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 September 30, 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 filero Accelerated filero Non-accelerated filero Smaller reporting companyx

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:

November 15, 2013

Common Voting Stock: 38,380,130

WONHE HIGH-TECH INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS

		Page No
Part I	Financial Information
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets (Unaudited) – September 30, 2013 and December 31, 2012	1
	Consolidated Statements of Income and Other Comprehensive Income (Unaudited) - for the Three and Nine Months Ended Sept. 30, 2013 and 2012	3
	Consolidated Statement of Changes in Stockholders Equity (Unaudited) for the Nine Months Ended September 30, 2013 and 2012	5
	Consolidated Statements of Cash Flows (Unaudited) – for the Nine Months Ended September 30, 2013 and 2012	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and	31
Item 3	Quantitative and Qualitative Disclosures about Market Risk Results of Operations	41
Item 4.	Controls and Procedures	41
Part II	Other Information
Item 1.	Legal Proceedings	42
Items 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signatures	44

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

 (IN U.S.$)

ASSETS	September 30,  2013			December 31, 2012
	(Unaudited)
Current assets:
Cash	$	34,103,698		$	5,215,738
Accounts receivable		594,046			4,033,576
Inventory		189,711			265,665
Advances to suppliers		178,947			5,282,712
Prepaid expenses		140,415			72,811
Total current assets		35,206,817			14,870,502
Fixed assets		486,816			473,942
Less: accumulated depreciation		(186,733	)		(123,251	)
Fixed assets, net		300,083			350,691
Other assets:
Intangible assets		19,512			25,328
Other assets – principally security deposits		48,967			53,908
Prepaid income taxes		2,619,017			-
Total other assets		2,687,496			79,236
TOTAL ASSETS	$	38,194,396		$	15,300,429

See accompanying notes to the consolidated financial statements.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

 (IN U.S.$)

LIABILITIES AND STOCKHOLDERS’ EQUITY	September 30,  2013		December 31, 2012
	(Unaudited)
Current liabilities:
Accounts payable	$	14,627	$	14,241
Payroll payable		29,547		36,101
Taxes payable		46,680		793,723
Loans from stockholder		77,738		36,377
Accrued expenses and other payables		164,414		127,172
Total current liabilities		333,006		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; 38,380,130 and 23,900,130 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		38,380		23,900
Additional paid-in capital		17,011,131		7,113,611
Statutory reserve fund		1,892,563		600,844
Retained earnings		16,657,629		5,469,214
Other comprehensive income		867,869		373,062
Stockholders’ equity before noncontrolling interests		36,467,572		13,580,631
Noncontrolling interests		1,393,818		712,184
Total stockholders’ equity		37,861,390		14,292,815
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	38,194,396	$	15,300,429

See accompanying notes to the consolidated financial statements.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 (IN U.S.$)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Sales	$	4,896,263		$	6,739,797		$	24,659,281		$	15,701,801
Cost of sales		(2,506,107	)		(3,449,590	)		(12,621,288	)		(8,032,479	)
Gross profit		2,390,156			3,290,207			12,037,993			7,669,322
Operating expenses:
R & D expenses		32,243			62,170			128,577			214,334
Selling and marketing		109,681			116,481			299,706			283,101
General and administrative		160,432			273,174			542,800			1,457,685
Total operating expenses		302,356			451,825			971,083			1,955,120
Income from operations		2,087,800			2,838,382			11,066,910			5,714,202
Interest income		-			-			-			112,874
Income before provision for income taxes		2,087,800			2,838,382			11,066,910			5,827,076
(Benefit from) provision for income taxes		(2,946	)		709,578			(2,067,773	)		1,456,769

See accompanying notes to the consolidated financial statements.

3

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 (IN U.S.$)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income		2,090,746			2,128,804			13,134,683			4,370,307
Noncontrolling interests		(103,813	)		(105,252	)		(654,549	)		(217,330	)
Net income attributable to common stockholders	$	1,986,933		$	2,023,552		$	12,480,134		$	4,152,977
Earnings per common share, basic and diluted	$	0.05		$	0.08		$	0.39		$	0.20
Weighted average shares outstanding, basic and diluted		38,380,000			23,900,130			31,962,125			20,800,072

Comprehensive income:
Net income before noncontrolling interests	$	2,090,746	$	2,128,804		$	13,134,683	$	4,370,307
Foreign currency translation adjustment		203,315		(17,656	)		521,892		32,916
Comprehensive income		2,294,061		2,111,148			13,656,575		4,403,223
Comprehensive income attributable to noncontrolling interests		110,891		104,377			681,634		218,969
Comprehensive income attributable to common stockholders	$	2,183,170	$	2,006,771		$	12,974,941	$	4,184,254

See accompanying notes to the consolidated financial statements.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 (UNAUDITED) (IN U.S.$)

	Common Stock		Additional Paid-in Capital		Retained Earnings			Statutory Reserve Fund		Noncontrolling Interests		Other Comprehensive Income		Total
Balance, December 31, 2012	$	23,900	$	7,113,611	$	5,469,214		$	600,844	$	712,184	$	373,062	$	14,292,815
Issuance of common stock		14,480		9,897,520		-			-		-		-		9,912,000
Net income		-		-		12,480,134			-		654,549		-		13,134,683
Appropriation of statutory  reserves		-		-		(1,291,719	)		1,291,719		-		-		-
Other comprehensive income		-		-		-			-		27,085		494,807		521,892
Balance, September 30, 2013	$	38,380	$	17,011,131	$	16,657,629		$	1,892,563	$	1,393,818	$	867,869	$	37,861,390

See accompanying notes to the consolidated financial statements.

5

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 (IN U.S.$)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	13,134,683		$	4,370,307
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		65,860			57,989
Deferred income taxes		-			294,302
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable		3,444,471			(2,631,142	)
Decrease in interest receivable		-			307,697
Decrease (increase) in inventory		75,954			(132,912	)
Decrease (increase) in advances to suppliers		5,103,765			(2,022,960	)
(Increase) in prepaid expenses		(67,604	)		(190,612	)
(Increase) in prepaid income taxes		(2,619,017	)		-
Increase in accounts payable		386			391
(Decrease) in payroll payable		(6,554	)		(16,371	)
(Decrease) increase in taxes payable		(747,043	)		583,449
Increase in accrued expenses and other payables		37,242			2,937
(Decrease) in advances from customers		-			(81,559	)
Net cash provided by (used in) operating activities		18,422,143			541,516
Cash flows from investing activities:
Purchase of fixed assets		-			(7,779	)
Loans to related parties		-			(79,000	)
Cash received upon reverse merger		-			40,901
Repayment from related party		-			5,288,197
Net cash provided by investing activities		-			5,242,319
Cash flows from financing activities:
Stockholder loans		40,000			-
Proceeds from sale of common stock		9,912,000			-
Net cash provided by financing activities		9,952,000			-
Effect of exchange rate changes on cash		513,817			(891	)

See accompanying notes to the consolidated financial statements.

6

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 (IN U.S.$)

	Nine Months Ended September 30,
	2013		2012
Net increase in cash		28,887,960		5,782,944
Cash, beginning		5,215,738		76,084
Cash, ending	$	34,103,698	$	5,859,028

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,165,885	$	662,212
Cash paid for interest	$	-	$	-

See accompanying notes to the consolidated financial statements.

7

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 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.

8

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 to 95% of Shenzhen Wonhe’s annual net income with an additional payment of approximately $8,005 (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.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 include Wonhe High-Tech, World Win, Kuayu, Shengshihe Consulting and its VIE, Shenzhen Wonhe.  All significant intercompany accounts and transaction have been eliminated in consolidation when applicable.

10

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of Accounting and Presentation (continued)

The unaudited interim consolidated financial statements of the Company as of September 30, 2013 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Variable Interest Entity (continued)

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.  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.

All of the assets recorded on the balance sheets of the Company, other than cash, are owned by Shenzhen Wonhe. In addition, all of the unrecognized revenue-producing assets of the Company, such as intellectual property and the assembled workforce, are owned by Shenzhen Wonhe.  Likewise, all of the recognized assets of Shenzhen Wonhe are recorded on the Company’s balance sheets, and all of the unrecognized assets of Shenzhen Wonhe are utilized for the benefit of the Company. The following are financial statement amounts and balances of Shenzhen Wonhe that have been included in the accompanying consolidated financial statements.

ASSETS	September 30, 2013			December 31, 2012
	(Unaudited, In U.S. $)			(In U.S. $)
Current assets:
Cash	$	33,986,597		$	5,159,917
Accounts receivable		594,046			4,033,576
Inventory		189,711			265,665
Advances to suppliers		178,947			5,282,712
Prepaid expenses		140,415			72,811
Total current assets		35,089,716			14,814,681
Fixed assets		486,816			473,942
Less: accumulated depreciation		(186,733	)		(123,251	)
Fixed assets, net		300,083			350,691
Other assets:
Intangible assets		19,512			25,328
Other assets – principally security deposits		48,967			53,908
Prepaid income taxes		2,619,017			-
Total other assets		2,687,496			79,236
TOTAL ASSETS	$	38,077,295		$	15,244,608

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Variable Interest Entity (continued)

LIABILITIES
Current liabilities:
Accounts payable	$	14,627	$	14,241
Payable to WFOE(1)		19,284,685		6,848,259
Payroll payable		28,051		34,645
Taxes Payable		20,346		783,212
Payable for sale of common stocks(2)		9,888,682		-
Loans from stockholder		41,026		-
Accrued expenses and other payables		208,231		168,838
Total current liabilities		29,485,648		7,849,195
TOTAL LIABILITIES	$	29,485,648	$	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 and nine months ended September 30, 2013 of RMB 50,000 (approximately US$8,035) were paid in full as of September 30, 2013.

(2)   Payable for sale of common stock represents the proceeds received by Shenzhen Wonhe for the 14,480,000 common shares issued by Wonhe High-Tech International, Inc. on May 2, 2013 at $0.68 each (approximately total US$9,800,000).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	(In U.S. $)		(In U.S. $)		(In U.S. $)		(In U.S. $)
Sales	$	4,896,263	$	6,741,196	$	24,659,281	$	15,701,801
Net income(3)		2,076,258		2,105,117		13,090,975		4,346,607

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

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Variable Interest Entity (continued)

	Nine Months Ended September 30,
	2013		2012
	(Unaudited)		(Unaudited)
	(In U.S. $)		(In U.S. $)
Net cash provided by (used in) operating activities	$	28,250,160	$	582,229
Net cash provided by investing activities		-		5,201,423
Net cash provided by financing activities		40,000		-
Effect of exchange rate changes on cash		536,520		(732	)
Net increase in cash	$	28,826,680	$	5,782,920

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.

14

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 and HKD into US dollars for the purposes of preparing the consolidated financial statements are as follows:

September 30, 2013

December 31, 2012

September 30, 2012

RMB

HKD

RMB

HKD

RMB

HKD

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

0.1626

0.1290

0.1583

0.1290

N/A

N/A

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

0.1607

0.1289

N/A

N/A

0.1580

0.1289

15

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation (continued)

Foreign currency translation adjustments of $203,315 and ($17,656) for the three months ended September 30, 2013 and 2012, respectively, and $521,892 and $32,916 for the nine months then ended, respectively, have been reported as other comprehensive income (loss).  Other comprehensive income of the Company consists entirely of foreign currency translation adjustments.  Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes”,the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

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.

16

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue and Cost Recognition (continued)

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.

The Company has not offered customers the right of return because the product has performance capabilities that are not rivaled by competitive products.  However, the Company is responsible for replacement or repair of a defective product and such costs will be the responsibility of the outsourced manufacturers.

17

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

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 $32,243 and $62,170, respectively, and $128,577 and $214,334, respectively, for the three and nine months ended September 30, 2013 and 2012.

Advertising Costs

Advertising costs are charged to operations when incurred.  Advertising costs were $97,028 and $94,740, and $259,137 and $158,583, respectively, for the three and nine months ended September 30, 2013 and 2012.

18

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 September 30, 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, if necessary, for estimated unmarketable inventories.  Inventory amounts are reported net of such allowances, if any.  There were no allowances for inventory as of September 30, 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.

19

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 September 30, 2013, $1,892,563 was transferred from retained earnings to the statutory reserve fund.

20

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 consequences 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 uncertain tax positions.  As of September 30, 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 and nine months ended September 30, 2013 and 2012.

21

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes (continued)

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.  On July 23, 2012, the National Tax Bureau, Shenzhen Nanshan Branch declared that Shenzhen Wonhe is qualified for the preferential tax treatment afforded by the PRC to enterprises engaged in the development of software or integrated circuits.  As a result, 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.  The tax regulations require that the enterprise pay income tax until its eligibility for the exemption is determined - i.e. until the local tax bureau determines that the enterprise has recorded its first profitable year.  The Company had already made payments of approximately $2,600,000 (RMB 16,107,000) on account of 2012 while the local tax bureau reviewed the Company’s financial results and determined that we had realized a profit in 2012.  Since the Company has now been declared exempt from tax with respect to 2012, the payments will be applied to the future income tax due.  The payments have been reflected as prepaid income taxes on our balance sheet as of September 30, 2013 and as a benefit from income taxes in the consolidated statements of income and other comprehensive income for nine months ended September 30, 2013.

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.

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.

22

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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.

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income.  For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts.  The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012.  The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial statements.

23

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

4.       FIXED ASSETS

Fixed assets at September 30, 2013 and December 31, 2012 are summarized as follows:

	September 30, 2013			December 31, 2012
Office equipment	$	157,848		$	153,674
Motor vehicles		219,554			213,748
Leasehold improvements		109,414			106,520
		486,816			473,942
Less: Accumulated depreciation		(186,733	)		(123,251	)
Fixed assets, net	$	300,083		$	350,691

Depreciation expense charged to operations for the three months ended September 30, 2013 and 2012 was $20,212 and $19,453, respectively.  Depreciation expense charged to operations for the nine months ended September 30, 2013 and 2012 was $59,432 and $57,989, respectively.

5.       INTANGIBLE ASSETS

Intangible assets at September 30, 2013 and December 31, 2012 are summarized as follows:

	September 30, 2013			December 31, 2012
Software	$	26,016		$	25,328
Less: Accumulated amortization		(6,504	)		-
Intangible assets, net	$	19,512		$	25,328

Software was purchased in December, 2012, and is being amortized over three years, beginning January 2013.  Amortization expense charged to operations for the three months ended September 30, 2013 and 2012 was $2,159 and $0, respectively.  Amortization expense charged to operations for the nine months ended September 30, 2013 and 2012 was $6,428 and $0, respectively.

24

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

6.       LEASE OBLIGATIONS

The Company leased its offices in Shenzhen from an unrelated third party at a monthly rental of $15,732 under an operating lease, which was to expire on February 28, 2019.  The Company terminated the lease on September 30, 2013 without paying any penalty.  On September 30, 2013, the Company entered into another lease with an unrelated third party at a monthly rental of $9,538 per month. The new lease expires on August 31, 2014.  The Company also leases one apartment at a monthly rental of $1,628, which expires in the second quarter of 2014.  The Company had a lease for office space in Beijing at a monthly rent of $716 that expired in September 2012 and was not renewed.

The minimum future rentals under these leases as of September 30, 2013 are as follows:

Year Ending
December 31,	Amount
2013	$	28,614
2014		76,303
	$	104,917

Rent expense for the three months ended September 30, 2013 and 2012 was $47,530 and $46,260, respectively.  Rent expense for the nine months ended September 30, 2013 and 2012 was $137,089 and $134,680, respectively.

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.

25

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

7.             RELATED PARTY TRANSACTIONS (Continued)

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.

Loans from stockholder are non-interest bearing and are due on demand.

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 September 30, 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.

26

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

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.

The provision for (benefit from) income taxes consisted of the following for the three and nine months ended September 30, 2013 and 2012:

	Three Months ended September 30,					Nine Months ended September 30,
	2013			2012		2013			2012
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Current	$	(2,946	)	$	709,578	$	(2,067,773	)	$	1,162,467
Deferred		-			-		-			294,302
	$	(2,946	)	$	709,578	$	(2,067,773	)	$	1,456,769

The following is a reconciliation of the statutory rate with the effective income tax rate for the three and nine months ended September 30, 2013.  The effective tax rate was the same as the statutory tax rate for the three and nine months ended September 30, 2012.

	Three Months Ended September 30, 2013						Nine Months Ended September 30, 2013
	Tax Provision			Rate of Tax			Tax Provision			Rate of Tax
Tax at statutory rate	$	521,950			25	%	$	2,766,727			25	%
VIE tax holiday		(524,896	)		(25	%)		(4,834,500	)		(44	%)
Tax at effective tax rate	$	(2,946	)		(0.14	%)	$	(2,067,773	)		(23	%)

The Company’s PRC tax filings for the tax years ended December 31, 2012, 2011 and 2010 were examined by the tax authorities in April 2013, 2012 and 2011, respectively.  The examinations were completed and resulted in no adjustments.

27

WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

9.       INCOME TAXES (Continued)

The Company did not file its U.S. federal income tax returns, including, without limitation, information returns on Internal Revenue Service (“IRS”) Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations” for the fiscal year ended June 30, 2012 and for the six months period ended December 31, 2012, a short year income tax return required to be filed as a result of the change in the fiscal year.  Failure to furnish any income tax returns and information returns with respect to any foreign business entity required, within the time prescribed by the IRS, subjects the Company to certain civil penalties.  Management is of the opinion that penalties, if any, that may be assessed would not be material to the consolidated financial statements.

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 September 30, 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. The tax year ended October 31, 2012 and 2011 and two-month tax period ended December 31, 2012 remain open to examination by the IRS.

10.     ISSUANCE OF COMMON STOCK

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 RMB 4.2 (approximately $0.68) per share, or a total of RMB 60,816,000 (approximately $9,800,000).  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 PRC.

11.     CONTINGENCIES

As disclosed in Note 9, the Company was delinquent in filing certain tax returns with the U.S. Internal Revenue Service.  The Company is unable to determine the amount of penalties, if any, that may be assessed at this time.  Management is of the opinion that penalties, if any, that may be assessed would not be material to the consolidated financial statements.

The Company did not file the information report for the year ended December 31, 2012 concerning its interest in foreign bank accounts on form TDF 90-22.1, “Report of Foreign Bank and Financial Accounts” (“FBAR”).  Not complying with the FBAR reporting and recordkeeping requirements will subject the Company to civil penalties up to $10,000 for each of its foreign bank accounts.  The Company has not determined the amount of any penalties that may be assessed at this time and believes that penalties, if any, that may be assessed would not be material to the consolidated financial statements.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

12.           CONCENTRATION OF CREDIT RISK

Concentration of Credit Risk

Substantially all of the Company’s bank accounts are 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.

13.           CONTRIBUTIONS TO MULTI-EMPLOYER WELFARE PROGRAMS

Shenzhen Wonhe is required to make contributions to multi-employer welfare programs by government regulation sometimes identified as the Mainland China Contribution Plan.  Specifically, the following regulations require that we pay a percentage of employee salaries into the specified plans:

Regulation	Plan	% of Salary
Shenzhen Special Economic Zone Social Retirement Insurance Regulations	Pension		13%
Shenzhen Work-Related Injury Insurance Regulations	Workers Comp.		0.4%
Guangdong Unemployment Insurance Regulations	Unemployment		2%
Housing Provident Fund Management Regulations	Housing		5%
Shenzhen Social Medical Insurance Measures	Medical	6.5% or 0.6%*
Guangdong Employees Maternity Insurance	Maternity	0.5% or 0.2%*

*  Depending on their position in the company, employees receive either hospitalization medical and maternity insurance or comprehensive medical and maternity insurance, which is a lower premium.

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WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

13.           CONTRIBUTIONS TO MULTI-EMPLOYER WELFARE PROGRAMS (continued)

Total contribution to employee welfare for the three and nine months ended September 30, 2013 and 2012 were as follow:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total Contributions	$	5,455		5,582	$	21,481	$	117,751

14.     MAJOR CUSTOMERS

Four customers accounted for 56% and two customers accounted for 22% of total sales during the three months and nine months ended September 30, 2013, respectively.  Two customers accounted for 25% and one customer accounted for 11% of sales for the three months and nine months ended September 30, 2012, respectively.

As of September 30, 2013, seven customers accounted for 100% of accounts receivable.  At December 31, 2012, four customers accounted for 52% of accounts receivable.

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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. All of our revenue to date has 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.  We sell the HMC660 primarily to electronic products distributors.

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 Kuayu 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.

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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 required to pay to Shengshihe Consulting (i) 95% of the total annual net profit of Shenzhen Wonhe and (ii) RMB50,000 per month ($8,035).  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.
(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.

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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.

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 and nine months ended September 30, 2013 and 2012, and the percentage change between comparable numbers recorded in 2013 and 2012.

	Three Months Ended September 30				Percentage
	2013		2012		Increase/(Decrease)
Sales	$	4,896,263	$	6,739,797		(27	) %
Gross Profit		2,390,156		3,290,207		(27	) %
Operating Income		2,087,800		2,838,382		(26	) %
Net income attributable to common stockholders	$	1,986,933	$	2,023,552		(2	) %

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	Nine Months Ended September 30				Percentage
	2013		2012		Increase/(Decrease)
Sales	$	24,659,281	$	15,701,801		57	%
Gross Profit		12,037,993		7,669,322		57	%
Operating Income		11,066,910		5,714,202		94	%
Other Income		--		112,874		(100	%)
Net income attributable to common stockholders	$	12,480,134	$	4,152,977		201	%

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 properly 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.

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 and nine months ended September 30, 2012, sales of $6,739,797 and $15,701,801 represented 14,456 and 33,671 units of HMC 660 sold respectively with a unit price of approximately $489.

Sales of the HMC660 continued to grow through the first six months of 2013.  In the third quarter, however, we announced that we were developing the second generation of HMC660. As a result, demand for our first generation product fell significantly.  So sales for the nine months ended September 30, 2013 increased by $8,957,480 compared with sales during the nine months ended September 30, 2012, reaching $24,659,281 (51,991 units).  But sales for the quarter ended September 30, 2013 fell by $1,843,534 compared the sales for the same period in 2012, a decrease rate of 12%, yielding only $4,896,263 (10,167 units).

 We expect that 4th quarter sales will also be weak, as the market awaits the second generation HMC660. For 2014 and beyond, however, we expect sales growth to rebound, as the second generation HMC660 will be enhanced by improvements we have made in response to customer feedback during 2012 and 2013.  And while we have no fixed date for introduction of any other new product, we expect that sales of new products, when they are ready, will be facilitated by our success with the HMC660 and our utilization of a now-established marketing network.

Gross Profit.All the products sold during the three and nine months ended September 30, 2013 were manufactured by our two main contractors at a cost per unit of $241 and were sold by us at a consistent price in Renminbi that equates to approximately $489. Since we have no significant direct costs of goods sold other than our payment to our manufacturers, this arrangement resulted in a gross profit margin of 49% on sales in the three and nine months ended September 30, 2013.  During the three and nine months ended September 30, 2012, the manufacture and sale of 14,456 and 33,671 units yielded the same gross margin of 49%.  

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Our agreement with one of the outsourced manufacturers terminated in August 2013, and we did not renew due to the reduction in market demand for our core product. Our agreement with our other manufacturer will continue in effect through December 2013. We believe that if we commit to the same or greater quantity of units for 2014 as we ordered in 2013, that we will be afforded the same pricing by our manufacturer.  But that decision has not been made yet. Nevertheless, we expect that our gross profit on the HMC660 will remain stable at least through the 4th quarter of 2013, and will not change materially in 2014. In the long term, however, our Company’s overall gross profit will be affected by competition and by our introduction to market of new products.

 Income from Operations.  Our operating expenses for the three and nine months ended September 30, 2013 decreased to $302,356 from $451,825 and $971,083 from $1,955,120, respectively, compared with the three and nine months ended September 30, 2012.  The primary reason for the improvement was a significant reduction in our general and administrative expenses.  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 in research and development. In the three and nine months ended September 30, 2013, our research and development expenses decreased to $32,243 from $62,170 and to $128,577 from $214,334, respectively, compared with the three and nine months ended September 30, 2012. The primary reason for the decrease is that  we paid more attention to developing and improving the function of HMC 660 during the three months ended September 30, 2012. We expect research and development expenses will grow into the near future, as we work to bring our pipeline of products closer to their market launch.   

·  Selling and Marketing Expenses.  Selling and marketing expenses were primarily comprised of salaries, insurance, traveling expenses and marketing promotion. Even though our HMC660 sales decreased in the recent quarter, we still expect the second generation HMC660 will gain market share and that our new products will piggy-back on that momentum, so we keep investing in market promotions in order to achieve further growth. Selling and marketing expenses decreased by 6% to $109,681 and increased by 6% to $299,706, respectively, for the three and nine months ended September 30, 2013 from $116,481 and $283,101 for the three and nine months ended September 30, 2012, respectively.

·  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 $160,432 and $542,800, respectively, for the three and nine months ended September 30, 2013 from $273,174 and $1,457,685, respectively, for the three and nine months ended September 30, 2012, representing a 41% and 63% decrease, respectively. The decrease was primarily because during 2012 we incurred additional expenses for our common stock to be traded in the United States, such as expenses for attorneys, auditors and financial advisors.

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General and administrative expenses are affected by changes in employees’ remuneration. Shenzhen Wonhe is required to make contributions to multi-employer welfare programs by government regulation sometimes identified as the Mainland China Contribution Plan.  Specifically, the following regulations require that we pay a percentage of employee salaries into the specified plans:

Regulation	Plan	% of Salary
Shenzhen Special Economic Zone Social Retirement Insurance Regulations	Pension		13	%
Shenzhen Work-Related Injury Insurance Regulations	Workers Comp.		0.4	%
Guangdong Unemployment Insurance Regulations	Unemployment		2	%
Housing Provident Fund Management Regulations	Housing		5	%
Shenzhen Social Medical Insurance Measures	Medical	6.5% or 0.6%*
Guangdong Employees Maternity Insurance	Maternity	0.5% or 0.2%*

*  Depending on their position in the company, employees receive either hospitalization medical and maternity insurance or comprehensive medical and maternity insurance, which is a lower premium.

Because our contributions are proportionate to salaries paid, as expansion of our business causes an increase in our staff, our contributions to these welfare funds will likewise increase.  In addition, labor rates in China have increased significantly in recent years and can be expected to continue to increase.  Any such increases will in turn cause an increase in the amount we pay to employee welfare plans.

After deducting these operating expenses, for the three and nine months ended September 30, 2013 we realized operating income of $2,087,800 and $11,066,910, respectively, a decrease of $750,582 or 26% and an increase of $5,352,708 or 94%, respectively, from the operating income of $2,838,382 and $5,714,202 that we reported in the three and nine months ended September 30, 2012, respectively.

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 $0 and $112,874 as other income for the three and nine months ended September 30, 2012. For the three and nine months ended September 30, 2013, we didn’t have such income.

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 $2,355,125 on pre-tax income of $7,240,206.  Beginning in 2013, however, our operating entity has received a 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. On May 10, 2013, we were informed by the local tax bureau that the income tax paid as of the date of notification of RMB 16,107,114 ($2,578,749) could be offset against our future income tax after the tax exemption period. As a result, a tax benefit of $2,946 and $2,067,773 were recorded for the three and nine months ended September 30, 2013.

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Net Income. We reported net income of $2,090,746 and $13,134,683, respectively, and $2,128,804 and $4,370,307, respectively, for the three and nine months ended September 30, 2013 and 2012.  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 $103,813 and $654,549 before recognizing net income attributable to the common stockolders on our Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2013.  After that deduction , our net income attributable to the common stockholders’ for the three and nine months ended September 30, 2013 and 2012 was $1,986,933 ($.05 per share) and $12,480,134 ($.39 per share), and $2,023,552 ($.08 per share) and $4,152,977 ($.20 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 stockholders’ 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 and nine months ended September 30, 2013 and 2012, foreign currency translation adjustments of $203,315 and $521,892, and $(17,656) and $32,916, respectively, 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, equity contributions by our shareholders, and a private placement.  As a result, at September 30, 2013 we had no debt, and ourworking capitaltotaled $34,873,811, an increase of $21,010,923 since December 12, 2012, which includes $9,912,000 in proceeds from the private placement of common stock. cash and cash equivalents of $34,103,698, primarily consisting of cash on hand and demand deposits.  All of that amount is held in the PRC:  $117,101 by our subsidiary and $33,986,597 by Shenzhen Wonhe, our VIE.  Our ability to repatriate those amounts to the United States will be limited by limited by the factors discussed below in “Restrictions on Transfer of Funds.”

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The remainder of our working capital primarily consisted of $594,046 in accounts receivable and $178,947 in advances to suppliers.  We consider both of these assets to be liquid: at September 30, 2013 only a nominal portion of our accounts receivable were aged more than thirty days, and all were fully collected in the following month; and the amount prepaid to our outsourced manufacturers was much lower than our cost of goods for the nine months ended September 30, 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 $14,627 in accounts payable at September 30, 2013 - and utilized the cash generated by sales to fund the purchases needed for future sales.

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

	Nine Months Ended September 30, 2013		Nine Months Ended September 30, 2012
Net cash provided by operating activities	$	18,422,143	$	541,516
Net cash provided by investing activities		-		5,242,319
Net cash provided by financing activities		9,952,000		-
Effects of Exchange Rate Changes on Cash		513,817		(891)
Net  Change in Cash and Cash Equivalents		28,887,960		5,782,944
Cash and Cash Equivalents at Beginning of the Period		5,215,738		76,084
Cash and Cash Equivalent at End of the Period	$	34,103,698	$	5,859,028

Operating activities

Our operations provided $18,422,143 in cash during the nine months ended September 30, 2013.  This exceeded our net profit of $13,134,683, because during this period we utilized credits we had accumulated by prepaying our manufacturers and decreased the balance of our advances to suppliers by $5,103,765. 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 $5,282,712 prepaid to our suppliers as of December 31, 2012. Because of the reduction in the level of sales of the HMC660, at September 30, 2013 we had only $178,947 prepaid to suppliers.

During the same period, our prepaid income tax increased by $2,619,017 due to the tax exemption benefit. Also we decreased accounts receivable by $3,444,471 as our sales decreased in the third quarter and we collected outstanding accounts. All of this contributed to our positive cash flow. In contrast, during the nine months ended September 30, 2012, our operations generated a net profit of $4,370,307 but provided only $541,516 in cash, because we increased our advances to suppliers balance by $2,022,960 and our accounts receivable increased by $2,631,142.

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Investing activities

We have relatively low need for capital investment because we outsource all of our manufacturing operations.  There were no investing transactions during the nine months ended September 30, 2013. Unless we expand our business activities in the future, investing activities will involve insignificant amounts of cash.

As noted previously, in 2011, when we had large cash reserves without an immediate purpose, we were able to obtain a high return on cash by loaning the funds to a related party.  This loan was repaid in 2012, and so recorded $5,242,319 in net cash provided by investing activities for the nine months ended September 30, 2012.

Financing activities

The net cash provided by financing activities of $9,952,000 for the nine months ended September 30, 2013 represented a loan of $40,000 from related parties to allow us to pay professional fees in the U.S and $9,912,000 from a private placement in which we sold 14,480,000 common shares at $0.68 per share on May 2, 2013.

We believe that our cash on hand and cash flow from operations will meet our cash needs for the next 12 months.

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.

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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”). The following table shows the difference between the accumulated profits reported by Shengshihe Consulting (the “WFOE”) and by Shenzhen Wonhe in accordance with U.S. GAAP and their accumulated profits determined in accordance with PRC GAAP.

Items	PRC GAAP			US GAAP
Accumulated profit) as of January 1, 2013 – Shenzhen Wonhe	$	6,356,365		$	6,356,365
Net income for the nine months ended September 30, 2013 – Shenzhen Wonhe		13,090,975			13,090,975
Accumulated profit as of September 30, 2013 – Shenzhen Wonhe		19,447,340			19,447,340
Appropriation of statutory reserves - Shenzhen Wonhe*		1,944,734
Accumulated profit available for dividend as of September 30, 2013 – Shenzhen Wonhe		17,502,606			19,447,340
Accumulated profit as of September 30, 2013 – WFOE		75,220			75,220
Noncontrolling interest - Shenzhen Wonhe**		(875,130	)		(972,367	)
Accumulated profit as of September 30, 2013 - consolidated	$	16,702,696		$	18,550,193

* Appropriation of statutory reserves is calculated as 10% of Shenzhen Wonhe’s accumulated profit.

** Noncontrolling interest is calculated as 5% of Shenzhen Wonhe’s accumulated profit available for dividend.

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 that may 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 September 30, 2013 and December 31, 2012, an aggregate amount of $1,892,563 and $600,844 respectively have been appropriated from retained earnings and set aside for the statutory reserve by Shenzhen Wonhe. As of September 30, 2013 and December 31, 2012, $1,914,567 and $3,156,406 will and would be appropriated from our future profits and set aside for the statutory reserve.

40

Impact of Accounting Pronouncements

There were no recent accounting pronouncements that have or will have 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 September 30, 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 September 30, 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.

41

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 securities during the third 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 third quarter of fiscal 2013.
Item 3.	Defaults Upon Senior Securities.
	None.
Item 4.	Mine Safety Disclosures.
	Not Applicable.
Item 5.	Other Information.
	None.

42

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

43

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: November 15, 2013	By:	/s/ Nanfang Tong
		Nanfang Tong, Chief Executive Officer
	By:	/s/ Chahua Yuan
		Chahua Yuan, Chief Financial Officer, Chief Accounting Officer

*      *       *      *       *

44

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.

November 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.

November 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 September 30, 2013 (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.

November 15, 2013	/s/ Nanfang Tong
	Nanfang Tong, Chief Executive Officer
November 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.

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Contingencies

9 Months Ended

Sep. 30, 2013

Contingencies [Abstract]

CONTINGENCIES

11.     CONTINGENCIES

As disclosed in Note 9, the Company was delinquent in filing certain tax returns with the U.S. Internal Revenue Service.  The Company is unable to determine the amount of penalties, if any, that may be assessed at this time.  Management is of the opinion that penalties, if any, that may be assessed would not be material to the consolidated financial statements.

The Company did not file the information report for the year ended December 31, 2012 concerning its interest in foreign bank accounts on form TDF 90-22.1, “Report of Foreign Bank and Financial Accounts” (“FBAR”).  Not complying with the FBAR reporting and recordkeeping requirements will subject the Company to civil penalties up to $10,000 for each of its foreign bank accounts.  The Company has not determined the amount of any penalties that may be assessed at this time and believes that penalties, if any, that may be assessed would not be material to the consolidated financial statements.

XML

Consolidated Statements of Income and Other Comprehensive Income (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Income Statement
Sales	$ 4,896,263	$ 6,739,797	$ 24,659,281	$ 15,701,801
Cost of sales	(2,506,107)	(3,449,590)	(12,621,288)	(8,032,479)
Gross profit	2,390,156	3,290,207	12,037,993	7,669,322
Operating expenses:
R & D expenses	32,243	62,170	128,577	214,334
Selling and marketing	109,681	116,481	299,706	283,101
General and administrative	160,432	273,174	542,800	1,457,685
Total operating expenses	302,356	451,825	971,083	1,955,120
Income from operations	2,087,800	2,838,382	11,066,910	5,714,202
Interest income				112,874
Income before provision for income taxes	2,087,800	2,838,382	11,066,910	5,827,076
(Benefit from) provision for income taxes	(2,946)	709,578	(2,067,773)	1,456,769
Net income	2,090,746	2,128,804	13,134,683	4,370,307
Noncontrolling interests	(103,813)	(105,252)	(654,549)	(217,330)
Net income attributable to common stockholders	1,986,933	2,023,552	12,480,134	4,152,977
Earnings per common share, basic and diluted	$ 0.05	$ 0.08	$ 0.39	$ 0.20
Weighted average shares outstanding, basic and diluted	38,380,000	23,900,130	31,962,125	20,800,072
Comprehensive income:
Net income before noncontrolling interests	2,090,746	2,128,804	13,134,683	4,370,307
Foreign currency translation adjustment	203,315	(17,656)	521,892	32,916
Comprehensive income	2,294,061	2,111,148	13,656,575	4,403,223
Comprehensive income attributable to noncontrolling interests	110,891	104,377	681,634	218,969
Comprehensive income attributable to common stockholders	$ 2,183,170	$ 2,006,771	$ 12,974,941	$ 4,184,254

XML

Fixed Assets

9 Months Ended

Sep. 30, 2013

Fixed Assets [Abstract]

FIXED ASSETS

4.       FIXED ASSETS

Fixed assets at September 30, 2013 and December 31, 2012 are summarized as follows:

	September 30, 2013			December 31, 2012
Office equipment	$	157,848		$	153,674
Motor vehicles		219,554			213,748
Leasehold improvements		109,414			106,520
		486,816			473,942
Less: Accumulated depreciation		(186,733	)		(123,251	)
Fixed assets, net	$	300,083		$	350,691

Depreciation expense charged to operations for the three months ended September 30, 2013 and 2012 was $20,212 and $19,453, respectively.  Depreciation expense charged to operations for the nine months ended September 30, 2013 and 2012 was $59,432 and $57,989, respectively.

XML

Lease Obligations (Tables)

9 Months Ended

Sep. 30, 2013

Lease Obligations [Abstract]

Summary of minimum future rentals under operating leases

Year Ending
December 31,	Amount
2013	$	28,614
2014		76,303
	$	104,917

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Concetration of credit risk

9 Months Ended

Sep. 30, 2013

Concentration of credit risk

CONCENTRATION OF CREDIT RISK

12.          CONCENTRATION OF CREDIT RISK

Concentration of Credit Risk

Substantially all of the Company’s bank accounts are 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.

XML

Lease Obligations (Details) (USD $)	Sep. 30, 2013
Summary of Minimum future rentals under operating leases
2013	$ 28,614
2014	76,303
Operating leases, future minimum payments due	$ 104,917

XML

Organization (Details)	9 Months Ended
	Sep. 30, 2013 USD ($)	Sep. 30, 2013 CNY	May 02, 2013 USD ($)	May 02, 2013 CNY	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
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 $8,005 (RMB 50,000) each month. The agreement has an unlimited term and can only be terminated upon written agreement of both parties.	95% of Shenzhen Wonhe's annual net income with an additional payment of approximately $8,005 (RMB 50,000) each month. The agreement has an unlimited term and can only be terminated upon written agreement of both parties.
Additional payment paid for consideration of consulting services	$ 8,005	50,000
Purchase price per share paid for equity interest acquired			$ 0.68	4.2		$ 0.16	1.00

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Contributions to Multi-Employer Welfare Programs (Tables)

9 Months Ended

Sep. 30, 2013

Contributions to Multi-Employer Welfare Programs [Abstract]

Schedule of percentage of employee salaries required to pay into plans

Regulation	Plan	% of Salary
Shenzhen Special Economic Zone Social Retirement Insurance Regulations	Pension		13%
Shenzhen Work-Related Injury Insurance Regulations	Workers Comp.		0.4%
Guangdong Unemployment Insurance Regulations	Unemployment		2%
Housing Provident Fund Management Regulations	Housing		5%
Shenzhen Social Medical Insurance Measures	Medical	6.5% or 0.6%*
Guangdong Employees Maternity Insurance	Maternity	0.5% or 0.2%*

*  Depending on their position in the company, employees receive either hospitalization medical and maternity insurance or comprehensive medical and maternity insurance, which is a lower premium.

Schedule of employee salaries required to pay into plans

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total Contributions	$	5,455		5,582	$	21,481	$	117,751

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Contributions to Multi-Employer Welfare Programs (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Contributions to Multi-Employer Welfare Programs [Abstract]
Total Contributions	$ 5,455	$ 5,582	$ 21,481	$ 117,751

XML

Fixed Assets (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Summary of Components of fixed assets
Fixed assets	$ 486,816	$ 473,942
Less: accumulated depreciation	(186,733)	(123,251)
Fixed assets, net	300,083	350,691
Office equipment [Member]
Summary of Components of fixed assets
Fixed assets	157,848	153,674
Motor vehicles [Member]
Summary of Components of fixed assets
Fixed assets	219,554	213,748
Leasehold improvements [Member]
Summary of Components of fixed assets
Fixed assets	$ 109,414	$ 106,520

XML

Related Party Transactions (Details) (USD $)	3 Months Ended		9 Months Ended		0 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	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%
Interest income				$ 112,874
Loan agreement maturity period with related party					12 months	12 months	12 months

XML

Summary of Significant Accounting Policies (Details 3)	9 Months Ended		12 Months Ended
	Sep. 30, 2013	Sep. 30, 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	0.1626		0.1583
Amounts included in the statements of income and cash flows for the periods	0.1607	0.1580
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	0.1290		0.1290
Amounts included in the statements of income and cash flows for the periods	0.1289	0.1289

XML

Issuance of Common Stock (Details)	0 Months Ended		9 Months Ended
	May 02, 2013 USD ($)	May 02, 2013 CNY	Sep. 30, 2013 USD ($)	May 30, 2012 USD ($)	May 30, 2012 CNY
Issuance of Common Stock (Textual)
Payable for issuance of common stock	14,480,000	14,480,000
Common stock purchase price	$ 0.68	4.2		$ 0.16	1.00
Issuance of common stock	$ 9,800,000	60,816,000	$ 9,912,000

XML

Income Taxes (Tables)

9 Months Ended

Sep. 30, 2013

Income Taxes [Abstract]

Summary of Provision for (benefit from) income taxes

	Three months ended September 30,					Nine months ended September 30,
	2013			2012		2013			2012
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Current	$	(2,946	)	$	709,578	$	(2,067,773	)	$	1,162,467
Deferred		-			-		-			294,302
	$	(2,946	)	$	709,578	$	(2,067,773	)	$	1,456,769

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

	Three Months Ended September 30, 2013						Nine Months Ended September 30, 2013
	Tax Provision			Rate of Tax			Tax Provision			Rate of Tax
Tax at statutory rate	$	521,950			25	%	$	2,766,727			25	%
VIE tax holiday		(524,896	)		(25	%)		(4,834,500	)		(44	%)
Tax at effective tax rate	$	(2,946	)		(0.14	%)	$	(2,067,773	)		(23	%)

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash flows from operating activities:
Net income	$ 13,134,683	$ 4,370,307
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	65,860	57,989
Deferred income taxes		294,302
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable	3,444,471	(2,631,142)
Decrease in interest receivable		307,697
Decrease (increase) in inventory	75,954	(132,912)
Decrease (increase) in advances to suppliers	5,103,765	(2,022,960)
(Increase) in prepaid expenses	(67,604)	(190,612)
(Increase) in prepaid income taxes	(2,619,017)
Increase in accounts payable	386	391
(Decrease) in payroll payable	(6,554)	(16,371)
(Decrease) increase in taxes payable	(747,043)	583,449
Increase in accrued expenses and other payables	37,242	2,937
(Decrease) in advances from customers		(81,559)
Net cash provided by (used in) operating activities	18,422,143	541,516
Cash flows from investing activities:
Purchase of fixed assets		(7,779)
Loans to related parties		(79,000)
Cash received upon reverse merger		40,901
Repayment from related party		5,288,197
Net cash provided by investing activities		5,242,319
Cash flows from financing activities:
Stockholder loans	40,000
Proceeds from sale of common stock	9,912,000
Net cash provided by financing activities	9,952,000
Effect of exchange rate changes on cash	513,817	(891)
Net increase in cash	28,887,960	5,782,944
Cash, beginning	5,215,738	76,084
Cash, ending	34,103,698	5,859,028
Supplemental disclosure of cash flow information:
Cash paid for income taxes	1,165,885	662,212
Cash paid for interest

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 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 September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 include Wonhe High-Tech,World Win, Kuayu, Shengshihe Consulting and its VIE, Shenzhen Wonhe.  All significant intercompany accounts and transaction have been eliminated in consolidation when applicable.

The unaudited interim consolidated financial statements of the Company as of September 30, 2013 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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.  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.

All of the assets recorded on the balance sheets of the Company, other than cash, are owned by Shenzhen Wonhe. In addition, all of the unrecognized revenue-producing assets of the Company, such as intellectual property and the assembled workforce, are owned by Shenzhen Wonhe.  Likewise, all of the recognized assets of Shenzhen Wonhe are recorded on the Company’s balance sheets, and all of the unrecognized assets of Shenzhen Wonhe are utilized for the benefit of the Company. The following are financial statement amounts and balances of Shenzhen Wonhe that have been included in the accompanying consolidated financial statements.

ASSETS	September 30, 2013			December 31, 2012
	(Unaudited, In U.S. $)			(In U.S. $)
Current assets:
Cash	$	33,986,597		$	5,159,917
Accounts receivable		594,046			4,033,576
Inventory		189,711			265,665
Advances to suppliers		178,947			5,282,712
Prepaid expenses		140,415			72,811
Total current assets		35,089,716			14,814,681
Fixed assets		486,816			473,942
Less: accumulated depreciation		(186,733	)		(123,251	)
Fixed assets, net		300,083			350,691
Other assets:
Intangible assets		19,512			25,328
Other assets – principally security deposits		48,967			53,908
Prepaid income taxes		2,619,017			-
Total other assets		2,687,496			79,236
TOTAL ASSETS	$	38,077,295		$	15,244,608

LIABILITIES
Current liabilities:
Accounts payable	$	14,627	$	14,241
Payable to WFOE(1)		19,284,685		6,848,259
Payroll payable		28,051		34,645
Taxes Payable		20,346		783,212
Payable for sale of common stocks(2)		9,888,682		-
Loans from stockholder		41,026		-
Accrued expenses and other payables		208,231		168,838
Total current liabilities		29,485,648		7,849,195
TOTAL LIABILITIES	$	29,485,648	$	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 and nine months ended September 30, 2013 of RMB 50,000 (approximately US$8,035) were paid in full as of September 30, 2013.

(2)   Payable for sale of common stock represents the proceeds received by Shenzhen Wonhe for the 14,480,000 common shares issued by Wonhe High-Tech International, Inc. on May 2, 2013 at $0.68 each (approximately total US$9,800,000).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	(In U.S. $)		(In U.S. $)		(In U.S. $)		(In U.S. $)
Sales	$	4,896,263	$	6,741,196	$	24,659,281	$	15,701,801
Net income(3)		2,076,258		2,105,117		13,090,975		4,346,607

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

	Nine Months Ended September 30,
	2013		2012
	(Unaudited)		(Unaudited)
	(In U.S. $)		(In U.S. $)
Net cash provided by (used in) operating activities	$	28,250,160	$	582,229
Net cash provided by investing activities		-		5,201,423
Net cash provided by financing activities		40,000		-
Effect of exchange rate changes on cash		536,520		(732	)
Net increase in cash	$	28,826,680	$	5,782,920

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 incomeamounts 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 and HKD into US dollars for the purposes of preparing the consolidated financial statements are as follows:

September 30, 2013

December 31, 2012

September 30, 2012

RMB

HKD

RMB

HKD

RMB

HKD

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

0.1626

0.1290

0.1583

0.1290

N/A

N/A

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

0.1607

0.1289

N/A

N/A

0.1580

0.1289

Foreign currency translation adjustments of $203,315 and ($17,656) for the three months ended September 30, 2013 and 2012, respectively, and $521,892 and $32,916 for the nine months then ended, respectively, have been reported as other comprehensive income (loss).  Other comprehensive income of the Company consists entirely of foreign currency translation adjustments.  Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes”,the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

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.

The Company has not offered customers the right of return because the product has performance capabilities that are not rivaled by competitive products.  However, the Company is responsible for replacement or repair of a defective product and such costs will be the responsibility of the outsourced manufacturers.

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.

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 $32,243 and $62,170, respectively, and $128,577 and $214,334, respectively, for the three and nine months ended September 30, 2013 and 2012.

Advertising Costs

Advertising costs are charged to operations when incurred.  Advertising costs were $97,028 and $94,740, and $259,137 and $158,583, respectively, for the three and nine months ended September 30, 2013 and 2012.

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 September 30, 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, if necessary, for estimated unmarketable inventories.  Inventory amounts are reported net of such allowances, if any.  There were no allowances for inventory as of September 30, 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 September 30, 2013, $1,892,563 was transferred from retained earnings to the 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 consequences 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 uncertain tax positions.  As of September 30, 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 and nine months ended September 30, 2013 and 2012.

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.  On July 23, 2012, the National Tax Bureau, Shenzhen Nanshan Branch declared that Shenzhen Wonhe is qualified for the preferential tax treatment afforded by the PRC to enterprises engaged in the development of software or integrated circuits.  As a result, 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.  The tax regulations require that the enterprise pay income tax until its eligibility for the exemption is determined - i.e. until the local tax bureau determines that the enterprise has recorded its first profitable year.  Payments already made payments of approximately $2,600,000 (RMB 16,107,000) on account of 2012 while the local tax bureau reviewed the Company’s financial results and determined that we had realized a profit in 2012.  Since the Company has now been declared exempt from tax with respect to 2012, the payments will be applied to the future income tax due.  The payments have been reflected as prepaid income taxes on our balance sheet as of September 30, 2013 and as a benefit from income taxes in the consolidated statements of income and other comprehensive income for nine months ended September 30, 2013.

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.

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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Intangible Assets

9 Months Ended

Sep. 30, 2013

Intangible Assets [Abstract]

INTANGIBLE ASSETS

5.       INTANGIBLE ASSETS

Intangible assets at September 30, 2013 and December 31, 2012 are summarized as follows:

	September 30, 2013			December 31, 2012
Software	$	26,016		$	25,328
Less: Accumulated amortization		(6,504	)		-
Intangible assets, net	$	19,512		$	25,328

Software was purchased in December, 2012, and is being amortized over three years, beginning January 2013.  Amortization expense charged to operations for the three months ended September 30, 2013 and 2012 was $2,159 and $0, respectively.  Amortization expense charged to operations for the nine months ended September 30, 2013 and 2012 was $6,428 and $0, respectively.

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Recently Issued Accounting Standards

9 Months Ended

Sep. 30, 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.

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income.  For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts.  The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012.  The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial statements.

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Income Taxes (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Provision for (benefit from) income taxes
Current	$ (2,946)	$ 709,578	$ (2,067,773)	$ 1,162,467
Deferred				294,302
(Benefit from) provision for income taxes	$ 2,946	$ (709,578)	$ 2,067,773	$ (1,456,769)

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Summary of Significant Accounting Policies (Details) (USD $)	Sep. 30, 2013		Dec. 31, 2012		Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash	$ 34,103,698		$ 5,215,738		$ 5,859,028	$ 76,084
Accounts receivable	594,046		4,033,576
Inventory	189,711		265,665
Advances to suppliers	178,947		5,282,712
Prepaid expenses	140,415		72,811
Total current assets	35,206,817		14,870,502
Fixed assets	486,816		473,942
Less: accumulated depreciation	(186,733)		(123,251)
Fixed assets, net	300,083		350,691
Other assets:
Intangible assets	19,512		25,328
Other assets - principally security deposits	48,967		53,908
Prepaid income taxes	2,619,017
Total other assets	2,687,496		79,236
TOTAL ASSETS	38,194,396		15,300,429
Current liabilities:
Accounts payable	14,627		14,241
Payroll payable	29,547		36,101
Taxes payable	46,680		793,723
Accrued expenses and other payables	164,414		127,172
Total current liabilities	333,006		1,007,614
Variable Interest Entity [Member]
Current assets:
Cash	28,154,392		5,159,917
Accounts receivable	594,046		4,033,576
Inventory	189,711		265,665
Advances to suppliers	178,947		5,282,712
Prepaid expenses	140,415		72,811
Total current assets	35,089,716		14,814,681
Fixed assets	486,816		473,942
Less: accumulated depreciation	(186,733)		(123,251)
Fixed assets, net	300,083		350,691
Other assets:
Intangible assets	19,512		25,328
Other assets - principally security deposits	48,967		53,908
Prepaid income taxes	2,619,017
Total other assets	2,687,496		79,236
TOTAL ASSETS	38,077,295		15,244,608
Current liabilities:
Accounts payable	14,627		14,241
Payable to WFOE(1)	19,284,685	[1]	6,848,259	[1]
Payroll payable	28,051	[2]	34,645	[2]
Taxes payable	20,346		783,212
Payable for sales of common stocks(2)	9,888,682
Loans from stockholder	41,026
Accrued expenses and other payables	208,231		168,838
Total current liabilities	29,485,648		7,849,195
TOTAL LIABILITIES	$ 29,485,648		$ 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 and nine months ended September 30, 2013 of RMB 50,000 (approximately US$8,035) were paid in full as of September 30, 2013.

[2] Payable for sale of common stock represents the proceeds received by Shenzhen Wonhe for the 14,480,000 common shares issued by Wonhe High-Tech International, Inc. on May 2, 2013 at $0.68 each (approximately total US$9,800,000).

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Summary of Significant Accounting Policies (Details 4)	9 Months Ended
	Sep. 30, 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

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Intangible Assets (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Intangible Assets (Textual)
Amortization period of intangible assets			3 years
Amortization expense	$ 2,159	$ 0	$ 6,428	$ 0

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Contributions to Multi-Employer Welfare Programs (Details)	9 Months Ended
	Sep. 30, 2013
Pension [Member]
Multiemployer Plans [Line Items]
Regulation	Shenzhen Special Economic Zone Social Retirement Insurance Regulations
% of Salary	13
Workers Comp. [Member]
Multiemployer Plans [Line Items]
Regulation	Shenzhen Work-Related Injury Insurance Regulations
% of Salary	0.4
Unemployment [Member]
Multiemployer Plans [Line Items]
Regulation	Guangdong Unemployment Insurance Regulations
% of Salary	2
Housing [Member]
Multiemployer Plans [Line Items]
Regulation	Housing Provident Fund Management Regulations
% of Salary	5
Medical [Member]
Multiemployer Plans [Line Items]
Regulation	Shenzhen Social Medical Insurance Measures
% of Salary	6.5% or 0.6	[1]
Maternity [Member]
Multiemployer Plans [Line Items]
Regulation	Guangdong Employees Maternity Insurance
% of Salary	0.5% or 0.2	[1]

[1] Depending on their position in the company, employees receive either hospitalization medical and maternity insurance or comprehensive medical and maternity insurance, which is a lower premium.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 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	38,380,130	23,900,130
Common stock, shares outstanding	38,380,130	23,900,130

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Fair Value Measurements

9 Months Ended

Sep. 30, 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 September 30, 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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Consolidated Statement of Changes in Stockholders' Equity (Unaudited)	Total USD ($)	Total	Common Stock USD ($)	Additional Paid-in Capital USD ($)	Retained Earnings (Deficit) USD ($)	Statutory Reserve Fund USD ($)	Noncontrolling Interest USD ($)	Other Comprehensive Income USD ($)
Beginning Balance, at Dec. 31, 2012	$ 14,292,815		$ 23,900	$ 7,113,611	$ 5,469,214	$ 600,844	$ 712,184	$ 373,062
Issuance of common stock	9,912,000		14,480	9,897,520
Net income	12,480,134				12,480,134		654,549
Appropriation of statutory reserves					(1,291,719)	1,291,719
Other comprehensive income	521,892						27,085	494,807
Balance, at Sep. 30, 2013	$ 37,861,390		$ 38,380	$ 17,011,131	$ 16,657,629	$ 1,892,563	$ 1,393,818	$ 867,869

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Consolidated Balance Sheets (USD $)	Sep. 30, 2013	Dec. 31, 2012
Current assets:
Cash	$ 34,103,698	$ 5,215,738
Accounts receivable	594,046	4,033,576
Inventory	189,711	265,665
Advances to suppliers	178,947	5,282,712
Prepaid expenses	140,415	72,811
Total current assets	35,206,817	14,870,502
Fixed assets	486,816	473,942
Less: accumulated depreciation	(186,733)	(123,251)
Fixed assets, net	300,083	350,691
Other assets:
Intangible assets	19,512	25,328
Other assets - principally security deposits	48,967	53,908
Prepaid income taxes	2,619,017
Total other assets	2,687,496	79,236
TOTAL ASSETS	38,194,396	15,300,429
Current liabilities:
Accounts payable	14,627	14,241
Payroll payable	29,547	36,101
Taxes payable	46,680	793,723
Loans from stockholder	77,738	36,377
Accrued expenses and other payables	164,414	127,172
Total current liabilities	333,006	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; 38,380,130 and 23,900,130 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively	38,380	23,900
Additional paid-in capital	17,011,131	7,113,611
Statutory reserve fund	1,892,563	600,844
Retained earnings	16,657,629	5,469,214
Other comprehensive income	867,869	373,062
Stockholders' equity before noncontrolling interests	36,467,572	13,580,631
Noncontrolling interests	1,393,818	712,184
Total stockholders' equity	37,861,390	14,292,815
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 38,194,396	$ 15,300,429

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Summary of Significant Accounting Policies (Details 1) (USD $)	3 Months Ended				9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012		Sep. 30, 2013		Sep. 30, 2012
Summary of variable interest entity, consolidated, income
Sales	$ 4,896,263		$ 6,739,797		$ 24,659,281		$ 15,701,801
Net income	1,986,933		2,023,552		12,480,134		4,152,977
WFOE [Member]
Summary of variable interest entity, consolidated, income
Sales	4,896,263		6,741,196		24,659,281		15,701,801
Net income	$ 2,076,258	[1]	$ 2,105,117	[1]	$ 13,090,975	[1]	$ 4,346,607	[1]

[1] Under the Exclusive Technical Service and Business Consulting Agreement, 95% of the net income is to be remitted to the WFOE.

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Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2013

Intangible Assets [Abstract]

Summary of intangible assets

	September 30, 2013			December 31, 2012
Software	$	26,016		$	25,328
Less: Accumulated amortization		(6,504	)		-
Intangible assets, net	$	19,512		$	25,328

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Contingencies (Details) (USD $)	9 Months Ended
	Sep. 30, 2013
Contingencies (Textual)
Civil penalties of each foreign bank account	$ 10,000

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Lease Obligations (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 Apartment	Sep. 30, 2012
Lease Obligations (Textual)
Monthly rental from unrelated third parties			$ 9,538
Lease expiration date			Aug. 31, 2014
Number of apartments for lease			1
Monthly rental amount for apartments			1,628
Expiration term of apartment taken on lease			In the second quarter of 2014.
Rent expense	47,530	46,260	137,089	134,680
Shenzhen [Member]
Lease Obligations (Textual)
Monthly rental from unrelated third parties			15,732
Lease expiration date			Feb. 28, 2019
Termination of lease, Date			Sep. 30, 2013
Beijing [Member]
Lease Obligations (Textual)
Monthly rental from unrelated third parties			$ 716
Lease expiration date			Sep. 30, 2012

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Fixed Assets (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Fixed Assets (Textual)
Depreciation	$ 20,212	$ 19,453	$ 59,432	$ 57,989

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Intangible Assets (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Summary of intangible assets
Software	$ 26,016	$ 25,328
Intangible assets, gross	26,016	25,328
Less: Accumulated amortization	(6,504)	0
Intangible assets, net	$ 19,512	$ 25,328

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Related Party Transactions

9 Months Ended

Sep. 30, 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.

Loans from stockholder are non-interest bearing and are due on demand.

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Summary of Significant Accounting Policies (Details 2) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Summary of variable interest entity, consolidated, cash flows
Net cash provided by (used in) operating activities	$ 18,422,143	$ 541,516
Net cash provided by investing activities		5,242,319
Net cash provided by financing activities	9,952,000
Effect of exchange rate changes on cash	513,817	(891)
Net increase in cash	28,887,960	5,782,944
WFOE [Member]
Summary of variable interest entity, consolidated, cash flows
Net cash provided by (used in) operating activities	28,250,160	582,229
Net cash provided by investing activities		5,201,423
Net cash provided by financing activities	40,000
Effect of exchange rate changes on cash	536,520	(732)
Net increase in cash	$ 28,826,680	$ 5,782,920

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Income Taxes (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Summary of reconciliation of the statutory rate with the effective income tax rate
Tax at statutory rate	$ 521,950		$ 2,766,727
VIE tax holiday	(524,896)		(4,834,500)
(Benefit from) provision for income taxes	$ 2,946	$ (709,578)	$ 2,067,773	$ (1,456,769)
Rate of Tax, Tax at statutory rate	25.00%		25.00%
VIE tax holiday	(25.00%)		(44.00%)
Tax at effective tax rate	(0.14%)		(23.00%)

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Issuance of Common Stock

9 Months Ended

Sep. 30, 2013

Issuance of Common Stock [Abstract]

ISSUANCE OF COMMON STOCK

10.     ISSUANCE OF COMMON STOCK

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 RMB 4.2 (approximately $0.68) per share, or a total of RMB 60,816,000 (approximately $9,800,000).  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 PRC.

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Lease Obligations

9 Months Ended

Sep. 30, 2013

Lease Obligations [Abstract]

LEASE OBLIGATIONS

6.       LEASE OBLIGATIONS

The Company leased its offices in Shenzhen from an unrelated third party at a monthly rental of $15,732 under an operating lease, which was to expire on February 28, 2019.  The Company terminated the lease on September 30, 2013 without paying any penalty.  On September 30, 2013, the Company entered into another lease with an unrelated third party at a monthly rental of $9,538 per month. The new lease expires on August 31, 2014.  The Company also leases one apartment at a monthly rental of $1,628, which expires in the second quarter of 2014.  The Company had a lease for office space in Beijing at a monthly rent of $716 that expired in September 2012 and was not renewed.

The minimum future rentals under these leases as of September 30, 2013 are as follows:

Year Ending
December 31,	Amount
2013	$	28,614
2014		76,303
	$	104,917

Rent expense for the three months ended September 30, 2013 and 2012 was $47,530 and $46,260, respectively.  Rent expense for the nine months ended September 30, 2013 and 2012 was $137,089 and $134,680, respectively.

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Organization

9 Months Ended

Sep. 30, 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 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 Wonheas 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 to 95% of Shenzhen Wonhe’s annual net income with an additional payment of approximately $8,005 (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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Major Customers (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2013 Customer	Sep. 30, 2012 Customer	Sep. 30, 2013 Customer	Sep. 30, 2012 Customer	Dec. 31, 2012 Customer
Major Customers (Textual)
Number of major customer accounted for revenue	4	2	2	1
Number of major customer accounted for accounts receivable			7		4
Major customer accounts receivable, percentage	100.00%		100.00%		52.00%
Percentage of customer accounted for sale	56.00%	25.00%	22.00%	11.00%

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Summary of Significant Accounting Policies (Details Textual)	0 Months Ended		3 Months Ended			9 Months Ended
	May 02, 2013 USD ($)	May 02, 2013 CNY	Sep. 30, 2013 USD ($)	Sep. 30, 2012 USD ($)	Sep. 30, 2012 CNY	Sep. 30, 2013 USD ($)	Sep. 30, 2013 CNY	Sep. 30, 2012 USD ($)	May 30, 2012 USD ($)	May 30, 2012 CNY
Accounting Policies (Textual)
Consulting service fees as percentage of Shenzhen Wonhe's net income						95.00%	95.00%
Consulting expenses monthly payments						$ 8,035	50,000
Payable for issuance of common stock	14,480,000	14,480,000
Common stock purchase price	$ 0.68	4.2							$ 0.16	1.00
Issuance of common stock	9,800,000	60,816,000				9,912,000
Percentage of net income remitted to WFOE						95.00%	95.00%
Foreign currency translation adjustments			203,315		(17,656)	521,892		32,916
Advertising costs			97,028	94,740		259,137		158,583
Research and development expense			32,243	62,170		128,577		214,334
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.
Amount transfer from retained earnings to statuary reserve			1,892,563			1,892,563
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%	5.00%
Prepaid income taxes			$ 2,600,000			$ 2,600,000	16,107,000

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Major Customers

9 Months Ended

Sep. 30, 2013

Major Customers [Abstract]

MAJOR CUSTOMERS

14.     MAJOR CUSTOMERS

Four customers accounted for 56% and two customers accounted for 22% of total sales during the three months and nine months ended September 30, 2013, respectively.  Two customers accounted for 25% and one customer accounted for 11% of sales for the three months and nine months ended September 30, 2012, respectively.

As of September 30, 2013, seven customers accounted for 100% of accounts receivable.  At December 31, 2012, four customers accounted for 52% of accounts receivable.

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Income Taxes

9 Months Ended

Sep. 30, 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.

The provision for (benefit from) income taxes consisted of the following for the three and nine months ended September 30, 2013 and 2012:

	Three months ended September 30,					Nine months ended September 30,
	2013			2012		2013			2012
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Current	$	(2,946	)	$	709,578	$	(2,067,773	)	$	1,162,467
Deferred		-			-		-			294,302
	$	(2,946	)	$	709,578	$	(2,067,773	)	$	1,456,769

The following is a reconciliation of the statutory rate with the effective income tax rate for the three and nine months ended September 30, 2013.  The effective tax rate was the same as the statutory tax rate for the three and nine months ended September 30, 2012.

	Three Months Ended September 30, 2013						Nine Months Ended September 30, 2013
	Tax Provision			Rate of Tax			Tax Provision			Rate of Tax
Tax at statutory rate	$	521,950			25	%	$	2,766,727			25	%
VIE tax holiday		(524,896	)		(25	%)		(4,834,500	)		(44	%)
Tax at effective tax rate	$	(2,946	)		(0.14	%)	$	(2,067,773	)		(23	%)

The Company’s PRC tax filings for the tax years ended December 31, 2012, 2011 and 2010 were examined by the tax authorities in April 2013, 2012 and 2011, respectively.  The examinations were completed and resulted in no adjustments.

The Company did not file its U.S. federal income tax returns, including, without limitation, information returns on Internal Revenue Service (“IRS”) Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations” for the fiscal year ended June 30, 2012 and for the six months period ended December 31, 2012, a short year income tax return required to be filed as a result of the change in the fiscal year.  Failure to furnish any income tax returns and information returns with respect to any foreign business entity required, within the time prescribed by the IRS, subjects the Company to certain civil penalties.  Management is of the opinion that penalties, if any, that may be assessed would not be material to the consolidated financial statements.

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 September 30, 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. The tax year ended October 31, 2012 and 2011 and two-month tax period ended December 31, 2012 remain open to examination by the IRS.

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Fixed Assets (Tables)

9 Months Ended

Sep. 30, 2013

Fixed Assets [Abstract]

Summary of components of fixed assets

	September 30, 2013			December 31, 2012
Office equipment	$	157,848		$	153,674
Motor vehicles		219,554			213,748
Leasehold improvements		109,414			106,520
		486,816			473,942
Less: Accumulated depreciation		(186,733	)		(123,251	)
Fixed assets, net	$	300,083		$	350,691

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 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 September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 include Wonhe High-Tech,World Win, Kuayu, Shengshihe Consulting and its VIE, Shenzhen Wonhe.  All significant intercompany accounts and transaction have been eliminated in consolidation when applicable.

The unaudited interim consolidated financial statements of the Company as of September 30, 2013 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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.  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.

All of the assets recorded on the balance sheets of the Company, other than cash, are owned by Shenzhen Wonhe. In addition, all of the unrecognized revenue-producing assets of the Company, such as intellectual property and the assembled workforce, are owned by Shenzhen Wonhe.  Likewise, all of the recognized assets of Shenzhen Wonhe are recorded on the Company’s balance sheets, and all of the unrecognized assets of Shenzhen Wonhe are utilized for the benefit of the Company. The following are financial statement amounts and balances of Shenzhen Wonhe that have been included in the accompanying consolidated financial statements.

ASSETS	September 30, 2013			December 31, 2012
	(Unaudited, In U.S. $)			(In U.S. $)
Current assets:
Cash	$	33,986,597		$	5,159,917
Accounts receivable		594,046			4,033,576
Inventory		189,711			265,665
Advances to suppliers		178,947			5,282,712
Prepaid expenses		140,415			72,811
Total current assets		35,089,716			14,814,681
Fixed assets		486,816			473,942
Less: accumulated depreciation		(186,733	)		(123,251	)
Fixed assets, net		300,083			350,691
Other assets:
Intangible assets		19,512			25,328
Other assets – principally security deposits		48,967			53,908
Prepaid income taxes		2,619,017			-
Total other assets		2,687,496			79,236
TOTAL ASSETS	$	38,077,295		$	15,244,608

LIABILITIES
Current liabilities:
Accounts payable	$	14,627	$	14,241
Payable to WFOE(1)		19,284,685		6,848,259
Payroll payable		28,051		34,645
Taxes Payable		20,346		783,212
Payable for sale of common stocks(2)		9,888,682		-
Loans from stockholder		41,026		-
Accrued expenses and other payables		208,231		168,838
Total current liabilities		29,485,648		7,849,195
TOTAL LIABILITIES	$	29,485,648	$	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 and nine months ended September 30, 2013 of RMB 50,000 (approximately US$8,035) were paid in full as of September 30, 2013.

(2)   Payable for sale of common stock represents the proceeds received by Shenzhen Wonhe for the 14,480,000 common shares issued by Wonhe High-Tech International, Inc. on May 2, 2013 at $0.68 each (approximately total US$9,800,000).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	(In U.S. $)		(In U.S. $)		(In U.S. $)		(In U.S. $)
Sales	$	4,896,263	$	6,741,196	$	24,659,281	$	15,701,801
Net income(3)		2,076,258		2,105,117		13,090,975		4,346,607

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

	Nine Months Ended September 30,
	2013		2012
	(Unaudited)		(Unaudited)
	(In U.S. $)		(In U.S. $)
Net cash provided by (used in) operating activities	$	28,250,160	$	582,229
Net cash provided by investing activities		-		5,201,423
Net cash provided by financing activities		40,000		-
Effect of exchange rate changes on cash		536,520		(732	)
Net increase in cash	$	28,826,680	$	5,782,920

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 incomeamounts 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 and HKD into US dollars for the purposes of preparing the consolidated financial statements are as follows:

September 30, 2013

December 31, 2012

September 30, 2012

RMB

HKD

RMB

HKD

RMB

HKD

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

0.1626

0.1290

0.1583

0.1290

N/A

N/A

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

0.1607

0.1289

N/A

N/A

0.1580

0.1289

Foreign currency translation adjustments of $203,315 and ($17,656) for the three months ended September 30, 2013 and 2012, respectively, and $521,892 and $32,916 for the nine months then ended, respectively, have been reported as other comprehensive income (loss).  Other comprehensive income of the Company consists entirely of foreign currency translation adjustments.  Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes”,the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

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.

The Company has not offered customers the right of return because the product has performance capabilities that are not rivaled by competitive products.  However, the Company is responsible for replacement or repair of a defective product and such costs will be the responsibility of the outsourced manufacturers.

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.

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 $32,243 and $62,170, respectively, and $128,577 and $214,334, respectively, for the three and nine months ended September 30, 2013 and 2012.

Advertising Costs

Advertising Costs

Advertising costs are charged to operations when incurred.  Advertising costs were $97,028 and $94,740, and $259,137 and $158,583, respectively, for the three and nine months ended September 30, 2013 and 2012.

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 September 30, 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, if necessary, for estimated unmarketable inventories.  Inventory amounts are reported net of such allowances, if any.  There were no allowances for inventory as of September 30, 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 September 30, 2013, $1,892,563 was transferred from retained earnings to the 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 consequences 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 uncertain tax positions.  As of September 30, 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 and nine months ended September 30, 2013 and 2012.

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.  On July 23, 2012, the National Tax Bureau, Shenzhen Nanshan Branch declared that Shenzhen Wonhe is qualified for the preferential tax treatment afforded by the PRC to enterprises engaged in the development of software or integrated circuits.  As a result, 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.  The tax regulations require that the enterprise pay income tax until its eligibility for the exemption is determined - i.e. until the local tax bureau determines that the enterprise has recorded its first profitable year.  Payments already made payments of approximately $2,600,000 (RMB 16,107,000) on account of 2012 while the local tax bureau reviewed the Company’s financial results and determined that we had realized a profit in 2012.  Since the Company has now been declared exempt from tax with respect to 2012, the payments will be applied to the future income tax due.  The payments have been reflected as prepaid income taxes on our balance sheet as of September 30, 2013 and as a benefit from income taxes in the consolidated statements of income and other comprehensive income for nine months ended September 30, 2013.

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.

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

              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.

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income.  For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts.  The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012.  The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial statements.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 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	Sep. 30, 2013
Document Fiscal Period Focus	Q3
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 (Tables)

9 Months Ended

Sep. 30, 2013

Summary of Significant Accounting Policies [Abstract]

Schedule of variable interest entities, consolidated financial statements

ASSETS	September 30, 2013			December 31, 2012
	(Unaudited, In U.S. $)			(In U.S. $)
Current assets:
Cash	$	33,986,597		$	5,159,917
Accounts receivable		594,046			4,033,576
Inventory		189,711			265,665
Advances to suppliers		178,947			5,282,712
Prepaid expenses		140,415			72,811
Total current assets		35,089,716			14,814,681
Fixed assets		486,816			473,942
Less: accumulated depreciation		(186,733	)		(123,251	)
Fixed assets, net		300,083			350,691
Other assets:
Intangible assets		19,512			25,328
Other assets – principally security deposits		48,967			53,908
Prepaid income taxes		2,619,017			-
Total other assets		2,687,496			79,236
TOTAL ASSETS	$	38,077,295		$	15,244,608

LIABILITIES
Current liabilities:
Accounts payable	$	14,627	$	14,241
Payable to WFOE(1)		19,284,685		6,848,259
Payroll payable		28,051		34,645
Taxes Payable		20,346		783,212
Payable for sale of common stocks(2)		9,888,682		-
Loans from stockholder		41,026		-
Accrued expenses and other payables		208,231		168,838
Total current liabilities		29,485,648		7,849,195
TOTAL LIABILITIES	$	29,485,648	$	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 and nine months ended September 30, 2013 of RMB 50,000 (approximately US$8,035) were paid in full as of September 30, 2013.

(2)   Payable for sale of common stock represents the proceeds received by Shenzhen Wonhe for the 14,480,000 common shares issued by Wonhe High-Tech International, Inc. on May 2, 2013 at $0.68 each (approximately total US$9,800,000).

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	(In U.S. $)		(In U.S. $)		(In U.S. $)		(In U.S. $)
Sales	$	4,896,263	$	6,741,196	$	24,659,281	$	15,701,801
Net income(3)		2,076,258		2,105,117		13,090,975		4,346,607

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

Summary of Estimated useful lives for fixed assets

	Nine Months Ended September 30,
	2013		2012
	(Unaudited)		(Unaudited)
	(In U.S. $)		(In U.S. $)
Net cash provided by (used in) operating activities	$	28,250,160	$	582,229
Net cash provided by investing activities		-		5,201,423
Net cash provided by financing activities		40,000		-
Effect of exchange rate changes on cash		536,520		(732	)
Net increase in cash	$	28,826,680	$	5,782,920