China Household Follow-Up 20171006 EN

We will usually closely monitor the companies which we have issued initial coverage on.
During
these few months, we have continued our investigation on China Household through extensive
methods, and the major findings can be summarized by below chart:
Exhibit 1: Relationship Charts of China Household
Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Part 1. The Network of China Household: The Customer Side
From the above chart, you may find many interesting relationships between China Household and
its customers and suppliers. For instance, China Households former network administrator is the
controlling shareholder of the largest supplier of China Household, and the largest customer of
China Household share the same address with China Household. Some of the brokerage account
holders mentioned in our initial coverage also appear on the above chart. Since the relationship
of China Household and its related parties are too complicated, we have omitted certain
connections in above chart but we will cover them in details in the following. Following we will
present concrete evidences to prove the above relationships. The full sets of documents contained
in this report will be submitted to HKEx and SFC separately.
Although China Household has never disclosed the names of its major customers and suppliers,
we also managed to obtain the full list of its customers and suppliers. The auditor of China
Household can verify and confirm the accuracy of the below list.
Exhibit 2: Top 5 Customers of China Household from 2013 to 2016
2016 Top 5 Customers

Name Sales Amount (RMB 000) % of Revenue
Zhongshan New Oasis Wood Co. 48,106.71 6.4%
Foshan Yuxinglong Trading Co. 25,913.26 3.5%
Foshan Nanhai Jingtu Trading Co. 23,607.92 3.2%
Susfor-Oasis Timber (Zhongshan) Co. 22,952.46 3.1%
Foshan Chuanghongli Trading Co. 22,618.38 3.0%
Top 5 Customers 143,198.72 19.2%

Zhongshan Oasis Construction Material Co. 69,522.58 7.5%
Zhongshan Shengshi Huaxia Household Co. 61,686.31 6.7%
Foshan Nanhai Jingtu Trading Co. 59,483.24 6.4%
Top 5 Customers 314,833.04 34.0%

Foshan Yuxinglong Trading Co. 54,440.99 4.3%
Top 5 Customers 481,113.99 38.0%

Zhuhai Huapin Timber Co. 60,376.03 8.3%
Zhuhai Huahong Timber Co. 59,216.08 8.1%
Top 5 Customers 540,685.87 73.9%
Source: Internal Documents of China Household
Note: Please refer to Chinese version of this report for exact name of the companies
Except for the year of 2015, the shares of revenue from the largest customer and the five largest
customers are consistent with the disclosure of annual reports. For the year of 2015, according to
our calculation, the shares of revenue from top 5 customers in 2015 should be 34% instead of
22% as shown in 2015 annual report. For example, according to the internal documents of China
Household, Zhongshan City Wei Xin Household Company Limited, a subsidiary of China
Household, should have generated RMB 69,522,582.33 revenue from Zhongshan Oasis
Construction Material Co. We would like to ask the auditor to double-check the figures of shares
from top customers stated in 2015 annual report.
Exhibit 3: 2015 Top 10 Customers of a Subsidiary of China Household
Sales Amount (RMB)
Zhongshan Oasis
Construction Material Co
Most of the customers listed above are highly suspicious and tightly connected with China
Household. Following we will discuss some of the most outrageous examples.

(A) Zhongshan New Oasis Wood Co. (New Oasis)
New Oasis is the largest customer of China Household from 2014 to 2016, and the second largest
customer of China Household in 2013. Firstly, as stated in our first report, New Oasis actually share
the same office with China Household in Banfu:
Exhibit 4: Photo of Prado stores flank in Banfu (Extracted from our initial coverage)
New Oasis Floor Tiles Market
Source: Physical Inspection
The registered address of New Oasis is also 1/F, office building near the tollgate in Shenwan,
Banfu, Zhongshan City, Guangdong Province, which is same as China Households PRC address.
Therefore, we can see that the largest customer of China Household shares the same address with
China Household.
Moreover, according to SAIC filings, New Oasis was incorporated on 2007 July 26, and was
founded by Li Zhixiong (Mr. Li, the effective controller of China Household). It was 30% owned
by Mr. Li and 70% owned by his wife Wu Guanwen at that time. Mr. Kuang Yuanwei (Mr. Kuang,
executive director of China Household) has once owned 70% of shares of New Oasis and was the
legal representative and executive director of New Oasis before 2013 April. As a result, the sales
to New Oasis was classified as continuing connected transaction in 2013 and 2014.
On 2013 April 19, the shares of New Oasis were transferred from Mr. Kuang to Li Xianhua, and
therefore New Oasis ceased to be connected party. You may notice that the sales generated from
New Oasis as disclosed in Note 39 of Accountant Report in 2014 Annual Report is only HKD 78,229
thousand, much less than RMB 166,162 thousand as shown above. The difference is due to the
fact that the auditor only counted the transaction with New Oasis to be connected transaction up
to 2014 April 19.
After the sales of share in 2013 April, New Oasis was 70% owned by Li Xianhua and 30% owned
by Xie Yusheng. You may guess that these two people are merely nominal holder of New Oasis
but not the effective controller, and the change in shareholder is to merely circumvent the

definition of connected transaction. This is a correct guess and we will provide proof that Li
Xianhua and Xie Yusheng are by no ways independent third party.
Firstly, note that both Li Xianhua and Xie Yusheng are the subscribers of the convertible bonds of
China Household announced on 2016 Mar 4 and 2015 August 6 respectively.
Secondly, from the purchase procedure policy of China Household, we found the appearance of
Li Xianhua as a project manager in purchase department:
Exhibit 5: Purchase Policy of China Household
Purchase Department Project Manager (Li Xianhua) should

confirm and sign on the request form
purchase manager (Li Zhijie)
We also found Li Xianhua to be able to claim his travel expense in the book of a subsidiary of
China Household, Zhongshan City Kassade Wood Production Limited (Kassade):

Exhibit 6: Expense Details of Kassade in 2015
Li Xianhuas Travel Expense
The evidences above show that Li Xianhua is actually just a procurement manager of Kassade. However, when we looked at the payroll
records of Kassade in 2016, we cannot find his name on the list. So it seems that Li Xianhua has resigned already. But how can a former
procurement manager mange to suddenly become the controlling shareholder of the largest customer of China Household? Such a
miracle.
For Xie Yusheng, note that he is one of the brokerage account holder as shown in our initial coverage. He is also able to claim his
electricity fees, rental fees and entertainment expense in the book of Zhongshan City Prado Style Household Company Limited (Prado),
a subsidiary of China Household:
Exhibit 7: Expense Details of Prado in 2015 and 2014
Entertainment expense claimed by Xie Yusheng

Xie Yushengs rental expense
Xie Yushengs electricity fees

Note that Xie Yusheng is also the supervisor and former shareholder of Shenzhen Dongli Supply
Chain Management Co., one of the top three suppliers of China Household from 2013 to 2016.
We have further checked the payroll record of Prado from 2013 to 2016 but cannot find the name
of Xie Yusheng on the list. But the question still exists. Why can the shareholder of the largest
customer and also an independent third party, borrow his brokerage account to Mr. Li, and can
claim his rental expense and electricity fee in China Household?
When our investigators went to China Households office in Banfu, the employees there called
themselves the employees of New Oasis instead and called Mr. Li as their boss (though they
mentioned that Mr. Li seldom appears at office and is always busy in trading stock). We have no
doubt that Mr. Li is the effective controller of New Oasis. The sole objective of the share transfer
in 2013 April is to circumvent the definition of connected parties. We highly doubt if the
transaction between New Oasis and China Household has any commercial substances at all.
(B) Zhongshan Oasis Construction Material Co. (Oasis Construction Material)
Oasis Construction Material is another company tightly connected with China Household. It is
among the top 5 customers of China Household from 2013 to 2015. Although its registered
address in SAIC record is not the same as China Households one, its operating address is actually
the same as China Household and New Oasis. Many online catalog websites show that Oasis
Construction Materials business address is 105 Road, Shenwan, Banfu, Zhongshan City (which is
the same as the office building near tollgate):

Exhibit 8: Oasis Construction Materials details on online catalog website
Company Address: 105 Road, Shenwan, Banfu,

Zhongshan City
Contact: Li Zhixiong
Source: http://563472.23ape.org, retrieved on 2017 Aug 20
Besides sharing the same address, the contact of Oasis Construction Material is shown to be Mr.
Li. Also note that Oasis Construction Material and New Oasis share a very similar name. Indeed,
Oasis Construction Material even mistakenly wrote New Oasis and an individual called Liu Shifu
to be its shareholder (It should be 98% owned by an individual called Zhang Yaxing instead as
shown by current SAIC records) in 2016 SAIC filing:
Exhibit 9: 2016 SAIC Filings of Oasis Construction Material
Liu Shifu
New Oasis
Source: National Enterprise Credit Information Publicity System
Zhang Yaxing, who owns 98% shares of Oasis Construction Material, is the vendor of a land in
Zhongshan to China Household announced on 2014 April 2 (albeit failed in the end), and also is
the legal representative and executive director of Zhongshan Jindao Trading Co., the largest

supplier of China Household from 2013 to 2016. It is beyond doubt that this company is tightly
connected to New Oasis and Li Zhixiong.
To further verify the sales to Oasis Construction Material, we have retrieved its SAIC & tax filings
and compare it with the revenue of China Household from Oasis Construction Material.
Exhibit 10: SAIC & tax filings of Oasis Construction Material and relevant calculation
2015 2014 2013
Revenue filed (RMB '000) (A) 45,891.32 37,170.82 35,367.16
Net Profit filed (RMB '000) 250.57 54.70 287.14
Total Tax Paid filed (RMB '000) 83.52 374.31 262.18
Net Asset filed (RMB '000) 740.19 494.09 457.04
Number of Employee filed 4 4 4
Revenue of China Household from Oasis

69,522.58 44,598.02 82,768.71
Construction Material (RMB '000) (B)
(B) / (A) 151.5% 120.0% 234.0%
Source: SAIC & tax filings of Oasis Construction Material
We can see many irregularities from above table. Firstly, the total number of employees filed in
SAIC & tax filings of Oasis Construction Material is merely four. Secondly, China Households
revenue from Oasis Construction Material is always larger than the revenue of Oasis Construction
Material. How could a company make over RMB 80 mn purchase while its own revenue is merely
RMB 35 mn?
SAIC records further showed that the paid-up capital of Oasis Construction Material is merely RMB
100,000. We believe that the transaction between China Household and Oasis Construction
Material is highly irregular.
(C) Zhongshan Shengshi Huaxia Household Co. (Shengshi Huaxia)
SFC mentioned that they have spotted certain irregularities in 2013 financial data of China
Household. Indeed, the largest customer of China Household in 2013 is highly irregular. Let take
a look at Shengshi Huaxia, the largest customer of China Household in 2013, and also the third
largest customer of China Household in 2014 and 2015.
Shengshi Huaxia is 80% owned by Cheng Wenling and 20% owned by Liu Shifu (the same
individual as shown on Exhibit 9). Who is Cheng Wenling? She is one of the brokerage account
holders as shown in our initial coverage. But most importantly, she is the relationship manager of
Prado:

Exhibit 11: Payroll Record of Prado in 2013
Cheng Wenling, Relationship Manager
Source: Internal Document of China Household
For privacy concern, we have masked the salary amount here. The full payroll record will be
submitted to HKEx and SFC separately.
How could a relationship manager be the shareholder of the largest customer simultaneously?
Moreover, the legal representative and executive director of Shengshi Huaxia, Li Zhijie, was also a
purchase manager of China Household as shown in Exhibit 5.
To further verify the sales to Shengshi Huaxia, we have retrieved its SAIC & tax filings and compare
it with the revenue of China Household from Shengshi Huaxia.

Exhibit 12: SAIC & tax filings of Shengshi Huaxia and relevant calculation
2015 2014 2013
Net Profit filed (RMB '000) -1,156.11 -237.56 768.81
Total Tax Paid filed (RMB '000) 283.73 912.67 1,634.36
Net Asset filed (RMB '000) -177.58 992.85 1,299.04
Revenue of China Household from

61,686.31 96,776.69 216,180.09
Shengshi Huaxia (RMB '000) (B)
(B) / (A) 137.9% 97.7% 220.8%
Source: SAIC & tax filings of Shengshi Huaxia
Again, Shengshi Huaxia only has a few employees. Its revenue in 2013 filed in SAIC & tax filing is
merely RMB 97.92 mn but China Household managed to generate a revenue of RMB 216.18 mn
from Shengshi Huaxia. Shengshi Huaxia contributed to nearly 30% of revenue of China Household
in 2013, and we do not think that the transaction between China Household and Shengsha Huaxia
to have any commercial substances at all.
There are many other irregularities in China Households customers but we will not go into details.
Examples include:
- Overlapping shareholder: Foshan Chuanghongli Trading Co. and Foshan Yuxinglong Trading Co.
- Overlapping address: Foshan Chuanghongli Trading Co., Foshan Chuanghongxing Trading Co.
(6th largest customer in 2016), Foshan Pinmao Trading Co. (10th largest customer in 2016)
Below are the number of employees filed in the 2013-2015 SAIC & tax filings of China Households
top five customers:
Exhibit 13: Number of employees filed in the 2013-2015 SAIC & tax filings of top five customers
2015 2014 2013
Zhongshan New Oasis Wood Co. 11 19 19
Foshan Yuxinglong Trading Co. 2 5 5
Foshan Nanhai Jingtu Trading Co. 4 4 4
Susfor-Oasis Timber (Zhongshan) Co. 23 23 210
Foshan Chuanghongli Trading Co. 5 8 10
Zhongshan Oasis Construction Material Co. 4 4 4
Zhongshan Shengshi Huaxia Household Co. 4 3 3
Zhuhai Huapin Timber Co. 1 1 8
Zhuhai Huahong Timber Co. 455 380 455
Source: SAIC & tax filings of respective companies
We believe the above table is more than sufficient to demonstrate the authenticity of China
Households top customers.

Part 2. The Network of China Household: The Supplier Side
Following we will investigate the supplier network of China Household. The top 5 suppliers of
China Household from 2013 to 2016 are as follows:
Exhibit 14: Top 5 Suppliers of China Household from 2013 to 2016
2016 Top 5 Suppliers

Name Purchase Amount (RMB '000)
Zhongshan Jindao Trading Co. 64,923.54
Shenzhen Dongli Supply Chain Management Co. 39,968.94
Xiamen Boyiju Decoration Engineering Co. 33,226.58
Huazhou Jianhao Timber Co. 32,156.29
Zhongshan Xili Decoration Engineering Co. 25,038.12
Top 5 Suppliers 195,313.47

Susfor-Oasis Timber (Zhongshan) Co. 55,776.03
Huazhou Jianhao Timber Co. 36,974.53
Jiangsu Kenuanreneng Technology Co. 20,460.98

Susfor-Oasis Timber (Zhongshan) Co. 106,669.90
Zhanjiang Henghui Import and Export Trading Co. 26,624.20
Huazhou Kangxin Timber Co. 21,326.44

Shanghai Rongshengchang Timber Co. 36,314.52
Shanghai Tongsheng Timber Co. 32,770.01
Guangzhou Shunsheng Timber Co. 30,960.36
Note: Please refer to Chinese version of this report for exact name of the companies

Again, auditor can verify and confirm the accuracy of above list. We will select a few outrageous
examples to discuss and leave the rest for investigator to further investigate.
(A) Zhongshan Jindao Trading Co. (Jindao Trading)
Jindao Trading is perhaps the most ridiculous supplier of China Household. It is the largest supplier
of China Household from 2013 to 2016. Its largest shareholder is a former network administrator
of Prado and only has 4 employees. Its revenue in SAIC & tax filing almost exactly equals to the
purchase amount of China Household from Jindao Trading, making China Household its only
customer from 2014 to 2015.
From SAIC records, Jindao Trading is 60% owned by Li Xiaoguan and 40% owned by Xie Yunyong.
Who is Li Xiaoguan? Aside from being the supervisor of other two suppliers (Zhongshan Jindao
Timber Product Co. and Susfor-Oasis Timber (Zhongshan) Co.), he was a network administrator of
Prado back in 2013:
Li Xiaoguan, Network Administrator

For privacy concern, we have masked the salary amount here. As shown from above, he joined
Prado on 2012 February 17. His salary is very modest and it completely defies common sense that
a network administrator can become the largest supplier of a listed company.
Also, as mentioned above, Zhang Yaxing, the individual with numerous connection with China
Household, is also the legal representative and executive director of Jindao Trading.
We have also retrieved the SAIC & tax filings of Jindao Trading:
Exhibit 16: SAIC & tax filings of Jindao Trading and relevant calculation
2016 2015 2014
Net Profit filed (RMB '000) 150.00 278.64 378.52
Total Tax Paid filed (RMB '000) 260.00 612.00 1,688.74
Net Asset filed (RMB '000) 5,090.00 5,277.43 4,699.99
Purchase of China Household from

64,923.54 190,761.22 295,537.85
Jindao Trading (RMB '000) (B)
(B) / (A) 111.8% 100.0% 96.4%
Source: SAIC & tax filings of Jindao Trading
We can observe that almost all of Jindao Tradings revenue comes from China Household and it
only has two to four employees in total. The paid-up capital of Jindao Trading is merely RMB 5
mn, a minimal amount considering the fact that it is the largest supplier of a listed company. We
are also unable to understand how can China Household purchase RMB 64.92 mn of products
from Jindao Trading while Jindao Tradings revenue was only RMB 58.06 mn in 2016.
(B) Shenzhen Dongli Supply Chain Management Co. (Dongli Supply Chain)
Dongli Supply Chain is another outrageous example. We have already mentioned it in our initial
coverage. Hong Yuan, one of the brokerage account holder, fully owned Dongli Supply Chain till
2017 August (after our mentioning in initial coverage). Xie Yusheng, who has been covered in
details in Part 1, is the supervisor of Dongli Supply Chain. Dongli Supply Chain is among the top
three suppliers of China Household from 2013 to 2016. Let have a look at its SAIC & tax filings:

Exhibit 17: SAIC & tax filings of Dongli Supply Chain and relevant calculation
2016 2015 2014
Revenue filed (RMB '000) (A) 715.90 8,135.10 4,743.70
Net Profit filed (RMB '000) -230.30 -42.30 -122.20
Total Tax Paid filed (RMB '000) 22.70 82.40 6.60
Net Asset filed (RMB '000) 18,650.90 18,881.20 18,923.50
Purchase of China Household from

39,968.94 41,227.96 38,444.85
Dongli Supply Chain (RMB '000) (B)
(B) / (A) 5583.0% 506.8% 810.4%
Source: SAIC & tax filings of Dongli Supply Chain
The SAIC & tax filings of Dongli Supply Chain are completely inconsistent with the purchase
amount of China Household from it. For example, in 2016, China Household claimed that it has
made RMB 39,969 mn purchase from Dongli Supply Chain while the revenue of Dongli Supply
Chain in 2016 was merely 2% of that. There were only 6 employees in this company. We hope
management can explain how could this be possible.
(C) Susfor-Oasis Timber (Zhongshan) Co. (Susfor-Oasis Timber)
Susfor-Oasis Timber is another company effectively controlled by Mr. Li. Mr. Li wholly owned
Susfor-Oasis before selling it to Sustainable Forest Holdings Limited (Sustainable Forest, SEHK:
723), another listed company in Hong Kong that conducts open offer very frequently. Sustainable
Forest then sold Susfor-Oasis Timber at a mere HKD 50,000 to an individual in 2016 July.
Susfor-Oasis Timber is the second largest supplier of China Household from 2014 to 2015 and
also the fourth largest customer of China Household in 2016.
As you may guess, Susfor-Oasis Timbers registered address is the same as China Household, New
Oasis and Oasis Construction Material. So far, we have already seen three customers or suppliers
of China Household to share the same address as China Household. Actually there are a few more
but not among the top 5 customers or suppliers:

Exhibit 18: Registered Address of Prado and China Households customers and suppliers
Prados registered address:
New Oasiss registered address (The tollgate address is the same as 105 Road):
Susfor-Oasis Timbers registered address:

Zhongshan Jindao Timber Product Cos (2016 8th Largest Supplier) registered address:
Zhongshan Xinpengyuan Trading Limiteds (2013 7th Largest Customer) registered address:
Source: National Enterprise Credit Information Publicity System
Li Xiaoguan, the former network administrator of Prado, is also the supervisor of Susfor-Oasis
Timber.
According to the Sustainable Forests disposal announcement of Susfor-Oasis Timber in 2016 July,
the revenue of Susfor-Oasis Timber for the year ended 2015 Mar 31 and 2016 Mar 31 are as follow:

Exhibit 19: Disposal Announcement of Susfor-Oasis Timber
Source: Sustainable Forests announcement on 2016 July 15
But according to China Household, it has made a much larger amount of purchase from Susfor-
Oasis Timber then the disclosed revenue above:
Exhibit 20: Purchase of China Household from Susfor-Oasis Timber from 2014 to 2016
2016 2015 2014
Purchase of China Household from Susfor-
22,761.21 55,776.03 106,669.90
Oasis Timber (RMB '000)
We hope the management can explain the above figures, which are completely inconsistent with
the revenue disclosed by Sustainable Forest. The total revenue of Susfor-Oasis from 2014 Apr 1
to 2016 Mar 31 is merely HKD 5.197 mn but China Household claimed that it made a purchase of
RMB 55.776 mn from Susfor-Oasis Timber for the year ended 2015 Dec 31.
There are many other irregularities among the suppliers of China Household. For example,
Huazhou Jianhao Timber Co., the fourth largest customer of China Household, filed a revenue of
RMB 4,916.30 thousand and RMB 4,093.60 thousand in 2016 and 2015 SAIC & tax filings
respectively, while China Household claimed to have made a purchase of RMB 32,156.29 thousand
and RMB 36,974.53 thousand from Huazhou Jianho Timber Co. in 2016 and 2015 respectively. We

will leave investigators to investigate the remaining suppliers as the idea is more or less the same.
The employee number of the top suppliers are also mostly minimal:
Exhibit 21: Number of employees filed in the 2013-2015 SAIC & tax filings of top five suppliers
2015 2014 2013
Zhongshan Jindao Trading Co. 4 4 4
Susfor-Oasis Timber (Zhongshan) Co. 23 23 210
Shenzhen Dongli Supply Chain Management Co. 6 6 n.a.
Xiamen Boyiju Decoration Engineering Co. 1 2 n.a. n.a.
Zhongshan Xili Decoration Engineering Co. 4 2 2
Huazhou Jianhao Timber Co. 6 10 10
Jiangsu Kenuanreneng Technology Co. 2 15 10 n.a.
Zhanjiang Henghui Import and Export Trading Co. 6 6 3
Huazhou Kangxin Timber Co. 10 10 10
Shanghai Rongshengchang Timber Co. 1 1 2
3
Shanghai Tongsheng Timber Co. n.a. n.a. n.a.
Guangzhou Shunsheng Timber Co. 49 45 n.a.
Source: SAIC & tax filings of respective companies
Note 1: Incorporated on 2015 October 14
Note 2: Incorporated on 2014 October 28
Note 3: Already listed on abnormal operation list

Part 3. The Brokerage Account Holders Identity
We have extensively covered the trading activity of Mr. Li in Part 5 of our initial coverage. We have
checked with the employee list of China Household and found some of the brokerage account
holders to be the past or current employees of China Household. Besides Li Xianhua and Cheng
Wenling which have been mentioned above, these brokerage account holders are also the
employees of China Household in 2013:
Exhibit 22: Identity of certain Brokerage Account Holders in our Initial Coverage
Name Position in 2013 Join Date
Li Jinxin Prado's Office Assistant 2012 Oct 22
Lu Xiuping Prado's Control Center Office Assistant 2012 Apr 25
Ye Qiuxia Prado's Customer Server Clerk 2010 Jun 3
Liang Weiqiang Prado's Driver 2012 Oct 25
Xiong Lijia Prado's Purchase Manager 2007 Jun 22
Note that some of them have already been shifted to other subsidiaries. For example, Ye Qiuxia
has been shifted to the accounting department of Kassade later.
We will submit the full employee list and payroll record of Prado, Kassade and other subsidiaries
of China Household separately to HKEx and SFC.
One interesting thing is that, Liang Weiqiang, the driver of Prado as shown on the payroll record
(see below image), managed to own 79,950,000 shares of China Household as of 2014 July 31
(45,980,000 shares in BOCOM and 33,970,000 shares in Halycon; please refer to our initial
coverage for details). The share price of China Household is HKD 0.74 on 2014 July 31, and
therefore the stock worth HKD 59.16 mn on book value. What is the possibility of a driver owning
nearly HKD 60 mn worth of stock?
Liang Weiqiang, driver

Part 4. The Two Sets of Book and the Fabricated Cash
We found that Prado, the major subsidiary of China Household, have kept two sets of book, which
are submitted to auditor and local tax bureau respectively. We cannot image a better evidence
than this to prove China Household has been cooking its books for years. The full balance sheets
from 2014 to 2016 in the two sets of book can be found in next page. We will compare the major
balance sheet items here:
Exhibit 24: Comparison between major balance sheet items on auditors book and tax filings of Prado
2016 Dec 31 2015 Dec 31 2014 Dec 31
Cash amount in auditor's book (RMB) 315,592,569.90 173,241,330.20 169,688,396.74
Cash amount in tax filings (RMB) 3,585,511.11 282,266.89 1,306,562.46
Difference (RMB) 312,007,058.79 172,959,063.31 168,381,834.28
Difference (%) 98.86% 99.84% 99.23%
Account receivable amount in auditor's book (RMB) 180,529,237.87 183,501,889.74 285,124,350.03

Account receivable amount in tax filings (RMB) 46,803,102.20 77,466,766.67 64,214,089.67
Difference (RMB) 133,726,135.67 106,035,123.07 220,910,260.36
Difference (%) 74.07% 57.78% 77.48%
Other receivable amount in auditor's book (RMB) 222,230,565.10 263,597,160.34 150,977,201.86

Other receivable amount in tax filings (RMB) 222,230,565.10 164,149,247.72 150,977,201.86
Difference (RMB) 0.00 99,447,912.62 0.00
Difference (%) 0.00% 37.73% 0.00%
Inventory amount in auditor's book (RMB) 92,717,687.39 100,142,929.20 83,005,308.30

Inventory amount in tax filings (RMB) 115,087,565.78 100,142,929.20 83,005,308.30
Difference (RMB) (22,369,878.39) 0.00 0.00
Difference (%) -24.13% 0.00% 0.00%
Current asset amount in auditor's book (RMB) 872,199,818.00 781,640,300.03 691,062,363.25

Current asset amount in tax filings (RMB) 388,231,292.76 344,091,240.68 306,626,923.10
Difference (RMB) 483,968,525.24 437,549,059.35 384,435,440.15
Difference (%) 55.49% 55.98% 55.63%
Total asset amount in auditor's book (RMB) 874,322,479.19 782,807,960.99 693,273,548.31

Total asset amount in tax filings (RMB) 388,985,911.00 345,258,901.64 308,838,108.16
Difference (RMB) 485,336,568.19 437,549,059.35 384,435,440.15
Difference (%) 55.51% 55.89% 55.45%
We can observe that most of the cash of Prado does not exist in tax filing. Prado reported a cash
balance of RMB 315.59 mn as of 2016 Dec 31 to auditor while reporting a cash balance of mere
RMB 3.59 mn as of the same date to tax bureau. This collaborated with our suspicions in cash
balance as stated in our initial coverage. Moreover, significant portion of account receivable does
not exist in tax filings. More than half of the total assets presented to auditors disappeared in tax
filings from 2014 to 2016.

Exhibit 25: Balance Sheet of Prado presented to auditor from 2014 to 2016
Balance Sheet (12/31/2014)
Prado
Cash
Account
Receivable
Other
Receivable
Inventory
Current
Asset
Total Asset

Prado
Cash
Account
Receivable
Other
Receivable
Inventory
Current
Asset
Total Asset

Prado
Cash
Account
Receivable
Other
Receivable
Inventory
Current
Asset
Total Asset

Exhibit 26: Balance Sheet of Prado presented to local tax bureau from 2014 to 2016
Balance Sheet
Prado
2014 Dec 31
Cash
Account
Receivable
Other
Receivable
Inventory
Current
Asset
Total Asset
Source: Tax filings of Prado

Balance Sheet
Prado
2015 Dec 31
Cash
Account
Receivable
Other
Receivable
Inventory
Current
Asset
Total Asset

Balance Sheet
Prado
2016 Dec 31
Cash
Account
Receivable
Other
Receivable
Inventory
Current
Asset
Total Asset
Source: Tax filings of Prado
According to China Households book presented to auditor, almost all of the cash should reside
in a bank account in CCBs Zhongshan Banfu Branch (Account Number: 44001781707053006045).
So the question is, which of the above book is the real one? At best, the book presented to auditor
is the real one and therefore Prado has been lying to tax bureau for many years and is liable for
tax evasion. At worst, the book presented to tax bureau is real one and Prado has been fabricating
cash balance for all these years. If it is the latter case, then someone should be legally responsible
for this document:

Exhibit 27: Prados CCB Bank Statement submitted by China Household to auditor for 2016 audit

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We will usually closely monitor the companies which we have issued initial coverage on.

Exhibit 1: Relationship Charts of China Household

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 2: Top 5 Customers of China Household from 2013 to 2016

2016 Top 5 Customers

2015 Top 5 Customers

2014 Top 5 Customers

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 3: 2015 Top 10 Customers of a Subsidiary of China Household

Sales Amount (RMB)

Source: Internal Documents of China Household

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

New Oasis Floor Tiles Market

Source: Physical Inspection

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 5: Purchase Policy of China Household

Purchase Department Project Manager (Li Xianhua) should

purchase manager (Li Zhijie)

Source: Internal Documents of China Household

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Li Xianhuas Travel Expense

Source: Internal Documents of China Household

Exhibit 7: Expense Details of Prado in 2015 and 2014

Entertainment expense claimed by Xie Yusheng

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Xie Yushengs electricity fees

(B) Zhongshan Oasis Construction Material Co. (Oasis Construction Material)

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Company Address: 105 Road, Shenwan, Banfu,

Source: http://563472.23ape.org, retrieved on 2017 Aug 20

Exhibit 9: 2016 SAIC Filings of Oasis Construction Material

Source: National Enterprise Credit Information Publicity System

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Revenue of China Household from Oasis

(C) Zhongshan Shengshi Huaxia Household Co. (Shengshi Huaxia)

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Cheng Wenling, Relationship Manager

Source: Internal Document of China Household

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Revenue of China Household from

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 14: Top 5 Suppliers of China Household from 2013 to 2016

2016 Top 5 Suppliers

2015 Top 5 Suppliers

2014 Top 5 Suppliers

2013 Top 5 Suppliers

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

(A) Zhongshan Jindao Trading Co. (Jindao Trading)

Exhibit 15: Payroll Record of Prado in 2013

Li Xiaoguan, Network Administrator

Source: Internal Document of China Household

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Purchase of China Household from

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Purchase of China Household from

(C) Susfor-Oasis Timber (Zhongshan) Co. (Susfor-Oasis Timber)

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Prados registered address:

Susfor-Oasis Timbers registered address:

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: National Enterprise Credit Information Publicity System

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: Sustainable Forests announcement on 2016 July 15