10-Q

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

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

For the transition period from _____ to _____

Commission File No. 0-54744

WONHE HIGH-TECH INTERNATIONAL, INC. (Name of Registrant in its Charter)
Nevada	26-0775642
(State of Other Jurisdiction of incorporation or organization)	(I.R.S.) Employer I.D. No.)
Room 1001, 10th Floor, Resource Hi-Tech Building South Tower No. 1 Songpingshan Road, North Central Avenue North High-Tech Zone Nanshan District, Shenzhen, Guangdong Province, P.R. China 518057
(Address of Principal Executive Offices)

Issuer's Telephone Number: 852-2815-0191

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

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

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

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

Large accelerated filer o  Accelerated filer o  Non-accelerated filer o  Smaller reporting company  x

APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

May 15, 2013

Common Voting Stock: 38,380,130

WONHE HIGH-TECH INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED MARCH 31, 2013

TABLE OF CONTENTS

		Page No
Part I	Financial Information
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets (Unaudited) – March 31, 2013 and December 31, 2012	2
	Consolidated Statements of Income and Other Comprehensive Income (Unaudited) - for the Three Months Ended March 31, 2013 and 2012	3
	Consolidated Statements of Cash Flows (Unaudited) – for the Three Months Ended March 31, 2013 and 2012	4
	Notes to Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
Part II	Other Information
Item 1.	Legal Proceedings	31
Items 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
	Signatures	32

1

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

 (IN U.S.$)

ASSETS	March 31, 2013			December 31, 2012
	(Unaudited)
Current assets:
Cash	$	12,925,136		$	5,215,738
Accounts receivable		3,077,534			4,033,576
Inventory		271,712			265,665
Advances to suppliers		1,891,376			5,282,712
Prepaid expenses		10,119			72,811
Total current assets		18,175,877			14,870,502
Fixed assets		476,636			473,942
Less: accumulated depreciation		(143,451	)		(123,251	)
Fixed assets, net		333,185			350,691
Other assets:
Intangible assets		23,349			25,328
Other assets – principally security deposits		51,202			53,908
Prepaid income taxes		501,348			-
Total other assets		575,899			79,236
TOTAL ASSETS	$	19,084,961		$	15,300,429
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,418		$	14,241
Payroll payable		56,944			36,101
Taxes payable		116,436			793,723
Accrued expenses and other payables		191,187			163,549
Total current liabilities		378,985			1,007,614
Commitments and Contingencies		-			-
Stockholders’ equity:
Preferred stock: $0.001 par value; 10,000,000 shares authorized; none issued and outstanding		-			-
Common stock: $0.001 par value; 90,000,000 shares authorized; 23,900,130 shares issued and outstanding at March 31, 2013 and December 31, 2012		23,900			23,900
Additional paid-in capital		7,113,611			7,113,611
Statutory reserve fund		1,010,711			600,844
Retained earnings		9,172,468			5,469,214
Other comprehensive income		453,198			373,062
Stockholders’ equity before noncontrolling interests		17,773,888			13,580,631
Noncontrolling interests		932,088			712,184
Total stockholders’ equity		18,705,976			14,292,815
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	19,084,961		$	15,300,429

See accompanying notes to the consolidated financial statements.

2

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 (IN U.S.$)

	Three Months Ended March 31,
	2013			2012
Sales	$	9,617,400		$	3,354,356
Cost of sales		(4,922,413	)		(1,714,981	)
Gross profit		4,694,987			1,639,375
Operating expenses:
Research and development expenses		60,288			69,326
Selling and marketing		81,976			85,125
General and administrative		219,065			291,056
Total operating expenses		361,329			445,507
Income from operations		4,333,658			1,193,868
Interest income		-			112,067
Income before provision for income taxes		4,333,658			1,305,935
Provision for income taxes		4,818			326,484
Net income		4,328,840			979,451
Noncontrolling interests		(215,719	)		-
Net income attributable to common stockholders		4,113,121			979,451
Foreign currency translation adjustment		84,321			43,792
Total comprehensive income	$	4,197,442		$	1,023,243
Earnings per common share, basic and diluted	$	0.17		$	0.05
Weighted average shares outstanding, basic and diluted		23,900,130			19,128,130

See accompanying notes to the consolidated financial statements.

3

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 (IN U.S.$)

	Three Months Ended March 31,
	2013			2012
Cash flows from operating activities:
Net income	$	4,328,840		$	979,451
Adjustment to reconcile net income to net cash   provided by (used in) operating activities:
Depreciation and amortization		21,609			19,152
Deferred income taxes		-			294,674
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable		958,748			(2,176,756	)
(Increase) in interest receivable		-			(1,958	)
(Increase) in inventory		(6,047	)		(25,116	)
Decrease (increase) in advances to suppliers		3,391,336			(3,764,061	)
Decrease (increase) in prepaid expenses		62,692			(225,047	)
(Increase) in prepaid income taxes		(501,348	)		-
Increase (decrease) in accounts payable		177			(2,306	)
Increase in payroll payable		20,843			9,778
(Decrease) increase in taxes payable		(677,287	)		144,223
Increase (decrease) in accrued expenses and other payables		12,543			(54,206	)
Increase in advances from customers		-			62,999
Net cash provided by (used in) operating activities		7,612,106			(4,739,173	)
Cash flows from investing activities:
Purchase of fixed assets		-			(2,183	)
Net cash (used in) investing activities		-			(2,183	)
Cash flows from financing activities:
Loans from (to) related parties		15,000			(365,220	)
Repayment of related party loans		-			5,294,891
Net cash provided by financing activities		15,000			4,929,671
Effect of exchange rate changes on cash		82,292			39,486
Net increase in cash		7,709,398			227,801
Cash, beginning		5,215,738			76,084
Cash, ending	$	12,925,136		$	303,885
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,154,277		$	-
Cash paid for interest	$	-		$	-

See accompanying notes to the consolidated financial statements.

4

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

1.            ORGANIZATION

Wonhe High-Tech International, Inc. (the “Company” or “Wonhe High-Tech”) was incorporated in the State of Nevada on August 13, 2007 under the name “Baby Fox International, Inc.” as a specialty retailer, developer, and designer of fashionable, value-priced women’s apparel and accessories.  The Company changed its name from Baby Fox International, Inc. to Wonhe High-Tech International, Inc. on April 20, 2012.

On June 27, 2012, the Company entered into and closed an exchange agreement with World Win International Holding Ltd. or “World Win,” all of the stockholders of World Win, and Super-stable Group Holdings Limited, or “Super-stable”, the majority stockholder of the Company (the “Exchange Agreement”), pursuant to which the stockholders of World Win transferred all of the issued and outstanding stock of World Win to the Company, and Super-stable transferred to such stockholders all of its 19,128,130 shares of the Company’s common stock (the “Share Exchange”).  The Company currently has 23,900,130 shares of common stock issued and outstanding.  The funds used by Super-stable to purchase its 19,128,130 shares of the Company’s common stock were loaned to it by Shenzhen Wonhe Technology Co., Ltd., or “Shenzhen Wonhe”, the Company’s indirect, consolidated affiliate.

As a result of the acquisition, the Company’s consolidated subsidiaries include World Win, the Company’s wholly-owned subsidiary which is incorporated under the laws of the British Virgin Island (“BVI”), Kuayu International Holdings Group Limited (Hong Kong), or “Kuayu”, a wholly-owned subsidiary of World Win which is incorporated under the laws of Hong Kong,  Shengshihe Management Consulting (Shenzhen) Co., Ltd., or “Shengshihe Consulting”, a wholly-owned subsidiary of Kuayu which is incorporated under the laws of the People’s Republic of China (“PRC”). The Company also consolidates the financial condition and results of operations of Shenzhen Wonhe Technology Co., Ltd., or “Shenzhen Wonhe”, a limited liability company incorporated under the laws of the PRC which is effectively and substantially controlled by Shengshihe Consulting through a series of captive agreements. Shenzhen Wonhe is considered a variable interest entity (“VIE”) of Shengshihe Consulting.

Shenzhen Wonhe Technology Co., Ltd. is a Chinese entity established on November 16, 2010 with registered capital of $7,495,000.  It specializes in the research and development, outsourced-manufacturing and trade of hi-tech products based on x86 (instruction set architecture based on Intel 8086 CPU) and ARM (32-bit reduced instruction set architecture).  Current products still under research and development include a Smart Media Box (SMB), Home Smart Server (HSS), Mini PC (MPC), All in One PC (AIO-PC), Business PAD (B-PAD), and Portable PAD (P-PAD). The product we currently offer to market is the Home Media Center (HMC). The Company is located in Shenzhen, Guangdong Province, China.

5

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

1.            ORGANIZATION (continued)

On May 30, 2012, Shenzhen Wonhe entered into (i) an Exclusive Technical Service and Business Consulting Agreement; (ii) a Proxy Agreement, (iii) Share Pledge Agreement, (iv) Call Option Agreement with Shengshihe Consulting.  The foregoing agreements are collectively referred to as the “Management and Control Agreements.”

Exclusive Technical Service and Business Consulting Agreement:  Pursuant to the Exclusive Technical Service and Business Consulting Agreement, Shengshihe Consulting provides technical support, consulting, training, marketing and business consulting services to Shenzhen Wonhe as related to its business activities.  In consideration for such services, Shenzhen Wonhe has agreed to pay as an annual service fee to Shengshihe Consulting an amount equal 95% of Shenzhen Wonhe’s annual net income with an additional payment of approximately $7,910 (RMB 50,000) each month. The agreement has an unlimited term and can only be terminated upon written agreement of both parties.

Proxy Agreement: Pursuant to the Proxy Agreement, the stockholders of Shenzhen Wonhe agreed to irrevocably entrust Shengshihe Consulting to designate a qualified person acceptable under PRC law and foreign investment policies, to vote all of the equity interests in Shenzhen Wonhe held by each of the stockholders of Shenzhen Wonhe.  The Agreement has an unlimited term and only can be terminated upon the written agreement of both parties.  

Share Pledge Agreement:  Pursuant to the Share Pledge Agreement, each of the stockholders of Shenzhen Wonhe pledged his shares to Shengshihe Consulting to secure the obligations of Shenzhen Wonhe under the Exclusive Technical Service and Business Consulting Agreement.  In addition, the stockholders of Shenzhen Wonhe agreed not to transfer, sell, pledge, dispose of or create any encumbrance on their interests in Shenzhen Wonhe that would affect Shengshihe Consulting’s interests.  This Agreement remains effective until the obligations under the Exclusive Technical Service and Business Consulting Agreement, Call Option Agreement and Proxy Agreement have been fulfilled or terminated.

Call Option Agreement:  Pursuant to the Call Option Agreement, Shengshihe Consulting has an exclusive option to purchase, or to designate a purchaser for, to the extent permitted by PRC law and foreign investment policies, part or all of the equity interests in Shenzhen Wonhe held by each of the stockholders of Shenzhen Wonhe.  To the extent permitted by PRC laws, the purchase price for the entire equity interest is approximately $0.16 (RMB1.00) or the minimum amount required by the PRC law or government practice. This Agreement remains effective until all the call options under the Agreement have been transferred to Shengshihe Consulting or its designated entities or natural persons.

6

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

1.            ORGANIZATION (continued)

After the Share Exchange, the Company’s current organization structure is as follows:

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. The unaudited consolidated financial statements as of and for the three months ended March 31, 2013 include Wonhe High-Tech, World Win, Kuayu, Shengshihe Consulting and its VIE, Shenzhen Wonhe. The unaudited financial statements for the three months ended March 31, 2012 include Shenzhen Wonhe only, as World Win and Shengshihe Consulting were not in existence and Kuayu had no operations at that time. All significant intercompany accounts and transaction have been eliminated in consolidation when applicable.

The unaudited interim consolidated financial statements of the Company as of March 31, 2013 and for the three months ended March 31, 2013 and 2012, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements.

7

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of Accounting and Presentation (continued)

Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the fiscal year ended December 31, 2012, previously filed with the SEC. In the opinion of management, the interim information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2013.

Variable Interest Entity

Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”).  ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.  VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

Under ASC 810, an enterprise has a controlling financial interest in a VIE, and must consolidate that VIE, if the enterprise has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affected the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.  The enterprise’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de facto agents, have the unilateral ability to exercise those rights.Shenzhen Wonhe’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.

Through the VIE agreements as disclosed in Note 1, the Company is deemed the primary beneficiary of Shenzhen Wonhe and accordingly, their results have been included in the accompanying consolidated financial statements. The following are financial statement amounts and balances of Shenzhen Wonhe that have been included in the accompanying consolidated financial statements. Shenzhen Wonhe has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Shenzhen Wonhe do not have recourse to the Company’s general credit.

8

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Variable Interest Entity (continued)

ASSETS	March 31, 2013			December 31, 2012
	(Unaudited, In U.S. $)			(In U.S. $)
Current assets:
Cash	$	12,849,726		$	5,159,917
Accounts receivable		3,077,534			4,033,576
Inventory		271,712			265,665
Advances to suppliers		1,891,376			5,282,712
Prepaid expenses		10,119			72,811
Total current assets		18,100,467			14,814,681
Fixed assets		476,636			473,942
Less: accumulated depreciation		(143,451	)		(123,251	)
Fixed assets, net		333,185			350,691
Other assets:
Intangible assets		23,349			25,328
Other assets – principally security deposits		51,202			53,908
Prepaid income taxes		501,348			-
Total other assets		575,899			79,236
TOTAL ASSETS	$	19,009,551		$	15,244,608
LIABILITIES
Current liabilities:
Accounts payable	$	14,418		$	14,241
Payable to WFOE(1)		10,946,928			6,848,259
Payroll payable		55,479			34,645
Taxes Payable		101,048			783,212
Accrued expenses and other payables		196,855			168,838
Total current liabilities		11,314,728			7,849,195
TOTAL LIABILITIES	$	11,314,728		$	7,849,195

9

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Variable Interest Entity (continued)

(1)   Payable to WFOE represents amounts due to Shengshihe Consulting under the Exclusive Technical Service and Business Consulting Agreement for consulting services provided to Shenzhen Wonhe in exchange for 95% of Shenzhen Wonhe’s net income. Monthly payments for the three months ended March 31, 2013 of RMB 50,000 (approximately US$7,955) were paid in full as of March 31, 2013.

	Three Months Ended March 31,
	2013		2012
Sales	$	9,617,400	$	3,354,356
Net income(2)		4,314,388		979,451

(2)   Under the Exclusive Technical Service and Business Consulting Agreement, 95% of the net income is to be remitted to WFOE.

	Three Months Ended March 31,
	2013		2012
Net cash provided by (used in) operating activities	$	7,593,147	$	(4,739,173	)
Net cash (used in) investing activities		-		(2,183	)
Net cash provided by financing activities		15,000		4,929,671
Effect of exchange rate changes on cash		81,662		39,486
Net increase in cash	$	7,689,809	$	227,801

The Company believes that Shengshihe Consulting’s contractual agreements with Shenzhen Wonhe are in compliance with PRC law and are legally enforceable. The stockholders of Shenzhen Wonhe are also the senior management of the Company and therefore the Company believes that they have no current interest in seeking to act contrary to the contractual arrangements. However, Shenzhen Wonhe and its stockholders may fail to take certain actions required for the Company’s business or to follow the Company’s instructions despite their contractual obligations to do so. Furthermore, if Shenzhen Wonhe or its stockholders do not act in the best interests of the Company under the contractual arrangements and any dispute relating to these contractual arrangements remains unresolved, the Company will have to enforce its rights under these contractual arrangements through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements, which may make it difficult to exert effective control over Shenzhen Wonhe, and its ability to conduct business may be adversely affected.

10

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Foreign Currency Translation

Almost all of the Company’s assets are located in the PRC. The functional currency for the majority of the operations is the Renminbi (“RMB”). For Kuayu, the functional currency for the majority of its operations is the Hong Kong Dollar (“HKD”). The Company uses the US Dollar for financial reporting purposes. The unaudited consolidated financial statements of the Company have been translated into US dollars in accordance with FASB ASC 830, “Foreign Currency Matters.”

All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date.  Equity accounts have been translated at their historical exchange rates when the capital transactions occurred.  Statements of operations and other comprehensive income amounts have been translated using the average exchange rate for the periods presented.  Adjustments resulting from the translation of the Company’s consolidated financial statements are recorded as other comprehensive income.

The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the consolidated financial statements are as follows:

March 31, 2013

December 31, 2012

March 31, 2012

RMB

HKD

RMB

HKD

RMB

HKD

Balance sheet items, except for stockholders’ equity, as of periods end

0.1592

0.1288

0.1583

0.1290

0.1581

N/A

Amounts included in the statements of income and cash flows for the periods

0.1591

0.1289

N/A

N/A

0.1582

0.1288

11

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation (continued)

For the three months ended March 31, 2013 and 2012, foreign currency translation adjustments of $84,321 and $43,792, respectively, have been reported as other comprehensive income.

Although government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain.  Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate.

The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions.  Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US dollar reporting.

Revenue and Cost Recognition

The Company receives revenue from sales of electronic products. The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales revenue is recognized when the products are delivered and when customer acceptance occurs, the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. Finished goods are delivered from outsourced manufacturers to the Company. Revenue is recognized when the title to the products has been passed to customers, which is the date the products are picked up by the customers at the Company’s location or delivered to the designated locations by Company employees and accepted by the customers and the previously discussed requirements are met. The customers’ acceptance occurs upon inspection at the time of pickup or delivery by signing an acceptance form. The Company does not provide the customers with the right of return. A 36-month warranty is offered to customers for exchange or repair of defective products, the cost of which is substantially covered by the outsourced manufacturers’ warranty policies as specified in the contract between the Company and outsourced manufacturers. As a result, the Company does not recognize a warranty liability. Payments received before all of the relevant criteria for revenue recognition are met are recorded as advances from customers.

The Company follows the guidance set forth by FASB ASC 605-45-45 to assess whether the Company acts as the principal or agent in the transaction. The determination involves judgment and is based on an evaluation of whether the Company has the substantial risks and rewards of ownership under the terms of arrangement. Based on the assessment, the Company determined it acts as principal in the transaction and reports revenues on the gross basis.

12

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue and Cost Recognition (continued)

FASB ASC 605-45-45 sets forth eight criteria that support reporting recognition of gross revenue (i.e. principal sales) and three that support reporting net revenue (i.e. agent sales).  As applied to the relationship between the Company and its manufacturers, seven of the criteria that support reporting gross revenue are satisfied as follows:

● Shenzhen Wonhe is the primary obligor in each sale, as it is responsible for fulfillment of customer orders, including the acceptability of the products purchased by the customer. 

● Shenzhen Wonhe has general inventory risk, as it takes title to a product before that product is ordered by or delivered to a customer.

● Shenzhen Wonhe establishes its own pricing for its products.

● Shenzhen Wonhe has discretion in supplier selection. 

● Shenzhen Wonhe designed HMC660 and is responsible for all specifications. 

● Shenzhen Wonhe has physical loss inventory risk until the product is delivered to the customer.

● Shenzhen Wonhe has full credit risk for amounts billed to its customers.

The only criterion supporting recognition of gross revenue that is not satisfied by the relationship between the Company and its manufacturers is:  entity changes the product or performs part of the service. Moreover, none of the three criteria supporting recognition of net revenue is present in the Company’s sales transactions. For this reason, the Company records gross revenue with respect to sales of Shenzhen Wonhe.

Fair Value of Financial Instruments

FASB ASC 820, “Fair Value Measurement,” defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising costs were $65,637 and $583 for the three months ended March 31, 2013 and 2012, respectively.

13

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development Costs

The Company develops software to be marketed as part of its products, and that is not for internal use.  The software is essential to the functionality of the Company’s tangible products.  Therefore, the Company accounts for research and development costs incurred in development of its software in accordance with FASB ASC 985-20.  

Research and development costs are charged to operations when incurred.  Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed as incurred. Research and development costs were $60,288 and $69,326 for the three months ended March 31, 2013 and 2012, respectively.

Cash and Cash Equivalents

The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable is stated at cost, net of an allowance for doubtful accounts.  Receivables outstanding longer than the payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of the outstanding balance. In evaluating the collectability of an individual receivable balance, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company considers all accounts receivable at March 31, 2013 and December 31, 2012  to be fully collectible and, therefore, did not provide for an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventory

Inventory, comprised principally of computer components, is valued at the lower of cost or market value. The value of inventories is determined using the first-in, first-out method.

The Company estimates an inventory allowance for estimated unmarketable inventories.  Inventory amounts are reported net of such allowances, if any. There were no allowances for inventory as of March 31, 2013 and December 31, 2012.

Advances to Suppliers

Advances to suppliers consist of payments made to suppliers for future deliveries.

Prepaid Expenses

Prepaid expenses primarily consist of prepaid consulting fees for listing on the American stock exchange and an advance to an advertising company.

Fixed Assets and Depreciation

Fixed assets are recorded at cost, less accumulated depreciation.  Cost includes the price paid to acquire the asset, and any expenditure that substantially increases the asset’s value or extends the useful life of an existing asset.  Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the improvements. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.  Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.

The estimated useful lives for fixed asset categories are as follows:

Office equipment	5 years
Motor vehicles	5 years
Leasehold improvements	Shorter of the length of lease or life of the improvements

Impairment of Long-lived Assets

The Company applies FASB ASC 360, “Property, Plant and Equipment,” which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets.  In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The Company may recognize

15

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of Long-lived Assets (continued)

the impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to those assets. No impairment of long-lived assets was recognized for the periods presented.

Statutory Reserve Fund

Pursuant to corporate law of the PRC, the Company’s VIE is required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the VIE’s registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund prior years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital. As of March 31, 2013, $409,867 was transferred from retained earnings to statutory reserve fund.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of March 31, 2013 and December 31, 2012, the Company does not have any uncertain tax positions.

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes (continued)

United States

The Company is subject to United States tax at graduated rates from 15% to 35%.  No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the three months ended March 31, 2013 and 2012.

BVI

World Win is incorporated in the BVI and is governed by the income tax laws of the BVI. According to current BVI income tax law, the applicable income tax rate for the Company is 0%.

Hong Kong

Kuayu International is incorporated in Hong Kong.  Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non Hong Kong source income.

PRC

Shenzhen Wonhe and Shengshihe Consulting are subject to an Enterprise Income Tax at 25% and file their own tax returns.  Consolidated tax returns are not permitted in China.

Noncontrolling Interests

The Company evaluated and determined that under the VIE agreements as disclosed in Note 1, it is deemed to be the primary beneficiary of Shenzhen Wonhe. The noncontrolling interest, representing 5% of the net assets in Shenzhen Wonhe not attributable, directly or indirectly to the Company, is measured at its carrying value in the equity section of the consolidated balance sheets.

Reclassifications

Certain amounts in the prior periods financial statements have been reclassified for comparative purposes to conform to the presentation in the current periods financial statements. These reclassifications had no effect on previously reported earnings.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

3.            RECENTLY ISSUED ACCOUNTING STANDARDS

On March 5, 2013, the FASB issued ASU 2013-05 to provide guidance for whether to release cumulative translation adjustments (“CTA”) upon certain derecognition events. The update was issued to resolve the diversity in practice about whether Subtopic ASC 810-10, “Consolidation-Overall,” or ASC 830-30, “Foreign Currency Matters-Translation of Financial Statements,” applies to such transactions. ASU 2013-05 is effective prospectively for all entities with derecognition events after the effective date. For public entities, the guidance is effective for fiscal years, and interim periods within those years, beginning after December 31, 2013. ASC 830-30 applies when an entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. Consequently, the CTA is released into net income only if the transaction results in complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets resided. Otherwise, no portion of the CTA is released. The adoption of this pronouncement is not expected to have a significant impact on the Company’s consolidated financial condition or results of operations.

4.            FIXED ASSETS

Fixed assets at March 31, 2013 and December 31, 2012 are summarized as follows:

	March 31, 2013			December 31,  2012
Office equipment	$	154,547		$	153,674
Motor vehicles		214,963			213,748
Leasehold improvements		107,126			106,520
		476,636			473,942
Less: Accumulated depreciation		(143,451	)		(123,251	)
Fixed assets, net	$	333,185		$	350,691

Depreciation expense charged to operations for the three months ended March 31, 2013 and 2012 was $19,486 and $19,152, respectively.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

5.            INTANGIBLE ASSETS

Intangible assets at March 31, 2013 and December 31, 2012 are summarized as follows:

	March 31, 2013			December 31,  2012
Software	$	25,472		$	25,328
		25,472			25,328
Less: Accumulated amortization		(2,123	)		-
Intangible assets, net	$	23,349		$	25,328

Software was purchased in December, 2012, and is being amortized over three years, beginning in January, 2013. Amortization expense charged to operations for the three months ended March 31, 2013 and 2012 was $2,123 and $0, respectively.

6.            LEASE OBLIGATIONS

The Company leases its offices in Shenzhen from an unrelated third party at a monthly rental of $14,833 under an operating lease, which expires on February 28, 2019. The Company also leases one apartment at a monthly rental of $1,618, which expires in the second quarter of 2014. The Company had a lease for office space in Beijing at a monthly rent of $712 that expired in September 2012 and was not renewed.

The minimum future rentals under these leases as of March 31, 2013, are as follows:

Year Ending
December 31,	Amount
2013	$	143,659
2014		182,852
2015		177,999
2016		177,999
2017		177,999
Thereafter		207,666
	$	1,068,174

Rent expense for the three months ended March 31, 2013 and 2012 was $44,500 and $44,248, respectively.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

7.            RELATED PARTY TRANSACTIONS

On December 16, 2010, the Company entered into a twelve month loan agreement with a third party in the amount of $7,560,000, which matured on December 31, 2011 with interest at 12% per annum. Prepaid interest of $393,120 was received upon signing of the agreement. The loan was guaranteed by Guowang Xinke Venture Capital Investment (Jiangsu) Co., Ltd. (“Guowang Capital”), an entity related to the Company through certain stockholders. The agreement provided for the interest rate to increase to 15% on the amount not repaid by December 31, 2011. In May 2011, Guowang Capital assumed the loan.

At March 31, 2012, the loan was fully repaid. Interest charged by the Company for the three months ended March 31, 2013 and 2012, included in interest income was $0 and $112,067, respectively.

On April 25, 2011, the Company entered into a twelve month non-interest bearing loan agreement with Guowang Capital in the amount of $314,200, due April 27, 2012. The loan was fully paid at March 31, 2012.

On April 30, 2011, the Company entered into a twelve month non-interest bearing loan agreement with Zhongshan Puruisi Power Equipment Technology Co., Ltd. (“Puruisi Power”), an entity related to the Company through one of its stockholders, in the amount of $141,390, due May 2, 2012. On March 14, 2012, the Company lent additional $79,000 to Zhongshan Puruisi and the two loans were fully repaid on March 19, 2012.

8.FAIR VALUE MEASUREMENTS

FASB ASC 820 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

Level 2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

8.             FAIR VALUE MEASUREMENTS (continued)

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. As of March 31, 2013 and December 31, 2012, none of the Company’s assets and liabilities were required to be reported at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, receivables and various payables, approximate their fair values due to the short term nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.

9.             INCOME TAXES

The Company is required to file income tax returns in both the United States and the PRC. Its operations in the United States have been insignificant and income taxes have not been accrued. In the PRC, the Company files tax returns for Shenzhen Wonhe and Shengshihe Consulting. Shenzhen Wonhe received a tax preferential tax treatment from the PRC State Administration of Taxation under which starting from its first profitable year, Shenzhen Wonhe is entitled to a two-year exemption from the Enterprise Income Tax followed by a three year 50% reduction in its Enterprise Income Tax rate. Payments already made for the tax year ended December 31, 2012 may be applied to future income tax due, contingent upon the PRC State Administration of Taxation’s approval.

The following is a reconciliation of the statutory rate with the effective income tax rate for the three months ended March 31, 2013.  The effective tax rate was the same as statutory tax rate for the three months ended March 31, 2012.

	Tax Provision			Rate of Tax
Tax at statutory rate	$	1,083,415			25.00	%
VIE tax holiday		(1,078,597	)		(24.89	%)
Tax at effective tax rate	$	4,818			0.11	%

The Company’s PRC tax filings for the tax years ended December 31, 2011 and 2010 were examined by the tax authorities in April 2012 and 2011, respectively.  The examinations were completed and resulted in no adjustments.

Because the Company did not generate any income in the United States or otherwise have any U.S. taxable income, the Company does not believe that it has any U.S. federal income tax liabilities with respect to any transactions that the Company or any of its subsidiaries may have engaged in through March 31, 2013. However, there can be no assurance that the IRS will agree with this position, and therefore the Company ultimately could be liable for U.S. federal income taxes, interest and penalties.

21

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

10.           CONTINGENCIES

Concentration of Credit Risk

Substantially all of the Company’s bank accounts are in banks located in The People’s Republic of China and are not covered by protection similar to that provided by the FDIC on funds held in United States banks.

Vulnerability Due to Operations in PRC

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC.  Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective in the future.

11.      MAJOR CUSTOMERS

During the three months ended March 31, 2013, no sales to a single customer exceeded 10% of the Company’s gross revenue. However, the combined sales to five customers accounted for approximately 38% of sales for the three months ended March 31, 2013. Three of these five customers accounted for approximately 49% of accounts receivable as of March 31, 2013.

During the three months ended March 31, 2012, the combined sales to six customers accounted for approximately 79% of sales for the three months ended March 31, 2012. Five of these six accounted for 100% of accounts receivable as of March 31, 2012.

12.           SUBSEQUENT EVENT

On May 2, 2013, the Company sold 14,480,000 shares of common stock to 32 unrelated individuals in a private offering.  The purchase price for the shares was 4.2 Renminbi (approx. $.68) per share, or a total of 60,816,000 Renminbi (approx. $9,912,000).  The shares were sold to individuals who are accredited investors and were purchasing for their own accounts.  The offering, therefore, was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and Section 4(5) of the Securities Act.  The offering was also sold in compliance with the exemption from registration provided by Regulation S, as all of the purchasers are residents of the People’s Republic of China.

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ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Overview

We conduct our operations through our consolidated affiliate Shenzhen Wonhe Technology Co., Ltd. (hereinafter referred to as “Shenzhen Wonhe”).  Shenzhen Wonhe, founded in November 2010, is a high tech enterprise which specializes in research and development and the marketing of high-end business and personal IT products that provide third party application services. Most of our revenues to date have been derived from sales of our Home Media Center 660 (“HMC660”). Our HMC660 is a data storage, management and control center for household equipment, and a central processing center which uses remote wireless technology to allow a user to control various devices while at home or remotely when away from home. HMC660 provides a software platform that has the functional characteristics of both a family security device and a direct TV receiver, with the ability to access TV and video on demand, as well as to function as a game console and storage facility for family and business information.

Our major product under development is a computer set-top-box (“PC-STB”), which combines the system architecture of a multimedia computer with that of a digital set-top box, and features wireless remote control, fully integrating a family’s multimedia application requirements into a single device. In addition, we have seven other hardware products that are  in various stages of  research and development, including a domestic mini-terminal server, a minicomputer, an All-In-One PC, an ARM panel personal computer and an Android smartphone,  We are also developing a Wonhe applications platform and a metropolis business information operating website.

Corporate Structure

Wonhe High-Tech International, Inc. is a Nevada corporation that was, until June 30, 2011, a specialty retailer, developer, and designer of fashionable, value-priced women’s apparel and accessories. On June 30, 2011, Wonhe High-Tech International disposed of its prior business operations and became a shell company.  Then on June 27, 2012 Wonhe High-Tech International acquired ownership of World Win International Holding Ltd. (BVI), a holding company organized in the British Virgin Islands (“World Win”).  World Win, in turn, is the owner of Kuayi International Holding Group, Ltd. (Hong Kong), an entity organized in Hong Kong that, in April 2012, acquired ownership of Shengshihe Management Consulting (Shenzhen) Co., Ltd. (“Shengshihe Consulting”).  The only business of Shengshihe Consulting is to provide management services to Shenzhen Wonhe pursuant to the VIE Agreements described below.

Accounting for Variable Interest Entity

On May 30, 2012, Shengshihe Consulting and Shenzhen Wonhe and its shareholders Youliang Wang, Qing Tong, Jingwu Li and Nanfang Tong (together referred to as “Shenzhen Wonhe Shareholders”) entered into a series of agreements known as variable interest agreements (the “VIE Agreements”) pursuant to which Shenzhen Wonhe became Shengshihe Consulting’s contractually controlled affiliate. The use of VIE agreements is a common structure used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government. The VIE Agreements included:

(1) Exclusive Technical Service and Business Consulting Agreement between Shengshihe Consulting and Shenzhen Wonhe pursuant to which Shengshihe Consulting is granted the exclusive right and undertakes the obligation to provide technical support and management consulting services to Shenzhen Wonhe, such services being designed to encompass all aspects of the business of Shenzhen Wonhe.  In exchange for the services to be provided by Shengshihe Consulting, Shenzhen Wonhe is requied to pay to Shengshihe Consulting (i) 95% of the total annual net profit of Shenzhen Wonhe and (ii) RMB50,000 per month ($7,942).  The fee for services payable to Shengshihe Consulting, therefore, represents all but a small percentage of the net income generated by Shenzhen Wonhe.  The Exclusive Technical Service and Business Consulting Agreement can be terminated only by mutual agreement of the two parties. 

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(2)	Call Option Agreement among the Shenzhen Wonhe Shareholders and Shengshihe Consulting under which the Shenzhen Wonhe Shareholders have granted to Shengshihe Consulting the irrevocable right and option to acquire all of the equity interests in Shenzhen Wonhe to the extent permitted by PRC law. If PRC law limits the percentage of Shenzhen Wonhe that Shengshihe Consulting may purchase at any time, then Shengshihe Consulting may repeatedly exercise its option in such increments as may be allowed by PRC law. The exercise price of the option is RMB1.00 ($0.16) or any lower price permitted by PRC law. The Shenzhen Wonhe Shareholders agreed to refrain from taking certain actions which might harm the value of Shenzhen Wonhe or Shengshihe Consulting’s option.  In addition, the Call Option Agreement gives to Shengshihe Consulting the right of prior approval of any significant action by Shenzhen Wonhe, including appointment of management, sale of assets or equity, distribution of profits, or entry into any material agreement.  The Call Option Agreement will not terminate until the option is exercised.
(3)	Proxy Agreement by the Shenzhen Wonhe Shareholders pursuant to which they each authorize Shengshihe Consulting to designate someone to exercise all of his shareholder rights with respect to Shenzhen Wonhe.  The Proxy Agreement states that Shengshihe Consulting will be entitled to all information regarding Shenzhen Wonhe’s operations, business, clients, accounting and employees in order to perform its function under the Proxy Agreement.  The Proxy Agreement has no termination date nor any termination clause, and is binding on each Shenzhen Wonhe Shareholder as long as he owns equity in Shenzhen Wonhe.
(4)	Share Pledge Agreement among the Shenzhen Wonhe Shareholders, Shenzhen Wonhe, and Shengshihe Consulting under which the Shenzhen Wonhe Shareholders have pledged all of their equity in Shenzhen Wonhe to Shengshihe Consulting to guarantee Shenzhen Wonhe’s and Shenzhen Wonhe Shareholders’ performance of their obligations under the Exclusive Technical Service and Business Consulting Agreement, the Call Option Agreement and the Proxy Agreement.  In the event of a default under any of those agreements, Shengshihe Consulting will be entitled to auction the equity interests of the Shenzhen Wonhe Shareholders and shall receive a priority payment from the auction proceeds to the extent of its unpaid receivable.  The Share Pledge Agreement will not terminate until all obligations under the three other agreements have been satisfied.

The accounting effect of the VIE Agreements between Shengshihe Consulting and Shenzhen Wonhe is to cause the balance sheets and financial results of Shenzhen Wonhe to be consolidated with those of Shengshihe Consulting, with respect to which Shenzhen Wonhe is now a variable interest entity.  Since the entities that are parties to the VIE Agreements were under common control at the time when the VIE Agreements were executed, the financial statements included in this report reflect the consolidation of the results of operations and cash flows of Shenzhen Wonhe since its inception.

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The Company believes that Shengshihe Consulting’s contractual agreements with Shenzhen Wonhe are in compliance with PRC law and are legally enforceable.  The Shenzhen Wonhe Shareholders are also the senior management of the Company and therefore the Company believes that they have no current interest in seeking to act contrary to the contractual arrangements.  However, Shenzhen Wonhe and its stockholders may fail to take certain actions required for the Company’s business or to follow the Company’s instructions despite their contractual obligations to do so.  Furthermore, if Shenzhen Wonhe or its stockholders do not act in the best interests of the Company under the contractual arrangements and any dispute relating to these contractual arrangements remains unresolved, the Company will have to enforce its rights under these contractual arrangements through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system.

All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures.  As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements, which may make it difficult to exert effective control over Shenzhen Wonhe, and its ability to conduct the Company’s business may be adversely affected. The VIE Agreements with our Chinese affiliate and its shareholders, which relate to critical aspects of our operations, may not be as effective in providing operational control as direct ownership.

Results of Operations

The following table sets forth in U.S. dollars key components of our results of operations during the three-month periods ended March 31, 2013 and 2012, and the percentage change between comparable numbers recorded in 2013 and 2012.

	Three Months Ended March 31				Percentage
	2013		2012		Change
Sales	$	9,617,400	$	3,354,356		187	%
Gross Profit		4,694,987		1,639,375		186	%
Operating Income		4,333,658		1,193,868		263	%
Other Income		--		112,067		(100	%)
Net income attributable to common stockholders	$	4,113,121	$	979,451		320	%

Sales. At the end of 2011, our major product, HMC660, passed the stability test administered by Shenzhen Yitong Testing Technology Co., Ltd., an independent entity authorized by the government to perform such tests.  The stability test, which was developed by the regulatory board of the electronics industry, is a test to examine product hardware operation, heat dissipation and chip stability to ensure the product is qualified to operate smoothly under normal conditions. The stability test was the final requirement before our product could be launched to the market. We started sales of our HMC 660 products in December 2011 and the first quarter of 2012 was our first profitable quarter. Since then, sales have increased in every quarter.

During 2011 we had twelve full-time employees involved in developing a market for HMC660.  They introduced the product to electronics distribution companies throughout China and established cooperative sales relationships with several of them.  When we initiated sales at the end of 2011, we engaged an advertising company at a monthly cost of $31,820 to generate publicity about the HMC660.  This program caused demand for the product to rise quickly, which contributed to the rapid growth of sales.  For the three months ended March 31, 2013, sales of $9,617,400 represented 20,481 units sold with a unit price of around $470. For the three months ended March 31, 2012, sales of $3,354,356 represented 7,184 units of HMC 660 sold at the same price in RMB.

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For the future, we expect sales of the HMC660 to be enhanced by the improvements we are building into the second generation product based on customer feedback during 2012.  We also expect sales of any new products that we introduce will be facilitated by our utilization of a now-established marketing network.

Gross Profit.All the products sold in the three months ended March 31, 2013 were manufactured by our two main contractors at a cost per unit of $239. Since we have no significant direct costs of goods sold other than our payment to our manufacturers, this arrangement yielded a gross profit margin of 49% on sales in the three months ended March 31, 2013.  In the three months ended March 31, 2012, the manufacture and sale of 7,184 units yielded the same gross margin of 49%.  We expect that our gross profit on the HMC660 will remain stable in the near term. Our Company’s overall gross profit, however, will be affected in the future by our introduction to market of new products.

Income from Operations.  Our operating expenses for the three months ended March 31, 2013 decreased to $361,329 from $445,507 for the three months ended March 31, 2012.   The components of our operating expenses were:

● Research and development expenses.  Research and development expenses are primarily comprised of salaries for R&D employees and materials used for research and development. In both the first quarter of 2012 and the first quarter of 2013 the attention of our staff has been focused on the rapid expansion of the market for the HMC660, as a result of which our research and development expenses have been modest: $60,288 for the three months ended March 31, 2013 and $69,326 for the three months ended March 31, 2012. We expect research and development expenses will grow into the near future, as we work to bring our  pipeline products closer to their market launch.   

● Selling and Marketing Expenses.  Selling and marketing expenses were primarily comprised of salaries, insurance, travelling expenses and marketing promotion. Because we pre-marketed the HMC660 extensively, we are now able to increase sales almost three-fold quarter-to-quarter while seeing selling and marketing expenses decrease by 4% to $81,976 for the three months ended March 31, 2013 from $85,125 for the three months ended March 31, 2012.

● General and Administrative Expenses. Our general and administrative (“G&A”) expenses were primarily comprised of administrative employees’ salaries, insurance, rent and other expenses incurred for G&A functions. G&A expenses decreased to $219,065 for the three months ended March 31, 2013 from $291,056 for the three months ended March 31, 2012, representing a 25% decrease. The decrease occurred primarily because we used less professional services in China during the three months ended March 31, 2013.

After deducting these operating expenses, for the three months ended March 31, 2013 we realized operating income of $4,333,658, an increase of $3,193,790 or 263% from the operating income of $1,193,868 that we recorded in the first quarter of 2012.

Other Income.  In 2010, while we were still developing our flagship product, the cash we deposited into Shenzhen Wonhe was idling.  To achieve a favorable return on equity, we loaned the greater portion of our cash reserves to an unrelated third party and received a loan guarantee from Guowang Capital, which was controlled by some of our related parties.  The loan yielded 12% per annum interest, which increased to 15% in 2012.  The loan was repaid in full by Guowang Capital in March 2012.  Primarily because of that loan, we recorded interest income of $112,067 as other income for the three months ended March 31, 2012. For the three months ended March 31, 2013, we didn’t realize any such income.

26

Provision for Income Taxes.  The corporate income tax rate in China is 25%, and that was our effective tax rate in 2012 when we recorded a provision for taxes of $326,484 on pre-tax income of $1,305,935.  Beginning in 2013, however, our operating entity has received a tax preferential tax treatment from the PRC State Administration of Taxation.  Shenzhen Wonhe will be  entitled to a two-year exemption from the Enterprise Income Tax followed by a three year 50% reduction in its Enterprise Income Tax rate. As a result, for the recent quarter, our provision for income taxes was only $4,818.   

Net Income. We reported net income of $4,328,840 and $979,451 for the three months ended March 31, 2013 and 2012, respectively.  The VIE agreements assign to Shengshihe Consulting only 95% of the net profit generated from Shenzhen Wonhe.  For that reason, we deducted a “non-controlling interest” of $215,719 before recognizing net income attributable to the common shareholders on our Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2013.  After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income attributable to the Company for the three months ended March 31, 2013 and 2012 was $4,113,121 ($.17 per share) and $979,451 ($.05 per share), respectively.

Foreign Currency Translation Adjustment. Our reporting currency is the U.S. dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. For the three months ended March 31, 2013 and 2012, foreign currency translation adjustments of $84,321 and $43,792 have been reported as other comprehensive income in the consolidated statements of operations and other comprehensive income.

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash flows from operations and equity contributions by our shareholders.  As a result, at March 31, 2013, we had no debt, and ourworking capitaltotaled $17,796,892, an increase of $3,934,004 since December 31, 2012.

In addition to cash and cash equivalents of $12,925,136, primarily consisting of cash on hand and demand deposits, our working capital primarily consisted of $3,077,534 in accounts receivable and $1,891,376 in advances to suppliers.  We consider both of these assets to be liquid: at March 31, 2013 only a nominal portion of our accounts receivable were aged more than thirty days; and the amount prepaid to our outsourced manufacturers was only slightly more  than our cost of goods for the three months ended March 31, 2013.

Because we outsource almost all of our manufacturing operations, our cash flows can be dedicated to working capital.  Accordingly, despite the rapid growth of our business, we stayed current with our vendors - only $14,418 in accounts payable at March 31, 2013, and utilized the cash generated by sales to fund the purchases needed for future sales.

27

The following table summarizes our cash flows for the periods indicated:

	Three Months Ended March 31, 2013		Three Months Ended March 31, 2012
Net cash provided by (used in) operating activities	$	7,612,106	$	(4,739,173	)
Net cash provided by (used in) investing activities		-		(2,183	)
Net cash provided by (used in) financing activities		15,000		4,929,671
Effects of Exchange Rate Change in Cash		82,292		39,486
Net  Change in Cash and Cash Equivalents		7,709,398		227,801
Cash and Cash Equivalent at Beginning of the Period		5,215,738		76,084
Cash and Cash Equivalent at End of the Period	$	12,925,136	$	303,885

Operating activities

Our operations provided $7,612,106 in cash during the three months ended March 31, 2013.  This substantially exceeded our net profit of $4,328,840, because during the quarter we amortized amounts we had prepaid to our manufacturers and decreased the balance of our advances to suppliers by $3,391,336. In contrast, during  the three months ended March 31, 2012, our operations generated a net profit of $979,451 but used $4,739,173 in cash because we increased our  advance to suppliers balance by $3,764,061 and increased our accounts receivable by $2,176,756.

Our agreements with our manufacturers require us to prepay for the delivery of units of the HMC660.  In order to assure that units are available for sale when needed, we had $1,891,376 and $5,282,712 prepaid as of March 31, 2013 and December 31, 2012, respectively.

Investing activities

We have relatively low need for capital investment because we outsource all of our manufacturing operations.  Net cash used in investing activities, therefore, was only $0 and $2,183 for the three months ended March 31, 2013 and 2012, respectively.Unless we expand our business activities in the future, investing activities will involve similarly insignificant amounts of cash.

Financing activities

As noted above, in 2011, when we had a large cash reserve without an immediate purpose, we obtained a high return on cash by loaning the funds to a related party.  For that reason, we recorded $5,093,803 in net cash used in financing activities for the twelve months ended December 31, 2011 and we called for repayment of the loans in 2012, and so recorded $4,929,671 in net cash provided by financing activities for the three months ended March 31, 2012. The net cash provided by financing activities of $15,000 for the three months ended March 31, 2013 represented a loan of dollars from our related parties to allow us to  pay professional fees in the  U.S.

We believe that our cash on hand and cash flow from operations will meet our cash needs for the next 12 months. However, we also require additional cash resources in order to implement our strategy to ramp up our marketing efforts and increase brand awareness.  For this purpose, early in May 2013 we sold 14,480,000 shares of our common stock in a private placement, which added $9,912,000 to our capital.  Depending on the opportunities for growth that may present themselves, we may require additional financing in the future.  We may also use cash to fund acquisitions we decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. New indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

28

Restrictions on Transfers of Funds

The VIE Agreements among Shengshihe Consulting and the Shenzhen Wonhe Shareholders provide that Shengshihe Consulting is entitled to 95% of total net profits (and will bear all losses) arising from Shenzhen Wonhe’s operations.  The VIE Agreements also entitle Shengshihe Consulting to manage the operations and control the cash flows of Shenzhen Wonhe.   Although Shengshihe Consulting is entitled to Shenzhen Wonhe’s profits, any distributions of such profits from Shengshihe Consulting to our U.S. parent company must comply with applicable Chinese laws affecting payments from Chinese companies to non-Chinese companies.

The sales revenue and expenses of Shenzhen Wonhe are denominated in RMB. The Chinese government strictly regulates conversion of RMB into foreign currencies.  Currently, Shenzhen Wonhe and Shengshihe Consulting may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange (“SAFE”), by complying with certain procedural requirements. Pursuant to applicable Chinese laws and regulations, foreign invested enterprises incorporated in China, such as Shengshihe Consulting, are required to apply for “Foreign Exchange Registration Certificates.” Currently, conversion within the scope of the “current account” (e.g. remittance of foreign currencies for payment of dividends, trade and service-related foreign exchange transactions, etc.) can be effected without requiring the approval of SAFE, but must be effected through authorized Chinese banks in accordance with regulatory procedures. However, conversion of currency in the “capital account” (e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE. Compliance with those procedural requirements can result in delays in obtaining foreign exchange, which could interfere with offshore activities by the Company, such as acquisitions, offshore investments, or the payment of dividends to the Company’s shareholders.  Because of the effort involved in obtaining foreign currencies in exchange for RMB, the Company intends to pay most of the operating expenses of its U.S. parent from dollars loaned to the Company by related parties.

Under PRC regulations, the Company’s operating subsidiary, Shenzhen Wonhe, may pay dividends only out of its accumulated profits, if any, determined in accordance with the accounting standards and regulations prevailing in the PRC (“PRC GAAP”). In addition, Shenzhen Wonhe is required to set aside at least 10% of its accumulated profits each year, if any, to fund the statutory general reserve until the balance of the reserve reaches 50% of its registered capital. The amount in excess of 10% of accumulated profits to be contributed to the statutory general reserve is at Shenzhen Wonhe’s discretion. The statutory general reserve is not distributable in the form of cash dividends to the Company and can be used to make up cumulative prior year losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings, or by increasing the par value of the shares currently held by them, provided that the reserve balance after such issue is not less than 25% of the registered capital.  As of March 31, 2013 and December 31, 2012, an aggregate amount of $1,010,711 and $600,844 respectively have been appropriated from retained earnings and set aside for the statutory reserve by Shenzhen Wonhe.

29

Impact of Accounting Pronouncements

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

Off-Balance Sheet Arrangements

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

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.        CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule13a-15(e) promulgated by the Securities and Exchange Commission) as of March 31, 2013.  The evaluation revealed that there are material weaknesses in our disclosure controls, specifically:

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

● Our internal financial staff lack expertise in identifying and addressing complex accounting issued under U.S. Generally Accepted Accounting Principles.

● Our Chief Financial Officer is not familiar with the accounting and reporting requirements of a U.S. public company.

● We have not developed sufficient documentation concerning our existing financial processes, risk assessment and internal controls.

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of March 31, 2013.

It is our intention to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions. In an effort to remediate the material weaknesses, we plan to document our process and procedures governing our internal reporting, including (1) timely review of reports prior to issuance, (2) a re-evaluation of our staffing needs, and (3) analysis of unusual transactions as they are occurring to allow adequate time for multiple levels of review.

30

In addition, we plan to designate individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources on our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II   -   OTHER INFORMATION

Item 1.	Legal Proceedings
	None.
Item 1A	Risk Factors
	There have been no material changes from the risk factors included in the Annual Report on Form 10-K for the year ended December 31, 2012.
Item 2	Unregistered Sale of Securities and Use of Proceeds
	(a) Unregistered sales of equity securities
	The Company did not effect any unregistered sale of equity securities during the first quarter of fiscal 2013.
	(c) Purchases of equity securities
	The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the first quarter of fiscal 2013.
Item 3.	Defaults Upon Senior Securities.
	None.
Item 4.	Mine Safety Disclosures.
	Not Applicable.
Item 5.	Other Information.
	None.
Item 6.	Exhibits

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

31

SIGNATURES

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

	WONHE HIGH-TECH INTERNATIONAL, INC.
Date: May 15, 2013	By:	/s/ Nanfang Tong
		Nanfang Tong, Chief Executive Officer
	By:	/s/ Chahua Yuan
		Chahua Yuan, Chief Financial Officer, Chief Accounting Officer

32

EX-31.1

EXHIBIT 31.1: Rule 13a-14(a) Certification

I, Nanfang Tong, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of Wonhe High-Tech International, Inc.;

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

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

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

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

 b)  Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

May 15, 2013	/s/ Nanfang Tong
	Nanfang Tong, Chief Executive Officer

EX-31.2

EXHIBIT 31.2: Rule 13a-14(a) Certification

I, Chahua Yuan, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of Wonhe High-Tech International, Inc.;

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

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

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

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

b)  Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

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

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

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

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

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

May 15, 2013	/s/ Chahua Yuan
	Chahua Yuan, Chief Financial Officer

EX-32

EXHIBIT 32: Rule 13a-14(b) Certification

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

1.             The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2103 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

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

May 15, 2013	/s/ Nanfang Tong
	Nanfang Tong, Chief Executive Officer
May 15, 2013	/s/ Chahua Yuan
	Chahua Yuan, Chief Financial Officer

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

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

XML

Income Taxes (Details Textual)	3 Months Ended
	Mar. 31, 2013
Income Taxes (Textual)
Term of exemption from enterprise income tax	2 years
Term of reduction followed in enterprise income	3 years
Reduction in enterprise income tax rate	50.00%

XML

Intangible Assets (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Summary of intangible assets
Software	$ 25,472	$ 25,328
Intangible assets, gross	25,472	25,328
Less: Accumulated amortization	(2,123)
Intangible assets, net	$ 23,349	$ 25,328

XML

Summary of Significant Accounting Policies (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Current assets:
Cash	$ 12,925,136	$ 5,215,738	$ 303,885	$ 76,084
Accounts receivable	3,077,534	4,033,576
Inventory	271,712	265,665
Advances to suppliers	1,891,376	5,282,712
Prepaid expenses	10,119	72,811
Total current assets	18,175,877	14,870,502
Fixed assets	476,636	473,942
Less: accumulated depreciation	(143,451)	(123,251)
Fixed assets, net	333,185	350,691
Other assets:
Intangible assets	23,349	25,328
Other assets - principally security deposits	51,202	53,908
Prepaid income taxes	501,348
Total other assets	575,899	79,236
TOTAL ASSETS	19,084,961	15,300,429
Current liabilities:
Accounts payable	14,418	14,241
Payroll payable	56,944	36,101
Taxes payable	116,436	793,723
Accrued expenses and other payables	191,187	163,549
Total current liabilities	378,985	1,007,614
Variable Interest Entity [Member]
Current assets:
Cash	12,849,726	5,159,917
Accounts receivable	3,077,534	4,033,576
Inventory	271,712	265,665
Advances to suppliers	1,891,376	5,282,712
Prepaid expenses	10,119	72,811
Total current assets	18,100,467	14,814,681
Fixed assets	476,636	473,942
Less: accumulated depreciation	(143,451)	(123,251)
Fixed assets, net	333,185	350,691
Other assets:
Intangible assets	23,349	25,328
Other assets - principally security deposits	51,202	53,908
Prepaid income taxes	501,348
Total other assets	575,899	79,236
TOTAL ASSETS	19,009,551	15,244,608
Current liabilities:
Accounts payable	14,418	14,241
Payable to WFOE(1)	10,946,928	6,848,259
Payroll payable	55,479	34,645
Taxes payable	101,048	783,212
Accrued expenses and other payables	196,855	168,838
Total current liabilities	11,314,728	7,849,195
TOTAL LIABILITIES	$ 11,314,728	$ 7,849,195

XML

Subsequent Event (Details)			0 Months Ended
	May 30, 2012 USD ($)	May 30, 2012 CNY	May 02, 2013 Subsequent Event [Member] USD ($) individual	May 02, 2013 Subsequent Event [Member] CNY individual
Subsequent Events (Textual)
Common stock shares sold in private offering, shares			14,480,000	14,480,000
Number of unrelated individuals in private offering			32	32
Common stock purchase price in private offering, per share	$ 0.16	1.00	$ 0.68	4.2
Common stock sales value in private offering			$ 9,912,000	60,816,000

XML

Related Party Transactions (Details) (USD $)	3 Months Ended		1 Months Ended		3 Months Ended			1 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Apr. 30, 2011 Guowang Xinke Venture Capital Investment (Jiangsu) Co., Ltd. [Member]	Dec. 31, 2010 Guowang Xinke Venture Capital Investment (Jiangsu) Co., Ltd. [Member]	Mar. 31, 2013 Guowang Xinke Venture Capital Investment (Jiangsu) Co., Ltd. [Member]	Apr. 25, 2011 Guowang Xinke Venture Capital Investment (Jiangsu) Co., Ltd. [Member]	Dec. 16, 2010 Guowang Xinke Venture Capital Investment (Jiangsu) Co., Ltd. [Member]	Apr. 30, 2011 Zhongshan Puruisi Power Equipment Technology Co., Ltd. (Puruisi Power)	Mar. 14, 2012 Zhongshan Puruisi Power Equipment Technology Co., Ltd. (Puruisi Power)
Related Party Transaction (Textual)
Loans to related parties						$ 314,200	$ 7,560,000	$ 141,390	$ 79,000
Interest rate on loan				12.00%
Maturity date of loan			Apr. 27, 2012	Dec. 31, 2011				May 02, 2012
Prepaid interest received							393,120
Related party transaction rate after maturity period				15.00%
Repayment of principal of loan, date					Mar. 31, 2012
Interest income		$ 112,067
Loan agreement maturity period with related party			12 months	12 months				12 months

XML

Fixed Assets

3 Months Ended

Mar. 31, 2013

Fixed Assets [Abstract]

FIXED ASSETS

4.            FIXED ASSETS

Fixed assets at March 31, 2013 and December 31, 2012 are summarized as follows:

	March 31, 2013			December 31,  2012
Office equipment	$	154,547		$	153,674
Motor vehicles		214,963			213,748
Leasehold improvements		107,126			106,520
		476,636			473,942
Less: Accumulated depreciation		(143,451	)		(123,251	)
Fixed assets, net	$	333,185		$	350,691

Depreciation expense charged to operations for the three months ended March 31, 2013 and 2012 was $19,486 and $19,152, respectively.

XML

Summary of Significant Accounting Policies (Details 4)	3 Months Ended
	Mar. 31, 2013
Office equipment [Member]
Schedule of estimated useful lives for fixed assets
Estimated useful lives for fixed assets	5 years
Motor vehicles [Member]
Schedule of estimated useful lives for fixed assets
Estimated useful lives for fixed assets	5 years
Leasehold improvements [Member]
Schedule of estimated useful lives for fixed assets
Estimated useful lives for fixed assets	Shorter of the length of lease or life of the improvements

XML

Summary of Significant Accounting Policies (Details 3)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
RMB [Member]
Summary of Exchange rates used to translate amounts in RMB into US dollars
Balance sheet items, except for stockholders' equity, as of periods end	0.1592	0.1581	0.1583
Amounts included in the statements of income and cash flows for the periods	0.1591	0.1582
HKD [Member]
Summary of Exchange rates used to translate amounts in RMB into US dollars
Balance sheet items, except for stockholders' equity, as of periods end	0.1288		0.1290
Amounts included in the statements of income and cash flows for the periods	0.1289	0.1288

XML

Summary of Significant Accounting Policies (Details Textual)	3 Months Ended
	Mar. 31, 2013 USD ($)	Mar. 31, 2013 CNY	Mar. 31, 2012 USD ($)	Dec. 31, 2012 USD ($)
Accounting Policies (Textual)
Consulting service fees as percentage of Shenzhen Wonhe's net income	95.00%	95.00%
Consulting expenses monthly payments	$ 7,955	50,000
Percentage of net income remitted to WFOE	95.00%	95.00%
Foreign currency translation adjustment	84,321		43,792
Term of the product warranty offered to customers	36 month	36 month
Advertising costs	65,637		583
Research and development expense	60,288		69,326
Inventory allowance	0			0
Percentage of net income transfer to statutory reserve fund	10.00%	10.00%
Statutory reserve fund transfer limitation, description	10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the VIE's registered capital.	10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the VIE's registered capital.
Percentage of minimum remaining reserve balance of Registered Capital, description	Not less than 25% of the registered capital.	Not less than 25% of the registered capital.
Unrecognized tax benefits	409,867
Uncertain tax positions	$ 0			$ 0
Federal tax at graduated rates, minimum (percentage)	15.00%	15.00%
Federal tax at graduated rates, maximum (percentage)	35.00%	35.00%
Applicable income tax rate by income tax laws of BVI	0.00%	0.00%
Enterprise income tax rate by income tax laws of PRC	25.00%	25.00%
Noncontrolling interest, Percentage of net assets in Shenzhen Wonhe	5.00%	5.00%

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Fixed Assets (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Summary of Components of fixed assets
Fixed assets	$ 476,636	$ 473,942
Less: accumulated depreciation	(143,451)	(123,251)
Fixed assets, net	333,185	350,691
Office equipment [Member]
Summary of Components of fixed assets
Fixed assets	154,547	153,674
Motor vehicles [Member]
Summary of Components of fixed assets
Fixed assets	214,963	213,748
Leasehold improvements [Member]
Summary of Components of fixed assets
Fixed assets	$ 107,126	$ 106,520

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Recently Issued Accounting Standards

3 Months Ended

Mar. 31, 2013

Recently Issued Accounting Standards [Abstract]

RECENTLY ISSUED ACCOUNTING STANDARDS

3.            RECENTLY ISSUED ACCOUNTING STANDARDS

On March 5, 2013, the FASB issued ASU 2013-05 to provide guidance for whether to release cumulative translation adjustments (“CTA”) upon certain derecognition events. The update was issued to resolve the diversity in practice about whether Subtopic ASC 810-10, “Consolidation-Overall,” or ASC 830-30, “Foreign Currency Matters-Translation of Financial Statements,” applies to such transactions. ASU 2013-05 is effective prospectively for all entities with derecognition events after the effective date. For public entities, the guidance is effective for fiscal years, and interim periods within those years, beginning after December 31, 2013. ASC 830-30 applies when an entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. Consequently, the CTA is released into net income only if the transaction results in complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets resided. Otherwise, no portion of the CTA is released. The adoption of this pronouncement is not expected to have a significant impact on the Company’s consolidated financial condition or results of operations.

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Fixed Assets (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Fixed Assets (Textual)
Depreciation	$ 19,486	$ 19,152

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Contingencies (Details)	3 Months Ended
	Mar. 31, 2013
Contingencies (Textual)
Period for pursuing economic reform policies	More than twenty years.

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Consolidated Balance Sheets (USD $)	Mar. 31, 2013	Dec. 31, 2012
Current assets:
Cash	$ 12,925,136	$ 5,215,738
Accounts receivable	3,077,534	4,033,576
Inventory	271,712	265,665
Advances to suppliers	1,891,376	5,282,712
Prepaid expenses	10,119	72,811
Total current assets	18,175,877	14,870,502
Fixed assets	476,636	473,942
Less: accumulated depreciation	(143,451)	(123,251)
Fixed assets, net	333,185	350,691
Other assets:
Intangible assets	23,349	25,328
Other assets - principally security deposits	51,202	53,908
Prepaid income taxes	501,348
Total other assets	575,899	79,236
TOTAL ASSETS	19,084,961	15,300,429
Current liabilities:
Accounts payable	14,418	14,241
Payroll payable	56,944	36,101
Taxes payable	116,436	793,723
Accrued expenses and other payables	191,187	163,549
Total current liabilities	378,985	1,007,614
Commitments and Contingencies
Stockholders' equity:
Preferred stock: $0.001 par value; 10,000,000 shares authorized; none issued and outstanding
Common stock: $0.001 par value; 90,000,000 shares authorized; 23,900,130 shares issued and outstanding at March 31, 2013 and December 31, 2012	23,900	23,900
Additional paid-in capital	7,113,611	7,113,611
Statutory reserve fund	1,010,711	600,844
Retained earnings	9,172,468	5,469,214
Other comprehensive income	453,198	373,062
Stockholders' equity before noncontrolling interests	17,773,888	13,580,631
Noncontrolling interests	932,088	712,184
Total stockholders' equity	18,705,976	14,292,815
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 19,084,961	$ 15,300,429

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Organization

3 Months Ended

Mar. 31, 2013

Organization [Abstract]

ORGANIZATION

1.            ORGANIZATION

Wonhe High-Tech International, Inc. (the “Company” or “Wonhe High-Tech”) was incorporated in the State of Nevada on August 13, 2007 under the name “Baby Fox International, Inc.” as a specialty retailer, developer, and designer of fashionable, value-priced women’s apparel and accessories.  The Company changed its name from Baby Fox International, Inc. to Wonhe High-Tech International, Inc. on April 20, 2012.

On June 27, 2012, the Company entered into and closed an exchange agreement with World Win International Holding Ltd. or “World Win,” all of the stockholders of World Win, and Super-stable Group Holdings Limited, or “Super-stable”, the majority stockholder of the Company (the “Exchange Agreement”), pursuant to which the stockholders of World Win transferred all of the issued and outstanding stock of World Win to the Company, and Super-stable transferred to such stockholders all of its 19,128,130 shares of the Company’s common stock (the “Share Exchange”).  The Company currently has 23,900,130 shares of common stock issued and outstanding.  The funds used by Super-stable to purchase its 19,128,130 shares of the Company’s common stock were loaned to it by Shenzhen Wonhe Technology Co., Ltd., or “Shenzhen Wonhe”, the Company’s indirect, consolidated affiliate.

As a result of the acquisition, the Company’s consolidated subsidiaries include World Win, the Company’s wholly-owned subsidiary which is incorporated under the laws of the British Virgin Island (“BVI”), Kuayu International Holdings Group Limited (Hong Kong), or “Kuayu”, a wholly-owned subsidiary of World Win which is incorporated under the laws of Hong Kong,  Shengshihe Management Consulting (Shenzhen) Co., Ltd., or “Shengshihe Consulting”, a wholly-owned subsidiary of Kuayu which is incorporated under the laws of the People’s Republic of China (“PRC”). The Company also consolidates the financial condition and results of operations of Shenzhen Wonhe Technology Co., Ltd., or “Shenzhen Wonhe”, a limited liability company incorporated under the laws of the PRC which is effectively and substantially controlled by Shengshihe Consulting through a series of captive agreements. Shenzhen Wonhe is considered a variable interest entity (“VIE”) of Shengshihe Consulting.

Shenzhen Wonhe Technology Co., Ltd. is a Chinese entity established on November 16, 2010 with registered capital of $7,495,000.  It specializes in the research and development, outsourced-manufacturing and trade of hi-tech products based on x86 (instruction set architecture based on Intel 8086 CPU) and ARM (32-bit reduced instruction set architecture).  Current products still under research and development include a Smart Media Box (SMB), Home Smart Server (HSS), Mini PC (MPC), All in One PC (AIO-PC), Business PAD (B-PAD), and Portable PAD (P-PAD). The product we currently offer to market is the Home Media Center (HMC). The Company is located in Shenzhen, Guangdong Province, China.

On May 30, 2012, Shenzhen Wonhe entered into (i) an Exclusive Technical Service and Business Consulting Agreement; (ii) a Proxy Agreement, (iii) Share Pledge Agreement, (iv) Call Option Agreement with Shengshihe Consulting.  The foregoing agreements are collectively referred to as the “Management and Control Agreements.”

Exclusive Technical Service and Business Consulting Agreement:  Pursuant to the Exclusive Technical Service and Business Consulting Agreement, Shengshihe Consulting provides technical support, consulting, training, marketing and business consulting services to Shenzhen Wonhe as related to its business activities.  In consideration for such services, Shenzhen Wonhe has agreed to pay as an annual service fee to Shengshihe Consulting an amount equal 95% of Shenzhen Wonhe’s annual net income with an additional payment of approximately $7,910 (RMB 50,000) each month. The agreement has an unlimited term and can only be terminated upon written agreement of both parties.

Proxy Agreement: Pursuant to the Proxy Agreement, the stockholders of Shenzhen Wonhe agreed to irrevocably entrust Shengshihe Consulting to designate a qualified person acceptable under PRC law and foreign investment policies, to vote all of the equity interests in Shenzhen Wonhe held by each of the stockholders of Shenzhen Wonhe.  The Agreement has an unlimited term and only can be terminated upon the written agreement of both parties.  

Share Pledge Agreement:  Pursuant to the Share Pledge Agreement, each of the stockholders of Shenzhen Wonhe pledged his shares to Shengshihe Consulting to secure the obligations of Shenzhen Wonhe under the Exclusive Technical Service and Business Consulting Agreement.  In addition, the stockholders of Shenzhen Wonhe agreed not to transfer, sell, pledge, dispose of or create any encumbrance on their interests in Shenzhen Wonhe that would affect Shengshihe Consulting’s interests.  This Agreement remains effective until the obligations under the Exclusive Technical Service and Business Consulting Agreement, Call Option Agreement and Proxy Agreement have been fulfilled or terminated.

Call Option Agreement:  Pursuant to the Call Option Agreement, Shengshihe Consulting has an exclusive option to purchase, or to designate a purchaser for, to the extent permitted by PRC law and foreign investment policies, part or all of the equity interests in Shenzhen Wonhe held by each of the stockholders of Shenzhen Wonhe.  To the extent permitted by PRC laws, the purchase price for the entire equity interest is approximately $0.16 (RMB1.00) or the minimum amount required by the PRC law or government practice. This Agreement remains effective until all the call options under the Agreement have been transferred to Shengshihe Consulting or its designated entities or natural persons.

After the Share Exchange, the Company’s current organization structure is as follows:

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Lease Obligations (Details) (USD $)	Mar. 31, 2013
Summary of Minimum future rentals under operating leases
2013	$ 143,659
2014	182,852
2015	177,999
2016	177,999
2017	177,999
Thereafter	207,666
Operating leases, future minimum payments due	$ 1,068,174

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Lease Obligations (Tables)

3 Months Ended

Mar. 31, 2013

Lease Obligations [Abstract]

Summary of Minimum future rentals under operating leases

Year Ending
December 31,	Amount
2013	$	143,659
2014		182,852
2015		177,999
2016		177,999
2017		177,999
Thereafter		207,666
	$	1,068,174

XML

Lease Obligations (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2013 Apartment	Mar. 31, 2012
Lease Obligations (Textual)
Number of apartments for lease	2
Monthly rental amount for apartments	$ 1,618
Expiration term of apartment taken on lease	One apartment at a monthly rental of $1,618, which expires in the second quarter of 2014.
Rent expense	44,500	44,248
Shenzhen [Member]
Lease Obligations (Textual)
Monthly rental from unrelated third parties	14,833
Lease expiration date	Feb. 28, 2019
Beijing [Member]
Lease Obligations (Textual)
Monthly rental from unrelated third parties	$ 712
Lease expiration date	Sep. 30, 2012

XML

Organization (Details)	1 Months Ended
	May 31, 2012 USD ($)	May 31, 2012 CNY	Mar. 31, 2013	Dec. 31, 2012	Jun. 27, 2012	May 30, 2012 USD ($)	May 30, 2012 CNY	Nov. 16, 2010 USD ($)
Organization (Textual)
Shares purchase under The "Exchange Agreement"					19,128,130
Common stock, shares, issued			23,900,130	23,900,130
Common stock, shares outstanding			23,900,130	23,900,130
Number of shares loaned by affiliate					19,128,130
Registered capital of Shenzhen Wonhe Technology Co., Ltd.								$ 7,495,000
Service fee paid to Shengshihe Consulting, description	95% of Shenzhen Wonhe's annual net income with an additional payment of approximately $7,910 (RMB 50,000) each month.	95% of Shenzhen Wonhe's annual net income with an additional payment of approximately $7,910 (RMB 50,000) each month.
Additional payment paid for consideration of consulting services	$ 7,910	50,000
Purchase price per share paid for equity interest acquired						$ 0.16	1.00

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2013

Summary Of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. The unaudited consolidated financial statements as of and for the three months ended March 31, 2013 include Wonhe High-Tech, World Win, Kuayu, Shengshihe Consulting and its VIE, Shenzhen Wonhe. The unaudited financial statements for the three months ended March 31, 2012 include Shenzhen Wonhe only, as World Win and Shengshihe Consulting were not in existence and Kuayu had no operations at that time. All significant intercompany accounts and transaction have been eliminated in consolidation when applicable.

The unaudited interim consolidated financial statements of the Company as of March 31, 2013 and for the three months ended March 31, 2013 and 2012, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements.

Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the fiscal year ended December 31, 2012, previously filed with the SEC. In the opinion of management, the interim information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2013.

Variable Interest Entity

Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”).  ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.  VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

Under ASC 810, an enterprise has a controlling financial interest in a VIE, and must consolidate that VIE, if the enterprise has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affected the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.  The enterprise’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de facto agents, have the unilateral ability to exercise those rights.Shenzhen Wonhe’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.

Through the VIE agreements as disclosed in Note 1, the Company is deemed the primary beneficiary of Shenzhen Wonhe and accordingly, their results have been included in the accompanying consolidated financial statements. The following are financial statement amounts and balances of Shenzhen Wonhe that have been included in the accompanying consolidated financial statements. Shenzhen Wonhe has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Shenzhen Wonhe do not have recourse to the Company’s general credit.

ASSETS	March 31, 2013			December 31, 2012
	(Unaudited, In U.S. $)			(In U.S. $)
Current assets:
Cash	$	12,849,726		$	5,159,917
Accounts receivable		3,077,534			4,033,576
Inventory		271,712			265,665
Advances to suppliers		1,891,376			5,282,712
Prepaid expenses		10,119			72,811
Total current assets		18,100,467			14,814,681
Fixed assets		476,636			473,942
Less: accumulated depreciation		(143,451	)		(123,251	)
Fixed assets, net		333,185			350,691
Other assets:
Intangible assets		23,349			25,328
Other assets – principally security deposits		51,202			53,908
Prepaid income taxes		501,348			-
Total other assets		575,899			79,236
TOTAL ASSETS	$	19,009,551		$	15,244,608
LIABILITIES
Current liabilities:
Accounts payable	$	14,418		$	14,241
Payable to WFOE(1)		10,946,928			6,848,259
Payroll payable		55,479			34,645
Taxes Payable		101,048			783,212
Accrued expenses and other payables		196,855			168,838
Total current liabilities		11,314,728			7,849,195
TOTAL LIABILITIES	$	11,314,728		$	7,849,195

(1)   Payable to WFOE represents amounts due to Shengshihe Consulting under the Exclusive Technical Service and Business Consulting Agreement for consulting services provided to Shenzhen Wonhe in exchange for 95% of Shenzhen Wonhe’s net income. Monthly payments for the three months ended March 31, 2013 of RMB 50,000 (approximately US$7,955) were paid in full as of March 31, 2013.

	Three Months Ended March 31,
	2013		2012
Sales	$	9,617,400	$	3,354,356
Net income(2)		4,314,388		979,451

(2)   Under the Exclusive Technical Service and Business Consulting Agreement, 95% of the net income is to be remitted to WFOE.

	Three Months Ended March 31,
	2013		2012
Net cash provided by (used in) operating activities	$	7,593,147	$	(4,739,173	)
Net cash (used in) investing activities		-		(2,183	)
Net cash provided by financing activities		15,000		4,929,671
Effect of exchange rate changes on cash		81,662		39,486
Net increase in cash	$	7,689,809	$	227,801

The Company believes that Shengshihe Consulting’s contractual agreements with Shenzhen Wonhe are in compliance with PRC law and are legally enforceable. The stockholders of Shenzhen Wonhe are also the senior management of the Company and therefore the Company believes that they have no current interest in seeking to act contrary to the contractual arrangements. However, Shenzhen Wonhe and its stockholders may fail to take certain actions required for the Company’s business or to follow the Company’s instructions despite their contractual obligations to do so. Furthermore, if Shenzhen Wonhe or its stockholders do not act in the best interests of the Company under the contractual arrangements and any dispute relating to these contractual arrangements remains unresolved, the Company will have to enforce its rights under these contractual arrangements through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements, which may make it difficult to exert effective control over Shenzhen Wonhe, and its ability to conduct business may be adversely affected.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Foreign Currency Translation

Almost all of the Company’s assets are located in the PRC. The functional currency for the majority of the operations is the Renminbi (“RMB”). For Kuayu, the functional currency for the majority of its operations is the Hong Kong Dollar (“HKD”). The Company uses the US Dollar for financial reporting purposes. The unaudited consolidated financial statements of the Company have been translated into US dollars in accordance with FASB ASC 830, “Foreign Currency Matters.”

All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date.  Equity accounts have been translated at their historical exchange rates when the capital transactions occurred.  Statements of operations and other comprehensive income amounts have been translated using the average exchange rate for the periods presented.  Adjustments resulting from the translation of the Company’s consolidated financial statements are recorded as other comprehensive income.

The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the consolidated financial statements are as follows:

March 31, 2013

December 31, 2012

March 31, 2012

RMB

HKD

RMB

HKD

RMB

HKD

Balance sheet items, except for stockholders’ equity, as of periods end

0.1592

0.1288

0.1583

0.1290

0.1581

N/A

Amounts included in the statements of income and cash flows for the periods

0.1591

0.1289

N/A

N/A

0.1582

0.1288

For the three months ended March 31, 2013 and 2012, foreign currency translation adjustments of $84,321 and $43,792, respectively, have been reported as other comprehensive income.

Although government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain.  Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate.

The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions.  Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US dollar reporting.

Revenue and Cost Recognition

The Company receives revenue from sales of electronic products. The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales revenue is recognized when the products are delivered and when customer acceptance occurs, the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. Finished goods are delivered from outsourced manufacturers to the Company. Revenue is recognized when the title to the products has been passed to customers, which is the date the products are picked up by the customers at the Company’s location or delivered to the designated locations by Company employees and accepted by the customers and the previously discussed requirements are met. The customers’ acceptance occurs upon inspection at the time of pickup or delivery by signing an acceptance form. The Company does not provide the customers with the right of return. A 36-month warranty is offered to customers for exchange or repair of defective products, the cost of which is substantially covered by the outsourced manufacturers’ warranty policies as specified in the contract between the Company and outsourced manufacturers. As a result, the Company does not recognize a warranty liability. Payments received before all of the relevant criteria for revenue recognition are met are recorded as advances from customers.

The Company follows the guidance set forth by FASB ASC 605-45-45 to assess whether the Company acts as the principal or agent in the transaction. The determination involves judgment and is based on an evaluation of whether the Company has the substantial risks and rewards of ownership under the terms of arrangement. Based on the assessment, the Company determined it acts as principal in the transaction and reports revenues on the gross basis.

FASB ASC 605-45-45 sets forth eight criteria that support reporting recognition of gross revenue (i.e. principal sales) and three that support reporting net revenue (i.e. agent sales).  As applied to the relationship between the Company and its manufacturers, seven of the criteria that support reporting gross revenue are satisfied as follows:

● Shenzhen Wonhe is the primary obligor in each sale, as it is responsible for fulfillment of customer orders, including the acceptability of the products purchased by the customer. 

● Shenzhen Wonhe has general inventory risk, as it takes title to a product before that product is ordered by or delivered to a customer.

● Shenzhen Wonhe establishes its own pricing for its products.

● Shenzhen Wonhe has discretion in supplier selection. 

● Shenzhen Wonhe designed HMC660 and is responsible for all specifications. 

● Shenzhen Wonhe has physical loss inventory risk until the product is delivered to the customer.

● Shenzhen Wonhe has full credit risk for amounts billed to its customers.

The only criterion supporting recognition of gross revenue that is not satisfied by the relationship between the Company and its manufacturers is:  entity changes the product or performs part of the service. Moreover, none of the three criteria supporting recognition of net revenue is present in the Company’s sales transactions. For this reason, the Company records gross revenue with respect to sales of Shenzhen Wonhe.

Fair Value of Financial Instruments

FASB ASC 820, “Fair Value Measurement,” defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising costs were $65,637 and $583 for the three months ended March 31, 2013 and 2012, respectively.

Research and Development Costs

The Company develops software to be marketed as part of its products, and that is not for internal use.  The software is essential to the functionality of the Company’s tangible products.  Therefore, the Company accounts for research and development costs incurred in development of its software in accordance with FASB ASC 985-20.  

Research and development costs are charged to operations when incurred.  Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed as incurred. Research and development costs were $60,288 and $69,326 for the three months ended March 31, 2013 and 2012, respectively.

Cash and Cash Equivalents

The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable is stated at cost, net of an allowance for doubtful accounts.  Receivables outstanding longer than the payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of the outstanding balance. In evaluating the collectability of an individual receivable balance, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company considers all accounts receivable at March 31, 2013 and December 31, 2012  to be fully collectible and, therefore, did not provide for an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts.

Inventory

Inventory, comprised principally of computer components, is valued at the lower of cost or market value. The value of inventories is determined using the first-in, first-out method.

The Company estimates an inventory allowance for estimated unmarketable inventories.  Inventory amounts are reported net of such allowances, if any. There were no allowances for inventory as of March 31, 2013 and December 31, 2012.

Advances to Suppliers

Advances to suppliers consist of payments made to suppliers for future deliveries.

Prepaid Expenses

Prepaid expenses primarily consist of prepaid consulting fees for listing on the American stock exchange and an advance to an advertising company.

Fixed Assets and Depreciation

Fixed assets are recorded at cost, less accumulated depreciation.  Cost includes the price paid to acquire the asset, and any expenditure that substantially increases the asset’s value or extends the useful life of an existing asset.  Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the improvements. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.  Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.

The estimated useful lives for fixed asset categories are as follows:

Office equipment	5 years
Motor vehicles	5 years
Leasehold improvements	Shorter of the length of lease or life of the improvements

Impairment of Long-lived Assets

The Company applies FASB ASC 360, “Property, Plant and Equipment,” which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets.  In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The Company may recognize

the impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to those assets. No impairment of long-lived assets was recognized for the periods presented.

Statutory Reserve Fund

Pursuant to corporate law of the PRC, the Company’s VIE is required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the VIE’s registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund prior years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital. As of March 31, 2013, $409,867 was transferred from retained earnings to statutory reserve fund.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of March 31, 2013 and December 31, 2012, the Company does not have any uncertain tax positions.

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

United States

The Company is subject to United States tax at graduated rates from 15% to 35%.  No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the three months ended March 31, 2013 and 2012.

BVI

World Win is incorporated in the BVI and is governed by the income tax laws of the BVI. According to current BVI income tax law, the applicable income tax rate for the Company is 0%.

Hong Kong

Kuayu International is incorporated in Hong Kong.  Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non Hong Kong source income.

PRC

Shenzhen Wonhe and Shengshihe Consulting are subject to an Enterprise Income Tax at 25% and file their own tax returns.  Consolidated tax returns are not permitted in China.

Noncontrolling Interests

The Company evaluated and determined that under the VIE agreements as disclosed in Note 1, it is deemed to be the primary beneficiary of Shenzhen Wonhe. The noncontrolling interest, representing 5% of the net assets in Shenzhen Wonhe not attributable, directly or indirectly to the Company, is measured at its carrying value in the equity section of the consolidated balance sheets.

Reclassifications

Certain amounts in the prior periods financial statements have been reclassified for comparative purposes to conform to the presentation in the current periods financial statements. These reclassifications had no effect on previously reported earnings.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Balance Sheets [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	90,000,000	90,000,000
Common stock, shares, issued	23,900,130	23,900,130
Common stock, shares outstanding	23,900,130	23,900,130

XML

Subsequent Event

3 Months Ended

Mar. 31, 2013

Subsequent Events [Abstract]

SUBSEQUENT EVENT

12.           SUBSEQUENT EVENT

On May 2, 2013, the Company sold 14,480,000 shares of common stock to 32 unrelated individuals in a private offering.  The purchase price for the shares was 4.2 Renminbi (approx. $.68) per share, or a total of 60,816,000 Renminbi (approx. $9,912,000).  The shares were sold to individuals who are accredited investors and were purchasing for their own accounts.  The offering, therefore, was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and Section 4(5) of the Securities Act.  The offering was also sold in compliance with the exemption from registration provided by Regulation S, as all of the purchasers are residents of the People’s Republic of China.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 15, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	Wonhe High-Tech International, Inc.
Entity Central Index Key	0001434388
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		38,380,130

XML

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2013

Summary Of Significant Accounting Policies [Abstract]

Basis of Accounting and Presentation

Basis of Accounting and Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. The unaudited consolidated financial statements as of and for the three months ended March 31, 2013 include Wonhe High-Tech, World Win, Kuayu, Shengshihe Consulting and its VIE, Shenzhen Wonhe. The unaudited financial statements for the three months ended March 31, 2012 include Shenzhen Wonhe only, as World Win and Shengshihe Consulting were not in existence and Kuayu had no operations at that time. All significant intercompany accounts and transaction have been eliminated in consolidation when applicable.

The unaudited interim consolidated financial statements of the Company as of March 31, 2013 and for the three months ended March 31, 2013 and 2012, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements.

Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the fiscal year ended December 31, 2012, previously filed with the SEC. In the opinion of management, the interim information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2013.

Variable Interest Entity

Variable Interest Entity

Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”).  ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.  VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

Under ASC 810, an enterprise has a controlling financial interest in a VIE, and must consolidate that VIE, if the enterprise has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affected the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.  The enterprise’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de facto agents, have the unilateral ability to exercise those rights.Shenzhen Wonhe’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.

Through the VIE agreements as disclosed in Note 1, the Company is deemed the primary beneficiary of Shenzhen Wonhe and accordingly, their results have been included in the accompanying consolidated financial statements. The following are financial statement amounts and balances of Shenzhen Wonhe that have been included in the accompanying consolidated financial statements. Shenzhen Wonhe has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Shenzhen Wonhe do not have recourse to the Company’s general credit.

ASSETS	March 31, 2013			December 31, 2012
	(Unaudited, In U.S. $)			(In U.S. $)
Current assets:
Cash	$	12,849,726		$	5,159,917
Accounts receivable		3,077,534			4,033,576
Inventory		271,712			265,665
Advances to suppliers		1,891,376			5,282,712
Prepaid expenses		10,119			72,811
Total current assets		18,100,467			14,814,681
Fixed assets		476,636			473,942
Less: accumulated depreciation		(143,451	)		(123,251	)
Fixed assets, net		333,185			350,691
Other assets:
Intangible assets		23,349			25,328
Other assets – principally security deposits		51,202			53,908
Prepaid income taxes		501,348			-
Total other assets		575,899			79,236
TOTAL ASSETS	$	19,009,551		$	15,244,608
LIABILITIES
Current liabilities:
Accounts payable	$	14,418		$	14,241
Payable to WFOE(1)		10,946,928			6,848,259
Payroll payable		55,479			34,645
Taxes Payable		101,048			783,212
Accrued expenses and other payables		196,855			168,838
Total current liabilities		11,314,728			7,849,195
TOTAL LIABILITIES	$	11,314,728		$	7,849,195

(1)   Payable to WFOE represents amounts due to Shengshihe Consulting under the Exclusive Technical Service and Business Consulting Agreement for consulting services provided to Shenzhen Wonhe in exchange for 95% of Shenzhen Wonhe’s net income. Monthly payments for the three months ended March 31, 2013 of RMB 50,000 (approximately US$7,955) were paid in full as of March 31, 2013.

	Three Months Ended March 31,
	2013		2012
Sales	$	9,617,400	$	3,354,356
Net income(2)		4,314,388		979,451

(2)   Under the Exclusive Technical Service and Business Consulting Agreement, 95% of the net income is to be remitted to WFOE.

	Three Months Ended March 31,
	2013		2012
Net cash provided by (used in) operating activities	$	7,593,147	$	(4,739,173	)
Net cash (used in) investing activities		-		(2,183	)
Net cash provided by financing activities		15,000		4,929,671
Effect of exchange rate changes on cash		81,662		39,486
Net increase in cash	$	7,689,809	$	227,801

The Company believes that Shengshihe Consulting’s contractual agreements with Shenzhen Wonhe are in compliance with PRC law and are legally enforceable. The stockholders of Shenzhen Wonhe are also the senior management of the Company and therefore the Company believes that they have no current interest in seeking to act contrary to the contractual arrangements. However, Shenzhen Wonhe and its stockholders may fail to take certain actions required for the Company’s business or to follow the Company’s instructions despite their contractual obligations to do so. Furthermore, if Shenzhen Wonhe or its stockholders do not act in the best interests of the Company under the contractual arrangements and any dispute relating to these contractual arrangements remains unresolved, the Company will have to enforce its rights under these contractual arrangements through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements, which may make it difficult to exert effective control over Shenzhen Wonhe, and its ability to conduct business may be adversely affected.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Foreign Currency Translations

Foreign Currency Translation

Almost all of the Company’s assets are located in the PRC. The functional currency for the majority of the operations is the Renminbi (“RMB”). For Kuayu, the functional currency for the majority of its operations is the Hong Kong Dollar (“HKD”). The Company uses the US Dollar for financial reporting purposes. The unaudited consolidated financial statements of the Company have been translated into US dollars in accordance with FASB ASC 830, “Foreign Currency Matters.”

All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date.  Equity accounts have been translated at their historical exchange rates when the capital transactions occurred.  Statements of operations and other comprehensive income amounts have been translated using the average exchange rate for the periods presented.  Adjustments resulting from the translation of the Company’s consolidated financial statements are recorded as other comprehensive income.

The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the consolidated financial statements are as follows:

March 31, 2013

December 31, 2012

March 31, 2012

RMB

HKD

RMB

HKD

RMB

HKD

Balance sheet items, except for stockholders’ equity, as of periods end

0.1592

0.1288

0.1583

0.1290

0.1581

N/A

Amounts included in the statements of income and cash flows for the periods

0.1591

0.1289

N/A

N/A

0.1582

0.1288

For the three months ended March 31, 2013 and 2012, foreign currency translation adjustments of $84,321 and $43,792, respectively, have been reported as other comprehensive income.

Although government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain.  Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate.

The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions.  Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US dollar reporting.

Revenue and Cost Recognition

Revenue and Cost Recognition

The Company receives revenue from sales of electronic products. The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales revenue is recognized when the products are delivered and when customer acceptance occurs, the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. Finished goods are delivered from outsourced manufacturers to the Company. Revenue is recognized when the title to the products has been passed to customers, which is the date the products are picked up by the customers at the Company’s location or delivered to the designated locations by Company employees and accepted by the customers and the previously discussed requirements are met. The customers’ acceptance occurs upon inspection at the time of pickup or delivery by signing an acceptance form. The Company does not provide the customers with the right of return. A 36-month warranty is offered to customers for exchange or repair of defective products, the cost of which is substantially covered by the outsourced manufacturers’ warranty policies as specified in the contract between the Company and outsourced manufacturers. As a result, the Company does not recognize a warranty liability. Payments received before all of the relevant criteria for revenue recognition are met are recorded as advances from customers.

The Company follows the guidance set forth by FASB ASC 605-45-45 to assess whether the Company acts as the principal or agent in the transaction. The determination involves judgment and is based on an evaluation of whether the Company has the substantial risks and rewards of ownership under the terms of arrangement. Based on the assessment, the Company determined it acts as principal in the transaction and reports revenues on the gross basis.

FASB ASC 605-45-45 sets forth eight criteria that support reporting recognition of gross revenue (i.e. principal sales) and three that support reporting net revenue (i.e. agent sales).  As applied to the relationship between the Company and its manufacturers, seven of the criteria that support reporting gross revenue are satisfied as follows:

● Shenzhen Wonhe is the primary obligor in each sale, as it is responsible for fulfillment of customer orders, including the acceptability of the products purchased by the customer. 

● Shenzhen Wonhe has general inventory risk, as it takes title to a product before that product is ordered by or delivered to a customer.

● Shenzhen Wonhe establishes its own pricing for its products.

● Shenzhen Wonhe has discretion in supplier selection. 

● Shenzhen Wonhe designed HMC660 and is responsible for all specifications. 

● Shenzhen Wonhe has physical loss inventory risk until the product is delivered to the customer.

● Shenzhen Wonhe has full credit risk for amounts billed to its customers.

The only criterion supporting recognition of gross revenue that is not satisfied by the relationship between the Company and its manufacturers is:  entity changes the product or performs part of the service. Moreover, none of the three criteria supporting recognition of net revenue is present in the Company’s sales transactions. For this reason, the Company records gross revenue with respect to sales of Shenzhen Wonhe.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

FASB ASC 820, “Fair Value Measurement,” defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

Advertising Costs

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising costs were $65,637 and $583 for the three months ended March 31, 2013 and 2012, respectively.

Research and Development Costs

Research and Development Costs

The Company develops software to be marketed as part of its products, and that is not for internal use.  The software is essential to the functionality of the Company’s tangible products.  Therefore, the Company accounts for research and development costs incurred in development of its software in accordance with FASB ASC 985-20.  

Research and development costs are charged to operations when incurred.  Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed as incurred. Research and development costs were $60,288 and $69,326 for the three months ended March 31, 2013 and 2012, respectively.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts Receivable

Accounts receivable is stated at cost, net of an allowance for doubtful accounts.  Receivables outstanding longer than the payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of the outstanding balance. In evaluating the collectability of an individual receivable balance, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company considers all accounts receivable at March 31, 2013 and December 31, 2012  to be fully collectible and, therefore, did not provide for an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts.

Inventory

                Inventory

Inventory, comprised principally of computer components, is valued at the lower of cost or market value. The value of inventories is determined using the first-in, first-out method.

The Company estimates an inventory allowance for estimated unmarketable inventories.  Inventory amounts are reported net of such allowances, if any. There were no allowances for inventory as of March 31, 2013 and December 31, 2012.

Advances to Suppliers

Advances to Suppliers

Advances to suppliers consist of payments made to suppliers for future deliveries.

Prepaid Expenses

                Prepaid Expenses

Prepaid expenses primarily consist of prepaid consulting fees for listing on the American stock exchange and an advance to an advertising company.

Fixed Assets and Depreciation

Fixed Assets and Depreciation

Fixed assets are recorded at cost, less accumulated depreciation.  Cost includes the price paid to acquire the asset, and any expenditure that substantially increases the asset’s value or extends the useful life of an existing asset.  Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the improvements. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.  Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.

The estimated useful lives for fixed asset categories are as follows:

Office equipment	5 years
Motor vehicles	5 years
Leasehold improvements	Shorter of the length of lease or life of the improvements

Impairment of Long-lived Assets

Impairment of Long-lived Assets

The Company applies FASB ASC 360, “Property, Plant and Equipment,” which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets.  In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The Company may recognize the impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to those assets. No impairment of long-lived assets was recognized for the periods presented.

Statutory Reserve Fund

                Statutory Reserve Fund

Pursuant to corporate law of the PRC, the Company’s VIE is required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the VIE’s registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund prior years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital. As of March 31, 2013, $409,867 was transferred from retained earnings to statutory reserve fund.

Income Taxes

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of March 31, 2013 and December 31, 2012, the Company does not have any uncertain tax positions.

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

United States

The Company is subject to United States tax at graduated rates from 15% to 35%.  No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the three months ended March 31, 2013 and 2012.

BVI

World Win is incorporated in the BVI and is governed by the income tax laws of the BVI. According to current BVI income tax law, the applicable income tax rate for the Company is 0%.

Hong Kong

Kuayu International is incorporated in Hong Kong.  Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non Hong Kong source income.

PRC

Shenzhen Wonhe and Shengshihe Consulting are subject to an Enterprise Income Tax at 25% and file their own tax returns.  Consolidated tax returns are not permitted in China.

Noncontrolling interests

Noncontrolling Interests

The Company evaluated and determined that under the VIE agreements as disclosed in Note 1, it is deemed to be the primary beneficiary of Shenzhen Wonhe. The noncontrolling interest, representing 5% of the net assets in Shenzhen Wonhe not attributable, directly or indirectly to the Company, is measured at its carrying value in the equity section of the consolidated balance sheets.

Reclassifications

Reclassifications

Certain amounts in the prior periods financial statements have been reclassified for comparative purposes to conform to the presentation in the current periods financial statements. These reclassifications had no effect on previously reported earnings.

Recently Issued Accounting Standards

On March 5, 2013, the FASB issued ASU 2013-05 to provide guidance for whether to release cumulative translation adjustments (“CTA”) upon certain derecognition events. The update was issued to resolve the diversity in practice about whether Subtopic ASC 810-10, “Consolidation-Overall,” or ASC 830-30, “Foreign Currency Matters-Translation of Financial Statements,” applies to such transactions. ASU 2013-05 is effective prospectively for all entities with derecognition events after the effective date. For public entities, the guidance is effective for fiscal years, and interim periods within those years, beginning after December 31, 2013. ASC 830-30 applies when an entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. Consequently, the CTA is released into net income only if the transaction results in complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets resided. Otherwise, no portion of the CTA is released. The adoption of this pronouncement is not expected to have a significant impact on the Company’s consolidated financial condition or results of operations.

XML

Consolidated Statements of Income and Other Comprehensive Income (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Statement
Sales	$ 9,617,400	$ 3,354,356
Cost of sales	(4,922,413)	(1,714,981)
Gross profit	4,694,987	1,639,375
Operating expenses:
Research and development expenses	60,288	69,326
Selling and marketing	81,976	85,125
General and administrative	219,065	291,056
Total operating expenses	361,329	445,507
Income from operations	4,333,658	1,193,868
Interest income		112,067
Income before provision for income taxes	4,333,658	1,305,935
Provision for income taxes	4,818	326,484
Net income	4,328,840	979,451
Noncontrolling interests	(215,719)
Net income attributable to common stockholders	4,113,121	979,451
Foreign currency translation adjustment	84,321	43,792
Total comprehensive income	$ 4,197,442	$ 1,023,243
Earnings per common share, basic and diluted	$ 0.17	$ 0.05
Weighted average shares outstanding, basic and diluted	23,900,130	19,128,130

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Related Party Transactions

3 Months Ended

Mar. 31, 2013

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

7.            RELATED PARTY TRANSACTIONS

On December 16, 2010, the Company entered into a twelve month loan agreement with a third party in the amount of $7,560,000, which matured on December 31, 2011 with interest at 12% per annum. Prepaid interest of $393,120 was received upon signing of the agreement. The loan was guaranteed by Guowang Xinke Venture Capital Investment (Jiangsu) Co., Ltd. (“Guowang Capital”), an entity related to the Company through certain stockholders. The agreement provided for the interest rate to increase to 15% on the amount not repaid by December 31, 2011. In May 2011, Guowang Capital assumed the loan.

At March 31, 2012, the loan was fully repaid. Interest charged by the Company for the three months ended March 31, 2013 and 2012, included in interest income was $0 and $112,067, respectively.

On April 25, 2011, the Company entered into a twelve month non-interest bearing loan agreement with Guowang Capital in the amount of $314,200, due April 27, 2012. The loan was fully paid at March 31, 2012.

On April 30, 2011, the Company entered into a twelve month non-interest bearing loan agreement with Zhongshan Puruisi Power Equipment Technology Co., Ltd. (“Puruisi Power”), an entity related to the Company through one of its stockholders, in the amount of $141,390, due May 2, 2012. On March 14, 2012, the Company lent additional $79,000 to Zhongshan Puruisi and the two loans were fully repaid on March 19, 2012.

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Lease Obligations

3 Months Ended

Mar. 31, 2013

Lease Obligations [Abstract]

LEASE OBLIGATIONS

6.            LEASE OBLIGATIONS

The Company leases its offices in Shenzhen from an unrelated third party at a monthly rental of $14,833 under an operating lease, which expires on February 28, 2019. The Company also leases one apartment at a monthly rental of $1,618, which expires in the second quarter of 2014. The Company had a lease for office space in Beijing at a monthly rent of $712 that expired in September 2012 and was not renewed.

The minimum future rentals under these leases as of March 31, 2013, are as follows:

Year Ending
December 31,	Amount
2013	$	143,659
2014		182,852
2015		177,999
2016		177,999
2017		177,999
Thereafter		207,666
	$	1,068,174

Rent expense for the three months ended March 31, 2013 and 2012 was $44,500 and $44,248, respectively.

XML

Income Taxes (Tables)

3 Months Ended

Mar. 31, 2013

Income Taxes [Abstract]

Summary of reconciliation of the statutory rate with the effective income tax rate

	Tax Provision			Rate of Tax
Tax at statutory rate	$	1,083,415			25.00	%
VIE tax holiday		(1,078,597	)		(24.89	%)
Tax at effective tax rate	$	4,818			0.11	%

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2013

Summary Of Significant Accounting Policies [Abstract]

Schedule of variable interest entities, consolidated financial statements

ASSETS	March 31, 2013			December 31, 2012
	(Unaudited, In U.S. $)			(In U.S. $)
Current assets:
Cash	$	12,849,726		$	5,159,917
Accounts receivable		3,077,534			4,033,576
Inventory		271,712			265,665
Advances to suppliers		1,891,376			5,282,712
Prepaid expenses		10,119			72,811
Total current assets		18,100,467			14,814,681
Fixed assets		476,636			473,942
Less: accumulated depreciation		(143,451	)		(123,251	)
Fixed assets, net		333,185			350,691
Other assets:
Intangible assets		23,349			25,328
Other assets – principally security deposits		51,202			53,908
Prepaid income taxes		501,348			-
Total other assets		575,899			79,236
TOTAL ASSETS	$	19,009,551		$	15,244,608
LIABILITIES
Current liabilities:
Accounts payable	$	14,418		$	14,241
Payable to WFOE(1)		10,946,928			6,848,259
Payroll payable		55,479			34,645
Taxes Payable		101,048			783,212
Accrued expenses and other payables		196,855			168,838
Total current liabilities		11,314,728			7,849,195
TOTAL LIABILITIES	$	11,314,728		$	7,849,195

(1)   Payable to WFOE represents amounts due to Shengshihe Consulting under the Exclusive Technical Service and Business Consulting Agreement for consulting services provided to Shenzhen Wonhe in exchange for 95% of Shenzhen Wonhe’s net income. Monthly payments for the three months ended March 31, 2013 of RMB 50,000 (approximately US$7,955) were paid in full as of March 31, 2013.

	Three Months Ended March 31,
	2013		2012
Sales	$	9,617,400	$	3,354,356
Net income(2)		4,314,388		979,451

(2)   Under the Exclusive Technical Service and Business Consulting Agreement, 95% of the net income is to be remitted to WFOE.

	Three Months Ended March 31,
	2013		2012
Net cash provided by (used in) operating activities	$	7,593,147	$	(4,739,173	)
Net cash (used in) investing activities		-		(2,183	)
Net cash provided by financing activities		15,000		4,929,671
Effect of exchange rate changes on cash		81,662		39,486
Net increase in cash	$	7,689,809	$	227,801

Summary of Exchange rates used to translate amounts in RMB into US dollars

March 31, 2013

December 31, 2012

March 31, 2012

RMB

HKD

RMB

HKD

RMB

HKD

Balance sheet items, except for stockholders’ equity, as of periods end

0.1592

0.1288

0.1583

0.1290

0.1581

N/A

Amounts included in the statements of income and cash flows for the periods

0.1591

0.1289

N/A

N/A

0.1582

0.1288

Summary of Estimated useful lives for fixed assets

Office equipment	5 years
Motor vehicles	5 years
Leasehold improvements	Shorter of the length of lease or life of the improvements

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Contingencies

3 Months Ended

Mar. 31, 2013

Contingencies [Abstract]

CONTINGENCIES

10.           CONTINGENCIES

Concentration of Credit Risk

Substantially all of the Company’s bank accounts are in banks located in The People’s Republic of China and are not covered by protection similar to that provided by the FDIC on funds held in United States banks.

Vulnerability Due to Operations in PRC

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC.  Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective in the future.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

8.FAIR VALUE MEASUREMENTS

FASB ASC 820 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

Level 2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. As of March 31, 2013 and December 31, 2012, none of the Company’s assets and liabilities were required to be reported at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, receivables and various payables, approximate their fair values due to the short term nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.

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Income Taxes

3 Months Ended

Mar. 31, 2013

Income Taxes [Abstract]

INCOME TAXES

9.             INCOME TAXES

The Company is required to file income tax returns in both the United States and the PRC. Its operations in the United States have been insignificant and income taxes have not been accrued. In the PRC, the Company files tax returns for Shenzhen Wonhe and Shengshihe Consulting. Shenzhen Wonhe received a tax preferential tax treatment from the PRC State Administration of Taxation under which starting from its first profitable year, Shenzhen Wonhe is entitled to a two-year exemption from the Enterprise Income Tax followed by a three year 50% reduction in its Enterprise Income Tax rate. Payments already made for the tax year ended December 31, 2012 may be applied to future income tax due, contingent upon the PRC State Administration of Taxation’s approval.

The following is a reconciliation of the statutory rate with the effective income tax rate for the three months ended March 31, 2013.  The effective tax rate was the same as statutory tax rate for the three months ended March 31, 2012.

	Tax Provision			Rate of Tax
Tax at statutory rate	$	1,083,415			25.00	%
VIE tax holiday		(1,078,597	)		(24.89	%)
Tax at effective tax rate	$	4,818			0.11	%

The Company’s PRC tax filings for the tax years ended December 31, 2011 and 2010 were examined by the tax authorities in April 2012 and 2011, respectively.  The examinations were completed and resulted in no adjustments.

Because the Company did not generate any income in the United States or otherwise have any U.S. taxable income, the Company does not believe that it has any U.S. federal income tax liabilities with respect to any transactions that the Company or any of its subsidiaries may have engaged in through March 31, 2013. However, there can be no assurance that the IRS will agree with this position, and therefore the Company ultimately could be liable for U.S. federal income taxes, interest and penalties.

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Major Customers

3 Months Ended

Mar. 31, 2013

Major Customers [Abstract]

MAJOR CUSTOMERS

11.      MAJOR CUSTOMERS

During the three months ended March 31, 2013, no sales to a single customer exceeded 10% of the Company’s gross revenue. However, the combined sales to five customers accounted for approximately 38% of sales for the three months ended March 31, 2013. Three of these five customers accounted for approximately 49% of accounts receivable as of March 31, 2013.

During the three months ended March 31, 2012, the combined sales to six customers accounted for approximately 79% of sales for the three months ended March 31, 2012. Five of these six accounted for 100% of accounts receivable as of March 31, 2012.

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Intangible Assets (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Intangible Assets (Textual)
Amortization period of intangible assets	3 years
Amortization expense	$ 2,123	$ 0

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Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2013

Intangible Assets [Abstract]

Summary of intangible assets

	March 31, 2013			December 31,  2012
Software	$	25,472		$	25,328
		25,472			25,328
Less: Accumulated amortization		(2,123	)		-
Intangible assets, net	$	23,349		$	25,328

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Summary of Significant Accounting Policies (Details 1) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Summary of variable interest entity, consolidated, income
Sales	$ 9,617,400	$ 3,354,356
Net income (loss)	4,113,121	979,451
WFOE [Member]
Summary of variable interest entity, consolidated, income
Sales	9,617,400	3,354,356
Net income (loss)	$ 4,314,388	$ 979,451

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Major Customers (Details)	3 Months Ended
	Mar. 31, 2013 Customer	Mar. 31, 2012 Customer
Major Customers (Textual)
Major customer revenue, percentage	38.00%	79.00%
Number of major customer accounted for revenue	5	6
Number of major customer accounted for accounts receivable	3	5
Major customer accounts receivable, percentage	49.00%	100.00%

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net income	$ 4,328,840	$ 979,451
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	21,609	19,152
Deferred income taxes		294,674
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable	958,748	(2,176,756)
(Increase) in interest receivable		(1,958)
(Increase) in inventory	(6,047)	(25,116)
Decrease (increase) in advances to suppliers	3,391,336	(3,764,061)
Decrease (increase) in prepaid expenses	62,692	(225,047)
(Increase) in prepaid income taxes	(501,348)
Increase (decrease) in accounts payable	177	(2,306)
Increase in payroll payable	20,843	9,778
(Decrease) increase in taxes payable	(677,287)	144,223
Increase (decrease) in accrued expenses and other payables	12,543	(54,206)
Increase in advances from customers		62,999
Net cash provided by (used in) operating activities	7,612,106	(4,739,173)
Cash flows from investing activities:
Purchase of fixed assets		(2,183)
Net cash (used in) investing activities		(2,183)
Cash flows from financing activities:
Loans from (to) related parties	15,000	(365,220)
Repayment of related party loans		5,294,891
Net cash provided by financing activities	15,000	4,929,671
Effect of exchange rate changes on cash	82,292	39,486
Net increase in cash	7,709,398	227,801
Cash, beginning	5,215,738	76,084
Cash, ending	12,925,136	303,885
Supplemental disclosure of cash flow information:
Cash paid for income taxes	1,154,277
Cash paid for interest

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Intangible Assets

3 Months Ended

Mar. 31, 2013

Intangible Assets [Abstract]

INTANGIBLE ASSETS

5.            INTANGIBLE ASSETS

Intangible assets at March 31, 2013 and December 31, 2012 are summarized as follows:

	March 31, 2013			December 31,  2012
Software	$	25,472		$	25,328
		25,472			25,328
Less: Accumulated amortization		(2,123	)		-
Intangible assets, net	$	23,349		$	25,328

Software was purchased in December, 2012, and is being amortized over three years, beginning in January, 2013. Amortization expense charged to operations for the three months ended March 31, 2013 and 2012 was $2,123 and $0, respectively.

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Summary of Significant Accounting Policies (Details 2) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Summary of variable interest entity, consolidated, cash flows
Net cash provided by (used in) operating activities	$ 7,612,106	$ (4,739,173)
Net cash (used in) investing activities		(2,183)
Net cash provided by financing activities	15,000	4,929,671
Effect of exchange rate changes on cash	82,292	39,486
Net increase in cash	7,709,398	227,801
WFOE [Member]
Summary of variable interest entity, consolidated, cash flows
Net cash provided by (used in) operating activities	7,593,147	(4,739,173)
Net cash (used in) investing activities		(2,183)
Net cash provided by financing activities	15,000	4,929,671
Effect of exchange rate changes on cash	81,662	39,486
Net increase in cash	$ 7,689,809	$ 227,801

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Income Taxes (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Summary of reconciliation of the statutory rate with the effective income tax rate
Tax Provision, Tax at statutory rate	$ 1,083,415	$ 1,083,415
Tax Provision, VIE tax holiday	(1,078,597)	(1,078,597)
Tax Provision, Tax at effective tax rate	$ 4,818	$ 4,818
Rate of Tax, Tax at statutory rate	25.00%	25.00%
Rate of Tax, VIE tax holiday	(24.89%)	(24.89%)
Rate of Tax, Tax at effective tax rate	0.11%	0.11%

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Fixed Assets (Tables)

3 Months Ended

Mar. 31, 2013

Fixed Assets [Abstract]

Summary of Components of fixed assets

	March 31, 2013			December 31,  2012
Office equipment	$	154,547		$	153,674
Motor vehicles		214,963			213,748
Leasehold improvements		107,126			106,520
		476,636			473,942
Less: Accumulated depreciation		(143,451	)		(123,251	)
Fixed assets, net	$	333,185		$	350,691