  It is possible that the Chinese government could adopt an even more flexible currency policy,
which could result in more significant fluctuation of Renminbi against the US Dollar, or it could adopt a more restrictive policy.  We
can offer no assurance that the Renminbi will be stable against the US Dollar or any other foreign currency.



Our financial statements
are translated into US Dollars at the average exchange rates in each applicable period.  To the extent the US Dollar
strengthens against foreign currencies, the translation of these foreign currencies denominated transactions results in reduced
revenue, operating expenses and net income for our international operations.  Similarly, to the extent the US Dollar
weakens against foreign currencies, the translation of these foreign currency denominated transactions results in increased revenue,
operating expenses and net income for our international operations.  We are also exposed to foreign exchange rate fluctuations
as we convert the financial statements of our foreign consolidated subsidiaries into US Dollars in consolidation.  If
there is a change in foreign currency exchange rates, the conversion of the foreign consolidated subsidiaries’ financial
statements into US Dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income.  In
addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional
currency.  Changes in the functional currency value of these assets and liabilities create fluctuations that will lead
to a transaction gain or loss.  We have not entered into agreements or purchased instruments to hedge our exchange rate
risks, although we may do so in the future.  The availability and effectiveness of any hedging transaction may be limited
and we may not be able to hedge our exchange rate risks.



The cyclical nature of the telecommunication
and computer industry could adversely affect our results of operation.



Our results of operations
are and will continue to be affected by the cyclical nature of the telecommunication and computer industry in the PRC. Our products
pricing, inventory and accounts receivable are affected by, among other factors, supply and demand of comparable products, interest
rates, inflation, the rate of economic growth, tax laws and political and economic developments in the PRC. We cannot assure you
that the products can be sold. In addition, additional supply of new products are scheduled for completion over the next few months
and years in the PRC. This additional supply could also adversely affect trade products sales as well as the inventory and credit
policies.



14







Risks Related to Our Common Stock



Failure to maintain effective internal
control over financial reporting in accordance with Section 404 of the Sarbanes Oxley Act of 2002 may result in actions filed against
us by regulatory agencies or in a reduction in the price of our common stock.



We are required to
maintain effective internal control over financial reporting under the Sarbanes Oxley Act of 2002 and related regulations. Any
material weakness in our internal control over financial reporting that needs to be addressed, or disclosure of a material weakness
in management’s assessment of internal control over financial reporting, may reduce the price of our common shares because
investors may lose confidence in our financial reporting. Our failure to maintain effective internal control over financial reporting
could also lead to actions being filed against us by regulatory agencies. We identified material weaknesses in internal control
over financial reporting as more fully discussed in Controls and Procedures at Item 9A of our Annual Report as of December 31,
2014. Currently, we have plans for certain remediation actions, but they will take time to implement because of their cost. There
can be no assurance when remediation will be completed, if at all. Therefore, future reports may have statements indicating that
our controls and procedures are not effective. We cannot assure you that even if we remediate our internal control over financial
reporting relating to the identified material weaknesses that it will establish the effectiveness of our internal control over
financial reporting or that we will not be subject to material weaknesses in the future.



Our major stockholder controls our business,
and could delay, deter or prevent a change of control or other business combination.



One shareholder, Mr.
Yang, Chairman of the Board of Directors, holds approximately 67.1% of our outstanding Common Stock. By virtue of his stock ownership,
Mr. Yang will control all matters submitted to our board and our stockholders, including the election of directors, and will be
able to exercise control over our business, policies and affairs. Since he has substantial voting power, he could cause us to take
actions that we would not otherwise consider, or could delay, deter or prevent a change of control or other business combination
that might otherwise be beneficial to our stockholders.



Our stock price has been volatile and
may fluctuate in the future.



There has been significant
volatility in the market prices of publicly traded shares in computer related companies, including ours. From September 30, 2003,
the effective date of the reverse-acquisition of Atlantic, to December 31, 2014, the closing price of our Common Stock fluctuated
from a per share high of $3.00 to a low of $0.01 per share. The share price of our Common Stock may not remain at or exceed current
levels. The market price for our Common Stock, and for the stock of electronic companies generally, has been highly volatile. The
market price of our Common Stock may be affected by: (1) incidental level of demand and supply of the stock; (2) daily trading
volume of the stock; (3) number of public stockholders in our stock; (4) fundamental results announced by Usmart; and (5) any other
unpredictable and uncontrollable factors.



If additional authorized shares of our
Common Stock available for issuance or shares eligible for future sale were introduced into the market, it could hurt our stock
price.



We are authorized
to issue 50,000,000 shares of Common Stock. As of April 15, 2015, there were 39,684,495 shares of our Common Stock issued and outstanding.



Currently, outstanding
shares of Common Stock are eligible for resale. We are unable to estimate the amount, timing or nature of future sales of outstanding
Common Stock. Sales of substantial amounts of the Common Stock in the public market by these holders or perceptions that such sales
may take place may lower the Common Stock’s market price.



If penny stock regulations impose restrictions
on the marketability of our Common Stock, the ability of our stockholders to sell shares of our stock could be impaired.



The SEC has adopted
regulations that generally define a “penny stock” to be an equity security that has a market price of less than $5.00
per share or an exercise price of less than $5.00 per share subject to certain exceptions. Exceptions include equity securities
issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for
more than three years, or (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for
less than three years, or (iii) average revenue of at least $6,000,000 for the preceding three years. Unless an exception is available,
the regulations require that prior to any transaction involving a penny stock, a risk of disclosure schedule must be delivered
to the buyer explaining the penny stock market and its risks. Our Common Stock is currently trading at under $5.00 per share. Although
we currently fall under one of the exceptions, if at a later time we fail to meet one of the exceptions, our Common Stock will
be considered a penny stock. As such the market liquidity for the Common Stock will be limited to the ability of broker-dealers
to sell it in compliance with the above-mentioned disclosure requirements.



15







You should be aware
that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns
include:



| | • | Control of the market for the security by one or a few broker-dealers;
| | - | ----------------------------------------------------------------------

| | • | “Boiler room” practices involving high-pressure sales tactics;
| | - | --------------------------------------------------------------

| | • | Manipulation of prices through prearranged matching of purchases and sales;
| | - | ---------------------------------------------------------------------------

| | • | The release of misleading information;
| | - | --------------------------------------

| | • | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
| | - | ------------------------------------------------------------------------------------------

| | • | Dumping of securities by broker-dealers after prices have been manipulated to a desired level,
for which hurts the price of the stock and causes investors to suffer from loss.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We are aware of the
abuses that have occurred in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, we will strive within the confines of practical limitations to prevent
such abuses with respect to our Common Stock.



Section 203 of the Delaware General
Corporation Law may deter a third party from acquiring us.



Section 203 of the
Delaware General Corporation Law prohibits a merger with a 15% shareholder within three years of the date such shareholder acquired
15%, unless the merger meets one of several exceptions. The exceptions include, for example, approval by two-thirds of the shareholders
(not counting the 15% shareholder), or approval by the Board prior to the 15% shareholder acquiring its 15% ownership. This provision
makes it difficult for a potential acquirer to force a merger with or takeover of the Company, and could thus limit the price that
certain investors might be willing to pay in the future for shares of our Common Stock.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------



We are a smaller reporting
company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.



16







|Item 2. | Properties
|------- | ----------



After the disposal
of ACL Holdings on September 30, 2014, the Company does not own any properties directly or indirectly



|Item 3. | Legal Proceedings
|------- | -----------------



We are not a party
to any current or pending legal proceedings that, if decided adversely to us, would have a material adverse effect upon our business,
results of operations, or financial condition, and we are not aware of any threatened or contemplated proceeding by any governmental
authority against us. To our knowledge, we are not a party to any material legal proceedings as of the date of this report.



|Item 4. | Mine Safety Disclosure
|------- | ----------------------



Not Applicable



17







PART II



|Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------





|                                     |  | High |      |  | Low |  
|------------------------------------ |  | ---- | ---- |  | --- | -
|Fiscal Year ended December 31, 2014: |  |      |      |  |     |  
|Quarter ended December 31, 2014      |  | $    | 0.02 |  |     | $
|Quarter ended September 30, 2014     |  | $    | 0.01 |  |     | $
|Quarter ended June 30, 2014          |  | $    | 0.02 |  |     | $
|Quarter ended March 31, 2014         |  | $    | 0.03 |  |     | $
|                                     |  |      |      |  |     |  
|Fiscal Year ended December 31, 2013: |  |      |      |  |     |  
|Quarter ended December 31, 2013      |  | $    | 0.15 |  |     | $
|Quarter ended September 30, 2013     |  | $    | 0.07 |  |     | $
|Quarter ended June 30, 2013          |  | $    | 0.80 |  |     | $
|Quarter ended March 31, 2013         |  | $    | 0.13 |  |     | $



Stock price information
has been derived from Yahoo Finance. Such quotations reflect inter-dealer bids, without retail mark-up, mark-down or commissions,
and may not reflect actual transactions.



As of April 15, 2015,
the last reported sale price of our Common Stock, as reported by Yahoo Finance, was $0.013 per share.



As of April 15, 2015,
there were approximately 450 holders of record of our Common Stock.



Dividend Policy



Since our recapitalization
with Atlantic, effective September 30, 2003, we have never paid cash dividends on our Common Stock. We currently anticipate that
we will retain all available funds for use in the operation and expansion of our business, and do not anticipate paying any cash
dividends in the foreseeable future.



Equity Compensation Plan Information



2006 STOCK OPTION PLAN



On March
31, 2006, the Board of Directors adopted the 2006 Equity Incentive Stock Plan (the “Plan”) and the majority stockholder
approved the Plan by written consent. The purpose of the Plan is to provide additional incentive to employees, directors and consultants
and to promote the success of the Company’s business. The Plan permits the Company to grant both incentive stock options
(“Incentive Stock Options” or “ISOs”) within the meaning of Section 422 of the Internal Revenue Code (the
“Code”), and other options which do not qualify as Incentive Stock Options (the “Non- Qualified Options”)
and stock awards.



Unless
earlier terminated by the Board of Directors, the Plan (but not outstanding options) terminates on March 31, 2016, after which
no further awards may be granted under the Plan. The Plan is administered by the full Board of Directors or, at the Board of Director’s
discretion, by a committee of the Board of Directors consisting of at least two persons who are “disinterested persons”
defined under Rule 16b-2(c)(ii) under the Securities Exchange Act of 1934, as amended (the “Committee”).



Recipients
of options under the Plan (“Optionees”) are selected by the Board of Directors or the Committee. The Board of Directors
or Committee determines the terms of each option grant, including (1) the purchase price of shares subject to options, (2) the
dates on which options become exercisable and (3) the expiration date of each option (which may not exceed ten years from the date
of grant). The minimum per share purchase price of options granted under the Plan for Incentive Stock Options and Non-Qualified
Options is the fair market value (as defined in the Plan) on the date the option is granted.



Optionees
will have no voting, dividend or other rights as stockholders with respect to shares of Common Stock covered by options prior to
becoming the holders of record of such shares. The purchase price upon the exercise of options may be paid in cash, by certified
bank or cashier’s check, by tendering stock held by the Optionee, as well as by cashless exercise either through the surrender
of other shares subject to the option or through a broker. The total number of shares of Common Stock available under the Plan,
and the number of shares and per share exercise price under outstanding options will be appropriately adjusted in the event of
any stock dividend, reorganization, merger or recapitalization or similar corporate event.



18







The Board
of Directors may at any time terminate the Plan or from time to time make such modifications or amendments to the Plan as it may
deem advisable and the Board of Directors or Committee may adjust, reduce, cancel and re-grant an unexercised option if the fair
market value declines below the exercise price except as may be required by any national stock exchange or national market association
on which the Common Stock is then listed. In no event may the Board of Directors, without the approval of stockholders, amend the
Plan if required by any federal, state, local or foreign laws or regulations or any stock exchange or quotation system on which
the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where options or stock purchase
rights are granted under the Plan.



Subject
to limitations set forth in the Plan, the terms of option agreements will be determined by the Board of Directors or Committee,
and need not be uniform among Optionees.



As of December
31, 2014, there were no options outstanding under the Plan.



|Item 6. | Selected Financial Data
|------- | -----------------------



We are a smaller reporting
company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.



|Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



This Management’s
Discussion and Analysis of Financial Condition and Results of Operations and other portions of this report contain forward-looking
information that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated
by the forward-looking information. Factors that may cause such differences include, but are not limited to, availability and cost
of financial resources, product demand, market acceptance and other factors discussed in this report under the heading “Risk
Factors.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read
in conjunction with the Company’s financial statements and the related notes included elsewhere in this report.



Overview



Corporate Background



USmart
was primarily engaged in the business of distribution of memory products mainly under “Samsung” brand name which principally
comprised DRAM, Graphic RAM and Flash for the Hong Kong and PRC markets (“Samsung Business”). After April 1, 2012,
the Samsung Business was transferred to ATMD, a joint venture with Tomen. We indirectly own 30% equity interest in ATMD. On September
27, 2013, we sold the entire 30% equity interest of ATMD. Through the acquisition of Jussey on September 28, 2012, we have diversified
our product portfolio and customer network, obtained design and manufacturing capabilities, and tapped into the blooming telecommunication
industry with access to the 3G baseband licenses acquired by Jussey’s subsidiaries. On September 30, 2014, the Company
disposed all of the equity interest held in ACL International Holdings Limited (“ACL Holdings”).



After the
disposal, the Company is still engaged in the sales and distribution of smartphones, electronic products and components in Hong
Kong Special Administrative Region (“Hong Kong”) and the People’s Republic of China (“China” or the
“PRC”).



19







Executive Summary



In 2014, our major sales came from selling
memory products, and manufacturing and selling smartphone products.



| | · | Net sales for the year ended December 31, 2014 decreased 98.6% to $1.01 million compared to the same period in 2013.
| | - | --------------------------------------------------------------------------------------------------------------------

| | o | Gross profit margin for the year ended December 31, 2014 decreased 10.21% to -9.90% compared to the same period in 2013.
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | Gross profit for the year ended December 31, 2014 decreased 144.5% to a gross loss of 0.1 million compared to the same period
in 2013.
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | o | Gross profit margin for the year ended December 31, 2014 decreased 10.21% to -9.90% compared to the same period in 2013.
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | Net profit for the year ended December 31, 2014 increased 1,190.2% to $12.06 million compared to the same period in 2013.
| | - | -------------------------------------------------------------------------------------------------------------------------

| | o | General and administrative expenses for the year ended December 31, 2014 decreased 90.0% to $0.45 million compared to the same
period in 2013.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

| | o | Income from the disposal of subsidiary shareholdings amounted for $12.73 million for the year 2014.
| | - | ---------------------------------------------------------------------------------------------------

| |   | 
| | - | 
| | o | 

| | · | On September 30, 2014, the Company disposed all of the equity interest held in ACL International
Holdings Limited (“ACL Holdings”).
| | - | -----------------------------------------------------------------------------------------------------------------------------------



20







Results of Operations



The following table
sets forth the comparison of the audited consolidated statements of operations data for the year ended December 31, 2014 and 2013
and should be read in conjunction with our financial statements and the related notes appearing elsewhere in this document.



|                                            |  | Year Ended December 31, |            
|------------------------------------------- |  | ----------------------- | -----------
|                                            |  | 2014                    |            
|Net sales                                   |  | $                       | 1,013,241  
|Cost of sales                               |  |                         | (1,113,533 
|Gross profit                                |  |                         | (100,292   
|                                            |  |                         |            
|Operating expenses                          |  |                         |            
|Sales and marketing                         |  |                         | 118,365    
|General and administrative                  |  |                         | 447,850    
|Total operating expenses                    |  |                         | 566,215    
|                                            |  |                         |            
|Income (loss) from operations               |  |                         | (666,507   
|Other expenses (income)                     |  |                         | (12,726,285
|Income (loss) before income taxes provision |  |                         | 12,059,778 
|Income taxes provision                      |  |                         | -          
|Net (loss) income                           |  | $                       | 12,059,778 



The following table sets forth key components as
a percentage of net revenue for the year ended December 31, 2014 and 2013



|                                            |  | Year Ended December 31, |         
|------------------------------------------- |  | ----------------------- | --------
|                                            |  | 2014                    |         
|Net sales                                   |  |                         | 100.0   
|Cost of sales                               |  |                         | (109.90 
|Gross profit                                |  |                         | (9.90   
|                                            |  |                         |         
|Operating expenses                          |  |                         |         
|Sales and marketing                         |  |                         | (11.68  
|General and administrative                  |  |                         | (44.20  
|Total operating expenses                    |  |                         | (55.88  
|                                            |  |                         |         
|Income (loss) from operations               |  |                         | (65.78  
|Other income (expenses)                     |  |                         | 1,256.00
|Income (loss) before income taxes provision |  |                         | 1,190.22
|Income taxes provision                      |  |                         | -       
|Net (loss) income                           |  |                         | 1,190.22



21







Comparison of the Years Ended December 31, 2014 and
2013



Net Sales



Net sales consist
of product sales, net of returns and allowances and any recoveries from sales of previously written down inventories. Net sales
are recognized upon the transfer of legal title of the products to the customers. The quantity of products the Company sells fluctuates
with changes in demand from its customers. Net sales for the fiscal year 2014 were $1,013,241, down $71,162,048 or 98.6% from $72,175,289
in the 2013 fiscal year. This reduction was due to the Company disposed all of the equity interest held in ACL Holdings on September
30, 2014.



Cost of Sales



Cost of sales is comprised
of costs of goods purchased from our supplier, costs of manufacturing, assembly and testing of our products, and associated costs
related to manufacturing support and quality assurance personnel, as well as provision for excess and obsolete inventories. The
Company’s cost of sales, as a percentage of net sales, amounted to approximately 109.9% for the year ended December 31, 2014
and approximately 99.7% for the year ended December 31, 2013. Cost of sales decreased by $70,836,406 or 98.5%, from $71,949,939
for the year ended December 31, 2013 to $1,113,533 for the year ended December 31, 2014. The decrease was mainly due to the Company
disposed all of the equity interest held in ACL Holdings on September 30, 2014.



Gross Profit



Gross profit is net
sales less cost of sales and is affected by a number of factors, including competitive pricing, product mix, foundry pricing, cost
of test and assembly services, manufacturing yields and provision for excess and obsolete inventories. The Company’s gross
loss for the fiscal year 2014 was $100,292, a decrease of $325,642 or 144.5%, from $225,350 in the fiscal year 2013. Gross profit
margin for fiscal year 2014 decreased to -9.90% from 0.31% in fiscal year 2013. These results were due to the reason mentioned
above.



Sales and Marketing Expenses



Sales and marketing
expenses consists primarily of associated costs for sales and marketing, commissions, promotional activities, freight shipments,
and marine insurance. Sales and marketing expenses decreased by $35,649, or 23.1%, from $154,014 for the year ended December 31,
2013 to $118,365 for the year ended December 31, 2014. These results were due to the same reason mentioned above.



General and Administrative Expenses



General and administrative
expenses consists primarily of compensation (including stock-based compensation) and associated costs for administrative personnel,
professional fees including audit and other business registration fee, and director and officer insurance. General and administrative
expenses decreased by $4,458,449 or 90.0% from $4,906,299 for the year ended December 31, 2013 to $447,850 for the year ended December
31, 2014. The decrease was mainly due to the Company disposed all of the equity interest held in ACL Holdings on September 30,
2014.



Income (Loss) from Operations



Loss from operations
was $666,507 for the year ended December 31, 2014 compared to loss of $4,834,963 for the year ended December 31, 2013, a decrease
of $4.2 million. The decrease was mainly due to the Company disposed all of the equity interest held in ACL Holdings on September
30, 2014.



Other Expenses (Income)



Other expenses (income)
consists primarily of rental income, management and service income, interest income, interest expenses, and profits/(loss) on disposals
of assets and investments. Other income increased by $21,660,645 or 242.4% from a net other expense of $8,934,360 for the year
ended December 31, 2013 to a net other income of $12,726,285 for the year ended December 31, 2014. The decrease was mainly due
to the income derived from the Company disposed all of the equity interest held in ACL Holdings on September 30, 2014.



22







Interest Expense





Interest
expense, including finance charges, relates primarily to borrowings from our bank and a third party. Interest expense decreased
$1,041,095 or 100%, from interest expense of $1,041,095 in the year ended December 31, 2013, to $Nil in the year ended December
31, 2014. These changes were mainly due to the Company disposed all of the equity interest, including the loans liabilities, held
in ACL Holdings on September 30, 2014.





Income Taxes Provision



The Company is subject
to income tax in the U.S., Hong Kong and PRC. Income tax provision for the year ended December 31, 2014 was $Nil, a decrease of
$21,887 or100.0% from $21,887 for the year ended December 31, 2013. This decrease was an adjustment on the prior year estimated
Hong Kong corporate income taxes payable by Atlantic. The effective income tax rate is 0% for 2014 as compared to 0.03% for 2013.
The Company did not have any interest or penalty not to recognize in the income statements for the year ended December 31, 2014
and December 31, 2013 or the balance sheet, as of December 31, 2014 and December 31, 2013.



Net (loss) Income



As a result of the
foregoing, the Company recorded a consolidated net income of $12,059,778 for the fiscal year 2014, up $25,850,988 or 187.4%, from
a net loss of $13,791,210 in the fiscal year 2013. This was resulted by the disposal of the equity interest held in ACL Holdings
on September 30, 2014.



Critical Accounting Policies



The U.S. Securities
and Exchange Commission (“SEC”) recently issued Financial Reporting Release No. 60, “Cautionary Advice
Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional
disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies
as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require
management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that
are inherently uncertain. Based on this definition, our most critical accounting policies include: inventory valuation, which affects
cost of sales and gross margin; policies for revenue recognition, allowance for doubtful accounts, and stock-based compensation.
The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on our
results we report in our consolidated financial statements.



Revenue Recognition



The Company derives
revenues from resale of computer memory products, sale of self-manufacture products, and sale of research and development products.
The Company recognizes revenue in accordance with the ASC 605 “Revenue Recognition”. Under ASC 605, revenue is recognized
when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered, the sales price is determinable,
and collectability is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded net of discounts,
rebates, and returns, which historically were not material



Impairment of Long-Lived Assets



We account for impairment
of property, plant and equipment in accordance with FASB ASC 360. The carrying value of a long-lived asset is considered impaired
when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived
asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are
reduced for the cost to dispose. During the reporting years, there was no impairment loss incurred. Competitive pricing pressure
and changes in interest rates, could materially and adversely affect our estimates of future net cash flows to be generated by
our long-lived assets.



Inventory Valuation



Our policy is to value
inventories at the lower of cost or market on a part-by-part basis. In addition, we write down unproven, excess and obsolete inventories
to net realizable value. This policy requires us to make a number of estimates and assumptions including market and economic conditions,
product lifecycles and forecast demand for our product to value our inventory. To the extent actual results differ from these estimates
and assumptions, the balances of reported inventory and cost of products sold will change accordingly. Since Aristo supplies different
generations of computer related products, older generation products will move slowly owing to lower market demand. According to
the management experience and estimation on the actual market situation, old generation products carrying on hand for ten years
will have no re-sell value. Therefore, these inventories on hand over ten years will be written off by Aristo immediately.



23







Allowance for Doubtful Accounts



We maintain an allowance
for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our allowance
for doubtful accounts is based on our assessment of the collectability of specific customer accounts, the aging of accounts receivable,
our history of bad debts, and the general condition of the industry. If a major customer’s credit worthiness deteriorates,
or our customers’ actual defaults exceed our historical experience, our estimates could change and impact our reported results.



Liquidity and Capital Resources



Our principal sources
of liquidity are cash from operations, bank lines of credit and credit terms from suppliers. Our principal uses of cash have been
for operations and working capital. We anticipate these uses will continue to be our principal uses of cash in the future.



As of December 31,
2014, the Company had no lines of credit and loan facilities available for drawdown as short-term loans repayable within 90 days
due to the disposal of ACL Holdings on September 30, 2014. Detailed disclosures regarding our outstanding credit facilities are
set forth in Notes 7 and 8 of the Notes to Consolidated Financial Statements, including the amounts of the facilities, outstanding
balances, interest rates, maturity periods (for long term loans) and pledge of assets.



Our ability to draw
down under our various credit and loan facilities is, in each case, subject to the prior consent of the relevant lending institution
to make advances at the time of the requested advance and each facility (other than with respect to certain long term mortgage
loans) is payable within 90 days of drawdown. Accordingly, on a case by case basis, we may elect to terminate or not renew several
of our credit facilities if significant reduction in our available short term borrowings that we do not deem it is commercially
reasonable.



As of December 31,
2014, the Company has total current assets of $128 and current liabilities of $448,055. This raises substantial doubt about the
Company’s ability to continue as a going concern. We will continue to seek additional sources of available financing on acceptable
terms; however, there can be no assurance that we will be able to obtain the necessary additional capital on a timely basis or
on acceptable terms, if at all. In addition, if the results are negatively impacted and delayed as a result of political and economic
factors beyond management’s control, our capital requirements may increase.



The short-term borrowings
from banks and other financial institutions to finance the cash flow required to finance the purchase of products from our suppliers
must be made a day in advance of the release of goods from suppliers’ warehouse before receiving payments from customers
upon physical delivery of such goods in Hong Kong which, in most instances, take approximately two days from the date of such delivery.



The following factors,
among others, could have a negative impact on the Company’s results of operations and financial position: the termination
or change in terms of the banking facilities; pricing pressures in the industry; a continued downturn in the economy in general
or in the memory products sector; an unexpected decrease in demand for certain memory products; the Company’s ability to
attract new customers; an increase in competition in the related markets; and the ability of some of the Company’s customers
to obtain financing.



Although we believe
the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this report
to conform them to actual results or to make changes in our expectations.



Net Cash Provided by Operating Activities



In the year ended
December 31, 2014, net cash provided by operating activities amounted to $1,615,830 while net cash used for operating activities
in the year ended December 31, 2013, amounted to $9,090,317, an increase of $10,706,147. This increase was primarily due to the
disposal of ACL Holdings on September 30, 2014.



24







Net Cash Provided by Investing Activities



In the year ended
December 31, 2014, net cash provided by investing activities amounted to $11,738,454 while net cash provided by investing activities
in the year ended December 31, 2013, amounted to $9,745,137, an increase of $1,993,317. This increase was primarily due to the
disposal of ACL Holdings on September 30, 2014.



Net Cash Used for Financing Activities



In the year ended
December 31, 2014, net cash used for financing activities amounted to $13,585,403 while net cash used for financing activities
in the year ended December 31, 2013, amounted to $1,063,163, a decrease of $12,522,240. This decrease was due to the disposal of
ACL Holdings on September 30, 2014.



Contractual Obligations



The following table presents our contractual
obligations as of December 31, 2013 over the next five years and thereafter:





|Payments by Period                           
|---------------------------------------------
|                                             
|Operating Leases                             
|Capital Leases                               
|Line of credit and notes payable – short-term
|Bank Loans                                   
|Loan from a third party                      
|Total Contractual Obligations                





Off-Balance Sheet Arrangements



As of December 31,
2014 and 2013, we had no relationships with unconsolidated entities or financial partnerships, such as entities often referred
to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off balance
sheet arrangements, or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such relationships.



Related Party Transactions



We conduct business
with several affiliated companies. All of the related party transactions taking place during the reporting periods were conducted
in the normal course of business. The prices of products sold to or purchased from these related entities are in the same price
ranges as those offered to other non-related customers or purchased from other vendors.



Amounts due from Aristo
/ Mr. Yang represented Aristo transactions with various related parties of Mr. Yang.



Effect of Inflation



We believe that our
results of operations are not dependent upon moderate changes in inflation rates as we expect to be able to pass along component
price increases to our customers.



Inflation generally
affects us by increasing costs of raw materials, labor, and equipment. We do not believe that inflation had any material effect
on our results of operations in the periods presented in our audited consolidated financial statements.



New Accounting Pronouncements



See Note 2 to consolidated
financial statements included in Item 8, Financial Statements, of this Annual Report on Form 10-K



25







|Item 7A. | Quantitative and Qualitative Disclosures about Market Risk
|-------- | ----------------------------------------------------------



We are a smaller reporting
company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



Attached hereto and
filed as part of this Annual Report on Form 10-K are our Consolidated Financial Statements, beginning on page F-1.



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------



On March 21, 2014
(the “Engagement Date”), the Company’s board of directors approved the engagement of Albert Wong & Co. LLP
(“New Auditor”), an independent U.S. CPA firm which is associated with the Company's existing independent accountants,
Albert Wong & Co. (“Previous Auditor”), who tendered its resignation on March 21, 2014 (the “Resignation
Date”), as the Company’s new independent accountant.



The report of the
Previous Auditor on the Company's consolidated financial statements for the fiscal years ended December 31, 2010 and 2011 did not
contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting
principles, except to note that the Company had numerous significant related parties’ transactions. During the years ended
December 31, 2010 and 2011 and through the Resignation Date, there have been no disagreements between the Company and the Previous
Auditor on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which
disagreements if not resolved to the Previous Auditor’s satisfaction would have caused them to make reference to the subject
matter of the disagreement in connection with their reports. During the years ended December 31, 2010 and 2011 and through the
Resignation Date, there were no "reportable events" as that term is described in Item 304(a)(1)(v) of Regulation S-K.



During the years ended
December 31, 2012 and 2011, and any subsequent interim period prior to the Engagement Date, neither the Company nor anyone acting
on the Company's behalf consulted the New Auditor with respect to (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements,
or any other matters (ii) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item
304 of Regulation S-K and the related instructions thereto) or reportable events (as described in Item 304(a)(1)(v) of Regulation
S-K).



|Item 9A. | Controls and Procedures
|-------- | -----------------------



Disclosure Controls and Procedures



We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or
submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission (SEC) rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.



Limitations on
the Effectiveness of Disclosure Controls. In designing and evaluating the Company's disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure
controls and procedures, Company management necessarily was required to apply its judgment in evaluating the cost-benefit relationship
of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions.



26







Evaluation of Disclosure
Controls and Procedures. The Company's CEO and CFO have evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of December 31, 2014, and based
on this evaluation, the Company's principal executive and financial officers have concluded that the Company's disclosure controls
and procedures were not effective to ensure that material information is recorded, processed, summarized and reported by management
of the Company on a timely basis in order to comply with the Company's disclosure obligations under the Exchange Act and the rules
and regulations promulgated thereunder. The Company's principal executive and financial officer’s conclusion regarding the
Company's disclosure controls and procedures is based on management's conclusion that the Company's internal control over financial
reporting are ineffective, as described below.



Management’s Report on Internal
Control over Financial Reporting



The Company's CEO
and CFO are responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to the
company's management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.



In making its assessment
of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control-Integrated Framework. Because of the material weakness described in the following
paragraphs, management believes that, as of December 31, 2014, the company's internal control over financial reporting was not
effective based on those criteria.



Management’s
evaluation was retrospective and conducted as of December 31, 2014, the last day of the fiscal year covered by this Form 10-K.
Based upon management’s evaluation, our CEO and CFO have concluded that our internal controls over financial reporting were
not effective as of December 31, 2014 because we have not completed the remediation (discussed elsewhere in this document) for
the fiscal year ended December 31, 2014 due to the following material weaknesses:



Company-level
controls.We did not maintain effective company-level controls as defined in the Internal Control—Integrated Framework
published by COSO. These deficiencies related to each of the five components of internal control as defined by COSO (control environment,
risk assessment, control activities, information and communication, and monitoring). These deficiencies resulted in more than a
remote likelihood that a material misstatement of our annual or interim financial statements would not be prevented or detected.
Specifically,



| | · | Our control environment did not sufficiently promote effective internal control over financial
reporting throughout our organizational structure, and this material weakness was a contributing factor to the other material weaknesses
described in this Item 9A;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our board of directors had not established adequate financial reporting monitoring activities to
mitigate the risk of management override, specifically:
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | – | no formally documented financial analysis was presented to our board of directors, specifically
fluctuation, variance, trend analysis or business performance reviews;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | – | an effective whistleblower program had not been established;
| | - | ------------------------------------------------------------

| | – | there was insufficient oversight of external audit specifically related to fees, scope of activities,
executive sessions, and monitoring of results;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | – | there was insufficient oversight of accounting principle implementation;
| | - | ------------------------------------------------------------------------

| | – | there was insufficient review of related party transactions; and
| | - | ----------------------------------------------------------------

| | – | there was insufficient review of recording of stock transactions.
| | - | -----------------------------------------------------------------



| | · | We did not maintained sufficient competent evidence to support the effective operation of our internal
controls over financial reporting, specifically related to our board of directors’ oversight of quarterly and annual SEC
filings; and management’s review of SEC filings, journal entries, account analyses and reconciliations, and critical spreadsheet
controls;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We had inadequate risk assessment controls, including inadequate mechanisms for anticipating and
identifying financial reporting risks; and for reacting to changes in the operating environment that could have a material effect
on financial reporting;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | There was inadequate communication from management to employees regarding the general importance
of controls and employees duties and control responsibilities;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



27







| | · | We had inadequate monitoring controls, including inadequate staffing and procedures to ensure periodic
evaluations of internal controls, to ensure that appropriate personnel regularly obtain evidence that controls were functioning
effectively and that identified control deficiencies were remediated in a timely manner;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We had an inadequate number of trained finance and accounting personnel with appropriate expertise
in U.S. generally accepted accounting principles. Accordingly, in certain circumstances, an effective secondary review of technical
accounting matters was not performed;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We had inadequate controls over our management information systems related to program changes,
segregation of duties, and access controls;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | · | We had inadequate access and change controls over end-user computing spreadsheets. Specifically,
our controls over the completeness, accuracy, validity and restricted access and review of certain spreadsheets used in the period-end
financial statement preparation and reporting process were not designed appropriately or did not operate as designed; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We were unable to assess the effectiveness of our internal control over financial reporting in
a timely matter.
| | - | ---------------------------------------------------------------------------------------------------------------



Financial
statement preparation and review procedures.We had inadequate policies, procedures and personnel to ensure that accurate,
reliable interim and annual consolidated financial statements were prepared and reviewed on a timely basis. Specifically, we had
insufficient: a) levels of supporting documentation; b) review and supervision within the accounting and finance departments; c)
preparation and review of footnote disclosures accompanying our financial statements; and d) technical accounting resources. These
deficiencies resulted in errors in the financial statements and more than a remote likelihood that a material misstatement of our
annual or interim financial statements would not be prevented or detected. In addition, as discussed in Note 2 of Notes to the
Consolidated Financial Statements of this Form 10-K, we recently determined that Aristo Technologies Limited (“Aristo”),
a related party, has been a variable interest entity under FASB ASC 810-10-25. Consequently, we are consolidating the financial
statements of Aristo with those of the Company for the period effective and are restating our previously filed annual and interim
financial statements in amended Form 10-Ks for years ended 2007 and 2008 to reflect the disclosure in accordance with ASC 810-10-25.



Inadequate
reviews of account reconciliations, analyses and journal entries.We had inadequate review procedures over account reconciliations,
account and transaction analyses, and journal entries. Specifically, deficiencies were noted in the following areas: a) management
review of supporting documentation, calculations and assumptions used to prepare the financial statements, including spreadsheets
and account analyses; and b) management review of journal entries recorded during the financial statement preparation process.
These deficiencies resulted in a more than a remote likelihood that a material misstatement of our annual or interim financial
statements would not be prevented or detected.



Inadequate
controls over purchases and disbursements.We had inadequate controls over the segregation of duties and authorization of purchases,
and the disbursement of funds. These weaknesses increase the likelihood that misappropriation of assets and/or unauthorized purchases
and disbursements could occur and not be detected in a timely manner. These deficiencies resulted in errors in the financial statements
and in more than a remote likelihood that a material misstatement of our annual or interim financial statements would not be prevented
or detected. Specifically,



| | · | We had inadequate procedures and controls to ensure proper segregation of duties within our purchasing
and disbursements processes and accounting systems;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We had inadequate procedures and controls to ensure proper authorization of purchase orders; and
| | - | ------------------------------------------------------------------------------------------------



| | · | We had inadequate approvals for payment of invoices and wire transfers.
| | - | -----------------------------------------------------------------------





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





As of December
31, 2014, we had not completed the remediation of any of these material weaknesses.



We are
addressing the outstanding material weaknesses described above, as well as our control environment. We also expect to undertake
the following remediation efforts:



| | · | We plan on formalizing quarterly financial statement variance analysis of actual versus budget
with relevant explanations of variances for distribution to our board of directors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28







| | · | We are in the process of developing, documenting, and communicating a formal whistleblower program
to employees. We expect to post the policy on the Company web site in the governance section and in the common areas in the office.
We plan on providing a toll free number for reporting complaints and will hire a specific third party whistleblower company to
monitor the hotline and provide monthly reports of activity to our board of directors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Management intends to continue to provide SEC and US GAAP training for employees and retain external
consultants with appropriate SEC and US GAAP expertise to assist in financial statement review, account analysis review, review
and filing of SEC reports, policy and procedure compilation assistance, and other related advisory services.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We intend on developing an internal control over financial reporting evidence policy and procedures
which contemplates, among other items, a listing of all identified key internal controls over financial reporting, assignment of
responsibility to process owners within the Company, communication of such listing to all applicable personnel, and specific policies
and procedures around the nature and retention of evidence of the operation of controls.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We have restricted access to all financial modules. In order to mitigate the risks of management
or other override, only authorized persons have edit access to each. We will remove or add authorized personnel as appropriate
to mitigate the risks of management or other override; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We have re-assigned roles and responsibilities, and intend to continue improving segregation of
duties.
| | - | -------------------------------------------------------------------------------------------------------



These specific
actions are part of an overall program that we are currently developing in an effort to remediate the material weaknesses described
above.



Attached
as exhibits to this report are certifications of our CEO and CFO, which are required in accordance with Rule 13a-14 of Securities
Exchange Act of 1934, as amended. The discussion above in this Item 9A includes information concerning the controls and controls
evaluation referred to in the certifications and those certifications should be read in conjunction with this Item 9A for a more
complete understanding of the topics presented.



We are
committed to improving our internal control processes and will continue to diligently review our internal control over financial
reporting and our disclosure controls and procedures. The failure to implement adequate controls may result in deficient and inaccurate
reports under the Exchange Act.



Changes in Internal Control over Financial
Reporting



There have been no
changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the quartered ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------



None.



29







PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------



Directors and Executive Officers



The following table
sets forth the name, age, and position of our directors and our executive officers as of December 31, 2014. Each director holds
office (subject to our By-Laws) until the next annual meeting of shareholders and until such director’s successor has been
elected and qualified. All of our executive officers are serving until the next annual meeting of directors and until their successors
have been duly elected and qualified. Each executive officer holds his office until he resigns, is removed by the board of directors,
or his successor is elected and qualified, subject to applicable employment agreements.



|NAME           |  | AGE |  | POSITION                            
|-------------- |  | --- |  | ------------------------------------
|               |  |     |  |                                     
|Chung-Lun Yang |  | 52  |  | Chairman of the Board of Directors  
|Ben Wong       |  | 50  |  | Director and Chief Executive Officer
|Eddy Wong      |  | 47  |  | Chief Financial Officer (3)         
|Ming Yan Leung |  | 45  |  | Chief Technology Officer            



| | (1) | Wing Sun Leung resigned as Independent Director on November 7, 2014.
| | --- | --------------------------------------------------------------------

| | (2) | Ho Man Yeung resigned as Independent Director on November 8, 2014.
| | --- | ------------------------------------------------------------------

| | (3) | Philip Tsz Fung Lo resigned as Chief Financial Officer on December 30, 2014
| | --- | ---------------------------------------------------------------------------

| | (4) | Eddy Wong was engaged as Chief Financial Officer on December 30, 2014
| | --- | ---------------------------------------------------------------------



Chung-Lun Yang,
Chairman of the Board. Mr. Yang became a Director on September 30, 2003. Mr. Yang is the founder of Atlantic and has been a director
of Atlantic since 1991. Mr. Yang graduated from The Hong Kong Polytechnic University in 1982 with a degree in electronic engineering.
From October 1982 until April 1985, he was the sales engineer of Karin Electronics Supplies Ltd. From June 1986 until September
1991, he was Director of Sales (Samsung Components Distribution) of Evertech Holdings Limited, a Hong Kong based company. Mr. Yang
has over 15 years of extensive experience in the electronics distribution business.  The breadth of Mr. Yang’s sales
and operational experience led the Board of Directors to believe this individual is qualified to serve as a director of the Company.  Mr.
Yang is also a member of The Institution of Electrical Engineers, United Kingdom. Mr. Yang resigned as the Company’s Chief
Executive Officer on February 1, 2013.



Ben Wong, Director
and Chief Executive Officer. Mr. Wong was elected as the Director at the Company’s 2012 annual shareholders meeting on November
16, 2012, and appointed as the Chief Executive Officer of the Company on February 1, 2013. Mr. Wong has been the Chief Executive
Officer and Director of USmart Electronic Products Limited since 2006. Mr. Wong graduated from the Chinese Culture University of
Taiwan in 1986 with a Bachelor’s Degree of Science in Mechanical Engineering. From 1989 to 1990, he worked for Philips H.K.
Ltd. as the Industrial Engineer. He gained manufacturing concept from design to mass production processing, and flow of products
development from working in Philips. He is also experienced in object-oriented design/analysis, application development, requirements
planning & testing, project development, IT management, prototyping, conceptual design and interface implementation.



Ming Yan Leung,
Chief Technology Officer. Mr. Leung was appointed as our Chief Technology Officer on June 11, 2010. Prior to joining the Company,
Mr. Leung was Chief Architect Officer of RV Technology Ltd., where he oversaw various mobile solutions and services for enterprises
and end users. In 1997, Mr. Leung ran the banking solution team at the Tech-Trans Group where he led the implementation of SWIFT-related
solution for various banking institutes and a mobile workforce system for an electricity supply company. Mr. Leung holds a Masters
in Engineering Management from the University of Technology, Sydney, and a Postgraduate degree in Investment Decision Making from
Wuhan University of Technology. Mr. Leung was chosen to be a member of the board based on his experience in managing development
and implementation of electronic devices and solutions for more than 10 years.



There are no family
relationships between any of our directors and executive officers. There have been no events under any bankruptcy act, no criminal
proceedings and no judgments, orders or decrees material to the evaluation of the ability and integrity of any director or executive
officer of the Company during the past five years.



Board Meetings



During the fiscal
year ended December 31, 2014, our Board of Directors held 4 meetings. No director who served during the fiscal year ended December
31, 2014 attended fewer than 80% of the meetings of the Board of Directors during that year.



30







Committees of the Board



On January 20, 2011,
the Board of Directors establishes an Audit Committee, Nominating Committee and Compensation Committee of the Board of Directors:



Board Leadership Structure and Risk
Oversight Role



Our Board of Directors
currently contains 2 Executive Directors. The Company is in search of appropriate candidate to fill in the vacant position of Independent
Directors. We believe that such a leadership structure is suitable for the Company at its present stage of development.



As a matter of regular
practice, and as part of its oversight function, our Board of Directors periodically reviews on the significant risks in respect
to our business.  With our current governance structure based on our Board of Directors and senior executives, there is not
a significant division of oversight and operational responsibilities in managing the material risks facing the Company.



Code of Business Conduct and Ethics



We have adopted a
written code of business conduct and ethics, known as our Code of Business Conduct and Ethics which applies to all of our directors,
officers, and employees, including our principal executive officer and our principal financial and accounting officer. A copy of
the Code of Business Conduct and Ethics is attached as Exhibit 14 to the Annual Report on Form 10-K for the period ended December
31, 2003. To receive a copy of our Code of Business Conduct and Ethics, at no cost, requests should be directed to the Secretary,
USmart Mobile Device Inc., Room 1703, 17/F., Tower 1, Enterprise Square, 9 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong. We
intend to disclose any amendment to, or waiver of, a provision of the Code of Business Conduct and Ethics in a report filed under
the Securities Exchange Act of 1934, as amended, within four business days of the amendment or waiver.



Stockholder Communications



Stockholders and other
interested parties may contact the Board of Directors or the non-management directors as a group at the following address: Board
of Directors or Outside Directors, USmart Mobile Device Inc., Room 1703, 17/F., Tower 1, Enterprise Square, 9 Sheung Yuet Road,
Kowloon Bay, Kowloon, Hong Kong. All communications received at the above address will be relayed to the Board of Directors or
the non-management directors, respectively. Communications regarding accounting, internal accounting controls or auditing matters
may also be reported to the Board of Directors using the above address.



Typically, we do not
forward to our directors communications from our stockholders or other communications which are of a personal nature or not related
to the duties and responsibilities of the Board, including:



| | · | Junk mail and mass mailings
| | - | ---------------------------



| | · | New product suggestions
| | - | -----------------------



| | · | Resumes and other forms of job inquiries
| | - | ----------------------------------------



| | · | Opinion surveys and polls
| | - | -------------------------



| | · | Business solicitations or advertisements
| | - | ----------------------------------------



Compliance with Section 16(A) of The Securities Exchange
Act of 1934



Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than ten percent
of a registered class of our equity securities (collectively, “Reporting Person”) to file with the SEC initial reports
of ownership and reports of changes in ownership of our Common Stock and other equity securities of the Company. Reporting Persons
are required by the SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file. To our knowledge,
based solely on a review of the copies of such reports furnished to us, we believe that during fiscal year ended December 31, 2014
all Reporting Persons complied with all applicable filing requirements.



31







|Item 11. | Executive Compensation
|-------- | ----------------------



COMPENSATION DISCUSSION AND ANALYSIS



Summary



Our approach to executive
compensation is influenced by our belief in rewarding people for consistently strong execution and performance. We believe that
the ability to attract and retain qualified executive officers and other key employees is essential to our long term success.



Our plan to obtain
and retain highly skilled employees is to provide market competitive salaries and also incentive awards. Our approach is to link
individual employee objectives with overall company strategies and results, and to reward executive officers and significant employees
for their individual contributions to those strategies and results. We use compensation and performance data from comparable companies
in the electronics distribution industry to establish market competitive compensation and performance standards for our employees.
Furthermore, we believe that equity awards serve to align the interests of our executives with those of our stockholders. As such,
we intend for equity to become a key component of our compensation program.



Named Executive Officers



The named executive
officers for the fiscal year ended December 31, 2014 are: Ben Wong, our Chief Executive Officer; Eddy Wong, our Chief Financial
Officer; and Ming Yan Leung, our Chief Technology Officer. These individuals are referred to collectively in this Annual Report
on Form 10-K as the “Named Executive Officers.”



OUR EXECUTIVE COMPENSATION PROGRAM



Overview



The primary elements
of our executive compensation program are base salary, incentive cash and stock bonus opportunities and equity incentives typically
in the form of stock option grants. Although we provide other types of compensation, these three elements are the principal means
by which we provide the Named Executive Officers with compensation opportunities.



The emphasis on the
annual bonus opportunity and equity compensation components of the executive compensation program reflect our belief that a large
portion of an executive’s compensation should be performance-based. This compensation is performance-based because payment
is tied to the achievement of corporate performance goals. To the extent that performance goals are not achieved, executives will
receive a lesser amount of total compensation. We have entered into employment agreements with four of our Named Executive Officers.
Such employment agreements set forth base salaries, bonuses and stock option grants. Such stock option grants are predicated on
our achievement of corporate performance goals as set forth in such agreements.



ELEMENTS OF OUR EXECUTIVE COMPENSATION
PROGRAM

Base Salary



We pay a base salary
to certain of the Named Executive Officers. In general, base salaries for the Named Executive Officers are determined by evaluating
the responsibilities of the executive’s position, the executive’s experience and the competitiveness of the marketplace.
Base salary adjustments are considered and take into account changes in the executive’s responsibilities, the executive’s
performance and changes in the competitiveness of the marketplace. We believe that the base salaries of the Named Executive Officers
are appropriate within the context of the compensation elements provided to the executives and because they are at a level which
remains competitive in the marketplace.



Bonuses



The Board of Directors
may authorize us to give discretionary bonuses, payable in cash or shares of Common Stock, to the Named Executive Officers and
other key employees. Such bonuses are designed to motivate the Named Executive Officers and other employees to achieve specified
corporate, business unit and/or individual, strategic, operational and other performance objectives.



Stock Options



Stock options constitute
performance-based compensation because they have value to the recipient only if the price of our Common Stock increases. We have
not granted any stock options to any of our Named Executive Officers and the grant of stock options to Named Executive Officers
is not a material factor in making compensation determinations with respect to our Named Executive Officers. However, we have in
the past used stock options as incentives for our other employees. Stock options generally vest over time, with obtainment of a
corporate goal, or a combination of the two. The grant of stock options is designed to motivate our employees to achieve our short
term and long term corporate goals.



32







Retirement and Deferred Compensation Benefits



We do not have any
arrangements with the Named Executive Officers to provide them with retirement and/or deferred compensation benefits.



Perquisites



There were no perquisites
provided to the Named Executive Officers.



Post-Termination/Change of Control Compensation



We do not have any
arrangements with the Named Executive Officers to provide them with compensation following termination of employment.



Tax Implications of Executive Compensation



Our aggregate deductions
for each Named Executive Officer compensation are potentially limited by Section 162(m) of the Internal Revenue Code to the extent
the aggregate amount paid to an executive officer exceeds $1 million, unless it is paid under a predetermined objective performance
plan meeting certain requirements, or satisfies one of various other exceptions specified in the Internal Revenue Code. At our
2012 Named Executive Officer compensation levels, we did not believe that Section 162(m) of the Internal Revenue Code would be
applicable, and accordingly, we did not consider its impact in determining compensation levels for our Named Executive Officers
in 2012.



Hedging Policy



We do not permit the
Named Executive Officers to “hedge” ownership by engaging in short sales or trading in any options contracts involving
our securities.



Option Exercises and Stock Vested



No options have been
exercised by our Named Executive Officers during the fiscal year ended December 31, 2014.



Pension Benefits



Under the Mandatory
Provident Fund (“MPF”) Scheme Ordinance in Hong Kong, the Company is required to set up or participate in an MPF scheme
to which both the Company and employees must make continuous contributions throughout their employment based on 5% of the employees’
earnings, subject to maximum and minimum level of income. For those earning less than the minimum level of income, they are not
required to contribute but may elect to do so. However, regardless of the employees’ election, their employers must contribute
5% of the employees’ income. Contributions in excess of the maximum level of income are voluntary. All contributions to the
MPF scheme are fully and immediately vested with the employees’ accounts. The contributions must be invested and accumulated
until the employees’ retirement.



Nonqualified Deferred Compensation



We do not have any
defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.



Employment Agreements



We have entered into
employment agreements with our Executive Officers, which set the base salary as set forth in our summary compensation table.



33







Executive Officer Compensation



The following table
sets forth the annual and long-term compensation of our Named Executive Officers for services in all capacities to the Company
whose total compensation exceeds $100,000 for the last two fiscal years ended December 31, 2014 and December 31, 2013.



Summary Compensation Table





|Name and Principal Position        |  | Year |      |  | Salary |   |   | Bonus |  |  | Stock Awards |  |  | Option Awards |   |  | Non-Equity Incentive Plan Compensation |  |   | Change in Pension Value and Non-qualified Deferred Compensation Earnings |  |  | All Other Compensation |  |  | Total |  
|---------------------------------- |  | ---- | ---- |  | ------ | - | - | ----- |  |  | ------------ |  |  | ------------- | - |  | -------------------------------------- |  | - | ------------------------------------------------------------------------ |  |  | ---------------------- |  |  | ----- | -
|                                   |  |      |      |  |        |   |   |       |  |  |              |  |  |               |   |  |                                        |  |   |                                                                          |  |  |                        |  |  |       |  
|Chung-Lun Yang                     |  |      | 2014 |  |        | $ | - |       |  |  | -            |  |  |               | — |  |                                        |  | — |                                                                          |  |  | —                      |  |  |       | —
|Former Chief Executive Officer (1) |  |      | 2013 |  |        | $ | - |       |  |  | -            |  |  |               | — |  |                                        |  | — |                                                                          |  |  | —                      |  |  |       | —



On February 1, 2013,
the board of directors of the Company appointed Mr. Ben Wong as the Company’s Chief Executive Officer. Mr. Wong has an employment
agreement with USmart and receives a monthly salary of HKD50,000 (approximately USD6,427).



On August 18, 2013,
the board of directors of the Company appointed Mr. Philip Tsz Fung Lo as the Company’s Chief Financial Officer. Mr. Lo has
an employment agreement with USmart and receives a monthly salary of HKD30,000 (approximately USD3,856). On December 30, 2014,
Mr. Lo resigned as the Chief Financial Officer. On the same date, Mr. Eddy Wong was appointed as the Company’s Chief Financial
Officer by the Company’s board of directors.



Outstanding equity awards at fiscal year-end



None.



Compensation of Directors



The following table
sets forth the Director compensation for service on the Board of Directors of the Company for the fiscal year ended December 31,
2014.





|Name               |  | Fees Earned 
or Paid in
 Cash |        |  | Stock Awards |  |   | Option Awards |  |  | Non-Equity Incentive Plan Compensation |  |  | Non-qualified Deferred Compensation Earnings |   |  | All Other Compensation |  |   | Total | 
|------------------ |  | ----------------------------- | ------ |  | ------------ |  | - | ------------- |  |  | -------------------------------------- |  |  | -------------------------------------------- | - |  | ---------------------- |  | - | ----- | 
|Chung-Lun Yang (1) |  | $                             | —      |  |              |  | — |               |  |  | —                                      |  |  |                                              | — |  |                        |  | — |       | 
|Ben Wong (2)       |  | $                             | —      |  |              |  | — |               |  |  | —                                      |  |  |                                              | — |  |                        |  | — |       | 
|Ho Man Yeung (4)   |  | $                             | 12,820 |  |              |  | — |               |  |  | —                                      |  |  |                                              | — |  |                        |  | — |       | 
|Wing Sun Leung (3) |  | $                             | 12,820 |  |              |  | — |               |  |  | —                                      |  |  |                                              | — |  |                        |  | — |       | 





| | (1) | Chung-Lun Yang resigned as the Company’s Chief Executive Officer on February 1, 2013. The
board of directors of the Company appointed Ben Wong as the new Chief Executive Officer on February 1, 2013.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Ben Wong was elected as the director at the Company’s 2012 annual shareholders meeting on
November 16, 2012.
| | --- | ------------------------------------------------------------------------------------------------------------

| | (3) | Wing Sun Leung resigned as the Company’s Independent Director on November 7, 2014.
| | --- | ----------------------------------------------------------------------------------

| | (4) | Ho Man Yeung resigned as the Company’s Independent Director on November 8, 2014
| | --- | -------------------------------------------------------------------------------



We compensate our
independent directors an amount of HKD10,000 (USD1,282) per month for serving on our board of directors, in addition to reimbursement
for out of pocket expenses incurred in attending director meetings. We do not compensate our executive directors for serving on
the board of directors.



34







|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------



The following table
sets forth certain information regarding beneficial ownership of our Common Stock as of December 31, 2014: (i) by each person who
is known by us to own beneficially more than 5% of the Common Stock, (ii) by each of our directors, (iii) by each of our executive
officers and (iv) by all our directors and executive officers as a group. On such date, we had 39,684,495 shares of Common Stock
outstanding.



As used in the table
below, the term beneficial ownership with respect to a security consists of sole or shared voting power, including the power to
vote or direct the vote, and/or sole or shared investment power, including the power to dispose or direct the disposition, with
respect to the security through any contract, arrangement, understanding, relationship, or otherwise, including a right to acquire
such power(s) during the 60 days immediately following December 31, 2014. Except as otherwise indicated, the stockholders listed
in the table have sole voting and investment powers with respect to the shares indicated



|Name and Address of Beneficial Owner                                                                       |  | Shares of Common Stock Beneficially Owned |            |  | Percentage of Class Beneficially Owned(1) | 
|---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ---------- |  | ----------------------------------------- | 
|Chung-Lun Yang (4)  No. 78, 5th Street, Hong Lok Yuen, Tai Po, New Territories, Hong Kong                  |  |                                           | 26,622,000 |  |                                           | 
|Ben Wong (2)  11A, Tower 2, Bellagio, 33 Castle Peak Road, Sham Tseng, New Territories, Hong Kong          |  |                                           | 1,800      |  |                                           | 
|Philip Tsz Fung Lo (3)  30C, Block 2, Hanley Villa, 18 Yau Lai Road, Tsuen Wan, New Territories, Hong Kong |  |                                           | -          |  |                                           | 
|Ho Man Yeung (5) Block 4, 7/F. Unit B, The Grand Panorama, 10 Robinson Road, Central, Hong Kong            |  |                                           | 0          |  |                                           | 
|Wing Sun Leung (5) 5658 Owens Drive, #202, Pleasanton, CA 94588, USA                                       |  |                                           | 0          |  |                                           | 
|Farburn Holdings Limited (6) 1601 Beverly House, 93-107 Lockhart Road, Wanchai, Hong Kong.                 |  |                                           | 3,600,000  |  |                                           | 
|Ho Fun Cheng (6) 1601 Beverly House, 93-107 Lockhart Road, Wanchai, Hong Kong.                             |  |                                           | 3,600,000  |  |                                           | 
|All Directors and Officers as a Group                                                                      |  |                                           | 26,893,800 |  |                                           | 



| | (1) | Applicable
percentage of ownership is based on 39,684,495 shares of Common Stock outstanding as of December 31, 2014, together with securities
exercisable or convertible into shares of Common Stock within 60 days of December 31, 2014, for each stockholder. Beneficial ownership
is determined in accordance with the rules of the United States Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of Common Stock subject to securities exercisable or convertible into shares
of Common Stock that are currently exercisable or exercisable within 60 days of December 31, 2014, are deemed to be beneficially
owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage ownership of any other person. The Common Stock is the only
outstanding class of equity securities of the Company.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Executive Officer
| | --- | -----------------

| | (3) | Former Executive Officer
| | --- | ------------------------

| | (4) | Director Except as otherwise set forth, information on the stock ownership of these persons was
provided to us by such persons.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (5) | Former Director
| | --- | ---------------

| | (6) | The shares are owned directly by Farburn Holdings Limited (“Farburn”) and indirectly
by Ho Fun Cheng (“Mr. Cheng”) through his equity ownership in Farburn. In addition, Mr. Cheng is the sole director
of Farburn, and may be deemed as beneficial owner of these shares. Farburn acquired these shares from the Company pursuant to certain
Amended and Restated Finder and Consulting Agreement dated October 15, 2012.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35







|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------



All related person
transactions are reviewed and, as appropriate, may be approved or ratified by the Board of Directors. Related person transactions
are approved by the Board of Directors only if, based on all of the facts and circumstances, they are in, or not inconsistent with,
our best interests and our stockholders, as the Board of Directors determines in good faith. The Board of Directors takes into
account, among other factors it deems appropriate, whether the transaction is on terms generally available to an unaffiliated third-party
under the same or similar circumstances and the extent of the related person’s interest in the transaction. The Board of
Directors may also impose such conditions as it deems necessary and appropriate on us or the related person in connection with
the transaction.



In the case of a transaction
presented to the Board of Directors for ratification, the Board of Directors may ratify the transaction or determine whether rescission
of the transaction is appropriate.



CERTAIN RELATED PERSON TRANSACTIONS



Related party receivables
are payable on demand upon the same terms as receivables from unrelated parties.



Transactions with Aristo Technologies
Limited / Mr. Yang



This represented Aristo
transactions with various related parties of Mr. Yang. As of December 31, 2014 and 2013, we had an outstanding receivable from
Aristo / Mr. Yang, the President and Chairman of our Board of Directors, totaling $Nil and $931,652, respectively. These advances
bear no interest and are payable on demand.



Transactions with Solution Semiconductor
(China) Limited



Mr. Yang is a director
and the sole beneficial owner of the equity interests of Solution Semiconductor (China) Ltd. (“Solution”).



During the years ended
December 31, 2014 and 2013, we received service charges of $Nil and $15,384 respectively from Solution. The service fee was charged
for back office support for Solution. During the years ended December 31, 2014 and 2013, we sold products for $Nil and $3,530,784
respectively, to Solution. As of December 31, 2014 and 2013, there were no outstanding accounts receivables from Solution



Two facilities located
in Hong Kong owned by Solution were used by the Company as collateral for loans from DBS Bank (Hong Kong) Limited (“DBS Bank”)
and The Bank of East Asia, Limited (“BEA Bank”) respectively.



Transactions with Systematic Information
Limited



Mr. Yang, the Company’s
Chief Executive Officer, majority shareholder and a director, is a director and shareholder of Systematic Information Ltd. (“Systematic
Information”) with a total of 100% interest.



During the years ended
December 31, 2014 and 2013, we received service charges of $Nil and $3,077 respectively from Systematic Information. The service
fee was charged for back office support for Systematic Information. During the years ended December 31, 2014 and 2013, we sold
products for $Nil and $2,000,782 respectively, to Systematic Information. As of December 31, 2014 and 2013, there were no outstanding
accounts receivables from Systematic Information.



A workshop located
in Hong Kong owned by Systematic Information was used by the Company as collateral for loans from BEA Bank.



Transactions with City Royal Limited



Mr. Yang, the Company’s
Chief Executive Officer, majority shareholder and a director, is a 50% shareholder of City Royal Limited (“City”).
The remaining 50% of City is owned by the wife of Mr. Yang. A residential property located in Hong Kong owned by City was used
by the Company as collateral for loans from DBS Bank.



Transactions with Aristo Components
Limited



Mr. Ben Wong, the
Company’s Chief Executive Officer, is a 90% shareholder of Aristo Components Ltd. (“Aristo Comp”). The remaining
10% of Aristo Comp is owned by a non-related party.



During the years ended
December 31, 2014 and 2013, we received a management fee of $Nil and $12,308 respectively from Aristo Comp. The management fee
was charged for back office support for Aristo Comp. During the years ended December 31, 2014 and 2013, we have no purchase from
Aristo Comp. As of December 31, 2014 and December 31, 2013, there were no outstanding accounts payable to Aristo Comp.



36







Transactions with Atlantic Ocean (HK)
Limited



Mr. Yang is a director
and 60% shareholder of Atlantic Ocean (HK) Limited (“Ocean”). During the years ended December 31, 2014 and 2013, we
sold products for $Nil and $13,924 respectively, to Ocean. As of December 31, 2014 and 2013, there were no outstanding accounts
receivables from Ocean.



| | Item 14. | Principal Accounting Fees and
Services
| | -------- | --------------------------------------



The following table
presents fees, including reimbursements for expenses, professional audit services and other services rendered by Albert Wong &
Co. LLP CPA during the years ended December 31, 2014 and 2013. Albert Wong & Co. LLP CPA audited our annual financial statements
for the year ended December 31, 2014 and 2013.



|                       |  | Fiscal 2014 |        |  | Fiscal 2013 |  
|---------------------- |  | ----------- | ------ |  | ----------- | -
|Audit Fees (1)         |  | $           | 30,000 |  |             | $
|Audit Related Fees (2) |  | $           | —      |  |             | $
|Tax Fees (3)           |  | $           | —      |  |             | $
|All Other Fees (4)     |  | $           | —      |  |             | $
|                       |  |             |        |  |             |  
|Total                  |  | $           | 30,000 |  |             | $



| | (1) | Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s
consolidated annual financial statements and review of the interim consolidated financial statements included in quarterly reports
and services that are normally provided by Albert Wong & Co. CPA firms in connection with statutory and regulatory filings
or engagements. Audit Fees billed by Albert Wong & Co. LLP CPA firm includes audited fees for auditing our 2014 annual financial
statements. Audit Fees billed by Albert Wong & Co. CPA firm includes audited fees for auditing our 2013 annual financial statements
and interim reviews for 2013.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Audit-Related Fees consist of fees billed for assurance and related services that are reasonably
related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported
under “Audit Fees.” There were no such fees in fiscal year 2014 or 2013.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Tax Fees consist of fees billed for professional services rendered for tax compliance, tax advice
and tax planning. There were no such fees in fiscal year 2014 or 2013.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | All Other Fees consist of fees for products and services other than the services reported above.
There were no such fees in fiscal year 2014 or 2013.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



37







PART
IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



| | (a) | Documents filed as part of this Report
| | --- | --------------------------------------

| | (1) | The financial statements listed in the Index to Consolidated Financial Statements are filed as
part of this report
| | --- | ------------------------------------------------------------------------------------------------------------------

| | (2) | The financial statements listed in the Index are filed as part of this report.
| | --- | ------------------------------------------------------------------------------

Schedule
II – Valuation and Qualifying Accounts and Reserves. Schedule II on page S-1 is filed as part of this report.

| | (3) | List of Exhibits
| | --- | ----------------

See Index to Exhibits
in paragraph (b) below.



The Exhibits are filed with or incorporated
by reference in this report.



| | (b) | Exhibits required by Item 601 of Regulation S-K.
| | --- | ------------------------------------------------



|Exhibit No. |  | Description                                                                                                                                                                                             
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                         
|31.1        |  | Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|            |  |                                                                                                                                                                                                         
|31.2        |  | Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|            |  |                                                                                                                                                                                                         
|32.1        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                     
|            |  |                                                                                                                                                                                                         
|32.2        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                     



* Filed herewith



| | (c) | Financial statements required by Regulation S-X which are excluded from the annual report to shareholders
by Rule 14a-3(b).
| | --- | ---------------------------------------------------------------------------------------------------------------------------



38







SIGNATURES



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



| | USMART MOBILE DEVICE INC.
| | -------------------------
| |                          
| | By:                      
| |                          
| |                          
| |                          
| | Dated: April 15, 2015    



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



|Signature          |  | Title                                        |  | Date          
|------------------ |  | -------------------------------------------- |  | --------------
|                   |  |                                              |  |               
|/s/ Ben Wong       |  | Chief Executive Officer and Director         |  | April 15, 2015
|Ben Wong           |  | (Principal Executive Officer)                |  |               
|                   |  |                                              |  |               
|/s/ Eddy Wong      |  | Chief Financial Officer                      |  | April 15, 2015
|Eddy Wong          |  | (Principal Financial and Accounting Officer) |  |               
|                   |  |                                              |  |               
|/s/ Chung-Lun Yang |  | Chairman of the Board of Directors           |  | April 15, 2015
|Chung-Lun Yang     |  |                                              |  |               



39







USmart Mobile Device Inc. and Subsidiaries

Consolidated Financial Statements

As of December 31, 2014 and December 31, 2013 and

For the Years Ended December 31, 2014 and 2013

With Report of Independent Registered Public Accounting Firm











Index to Consolidated Financial Statements



|                                                                                           |  | Page
|------------------------------------------------------------------------------------------ |  | ----
|                                                                                           |  |     
|Report of Independent Registered Public Accounting Firm                                    |  | F-2 
|                                                                                           |  |     
|Financial Statements:                                                                      |  |     
|Consolidated Balance Sheets                                                                |  | F-3 
|Consolidated Statements of Income and Comprehensive Income                                 |  | F-5 
|Consolidated Statements of Stockholders’ Equity and Accumulated Other Comprehensive Income |  | F-6 
|Consolidated Statements of Cash Flows                                                      |  | F-7 
|Notes to Consolidated Financial Statements                                                 |  | F-9 
|                                                                                           |  |     
|Schedule II – Valuation and Qualifying Accounts                                            |  | S-1 
|                                                                                           |  |     
|Schedule III – Quarterly Information                                                       |  | S-1 



F-1







Albert Wong & Co. LLP

CERTIFIED PUBLIC ACCOUNTANTS

139 Fulton Street, Suite 818B

New York, NY 10038-2532

Tel : 1-212-226-9088

Fax: 1-212-437-2193





| | To: | The board of directors and stockholders of
USmart Mobile Device Inc. (“the Company”)
| | --- | ------------------------------------------------------------------------------------



Report of Independent Registered Public
Accounting Firm



We have audited the accompanying consolidated
balance sheets of USmart Mobile Device Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements
of income, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audit.



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



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of USmart Mobile Device
Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.





The Company's financial statements are
prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business. These factors as discussed in Note 18 to the financial
statements, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 18. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.





|New York, United States of America | Albert Wong & Co. LLP       
|---------------------------------- | ----------------------------
|April 15, 2015                     | Certified Public Accountants



F-2







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014
AND 2013

(Stated in US Dollars)



CONSOLIDATED BALANCE SHEETS



|                                                                                                  |  | Notes |  | 2014 |         |  | 2013 |  
|------------------------------------------------------------------------------------------------- |  | ----- |  | ---- | ------- |  | ---- | -
|                                                                                                  |  |       |  |      |         |  |      |  
|ASSETS                                                                                            |  |       |  |      |         |  |      |  
|Current assets:                                                                                   |  |       |  |      |         |  |      |  
|Cash and cash equivalents                                                                         |  |       |  | $    | -       |  |      | $
|Restricted cash                                                                                   |  |       |  |      | -       |  |      |  
|Accounts receivable, net of allowance for doubtful accounts of  $0 for 2014 and $555,993 for 2013 |  |       |  |      | -       |  |      |  
|Inventories, net                                                                                  |  | 3     |  |      | -       |  |      |  
|Other current assets                                                                              |  |       |  |      | 128     |  |      |  
|                                                                                                  |  |       |  |      |         |  |      |  
|Total current assets                                                                              |  |       |  | $    | 128     |  |      | $
|                                                                                                  |  |       |  |      |         |  |      |  
|Long-term assets:                                                                                 |  |       |  |      |         |  |      |  
|Property, plant and equipment, net                                                                |  | 4     |  |      | -       |  |      |  
|Other deposits                                                                                    |  |       |  |      | -       |  |      |  
|Amounts due from Aristo / Mr. Yang                                                                |  | 6     |  |      | -       |  |      |  
|                                                                                                  |  |       |  |      |         |  |      |  
|TOTAL ASSETS                                                                                      |  |       |  | $    | 128     |  |      | $
|                                                                                                  |  |       |  |      |         |  |      |  
|LIABILITIES                                                                                       |  |       |  |      |         |  |      |  
|Current liabilities:                                                                              |  |       |  |      |         |  |      |  
|Accounts payable                                                                                  |  |       |  | $    | -       |  |      | $
|Accruals                                                                                          |  |       |  |      | 335,522 |  |      |  
|Lines of credit and loan facilities                                                               |  | 7     |  |      | -       |  |      |  
|Bank loans                                                                                        |  | 8     |  |      | -       |  |      |  
|Current portion of loan from a third party                                                        |  |       |  |      | -       |  |      |  
|Current portion of capital lease                                                                  |  | 5     |  |      | -       |  |      |  
|Income tax payable                                                                                |  |       |  |      | -       |  |      |  
|Due to shareholders for converted pledged collateral                                              |  |       |  |      | 112,533 |  |      |  
|Other current liabilities                                                                         |  |       |  |      | -       |  |      |  
|                                                                                                  |  |       |  |      |         |  |      |  
|Total current liabilities                                                                         |  |       |  | $    | 448,055 |  |      | $



F-3







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014
AND 2013

(Stated in US Dollars)



|                                                                                                                                                       |  | Notes |  | 2014 |            |   | 2013 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----- |  | ---- | ---------- | - | ---- | -
|                                                                                                                                                       |  |       |  |      |            |   |      |  
|Long-term liabilities:                                                                                                                                 |  |       |  |      |            |   |      |  
|Loan from a third party, less current portion                                                                                                          |  |       |  | $    | -          |   |      | $
|Capital lease, less current portion                                                                                                                    |  | 5     |  |      | -          |   |      |  
|Deferred tax liabilities                                                                                                                               |  |       |  |      | -          |   |      |  
|                                                                                                                                                       |  |       |  |      |            |   |      |  
|Total long-term liabilities                                                                                                                            |  |       |  |      | -          |   |      |  
|                                                                                                                                                       |  |       |  |      |            |   |      |  
|TOTAL LIABILITIES                                                                                                                                      |  |       |  | $    | 448,055    |   |      | $
|                                                                                                                                                       |  |       |  |      |            |   |      |  
|NET ASSETS (LIABILITIES)                                                                                                                               |  |       |  | $    | (447,927   | ) |      | $
|                                                                                                                                                       |  |       |  |      |            |   |      |  
|Commitments and contingencies                                                                                                                          |  |       |  | $    | -          |   |      | $
|                                                                                                                                                       |  |       |  |      |            |   |      |  
|STOCKHOLDERS’ EQUITY                                                                                                                                   |  |       |  |      |            |   |      |  
|Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2014
and 2013                                        |  |       |  | $    | -          |   |      | $
|Common stock, $0.001 par value; 50,000,000 shares authorized; 39,684,495
and 39,684,495 shares issued and outstanding as of December 31, 2014 and 2013 |  |       |  |      | 39,685     |   |      |  
|Additional paid in capital                                                                                                                             |  |       |  |      | 4,333,723  |   |      |  
|Exchange reserve                                                                                                                                       |  |       |  |      | (1,776     | ) |      |  
|Retained earnings (deficits)                                                                                                                           |  |       |  | $    | (4,819,559 | ) |      | $
|                                                                                                                                                       |  |       |  |      |            |   |      |  
|                                                                                                                                                       |  |       |  | $    | (447,927   | ) |      | $
|Non-controlling interest                                                                                                                               |  |       |  |      | -          |   |      |  
|                                                                                                                                                       |  |       |  |      |            |   |      |  
|TOTAL STOCKHOLDERS’ EQUITY                                                                                                                             |  |       |  | $    | (447,927   | ) |      | $



See accompanying notes to the consolidated
financial statements



F-4







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014
AND 2013

(Stated in US Dollars)



CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME



|                                                      |  | Notes |  | 2014 |             |   | 2013 |  
|----------------------------------------------------- |  | ----- |  | ---- | ----------- | - | ---- | -
|                                                      |  |       |  |      |             |   |      |  
|Net sales                                             |  |       |  | $    | 1,013,241   |   |      | $
|Costs of sales                                        |  |       |  |      | (1,113,533  | ) |      |  
|                                                      |  |       |  |      |             |   |      |  
|Gross profit (loss)                                   |  |       |  | $    | (100,292    | ) |      | $
|                                                      |  |       |  |      |             |   |      |  
|Operating expenses                                    |  |       |  |      |             |   |      |  
|Sales and marketing expenses                          |  |       |  |      | 118,365     |   |      |  
|General and administrative expenses                   |  |       |  |      | 447,850     |   |      |  
|                                                      |  |       |  |      |             |   |      |  
|Income (loss) from operations                         |  |       |  | $    | (666,507    | ) |      | $
|                                                      |  |       |  |      |             |   |      |  
|Other expenses (income)                               |  |       |  |      |             |   |      |  
|Rental income                                         |  |       |  |      | -           |   |      |  
|Interest expenses                                     |  |       |  |      | -           |   |      |  
|Management and service income                         |  |       |  |      | (44,362     | ) |      |  
|Interest income                                       |  |       |  |      | (7          | ) |      |  
|(Profit) on disposals of fixed assets                 |  |       |  |      | -           |   |      |  
|Loss (Profit) on disposals of assets                  |  |       |  |      | (12,673,201 | ) |      |  
|Exchange differences                                  |  |       |  |      | (4,533      | ) |      |  
|Reverse for provision of doubtful account             |  |       |  |      | -           |   |      |  
|Miscellaneous                                         |  |       |  |      | (4,182      | ) |      |  
|Impairment of goodwill                                |  |       |  |      | -           |   |      |  
|Share result of a jointly-controlled entity           |  |       |  |      | -           |   |      |  
|                                                      |  |       |  |      |             |   |      |  
|Income (loss) before income taxes                     |  |       |  | $    | 12,059,778  |   |      | $
|                                                      |  |       |  |      |             |   |      |  
|Income tax (reversal) provision                       |  | 11    |  |      | -           |   |      |  
|                                                      |  |       |  |      |             |   |      |  
|Net income (loss)                                     |  |       |  | $    | 12,059,778  |   |      | $
|                                                      |  |       |  |      |             |   |      |  
|Attributable to :                                     |  |       |  |      |             |   |      |  
|Non-controlling interest                              |  |       |  |      | -           |   |      |  
|Shareholders of the Company                           |  |       |  |      | 12,059,778  |   |      |  
|                                                      |  |       |  |      |             |   |      |  
|                                                      |  |       |  |      | 12,059,778  |   |      |  
|                                                      |  |       |  |      |             |   |      |  
|Earnings (loss) per share – basic and diluted         |  |       |  | $    | 0.30        |   |      | $
|                                                      |  |       |  |      |             |   |      |  
|Weighted average number of shares – basic and diluted |  | 13    |  |      | 39,684,495  |   |      |  



See accompanying notes to the consolidated
financial statements



F-5







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014
AND 2013

(Stated in US Dollars)



CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY AND

ACCUMULATED OTHER COMPREHENSIVE INCOME



|                           |  | Number of shares |            |  | Amount |   |        | Additional  paid-in  capital |  |   | Reserve   |  |  | Retained  earnings  (accumulated  losses) |        |   | Total | 
|-------------------------- |  | ---------------- | ---------- |  | ------ | - | ------ | ---------------------------- |  | - | --------- |  |  | ----------------------------------------- | ------ | - | ----- | 
|                           |  |                  |            |  |        |   |        |                              |  |   |           |  |  |                                           |        |   |       | 
|Balance, January 1, 2013   |  |                  | 39,474,495 |  |        | $ | 39,475 |                              |  | $ | 4,321,333 |  |  | $                                         | 2,072  |   |       | 
|Issue of capital           |  |                  | 210,000    |  |        |   | 210    |                              |  |   | 12,390    |  |  |                                           | -      |   |       | 
|Exchange reserve           |  |                  | -          |  |        |   | -      |                              |  |   | -         |  |  |                                           | (3,882 | ) |       | 
|Net income (loss)          |  |                  | -          |  |        |   | -      |                              |  |   | -         |  |  |                                           | -      |   |       | 
|                           |  |                  |            |  |        |   |        |                              |  |   |           |  |  |                                           |        |   |       | 
|Balance, December 31, 2013 |  |                  | 39,684,495 |  |        | $ | 39,685 |                              |  | $ | 4,333,723 |  |  | $                                         | (1,810 | ) |       | 
|                           |  |                  |            |  |        |   |        |                              |  |   |           |  |  |                                           |        |   |       | 
|                           |  |                  |            |  |        |   |        |                              |  |   |           |  |  |                                           |        |   |       | 
|Balance, January 1, 2014   |  |                  | 39,684,495 |  |        | $ | 39,685 |                              |  | $ | 4,333,723 |  |  | $                                         | (1,810 | ) |       | 
|Issue of capital           |  |                  | -          |  |        |   | -      |                              |  |   | -         |  |  |                                           | -      |   |       | 
|Exchange reserve           |  |                  | -          |  |        |   | -      |                              |  |   | -         |  |  |                                           | 34     |   |       | 
|Net income (loss)          |  |                  | -          |  |        |   | -      |                              |  |   | -         |  |  |                                           | -      |   |       | 
|                           |  |                  |            |  |        |   |        |                              |  |   |           |  |  |                                           |        |   |       | 
|Balance, December 31, 2014 |  |                  | 39,684,495 |  |        | $ | 39,685 |                              |  | $ | 4,333,723 |  |  | $                                         | (1,776 | ) |       | 



See accompanying notes to the consolidated
financial statements



F-6







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014
AND 2013

(Stated in US Dollars)



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                    |  | Notes |  | 2014 |             |   | 2013 |  
|--------------------------------------------------------------------------------------------------- |  | ----- |  | ---- | ----------- | - | ---- | -
|                                                                                                    |  |       |  |      |             |   |      |  
|Cash flows provided by (used for) operating activities :                                            |  |       |  |      |             |   |      |  
|Net (loss) income                                                                                   |  |       |  | $    | 12,059,778  |   |      | $
|                                                                                                    |  |       |  |      |             |   |      |  
|Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |  |       |  |      |             |   |      |  
|Allowance for doubtful accounts                                                                     |  |       |  |      | -           |   |      |  
|Depreciation and amortization                                                                       |  |       |  |      | -           |   |      |  
|Change in inventory reserve                                                                         |  |       |  |      | -           |   |      |  
|Issuance of common stocks to consultant as:                                                         |  |       |  |      |             |   |      |  
|- professional fee for consultant services                                                          |  |       |  |      | -           |   |      |  
|Gain on disposal of fixed assets                                                                    |  |       |  |      | -           |   |      |  
|Loss on disposal of investments                                                                     |  |       |  |      | -           |   |      |  
|Loss (gain) on investment in a jointly-controlled entity                                            |  |       |  |      | -           |   |      |  
|Loss share by non-controlled party                                                                  |  |       |  |      | -           |   |      |  
|Amortization of goodwill reserve                                                                    |  |       |  |      | -           |   |      |  
|Exchange reserve                                                                                    |  |       |  |      | -           |   |      |  
|                                                                                                    |  |       |  |      |             |   |      |  
|Changes in assets and liabilities:                                                                  |  |       |  |      |             |   |      |  
|(Increase) decrease in assets                                                                       |  |       |  |      |             |   |      |  
|Accounts receivable – other                                                                         |  |       |  |      | 1,358,873   |   |      |  
|Inventories                                                                                         |  |       |  |      | 1,081,511   |   |      |  
|Other current assets                                                                                |  |       |  |      | 91,490      |   |      |  
|Other assets                                                                                        |  |       |  |      | 138,234     |   |      |  
|                                                                                                    |  |       |  |      |             |   |      |  
|Increase (decrease) in liabilities                                                                  |  |       |  |      |             |   |      |  
|Accounts payable – other                                                                            |  |       |  |      | (623,069    | ) |      |  
|Account payable – related parties                                                                   |  |       |  |      | -           |   |      |  
|Accrued expenses                                                                                    |  |       |  |      | (218,709    | ) |      |  
|Income tax payable                                                                                  |  |       |  |      | 171,722     |   |      |  
|Deferred tax                                                                                        |  |       |  |      | -           |   |      |  
|Other current liabilities                                                                           |  |       |  |      | (12,444,000 | ) |      |  
|                                                                                                    |  |       |  |      |             |   |      |  
|Total adjustments                                                                                   |  |       |  | $    | (10,443,948 | ) |      | $
|                                                                                                    |  |       |  |      |             |   |      |  
|Net cash provided by (used for) operating activities                                                |  |       |  | $    | 1,615,830   |   |      | $



See accompanying notes to the consolidated
financial statements



F-7







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014
AND 2013

(Stated in US Dollars)



|                                                        |  | Notes |  | 2014 |             |   | 2013 |  
|------------------------------------------------------- |  | ----- |  | ---- | ----------- | - | ---- | -
|                                                        |  |       |  |      |             |   |      |  
|Cash flows used for investing activities:               |  |       |  |      |             |   |      |  
|Advanced from Aristo / Mr. Yang                         |  |       |  | $    | 148         |   |      | $
|Advanced to Aristo / Mr. Yang                           |  |       |  |      | 931,652     |   |      |  
|(Increase) decrease in restricted cash                  |  |       |  |      | -           |   |      |  
|Cash proceeds from sales of fixed assets                |  |       |  |      | -           |   |      |  
|Cash proceeds from sales of investments                 |  |       |  |      | -           |   |      |  
|Purchase of fixed assets                                |  |       |  |      | -           |   |      |  
|Decrease in minority interest                           |  |       |  |      | 2,593,805   |   |      |  
|Disposal of fixed assets                                |  |       |  |      | 8,212,849   |   |      |  
|                                                        |  |       |  |      |             |   |      |  
|Net cash provided by (used for) investing activities    |  |       |  | $    | 11,738,454  |   |      | $
|                                                        |  |       |  |      |             |   |      |  
|Cash flows provided by (used for) financing activities: |  |       |  |      |             |   |      |  
|Net repayments on lines of credit and notes payable     |  |       |  | $    | (10,229,862 | ) |      | $
|Principal payments to bank                              |  |       |  |      | (3,222,113  | ) |      |  
|Borrowings from bank                                    |  |       |  |      | -           |   |      |  
|Borrowings from non-controlled party                    |  |       |  |      | -           |   |      |  
|Principal payments under capital lease obligation       |  |       |  |      | (133,428    | ) |      |  
|                                                        |  |       |  |      |             |   |      |  
|Net cash provided by (used for) financing activities    |  |       |  | $    | (13,585,403 | ) |      | $
|                                                        |  |       |  |      |             |   |      |  
|Net increase (decrease) in cash and cash equivalents    |  |       |  | $    | (231,119    | ) |      | $
|                                                        |  |       |  |      |             |   |      |  
|Cash and cash equivalents – beginning of year           |  |       |  |      | 231,119     |   |      |  
|                                                        |  |       |  |      |             |   |      |  
|Cash and cash equivalents – end of year                 |  |       |  | $    | -           |   |      | $
|                                                        |  |       |  |      |             |   |      |  
|Supplementary disclosure of cash flow information:      |  |       |  |      |             |   |      |  
|Interest paid                                           |  |       |  | $    | -           |   |      | $
|Income tax paid (reversal)                              |  |       |  | $    | -           |   |      | $



See accompanying notes to the consolidated
financial statements



F-8







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    1. | Organization
    and principal activitY
|----------- | ---------------------------------------



Organization and Basis of Presentation



USmart Mobile Device
Inc. (“USmart”) and its subsidiaries are referred to herein collectively and on a consolidated basis as the “Company”
or “we”, “us” or “our” or similar terminology.



The Company was incorporated
under the laws of the State of Delaware on September 17, 2002 and previously known as ACL Semiconductors Inc. The Company acquired
Atlantic Components Limited, a Hong Kong incorporated company (“Atlantic”) through a reverse-acquisition that was effective
September 30, 2003. On September 28, 2012, the Company acquired Jussey Investments Limited, a company incorporated in British Virgin
Islands (“Jussey”). The subsidiaries were held for disposal since March 31, 2014 and officially disposed on September
30, 2014, the Company disposed all of the equity interest held in ACL International Holdings Limited (“ACL Holdings”).



After the disposal,
the Company is still engaged in the sales and distribution of smartphones, electronic products and components in Hong Kong Special
Administrative Region (“Hong Kong”) and the People’s Republic of China (“China” or the “PRC”).



Business Activity



USmart was incorporated
under the laws of the State of Delaware on September 17, 2002. The Company has been primarily engaged in the business of distribution
of memory products mainly under “Samsung” brand name which principally comprised Dynamic Random Access Memory (“DRAM”),
Graphic Random Access Memory (“Graphic RAM”), and Flash memory components for the Hong Kong Special Administrative
Region (“Hong Kong”) and People’s Republic of China (the “PRC” or “China”) markets formerly
through its indirectly wholly owned subsidiary Atlantic Components Limited (“Atlantic”), a Hong Kong incorporated company,
and ATMD (Hong Kong) Limited (“ATMD”) after April 1, 2012. The Company, through its wholly owned subsidiary ACL International
Holdings Limited (“ACL Holdings”), owns 30% equity interest in ATMD, the joint venture with Tomen Devices Corporation
(“Tomen”). ATMD offers a broad range of industry-leading Samsung semiconductor products, and additional components
from SAMCO (such as wifi and camera modules) and SMD (smartphone panels). Atlantic integrated around 90% of its business relating
to procurement of semiconductors and electronic parts from Samsung to ATMD. Subsequent to the start of the operations of ATMD,
the Company’s sales, the cost of sales and operating expenses are expected to evolve in accordance with the transition of
the Company’s business as described above. Through the acquisition of Jussey Investments Limited (“Jussey”) on
September 28, 2012, the Company has diversified its product portfolio and customer network, obtained design and manufacturing capabilities,
and tapped into the blooming telecommunication industry with access to the 3G baseband licenses. On September 30, 2014, the Company
disposed all of the equity interest held in ACL International Holdings Limited (“ACL Holdings”) to an independent third
party Targa Electronics Company Limited (“Targa”). On completion of the disposal, USmart no longer holds any equity
interest in ACL Holdings, and the Company will maintain sales and distribution operation of smartphones, electronic products and
components in a moderate size and will also seek for acquisition of other business opportunity.



F-9







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2. | Summary of significant accounting policies
|------- | ------------------------------------------



| | (a) | Method of Accounting
| | --- | --------------------



The Company
maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The consolidated
financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally
accepted accounting principles in the United States of America and have been consistently applied in the presentation of consolidated
financial statements.



| | (b) | Principles of consolidation
| | --- | ---------------------------



The consolidated
financial statements are presented in US Dollars and include the accounts of the Company and its subsidiary. All significant inter-company
balances and transactions are eliminated in consolidation.



The Company
owned its subsidiary soon after its inception and continued to own the equity’s interests through December 31, 2014. The
following table depicts the identity of the subsidiary:



|Name of Subsidiary                       |  | Place of Incorporation |  | Attributable Equity Interest % |   |  | Registered Capital |  
|---------------------------------------- |  | ---------------------- |  | ------------------------------ | - |  | ------------------ | -
|ACL International Holdings Limited       |  | Hong Kong              |  |                                | 0 |  |                    | $
|Atlantic Components Limited (1)          |  | Hong Kong              |  |                                | 0 |  |                    | $
|Aristo Technologies Limited (2)          |  | Hong Kong              |  |                                | 0 |  |                    | $
|Dongguan Kezheng Electronics Limited (3) |  | PRC                    |  |                                | 0 |  |                    | $
|eVision Telecom Limited (4)              |  | Hong Kong              |  |                                | 0 |  |                    | $
|Jussey Investments Limited (1)           |  | BVI                    |  |                                | 0 |  |                    | $
|USmart Electronic Products Limited (4)   |  | Hong Kong              |  |                                | 0 |  |                    | $



Note: 	(1) Wholly owned subsidiary
of ACL International Holdings Limited

(2) Deemed variable interest entity

(3) Wholly owned subsidiary of USmart Electronic
Products Limited

(4) Wholly or partially owned by Jussey Investments
Limited



Variable Interests Entities



According to
ASC 810-10-25 which codified FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities —
an interpretation of ARB No. 51 (FIN 46R), an entity that has one or more of the three characteristics set forth therein is considered
a variable interest entity. One of such characteristics is that the equity investment at risk in the relevant entity is not sufficient
to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including
the equity holders.



ASC 810-05-08A
specifies the two characteristics of a controlling financial interest in a variable interest entity (“VIE”): (1) the
power to direct the activities of a VIE that most significantly impact the VIE’s economic performance; and (2) the obligation
to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that
could potentially be significant to the VIE. The Company is the primary beneficiary of Aristo because the Company can direct the
activities of Aristo through the common director and major shareholder. Also, the Company extended substantial accounts receivable
to Aristo and created an obligation to absorb loss if Aristo failed. Moreover, ASC 810-25-42 & 43 provides guidance on related
parties treatment of VIE and specifies the relationship of de-facto agent and principal. This guidance will help to determine whether
the Company will consolidate Aristo.



All the above
mentioned subsidiaries or deem subsidiary were no longer belonged to the Group and were not our subsidiaries and deem subsidiaries
after September 30, 2014.



F-10







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2. | Summary of significant accounting policies(Continued)
|------- | -----------------------------------------------------



| | (b) | Principles of consolidation (Continued)
| | --- | ---------------------------------------



Aristo Technologies
Limited



The Company
sells Samsung memory chips to Aristo and allows long grace periods for Aristo to repay the open accounts receivable. Being the
biggest creditor, the Company does not require Aristo to pledge assets or enter into any agreements to bind Aristo to specific
repayment terms. The Company does not experience any bad debt from Aristo. Hence, the Company does not provide any bad debt provision
derived from Aristo. Although, the Company is not involved in Aristo’s daily operation, it believes that there will not be
significant additional risk derived from the trading relationship and transactions with Aristo.





Aristo
is engaged in the marketing, selling and servicing of computer products and accessories including semiconductors, LCD products,
mass storage devices, consumer electronics, computer peripherals and electronic components for different generations of computer
related products. Aristo carries various brands of products such as Samsung, Hynix, Micron, Elpida, Qimonda, Lexar, Dane-Elec,
Elixir, SanDisk and Winbond.  Aristo 2013 sales were around 7 million; it was only a small distributor that accommodated special
requirements for specific customers.



Aristo
supplies different generations of computer related products. Old generation products will move slowly owing to lower market demand.
According to the management experience and estimation on the actual market situation, old products carrying on hand for ten years
will have no resell value. Therefore, inventories on hand over ten years will be written-off by Aristo immediately.



The Company
sold to Aristo in order to fulfill Aristo’s periodic need for Samsung memory products based on prevailing market prices,
which Aristo, in turn, sells to its customers.  The sales to Aristo for fiscal year 2014 were $Nil. For fiscal year 2013 were
$3,337,735 with account receivable of $4,850,769 as of December 31, 2013. For fiscal year 2012 were $106,031 with account receivable
of $5,323,933 as of December 31, 2012. For fiscal year 2011 were $7,086,379 with accounts receivable of $16,871,739 as of December
31, 2011. For fiscal year 2010 were $7,123,769 with accounts receivable of $14,073,937 as of December 31, 2010.



The Company
purchases from Aristo, from time to time, LCD panels, Samsung memory chips, DRAM, Flash memory, central processing units, external
hard disks, DVD readers and writers that the Company cannot obtain from Samsung directly due to supply limitations.



Acquisition



The Company
uses the acquisition method of accounting for business combinations which requires that the assets acquired and liabilities assumed
be recorded at the date of the acquisition at their respective fair values. Assets acquired and liabilities assumed in a business
combination that arise from contingencies are recognized at fair value if fair value can reasonably be estimated. If the fair value
of an asset acquired or liability assumed that arises from a contingency cannot be determined at the date of acquisition, the asset
or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets
acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The
operating results of acquired business are reflected in the acquirer’s consolidated financial statements and results of operations
after the date of the acquisition.



| | (c) | Jointly-controlled entity
| | --- | -------------------------



A jointly-controlled
entity is a corporate joint venture that is subject to joint control, resulting in none of the participating parties having unilateral
control over the economic activity of the jointly-controlled entity.



The Group’s
investment in a jointly-controlled entity is stated in equity method for the consolidated statement of financial position the Group’s
shares of the equity of a jointly-controlled entity and the consolidated income statement and consolidated reserves, respectively.



F-11







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2. | Summary of significant accounting policies
(Continued)
|------- | ------------------------------------------------------



| | (d) | Use of estimates
| | --- | ----------------



The preparation
of consolidated financial statements that conform with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting periods. Management makes these estimates using the best information available at the time, however,
actual results could differ materially from those estimates.



| | (e) | Economic and political risks
| | --- | ----------------------------



The Company’s
operations are conducted in Hong Kong and China. A large number of customers are located in Southern China. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the political, economic and legal environment in Hong
Kong and China, and by the general state of the economy in Hong Kong and China.



The Company’s
operations and customers in Hong Kong and Southern China are subject to special considerations and significant risks not typically
associated with companies in North America and Western Europe. These include risks associated with, among others, the political,
economic and legal environments, and foreign currency exchange. The Company’s results may be adversely affected by changes
in the political and social conditions in Hong Kong and China, and by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other
things.



| | (f) | Property, plant and equipment
| | --- | -----------------------------



Plant and
equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using
the straight-line method.



Estimated useful lives of the
plant and equipment are as follows:



|Automobiles           | 3 1/3 years             
|--------------------- | ------------------------
|Computers             | 5 years                 
|Leasehold improvement | 5 years                 
|Land and buildings    | By estimated useful life
|Office equipment      | 5 years                 
|Machinery             | 10 years                



The cost and related accumulated
depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement
of income.



| | (g) | Account receivable
| | --- | ------------------



Accounts
receivable is carried at the net invoiced value charged to customer. The Company records an allowance for doubtful accounts to
cover estimated credit losses. Management reviews and adjusts this allowance periodically based on historical experience and its
evaluation of the collectability of outstanding accounts receivable. The Company evaluates the credit risk of its customers utilizing
historical data and estimates of future performance.



F-12







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2. | Summary of significant accounting policies(Continued)
|------- | -----------------------------------------------------



| | (h) | Accounting for the impairment of long-lived assets
| | --- | --------------------------------------------------



The Company
periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization,
when events and circumstances warrant such a review, pursuant to the guidelines established in ASC No. 360 (formerly Statement
of Financial Accounting Standards No. 144). The carrying value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value
is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived
assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.



During
the reporting years, there was no impairment loss.



| | (i) | Cash and cash equivalents
| | --- | -------------------------



The Company
considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The
Company maintains bank accounts in Hong Kong. The Company does not maintain any bank accounts in the United States of America.



| | (j) | Inventories
| | --- | -----------



Inventories
are stated at the lower of cost or market and are comprised of purchased computer technology resale products. Cost is determined
using the first-in, first-out method.



| | (k) | Lease assets
| | --- | ------------



Leases
that substantially transfer all the benefits and risks of ownership of assets to the company are accounted for as capital leases.
At the inception of a capital lease, the asset is recorded together with its long term obligation (excluding interest element)
to reflect the purchase and the financing.



Leases
which do not transfer substantially all the risks and rewards of ownership to the company are classified as operating leases. Payments
made under operating leases are charged to income statement in equal installments over the accounting periods covered by the lease
term. Lease incentives received are recognized in income statement as an integral part of the aggregate net lease payments made.
Contingent rentals are charged to income statement in the accounting period which they are incurred.



(l)	Income
taxes



We are
governed by the Internal Revenue Code of the United States, the Hong Kong Inland Revenue Department and the PRC’s Income
Tax Laws. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets,
including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income of the period that includes the enactment date. Deferred income
tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of
the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics.
Realization of the deferred tax asset is dependent on generating sufficient taxable income in future years. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.



F-13







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2. | Summary of significant accounting policies(Continued)
|------- | -----------------------------------------------------



|(l) | Income taxes (Continued)
|--- | ------------------------



The Company
did not have any interest or penalty recognized in the income statements for the period ended December 31, 2014 and December 31,
2013 or the balance sheet, as of December 31, 2014 and December 31, 2013. The Company did not have uncertainty tax positions or
events leading to uncertainty tax position within the next 12 months. The Company’s 2011, 2012, 2013 and 2014 U.S. federal
income tax returns are subject to U.S. Internal Revenue Service examination and the Company’s 2007/8, 2008/9, 2009/2010,
2010/11, 2011/12, 2012/13, 2013/14 and 2014/15 Hong Kong Company Income Tax filing are subject to Hong Kong Inland Revenue Department
examination. The Company’s 2009, 2010, 2011, 2012, 2013 and 2014 PRC income tax returns are subject to PRC State Administration
of Taxation examination.



| | (m) | Foreign currency translation
| | --- | ----------------------------



The accompanying
consolidated financial statements are presented in United States dollars (USD). The functional currencies of the Company’s
operating business based in Hong Kong and PRC are the Hong Kong Dollar (HKD) and Renminbi (RMB) respectively. The consolidated
financial statements are translated into United States dollars from HKD with a ratio of USD1.00=HKD7.80, a fixed exchange rate
maintained between Hong Kong and United States derived from the Hong Kong Monetary Authority pegging HKD and USD monetary policy.
For our subsidiaries whose functional currency are the RMB, statement of income, balance sheets and cash flows are translated with
a ratio of RMB1.00=HKD1.29 an average exchange rate during the period.



Exchange
gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
All of our revenue transactions are transacted in the functional currencies. We have not entered into any material transactions
that are either originated, or to be settled, in currencies other than the HKD, RMB and USD. Accordingly, transaction gains or
losses have not had, and are not expected to have a material effect on our results of operations.



The RMB
is not freely convertible into any other currencies. In addition, all foreign exchange transactions in the PRC must be conducted
through authorized institutions. Accordingly, management cannot provide any assurance that the RMB underlying the consolidated
financial statement amounts could have been, or could be, converted into HKD or USD at the exchange rates used to translate the
functional currency into the reporting currency.



| | (n) | Revenue recognition
| | --- | -------------------



The Company
derives revenues from resale of computer memory products, providing both ODM (Original Design Manufacturing) and OEM (Original
Equipment Manufacturing) services for various electronic products, such as computer and peripherals, flash storage devices and
home electronic products. The Company recognizes revenue in accordance with the ASC 605 “Revenue Recognition”. Under
ASC 605, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered,
the sales price is determinable, and collectability is reasonably assured. Revenue typically is recognized at time of shipment.
Sales are recorded net of discounts, rebates, and returns, which historically were not material.



| | (o) | Advertising
| | --- | -----------



The Group
expensed all advertising costs as incurred. Advertising expenses included in general and administrative expenses were $Nil and
$1,121 for the years ended December 31, 2014 and 2013, respectively.



| | (p) | Segment reporting
| | --- | -----------------



The Company’s
sales are generated from Hong Kong and the rest of China and substantially all of its assets are located in Hong Kong.



| | (q) | Fair value of financial instruments
| | --- | -----------------------------------



The carrying
amount of the Company’s cash and cash equivalents, accounts receivable, lines of credit, convertible debt, accounts payable,
accrued expenses, and long-term debt approximates their estimated fair values due to the short-term maturities of those financial
instruments.



F-14







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 2. | Summary of significant accounting policies (Continued)
|------- | ------------------------------------------------------



| | (r) | Comprehensive income
| | --- | --------------------



Comprehensive
income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented with the same prominence as other consolidated financial
statements. The Company has no items that represent other comprehensive income and, therefore, has not included a schedule of comprehensive
income in the consolidated financial statements.



| | (s) | Basic and diluted earnings (loss) per share
| | --- | -------------------------------------------



In accordance
with ASC No. 260 (formerly SFAS No. 128), “Earnings Per Share,” the basic earnings (loss) per common share is computed
by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted
earnings (loss) per common share is computed similarly to basic earnings (loss) per common share, except that the denominator is
increased to include the number of additional common shares that would have been outstanding if the potential common shares had
been issued and if the additional common shares were dilutive.



| | (t) | Reclassification
| | --- | ----------------



Certain
amounts in the prior period have been reclassified to conform to the current consolidated financial statement presentation.



| | (u) | Recently issued Accounting Guidance
| | --- | -----------------------------------



The FASB
has issued Accounting Standards Update (ASU) No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing
Arrangements. The guidance addresses the consolidation of lessors in certain common control leasing arrangements and is based
on a consensus reached by the Private Company Council (PCC). Under current U.S. GAAP, a company is required to consolidate an entity
in which it has a controlling financial interest. The assessment of controlling financial interest is performed under either: (a)
a voting interest model; or (b) a variable interest entity model. In a variable interest entity model, the company has a
controlling financial interest when it has: (a) the power to direct the activities that most significantly affect the economic
performance of the entity; and (b) the obligation to absorb losses or the right to receive benefits of the entity that could
be potentially significant to the entity. To determine which model applies, a company preparing financial statements must first
determine whether it has a variable interest in the entity being evaluated for consolidation and whether that entity is a variable
interest entity.



In February
2013, FASB has issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income. This ASU improves the transparency of reporting these reclassifications. Other comprehensive
income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are
later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the
current requirements for reporting net income or other comprehensive income in financial statements. All of the information that
this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP.

-The private
company lessee and the lessor are under common control;

-The private company lessee has
a leasing arrangement with the lessor;

-Substantially all of the activity
between the private company lessee and the lessor is related to the leasing activities (including supporting leasing activities)
between those two companies, and

-If the private company lessee
explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company,
then the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from
the lessor. If elected, the accounting alternative should be applied to all leasing arrangements meeting the above conditions.
The alternative should be applied retrospectively to all periods presented, and is effective for annual periods beginning after
December 15, 2014, and interim periods within annual periods beginning after December 15, 2015.

Early application
is permitted for all financial statements that have not yet been made available for issuance.



F-15







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|Note 2. | Summary of Significant Accounting Policies (Continued)
|------- | ------------------------------------------------------



(u)	Recently issued Accounting Guidance
(Continued)



The FASB
has issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant,
and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments
in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses
sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP.



Under the
new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those
strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal
of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires
expanded disclosures about discontinued operations that will provide financial statement users with more information about the
assets, liabilities, income, and expenses of discontinued operations.



The new
guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that
does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends
in a reporting organization’s results from continuing operations. The amendments in this ASU enhance convergence between
U.S. GAAP and International Financial Reporting Standards (IFRS). Part of the new definition of discontinued operation is based
on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations.
The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. For most
nonpublic organizations, it is effective for annual financial statements with fiscal years beginning on or after December 15, 2014.
Early adoption is permitted.



F-16







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 3. | INVENTORIES
|------- | -----------



Inventories consisted of the following:



|                                                 |  | December 31, 2014 |   |  | December 31, 2013 |  
|------------------------------------------------ |  | ----------------- | - |  | ----------------- | -
|                                                 |  |                   |   |  |                   |  
|Finished goods                                   |  | $                 | - |  |                   | $
|Less allowance for excess and obsolete inventory |  |                   | - |  |                   |  
|                                                 |  |                   |   |  |                   |  
|Inventory, net                                   |  | $                 | - |  |                   | $



The following is a summary of the change in the Company's inventory
valuation allowance:



|                                                     |  | December 31,2014 |   |  | December 31, 2013 |  
|---------------------------------------------------- |  | ---------------- | - |  | ----------------- | -
|                                                     |  |                  |   |  |                   |  
|Inventory valuation allowance, beginning of the year |  | $                | - |  |                   | $
|Obsolete inventory sold                              |  |                  | - |  |                   |  
|                                                     |  |                  |   |  |                   |  
|Inventory valuation allowance, end of year           |  | $                | - |  |                   | $



F-17







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 4. | PROPERTY, PLANT AND EQUIPMENT, NET
|------- | ----------------------------------



Property, plant and equipment, net comprise
the following:



|                               |  | December 31, 2014 |   |  | December 31, 2013 |  
|------------------------------ |  | ----------------- | - |  | ----------------- | -
|                               |  |                   |   |  |                   |  
|At cost                        |  |                   |   |  |                   |  
|Land and buildings             |  | $                 | - |  |                   | $
|Automobiles                    |  |                   | - |  |                   |  
|Office equipment               |  |                   | - |  |                   |  
|Leasehold improvements         |  |                   | - |  |                   |  
|Furniture and fixtures         |  |                   | - |  |                   |  
|Machinery                      |  |                   | - |  |                   |  
|                               |  |                   |   |  |                   |  
|                               |  | $                 | - |  |                   | $
|Less: accumulated depreciation |  |                   | - |  |                   |  
|                               |  |                   |   |  |                   |  
|                               |  | $                 | - |  |                   | $



Depreciation and amortization
expense included in the general and administrative expenses for the years ended December 31, 2014 and 2013 were $Nil and $756,596
respectively.



Automobiles include the following amounts
under capital leases:



|                              |  | December 31, 2014 |   |  | December 31, 2013 |  
|----------------------------- |  | ----------------- | - |  | ----------------- | -
|                              |  |                   |   |  |                   |  
|Cost                          |  | $                 | - |  |                   | $
|Less accumulated depreciation |  |                   | - |  |                   |  
|                              |  |                   |   |  |                   |  
|Total                         |  | $                 | - |  |                   | $



F-18







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 5. | CAPITAL LEASE OBLIGATIONS
|------- | -------------------------



The Company has no more capital lease obligation
after December 31, 2014. Aggregate future obligations under the capital leases in effect as of December 31, 2014 and 2013 are as
follows:



The Company has several
non-cancellable capital leases relating to automobiles:



|                    |  | December 31, 2014 |   |  | December 31, 2013 |  
|------------------- |  | ----------------- | - |  | ----------------- | -
|                    |  |                   |   |  |                   |  
|Current portion     |  | $                 | - |  |                   | $
|Non-current portion |  |                   | - |  |                   |  
|                    |  |                   |   |  |                   |  
|                    |  | $                 | - |  |                   | $



At December 31, 2014 and 2013, the value
of automobiles under capital leases as follows:



|                               |  | December 31, 2014 |   |  | December 31, 2013 |  
|------------------------------ |  | ----------------- | - |  | ----------------- | -
|                               |  |                   |   |  |                   |  
|Cost                           |  | $                 | - |  |                   | $
|Less: accumulated depreciation |  |                   | - |  |                   |  
|                               |  |                   |   |  |                   |  
|                               |  | $                 | - |  |                   | $



At December 31, 2014 and 2013, the Company
had obligations under capital leases repayable as follows:



|                                             |  | December 31, 2014 |   |  | December 31, 2013 |  
|-------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|                                             |  |                   |   |  |                   |  
|Total minimum lease payments                 |  |                   |   |  |                   |  
|-Within one year                             |  | $                 | - |  |                   | $
|- After one year but within 5 years          |  |                   | - |  |                   |  
|                                             |  |                   |   |  |                   |  
|                                             |  | $                 | - |  |                   | $
|Interest expenses relating to future periods |  |                   | - |  |                   |  
|                                             |  |                   |   |  |                   |  
|Present value of the minimum lease payments  |  | $                 | - |  |                   | $



F-19







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 6. | RELATED PARTY TRANSACTIONS
|------- | --------------------------



Related party receivables are payable on
demand upon the same terms as receivables from unrelated parties.



Transactions with Aristo Technologies
Limited / Mr. Yang



This represented Aristo
transactions with various related parties of Mr. Yang. As of December 31, 2014 and 2013, we had an outstanding receivable from
Aristo / Mr. Yang, the President and Chairman of our Board of Directors, totaling $Nil and $931,652, respectively. These advances
bear no interest and are payable on demand.



Transactions with Solution Semiconductor
(China) Limited



Mr. Yang is a director
and the sole beneficial owner of the equity interests of Solution Semiconductor (China) Ltd. (“Solution”).



During the years ended
December 31, 2014 and 2013, we received service charges of $Nil and $15,384 respectively from Solution. The service fee was charged
for back office support for Solution. During the years ended December 31, 2014 and 2013, we sold products for $Nil and $3,530,784
respectively, to Solution. As of December 31, 2014 and 2013, there were no outstanding accounts receivables from Solution



Two facilities located
in Hong Kong owned by Solution were used by the Company as collateral for loans from DBS Bank (Hong Kong) Limited (“DBS Bank”)
and The Bank of East Asia, Limited (“BEA Bank”) respectively.



Transactions with Systematic Information
Limited



Mr. Yang, the Company’s
Chief Executive Officer, majority shareholder and a director, is a director and shareholder of Systematic Information Ltd. (“Systematic
Information”) with a total of 100% interest.



During the years ended
December 31, 2014 and 2013, we received service charges of $Nil and $3,077 respectively from Systematic Information. The service
fee was charged for back office support for Systematic Information. During the years ended December 31, 2014 and 2013, we sold
products for $Nil and $2,000,782 respectively, to Systematic Information. As of December 31, 2014 and 2013, there were no outstanding
accounts receivables from Systematic Information.



A workshop located
in Hong Kong owned by Systematic Information was used by the Company as collateral for loans from BEA Bank.



Transactions with City Royal Limited



Mr. Yang, the Company’s
Chief Executive Officer, majority shareholder and a director, is a 50% shareholder of City Royal Limited (“City”).
The remaining 50% of City is owned by the wife of Mr. Yang. A residential property located in Hong Kong owned by City was used
by the Company as collateral for loans from DBS Bank.



Transactions with Aristo Components
Limited



Mr. Ben Wong, the
Company’s Chief Executive Officer, is a 90% shareholder of Aristo Components Ltd. (“Aristo Comp”). The remaining
10% of Aristo Comp is owned by a non-related party.



During the years ended
December 31, 2014 and 2013, we received a management fee of $Nil and $12,308 respectively from Aristo Comp. The management fee
was charged for back office support for Aristo Comp. During the years ended December 31, 2014 and 2013, we have no purchase from
Aristo Comp. As of December 31, 2014 and December 31, 2013, there were no outstanding accounts payable to Aristo Comp.



Transactions with Atlantic Ocean (HK)
Limited



Mr. Yang is a director
and 60% shareholder of Atlantic Ocean (HK) Limited (“Ocean”). During the years ended December 31, 2014 and 2013, we
sold products for $Nil and $13,924 respectively, to Ocean. As of December 31, 2014 and 2013, there were no outstanding accounts
receivables from Ocean.



F-20







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 7. | REVOLVING LINES OF CREDIT AND LOAN FACILITIES
|------- | ---------------------------------------------



The summary of banking facilities at December
31, 2013 is as follows:





|                                    |  | Granted facilities |           |     | Utilized facilities |   |           | Not Utilized 
Facilities | 
|----------------------------------- |  | ------------------ | --------- | --- | ------------------- | - | --------- | ------------------------ | 
|                                    |  |                    |           |     |                     |   |           |                          | 
|Lines of credit and loan facilities |  |                    |           |     |                     |   |           |                          | 
|Import/Export Loan                  |  |                    | 4,102,564 |     |                     |   | 3,178,580 |                          | 
|                                    |  | $                  |           |     |                     | $ |           |                          | 
|                                    |  |                    |           |     |                     |   |           |                          | 
|Bank Loans                          |  |                    | 3,222,113 | (a) |                     |   | 3,222,113 |                          | 
|Revolving Short Term Loan           |  |                    | 1,538,462 | (a) |                     |   | 1,538,168 |                          | 
|Overdraft                           |  |                    | 64,103    | (b) |                     |   | 61,758    |                          | 
|                                    |  |                    |           |     |                     |   |           |                          | 
|                                    |  | $                  | 8,927,242 |     |                     | $ | 8,000,619 |                          | 



(a) The bank loans are combined from the summary of Note (8),
total bank loans amount to USD7,630,946 with a revolving short term loan of USD1,538,168. The revolving short term loan is placed
under Other Current Liabilities on the balance sheet. It has a facility limit of USD1,538,462, bearing an interest rate of 0.5%
below Hong Kong prime rate per annum.

(b) Including in cash and cash equivalents



As of December 31, 2014, the Company disposed
all the equity interest of ACL Holdings on September 30, 2014 and all the relevant banking facilities were included in the disposal.



F-21







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 8. | BANK LOANS
|------- | ----------



Bank loans were comprised of the following
as of December 31, 2014 and 2013



|                                                                                                                                                                                                                                                                                                                           |  | December 31, 2014 |   |  | December 31, 2013 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|                                                                                                                                                                                                                                                                                                                           |  |                   |   |  |                   |  
|Installment loan provided by BEA Bank having a maturity date in July 28, 2014 and carrying an interest rate of Hong Kong dollar Prime Rate at 5.25% as of December 31, 2013 and 2012 +0.25%, payable in monthly installments of $13,291 including interest through December 2013 without any balloon payment requirements  |  | $                 | - |  |                   | $
|                                                                                                                                                                                                                                                                                                                           |  |                   |   |  |                   |  
|Installment loan provided by BEA Bank having a maturity date in April 18, 2015 and carrying an interest rate of Hong Kong dollar Prime Rate at 5.25% as of December 31, 2013 and 2012 +0.25%, payable in monthly installments of $46,065 including interest through December 2013 without any balloon payment requirements |  |                   | - |  |                   |  
|                                                                                                                                                                                                                                                                                                                           |  |                   |   |  |                   |  
|Installment loan provided by DBS Bank having a maturity date in April 25, 2015 and carrying an interest rate of Hong Kong Prime dollar Rate at 5.25% as of December 31, 2013 and 2012 +0.5%, payable in monthly installments of $55,939 including interest through December 2013 without any balloon payment requirements  |  |                   | - |  |                   |  
|                                                                                                                                                                                                                                                                                                                           |  |                   |   |  |                   |  
|Installment loan having a maturity date in 23 September, 2028 and carrying an interest rate of 2% per annum over one month HIBOR (0.2143% at December 31, 2013) from Fubon Bank payable in monthly installments of $6,283 including interest through December 2013 without any balloon payment requirements                |  |                   | - |  |                   |  
|                                                                                                                                                                                                                                                                                                                           |  |                   |   |  |                   |  
|Term loan having a maturity due in 23 January, 2014 and carrying an interest rate of 3.88429 per annum from Fubon Bank without any balloon payment requirements                                                                                                                                                            |  |                   | - |  |                   |  
|                                                                                                                                                                                                                                                                                                                           |  |                   |   |  |                   |  
|                                                                                                                                                                                                                                                                                                                           |  | $                 | - |  |                   | $



F-22







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 8. | BANK LOANS (CONTINUED)
|------- | ----------------------



An analysis on the repayment of bank loan
as of December 31, 2014 and December 31, 2013 are as follow:



|                                                                                                                                                              |  | December 31, 2014 |   |  | December 31, 2013 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|                                                                                                                                                              |  |                   |   |  |                   |  
|Carrying amount that are repayable on demand or within twelve months from December 31, 2013 containing a repayable on demand clause:                          |  |                   |   |  |                   |  
|Within twelve months                                                                                                                                          |  | $                 | - |  |                   | $
|                                                                                                                                                              |  |                   |   |  |                   |  
|Carrying amount that are not repayable within twelve months from September 30, 2013 containing a repayable on demand clause but shown in current liabilities: |  |                   |   |  |                   |  
|After 1 year, but within 2 years                                                                                                                              |  | $                 | - |  |                   | $
|After 2 years, but within 5 years                                                                                                                             |  |                   | - |  |                   |  
|After 5 years                                                                                                                                                 |  |                   | - |  |                   |  
|                                                                                                                                                              |  |                   |   |  |                   |  
|                                                                                                                                                              |  | $                 | - |  |                   | $
|                                                                                                                                                              |  |                   |   |  |                   |  
|                                                                                                                                                              |  | $                 | - |  |                   | $



With respect to all of the debt and credit
arrangements referred to in this Note 8 and Note 9, the Company pledged its assets to a bank group in Hong Kong comprised of DBS
Bank, BEA Bank and Fubon Bank, as collateral for all current and future borrowings from the bank group by the Company. In addition
to the above pledged collateral, the debt is also secured by:



| | 1. | Collateral for loans from DBS Bank:
| | -- | -----------------------------------

| | (a) | a security interest on a residential property located in Hong Kong owned by City, a related party;
| | --- | --------------------------------------------------------------------------------------------------

| | (b) | a workshop located in Hong Kong owned by Solution, a related party; and
| | --- | -----------------------------------------------------------------------

| | (c) | an unlimited personal guarantee by Mr. Yang
| | --- | -------------------------------------------



| | 2. | Collateral for loans from BEA Bank:
| | -- | -----------------------------------

| | (a) | a workshop located in Hong Kong owned by Systematic Information, a related party;
| | --- | ---------------------------------------------------------------------------------

| | (b) | a workshop located in Hong Kong owned by Solution, a related party; and
| | --- | -----------------------------------------------------------------------

| | (c) | an unlimited personal guarantee by Mr. Yang
| | --- | -------------------------------------------



| | 3. | Collateral for loans from Fubon Bank
| | -- | ------------------------------------

| | (a) | a security interest on two residential properties located in Hong Kong owned by Aristo,
a company wholly owned by Mr. Yang; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (b) | an unlimited personal guarantee by Mr. Yang
| | --- | -------------------------------------------



| | 4. | As of December 31, 2014, the Company disposed all the equity interest of ACL Holdings
on September 30, 2014 and all the relevant banking facilities were included in the disposal.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE 9. | other current liabilities
|------- | -------------------------



The other current liabilities consisted
the following as of December 31, 2014 and December 31, 2013:



|                             |  | December 31, 2014 |   |  | December 31, 2013 |  
|---------------------------- |  | ----------------- | - |  | ----------------- | -
|                             |  |                   |   |  |                   |  
|Revolving short term loan    |  | $                 | - |  |                   | $
|Trade deposit from customers |  |                   | - |  |                   |  
|Temporary receipts           |  |                   | - |  |                   |  
|Others                       |  |                   | - |  |                   |  
|                             |  |                   |   |  |                   |  
|                             |  | $                 | - |  |                   | $



The trade deposit from customers consists
of letter of credits received from our customers which were financed by the bank and deposit received from customers for future
orders.



F-23







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 10. | LOAN FROM A THIRD PARTY
|-------- | -----------------------



On September 26, 2013, Atlantic Components Limited
entered into a Loan Agreement with Excel Precise International Limited, an unrelated third party, for a loan facility to the
aggregate extent of HKD55 Million (USD7,051,282). The amount HKD55 Million has been drawn down on September 27, 2013. The
rate of interest is 1.1% per month and payable on the 26th day of each calendar month. The Loan is collateral with
mortgage over two Properties owned by Atlantic Components Limited and Personal Guaranteed by Wong, Fung Ming and Yang, Chung
Lun.



The repayment time schedule contained in the Loan Agreement
as at December 31, 2013 as follows:



|Date of Repayment                                            |  | Amount |          
|------------------------------------------------------------ |  | ------ | ---------
|                                                             |  |        |          
|The Last date of the 12-month period from September 27, 2013 |  |        | 641,026  
|The Last date of the 24-month period from September 27, 2013 |  |        | 1,282,051
|The Last date of the 36-month period from September 27, 2013 |  |        | 5,128,205
|                                                             |  |        |          
|                                                             |  |        | 7,051,282
|                                                             |  |        |          
|                                                             |  |        |          
|Current portion                                              |  |        | 641,026  
|Non-current portion                                          |  |        | 6,410,256
|                                                             |  |        |          
|                                                             |  |        | 7,051,282



The Loan facility is to provide purpose
temporary relief for the Company’s liquidity during the negotiation with new banker for a better term on a new banking facility.



As of December 31, 2014, the Company disposed
all the equity interest of ACL Holdings on September 30, 2014 and all the loans from third parties were included in the disposal.



F-24







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 11. | Income taxes
|-------- | ------------



Income tax (reversal) expense amounted
to $Nil for 2014 and $21,887 for 2013. A reconciliation of the provision for income taxes with amounts determined by applying the
statutory federal income tax rate of 34% to income before income taxes is as follows:



|                                                                  |  | December 31, 2014 |   |  | December 31, 2013 |  
|----------------------------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|                                                                  |  |                   |   |  |                   |  
|Computed tax at federal statutory rate                            |  | $                 | - |  |                   | $
|Tax rate differential on foreign earnings of Atlantic and Aristo, |  |                   |   |  |                   |  
|Hong Kong based companies                                         |  |                   | - |  |                   |  
|Federal tax penalty provision                                     |  |                   | - |  |                   |  
|Tax (over) under provision for Atlantic                           |  |                   | - |  |                   |  
|Tax paid by Kezheng                                               |  |                   | - |  |                   |  
|Net operating loss carry forward                                  |  |                   | - |  |                   |  
|                                                                  |  |                   |   |  |                   |  
|                                                                  |  | $                 | - |  |                   | $



The income tax provision consists of the following components:



|        |  | December 31, 2014 |   |  | December 31, 2013 |  
|------- |  | ----------------- | - |  | ----------------- | -
|        |  |                   |   |  |                   |  
|Federal |  | $                 | - |  |                   | $
|Foreign |  |                   | - |  |                   |  
|        |  |                   |   |  |                   |  
|        |  | $                 | - |  |                   | $



The Components of the deferred tax assets and liabilities are
as follows:



|                          |  | December 31, 2014 |          |   | December 31, 2013 |  
|------------------------- |  | ----------------- | -------- | - | ----------------- | -
|                          |  |                   |          |   |                   |  
|Net operating losses      |  | $                 | 666,507  |   |                   | $
|                          |  |                   |          |   |                   |  
|Total deferred tax assets |  | $                 | 666,507  |   |                   | $
|Less: valuation allowance |  |                   | (666,507 | ) |                   |  
|                          |  |                   |          |   |                   |  
|                          |  | $                 | -        |   |                   | $



The Company did not
have any interest and penalty not to recognize- in the income statements for the year ended December 31, 2014 and 2013 or balance
sheet as of December 31, 2014 and 2013. The Company did not have uncertainty tax positions or events leading to uncertainty tax
position within the next 12 months. The Company’s 2011, 2012, 2013, and 2014 U.S. Corporation Income Tax Return are subject
to U.S. Internal Revenue Service examination and the Company’s 2007/8, 2008/9, 2009/2010, 2010/11, 2011/12 2012/13, 2013/14
and 2014/15 Hong Kong Corporations Profits Tax Return filing are subject to Hong Kong Inland Revenue Department examination. The
Company’s 2009, 2010, 2011, 2012, 2013 and 2014 PRC income tax returns are subject to PRC State Administration of Taxation
examination.



F-25







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 12. | CASH FLOW INFORMATION
|-------- | ---------------------



Cash paid during the years ended December
31, 2014 and 2013 is as follows:



|                             |  | December 31, 2014 |   |  | December 31, 2013 |  
|---------------------------- |  | ----------------- | - |  | ----------------- | -
|                             |  |                   |   |  |                   |  
|Interest paid                |  | $                 | - |  |                   | $
|                             |  |                   |   |  |                   |  
|Income taxes (reversal) paid |  | $                 | - |  |                   | $



|NOTE 13. | WEIGHTED AVERAGE NUMBER OF SHARES
|-------- | ---------------------------------



The Company has a
2006 Incentive Equity Stock Plan, under which the Company may grant options to its employees for up to 5 million shares of common
stock. There was no dilutive effect to the weighted average number of shares for the years ended December 31, 2014 and 2013 since
there were no outstanding options at December 31, 2014 and 2013.



|NOTE 14. | RETIREMENT PLAN
|-------- | ---------------



Under the Mandatory
Provident Fund (“MPF”) Scheme Ordinance in Hong Kong, the Company is required to set up or participate in an MPF scheme
to which both the Company and employees must make continuous contributions throughout their employment based on 5% of the employees’
earnings, subject to maximum and minimum level of income. For those earning less than the minimum level of income, they are not
required to contribute but may elect to do so. However, regardless of the employees’ election, their employers must contribute
5% of the employees’ income. Contributions in excess of the maximum level of income are voluntary. All contributions to the
MPF scheme are fully and immediately vested with the employees’ accounts. The contributions must be invested and accumulated
until the employees’ retirement. The Company contributed and expensed $Nil for 2014 and $32,872 for 2013.



F-26







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 15. | COMMITMENTS
|-------- | -----------



The Company leases
its facilities. The following is a schedule by years of future minimum rental payments required under operating leases that have
non-cancellable lease terms in excess of one year as of December 31, 2013:



|                         |  | Related parties |   |  | Others |   |           | Total | 
|------------------------ |  | --------------- | - |  | ------ | - | --------- | ----- | 
|                         |  |                 |   |  |        |   |           |       | 
|Year ending December 31, |  |                 |   |  |        |   |           |       | 
|2014                     |  | $               | - |  |        | $ | 376,760   |       | 
|2015                     |  |                 | - |  |        |   | 177,033   |       | 
|Thereafter               |  |                 | - |  |        |   | 525,100   |       | 
|                         |  |                 |   |  |        |   |           |       | 
|Total                    |  | $               | - |  |        | $ | 1,078,893 |       | 



See Note 6 of the
Notes to Consolidated Financial Statements for related party leases. All leases expire prior to December 31, 2018. Real estate
taxes, insurance, and maintenance expenses are obligations of the Company. It is expected that in the normal course of business,
leases that expire will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease
commitments will likely be more than the amounts shown for 2013. Rent expense for the years ended December 31, 2013 totaled $475,571.



As of December 31,
2014, the Company disposed all the equity interest of ACL Holdings on September 30, 2014 and leases were included in the disposal.



|NOTE 16. | ACQUISITION
|-------- | -----------



On September 28, 2012, the Company completed
its acquisition of 100% equity interest of Jussey Investments Limited (“Jussey”), a company incorporated in British
Virgin Islands, for aggregate purchase consideration of approximately US$2,150,000, payable by way of cash or equivalent in favor
to the seller within 5 business days after the completion of the acquisition. Jussey owns 100% equity interest in eVision Telecom
Limited (“eVision”), a Hong Kong incorporated company, and 80% equity interest in USmart Electronic Products Limited
(“UEP”), a Hong Kong incorporated company. Jussey indirectly owns 80% of Dongguan Kezheng Electronics Limited (“Kezheng”),
a wholly foreign-owned enterprise (“WFOE”) organized under the laws of the PRC by UEP.



Through the acquisition, the Company has
diversified its product portfolio, enhanced its distributor role to a Research and Develop (“R&D”) manufacturer
with its own products and brands, entered the telecommunication industry, gained access to the 3G baseband licenses, and design
and manufacturing matrix and facility.



The Company accounted for this acquisition
of Jussey and its subsidiaries by acquisition method of accounting. The balance sheet items were stated at fair value. The fair
value was accounted upon the issuance of fair value report from an independent valuator engaged for this acquisition.



F-27







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 17. | SUBSEQUENT EVENTS
|-------- | -----------------



In preparing these
financial statements, the Company evaluated the events and transactions that occurred from January 1, 2015 through April 15, 2015,
the date these financial statements were issued. The Company has intention and decided to consider acquisition of potential business
in other segment to broaden and strengthen the Company profitability. Final conclusion and arrangement will be finalized and to
be completed by the first quarter of the year 2015. Despite mentioned the Company determined that there were no material subsequent
events



|NOTE 18. | UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN
|-------- | -----------------------------------------------------



The Company's financial
statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of business. The continuation of the Company as a going
concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment
of profitable operations. The management will seek to raise funds from shareholders.



For the year ended
December 31, 2014, the Company has generated revenue of $1,013,241 and has incurred an accumulated deficit $4,819,559. These financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern. These factors noted above raise
substantial doubts regarding the Company's ability to continue as a going concern.



F-28







USMART MOBILE DEVICE INC. AND SUBSIDIARIES



SCHEDULE II



VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES



We are a smaller reporting
company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.



SCHEDULE III



QUARTERLY INFORMATION (UNAUDITED)



We are a smaller reporting
company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.



S-1