China Electronics Holdings, Inc. - FORM 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2013
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number: 333-152535

CHINA ELECTRONICS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada (State of Other Jurisdiction of Incorporation or Organization)		98-0550385 (I.R.S. Employer Identification No.)

Building 3, Binhe District, Longhe East Road, Lu’an City, Anhui Province, PRC (Address of Principal Executive Offices)		237000 (ZIP Code)

011-86-564-3224888

(Registrant’s Telephone Number, Including Area Code)

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 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 large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 16,775,113 as of August 2, 2013.

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TABLE OF CONTENTS

	Page

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	43
Item 4. Controls and Procedures.	43
PART II—OTHER INFORMATION
Item 1A. Risk Factors.	45
Item 6. Exhibits.	45

Throughout this Quarterly Report on Form 10-Q, the “Company”, “we,” “us,” and “our,” refer to (i) China Electronics Holdings, Inc., a Nevada corporation (“China Electronics”), (ii) China Electronic Holdings, Inc., a Delaware corporation (“CEH Delaware”), and (iii) Lu’anGuoying Electronic Sales Co., Ltd., a wholly foreign enterprise under the laws of the People’s Republic of China (“Guoying”), unless otherwise indicated or the context otherwise requires.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). The statements herein which are not historical reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events. Such forward-looking statements include statements regarding, among other things:

●

our ability to produce, market and generate sales of our private label products;

●

our ability to market and generate sales of the products that we sell as a wholesaler;

●

our ability to develop, acquire and/or introduce new products;

●

our projected future sales, profitability and other financial metrics;

●

our future financing plans;

●

our plans for expansion of our stores and manufacturing facilities;

●

our anticipated needs for working capital;

●

the anticipated trends in our industry;

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●

our ability to expand our sales and marketing capability;

●

acquisitions of other companies or assets that we might undertake in the future;

●

our operations in China and the regulatory, economic and political conditions in China;

●

our ability as a U.S. company to operate our business in China through our subsidiary, Guoying;

●

competition existing today or that will likely arise in the future; and

●

other factors discussed elsewhere herein.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations. These statements may be found under Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur.

Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.

Potential investors should not make an investment decision based solely on our projections, estimates or expectations.

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PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


	MARCH 31,		DECEMBER 31,
	2013		2012
	(UNAUDITED)
Assets
Current assets
Cash and cash equivalents	$	183,042	$	9,465
Trade accounts receivable, net of allowance for doubtful accounts of $363,144 and $362,016, respectively		172,986		2,331,713
Other receivable, net		117,195		593,850
Related party receivable, net		681,567		642,000
Advances		20,061,302		17,532,739
Inventories, net		2,616,937		956,779
Total current assets		23,833,029		22,066,546

Noncurrent assets
Property, plant and equipment, net		323,851		342,705
Construction in progress		8,221,538		8,196,005
Advances - Long term		13,772,262		13,954,191
Prepaid expense - Long term		112,700		-
Intangible assets		15,295,000		15,381,250
Total noncurrent assets		37,725,351		37,874,151

Total assets	$	61,558,379	$	59,940,697

Liabilities and Stockholders' Equity
Current liabilities :
Accounts payable and accrued expenses	$	235,321	$	224,884
Short term bank loans		1,610,000		1,605,000
Other payable		3,522,945		3,512,045
Due to Related party		967,159		964,156
Unearned revenue		1,844,224		430,833
Tax Payable		206		103
Total current liabilities		8,179,855		6,737,021

Total liabilities		8,179,855		6,737,021

Equity
Stockholders' equity
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2013 and December 31, 2012		-		-
Common stock, $0.0001 par value; 150,000,000 shares authorized; 16,775,113 shares and 16,775,113 issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		1,678		1,678
Additional paid in capital		15,341,710		15,341,710
Retained earnings		29,618,187		29,609,970
Statutary reserve		3,849,684		3,849,684
Accumulated other comprehensive income		4,557,225		4,391,004
Total stockholders' equity		53,368,484		53,194,046

Non controlling interest		10,040		9,630
Total equity		53,378,524		53,203,676
Total liabilities and stockholders' equity	$	61,558,379	$	59,940,697

The accompanying notes are an integral part of this unaudited consolidated condensed financial statement.

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	FOR THE THREE MONTHS ENDED MARCH 31,
	2013			2012

Net revenue from exclusive franchise stores	$	3,909,069		$	9,780,970
Net revenue from non-exclusive franchise stores		401,690			3,057,228
Net revenue from company owned stores		1,193,501			660,298
Net Revenue		5,504,260			13,498,496

Cost of goods sold from exclusive franchise stores		3,584,331			9,130,330
Cost of goods sold from non-exclusive franchise stores		368,957			2,854,158
Cost of goods sold from company owned stores		1,067,230			605,830
Cost of goods sold		5,020,518			12,590,318

Gross profit		483,742			908,178
Operating expenses:
Selling expense		356,565			483,774
General and administrative expenses		459,888			517,492
Bad debt recovery for due from related party		(80,318	)		0
Total Operating Expenses		736,135			1,001,266

Net operating loss		(252,393	)		(93,088	)

Other income (expense):
Financial income (expense)		261,791			(815	)
Other expense		(802	)		-
Other income		-			-
Total other (expense) income		260,989			(815	)

Net (loss) income before provisions for income taxes		8,596			(93,903	)

Provision for income taxes		-			-

Net income (loss)		8,596			(93,903	)
Netincome (loss) attributable to non-controlling interest in subsidiaries		375			-
Net income (loss) attributable to China Electronics Holdings, Inc.		8,221			(93,903	)


Other Comprehensive Income:
Foreign currency translation adjustment		166,221			480,807

Comprehensive income	$	174,816		$	386,904
Comprehensive income attributable to non-controlling interest		682			-
Comprehensive income attributable to China Electronics Holdings Inc.	$	174,134		$	386,904
Earnings (loss) per share - basic	$	0.00		$	(0.01	)
Earnings (loss) per share - diluted	$	0.00		$	(0.01	)

Basic weighted average shares outstanding		16,775,113			16,775,113

Diluted weighted average shares outstanding		16,775,113			16,775,113

The accompanying notes are an integral part of this unaudited consolidated condensed financial statement.

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CHINA ELECTRONICS HOLDINGS, INC AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

(UNAUDITED)

	FOR THE THREE MONTHS ENDED MARCH 31,
	2013			2012

Net income (loss)	$	8,221		$	(93,903	)
Adjustments to reconcile net income (loss) to net cash used in operations:
Net income attributable to non-controlling interest in subsidiary		375			-
Amortization		133,917			157,951
Bad debt recovery		(80,318	)		-
Depreciation		20,690			4,026
Changes in operating liabilities and assets:
Trade accounts receivable		2,161,955			(1,411,082	)
Advances		(2,356,844	)		3,032,449
Inventories		(1,654,090	)		(496,683	)
Other receivables		477,613			5,832
Other payables		-			(1,411,521	)
Unearned revenue		1,409,418			457,531
Accounts payable and accrued expenses		10,272			1,250
Net cash provided by operating activities		131,208			245,850

Cash flows from investing activities:
Property, plant and equipment additions		(805	)		(31,367	)
Construction in Progress		-			(347,937	)
Net cash used in investing activities		(805	)		(379,304	)

Cash flows from financing activities
Related party receivable		42,751			-
Related party payable		-			-
Net cash used in financing activities		42,751			-

Effect of rate changes on cash		423			1,235

Increase (decrease) in cash and cash equivalents		173,577			(132,219	)
Cash and cash equivalents, beginning of period		9,465			171,838
Cash and cash equivalents, end of period	$	183,042		$	39,619

Supplemental disclosures of cash flow information:
Interest paid in cash	$	47,222		$	-
Income taxes paid in cash	$	-		$	-

The accompanying notes are an integral part of this unaudited consolidated condensed financial statement.

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CHINA ELECTRONIC HOLDINGS, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

March 31, 2013

(Unaudited)

1.	Nature of Operations

China Electronics Holdings, Inc (the “Company” or “CEHD Nevada”), formerly named Buyonate, Inc., was a development stage company incorporated in the State of Nevada on July 9, 2007. Upon consummation of Share Transfer and Share Exchange transactions, the Company currently engages in wholesale and retail business of consumer electronics and appliances in certain rural markets in the People’s Republic of China.

In August 2012, Guoying contributed $945,054 registered capital to Lu An GuoyingOpto-Electronics Technology Co., Ltd. (“Opto-Electronics”) which is 99% owned by Guoying. Mr. Hailong Liu, the CEO and Chairman of the Company, contributed $9,546 registered capital in cash and owned 1% of Opto-Electronics.

The consolidated condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results.

2008 and 2009 Share Transfer Agreements

China Electronic Holdings, Inc (“CEH Delaware”) was organized on November 15, 2007 in Delaware as a development stage company.

Lu’anGuoying Electronic Sales Co., Ltd., a domestic PRC corporation, (“Guoying”) was established on January 4, 2002 to engage in wholesale and retail of electronics consumer products to rural areas in An Hui province. Mr. Hailong Liu is the CEO and Chairman of Guoying. Pursuant to the Share Transfer Agreement entered into on December 26, 2008 (the “2008 Share Transfer Agreement”) between the shareholders of Guoying (the “Guoying Shareholders”) and CEH Delaware, CEH Delaware agreed to acquire 40% of the outstanding equity securities of Guoying (the “Guoying Shares”) from Guoying Shareholders in consideration for RMB 400,000 contribution of registered capital from CEH Delaware to Guoying. Pursuant to the Share Transfer Agreement entered into on December 31, 2009 (the “2009 Share Transfer Agreement”) between Guoying Shareholders and CEH Delaware, CEH Delaware agreed to acquire the remaining 60% of Guoying Shares from Guoying Shareholders in consideration for RMB 600,000 contribution of registered capital from CEH Delaware to Guoying. The amount of RMB400, 000 was paid in February 2010 and the amount of RMB 600,000 was paid in July 2010 by CEH. As a result of the transactions, Guoying became a wholly foreign-owned subsidiary (“WFOE”) of CEH Delaware with registered capital of RMB 1,000,000 and subsequently increased its paid-in capital to $2,838,653 in 2010 subsequent to the 2010 PIPE financing. The transaction was approved by Ministry of Commerce of Anhui Province and registered with Administration and Industry of Commerce of Lu An City.

The exchange of shares pursuant to the 2008 and 2009 Share Transfers was accounted for as a reverse acquisition at historical costs since the Guoying Shareholders obtained control of CEH Delaware and the management of Guoying became the management of CEH Delaware with the appointment of Mr. Hailong Liu (Chief Executive Officer of Guoying) as CEH Delaware’s sole director and officer. Accordingly, the merger of Guoying into CEH Delaware was recorded as a recapitalization of Guoying, with Guoying being treated as the continuing entity. The historical financial statements presented are the financial statements of Guoying.

2008 and 2010 Bridge Financings

On January 30, 2008, CEH Delaware consummated a bridge financing in amount of $275,000 made pursuant to a Securities Purchase Agreement with a bridge investor, pursuant to which it sold 343,750 Series A Convertible Preferred Stock par value $0.00001 per share and common stock Warrant E to purchase one million shares of common stock (“CEH Delaware Shares”) at $1 per share. On January 5, 2010, CEH Delaware consummated a second bridge financing in amount of $550,000 made pursuant to Securities Purchase Agreements with four bridge investors (together collectively referred to as “Bridge Investors”), pursuant to which it sold 314,285 shares of CEH Delaware Shares, 314,285 common stock underlying Warrant A and 314,285 common stock underlying Warrant B. Upon consummation of 2008 and 2010 bridge financings, the Bridge Investors constitute 8.58% of issued and outstanding shares of CEH Delaware. Guoying Shareholders, Bridge Investors, China Financial Services and its affiliates are together referred to as CEH Delaware Shareholders.

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2010 Share Exchange between CEH Delaware and CEHD Nevada

The Company entered into a Share Exchange Agreement, dated as of July 9, 2010 (the “Share Exchange Agreement”) with CEH Delaware and CEH Delaware Stockholders. Pursuant to the Share Exchange Agreement, on July 15, 2010, 10 CEH Delaware Stockholders transferred 100% of the outstanding shares of common stock and preferred stock and 100% of the warrants to purchase common stock of CEH Delaware held by them, in exchange for an aggregate of 13,785,902 newly issued shares of the Company’s Common Stock (including 13,665,902 shares of common stock issued pursuant to the Share Exchange Agreement dated July 22, 2010, and 120,000 shares of common stock issued to consultants related to their professional services) and warrants to purchase an aggregate of 1,628,570 shares of our Common Stock. The shares of the Company’s common stock acquired by the CEH Delaware Stockholders in such transactions constitute approximately 82.2% of the Company’s issued and outstanding Common Stock (including 68.9% owned by Guoying Shareholders through Ms. Sherry Li”) giving effect to the share and warrant exchange and the sale of the Company’s Common Stock pursuant to the Subscription Agreement, but not including any outstanding purchase warrants to purchase shares of the Company’s common stock, including the warrants issued pursuant to the Subscription Agreement. In connection with the closing of the Share Exchange Agreement, CEH Delaware purchased from the former principal stockholder of Buyonate an aggregate of 4 million shares of our common stock and then agreed to the cancellation of such shares.

The Share Exchange resulted in (i) a change in our control with a shareholder of CEH Delaware owning approximately 82.2% of issued and outstanding shares of the Company’s common stock, including the shares of common stock sold to PIPE investors pursuant to the Subscription Agreement, (ii) CEH Delaware becoming our wholly-owned subsidiary, and (iii) appointment of Mr. Hailong Liu as the Company’s sole director, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer.

2010 PIPE Transaction

On July 15, 2010 we consummated a Private Placement made pursuant to a Subscription Agreement dated as of July 9, 2010 (the “Purchase Agreement”) with certain of the Selling Stockholders, pursuant to which we sold units (the “Units”) to such Selling Stockholders. Each Unit consists of four shares of our Common Stock, a warrant to purchase one share of Common Stock at an exercise price of $3.70 per share (a “Series C Warrant”) and a warrant to purchase one share of Common Stock at an exercise price of $4.75 per share (a “Series D Warrant”). Additional Private Placements were consummated on July 26, 2010 and August 17, 2010. The aggregate gross proceeds from the sale of the Units was $5,251,548 and in such Private Placements, an aggregate of (a) 1,989,211 shares of our Common Stock, (b) Series C Warrants to purchase an aggregate of 497,303 shares of our Common Stock and (c) Series D Warrants to purchase an aggregate of 497,303 shares of our Common Stock was sold.

Call Option Agreement and Reverse Acquisition

Mr. Hailong Liu is the CEO and chairman of Guoying. Mr. Liu is also CEO and Chairman of CEH Delaware upon consummation of 2008 and 2009 Share Transfer and CEO and Chairman of CEHD Nevada upon consummation of 2010 Share Exchange. Ms. Sherry Li serves as nominee shareholder to hold our Common Stock on behalf of Mr. Hailong Liu who served as a nominee shareholder for Guoying Shareholders to be in compliance with the PRC M&A rules and regulations.

Mr. Hailong Liu entered into a call option agreement (the “2010 February Call Option Agreement”) and voting trust agreement (the “2010 February Voting Trust Agreement) with Sherry Li dated February 10, 2010. Pursuant to the 2010 February Call Option and Voting Trust Agreement, Ms. Sherry Li agreed to serve as nominee shareholder for Mr. Liu and grant Mr. Hailong Liu the voting power and call option to acquire 13,213,268 CEH Delaware shares held by Ms. Sherry Li. Mr. Hailong Liu served as nominee shareholder for Guoying Shareholders. In February 2010, CEHD Delaware issued 13,213,268 CEH Delaware Shares, constituting 96.6% of issued and outstanding shares of CEH Delaware to Mr. Hailong Liu under the name of Sherry Li concurrent with the 2008 and 2009 Shares Transfers. Mr. Hailong Liu entered into a call option agreement (the “2010 July Call Option Agreement”) and voting trust agreement (the “2010 July Voting Trust Agreement”) with Sherry Li, dated July 9, 2010. Pursuant to the 2010 July Call Option Agreements, Mr. Liu received two-year options exercisable for 11,556,288 shares of common stock (the Option Shares) from Sherry Li concurrent with the 2010 July Share Exchange and Mr. Liu shall have right and option to acquire 50% of Option Shares upon first filing of a quarterly report on Form 10-Q with the SEC on August 23, 2010 following the execution of the Share Exchange Agreement and 50% of the remaining Option Shares 2 years after such filing by August 23, 2012. The Voting Trust Agreements provide that Ms. Sherry Li shall not vote or dispose of the respective portion of the shares of common stock without Mr. Liu’s prior written consent and is obligated to transfer Option Shares to Mr. Liu at nominal consideration of $0.001 per share par value. The Voting Trust Agreements further provides that, Sherry Li, the nominee shareholder, has no decision power to vote or dispose of the Option Shares without Mr. Liu’s consent.

Pursuant to the terms of the Call Option Agreement, Mr. Liu received 5,778,144 shares in August 2010 and 5,778,144 shares in January 2013 from Ms. Sherry Liu pursuant to the vesting schedule set forth in the Call Option Agreement. Upon exercise of the options, Mr. Liu purchased each share for $0.001 and upon Mr. Liu’s exercises of all of his options, he owned a majority of the Company’s outstanding shares of Common Stock.

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The 2008 and 2009 Share Transfer Transaction was accounted for as a reverse acquisition at historical costs since Guoying Shareholders obtained control of 96.6% of outstanding CEH Delaware Shares through Sherry Li as nominee shareholder and Guoying management, Mr. Hailong Liu, became the management of CEH Delaware. Accordingly, the merger of Guoying into CEH Delaware was recorded as a recapitalization of Guoying, with Guoying being treated as the continuing entity. The historical financial statements presented are the financial statements of Guoying.

The exchange of shares pursuant to the July 10, 2010 Share Exchange was accounted for as a reverse acquisition at historical cost since CEH Delaware Shareholders obtained control of 82.2% of outstanding shares of the Company, including 68.9% of outstanding shares of the Company owned by Guoying Shareholders, and the management of CEH Delaware, Mr. Hailong Liu, became the management of the Company. Mr, Liu, who maintained control of Guoying prior to the mergers and subsequently, obtained control of CEH Delaware pursuant to 2009 Share Transfer, effectively obtained control of the Company upon completion of 2010 Share Exchange subject to the Voting Trust Agreement and Call Option Agreement. Accordingly, the merger of CEH Delaware into the Company was recorded as a recapitalization of CEH Delaware, with CEH Delaware being treated as the continuing entity. The historical financial statements presented are the financial statements of CEH Delaware which are in essence the financial statements of Guoying.

2.	Summary of Significant Accounting Policies

Construction in Progress

Construction in progress at March 31, 2013 amounted to $8,221,538. During 2011, the Company started construction of four buildings, 4,800 square meters each and 19,200 square meters in total, on Pingqiao land to be used as warehouses to build the Company’s logistic center. The Company does not have sufficient capital to continue building the construction and will continue focusing on its electronics distribution business while it moves slowly on this construction by seeking business partners and financing.

Basis of Presentation

In the opinion of management, the accompanying balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant inter-company transactions and accounts have been eliminated in the consolidation. The functional currency is the Chinese Renminbi (“RMB”); however the accompanying financial statements have been translated and presented in United States Dollars (“USD”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s 2012 Form 10-K filed on April 16, 2013 with the U.S. Securities and Exchange Commission.

Economic and Political Risks

The Company faces a number of risks and challenges as a result of having primary operations and marketing in the PRC. Changing political climates in the PRC could have a significant effect on the Company’s business.

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Principles of Consolidation

The consolidated financial statements include the financial statements of the company, its wholly owned subsidiary CEH Delaware, and its wholly owned subsidiary Guoying. The financial statements of co-operative stores (exclusive franchise stores and non-exclusive franchise stores) are not consolidated as these stores are independently managed and they have no right to return their purchased goods.

All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 income and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents includes cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. Deposits held in financial institutions in the PRC are not insured by any government entity or agency. The Company issues acceptance bills to its suppliers through Chinese banks from time to time. Acceptance bills are in the form of notes payables that are written promises to pay stated sums of money at future dates. Standard practice in China requires Companies to maintain restricted deposits at those banks that issue acceptance bills to suppliers of the Company to ensure sufficient payment on demand.

Trade Accounts Receivable

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. Trade accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful accounts is established and determined based on management’s regular assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. These factors continuously change, and can have an impact on collections and the Company’s estimation process. These impacts may be material. Management reviews and maintains an allowance for doubtful accounts that reflects the management’s best estimate of potentially uncollectible trade receivables. Certain accounts receivable amounts are charged off against allowances after a designated period of collection efforts. Subsequent cash recoveries are recognized as income in the period when they occur. Allowance for doubtful debts amounted for accounts receivable to $363,144 and $362,016 as of March 31, 2013 and December 31, 2012, respectively. We do not set a specific date for payments from customers. The Company reviews the balance periodically and decides the collection time based on the market condition, the Company’s cash position, the potential purpose from the customers, the amount of the sales, and other conditions.

	Beginning balance		Cost charged to expense		Reduction from reverses		Ending balance
December 31, 2012	$	2,198,376	$	43,288	$	1,897,648	$	362,016
March 31, 2013	$	362,016	$	1,128	$	-	$	363,144

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The follow table shows the composition of trade accounts receivable by exclusive and non-exclusive franchise stores as of March 31, 2013 and December 31, 2012:

	March 31, 2013			December 31, 2012
Exclusive franchise stores	$	536,130		$	2,693,729
Non-exclusive franchise stores		-			-
		536,130			2,693,729
Allowance for doubtful accounts		(363,144	)		(362,016	)
Accounts receivable, net	$	172,986		$	2,331,713

Advances

As is customary in the PRC, the Company makes advances to its suppliers for inventory and property and equipment. Advances are classified as current assets when the advances relates to the purchase of inventory. The Company also makes advances to suppliers for construction of its property and equipment. Such advances are classified as long-term since the assets to which the advances relate are long-term assets. If the Company determines that the products for which it prepaid will not be delivered then an impairment charge is taken.

Inventories

Inventories are stated at the lower of cost, determined on a weighted average basis, and net realizable value. The cost of the inventory includes that costs of acquiring electronic products sold plus freight in costs incurred acquiring the inventory. The freight costs are allocated to the individual products purchased. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. Inventories consist of the following:

		March 31, 2013				December 31, 2012
Electronic products		$	2,616,937			$	956,779

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the assets. Major renewals are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to manufacturing is reported in cost of revenues. Depreciation not related to manufacturing is reported in selling, general and administrative expenses. Property, plant and equipment are depreciated over their estimated useful lives as follows:

Furniture and office equipment	5 years
Motor vehicles	10 years

Impairment of Long-Lived and Intangible Assets

Long-lived assets of the Company are reviewed annually to assess whether the carrying value has become impaired according to the guidelines established in FASB Codification (ASC) 360. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2013, the Company expects these assets to be fully recoverable. No impairment of assets was recorded in the periods reported.

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Revenue Recognition – Product Sales

The Company receives revenue from sale of electronic products. The Company's revenue recognition policies are in compliance with ASC 605 (previously Staff Accounting Bulletin 104). The Company recognizes all product sales revenue at the date of shipment to customers, when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company recognizes product sales revenue from our sales to exclusive franchise stores and non-exclusive franchise stores when the products are delivered to the respective store. Product sales to all co-operative stores are recorded at the gross amount billed to the store as we have determined that we are principal to the transaction because we are the primary obligor in the arrangement.

No return rights are granted to co-operative stores if they are unable to sell their purchased inventories to the end users. Additionally, our product sales from company-owned stores are covered by the respective manufacturers’ return and warranty policies and we receive full reimbursement for any costs associated with returns and warranty payments. As such, we do not estimate deductions or allowance for sales returns. The Company’s revenue from sales is presented as gross revenue. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue amounted to $1,844,224 and $430,833 as of March 31, 2013 and December 31, 2012, respectively.

Our products delivered to franchise stores would be checked on site by such stores and, once the products are accepted by such stores, they will sign the acceptance notice. Rewards or incentives given to our retail franchise stores are an adjustment of the selling prices of our products sold to our customers; therefore, the consideration is characterized as a reduction of revenue when recognized in our income statement.

The Company recognizes its revenues net of value-added taxes (“VAT”). Currently, the Company is subject to beneficial treatment of income tax and VAT approved by the local Government and hence, a reduced fixed annual tax rate in amount of no more than approximately $1,200 cover income tax and value added taxes.

Revenue Recognition – Franchise Fees

Franchise fees, including area development and initial franchise fees, continuing fees, and royalties (collectively referred to as “franchise fees”) received from co-operative stores (exclusive franchise stores and non-exclusive franchise stores) for the purpose of establishing new stores and royalties are charged to franchisees based on a percentage of a franchised store’s sales.

Franchise fees are accrued as unearned franchise revenue when received and are recognized as revenue when the respective franchised store opens, which is generally when we have fulfilled all significant obligations to the franchisee. Continuing fees and royalties are recognized in the period earned.

Currently, in connection with promotional efforts aimed at network growth, the Company has ceased charging franchise fees, continuing fees and royalties to our exclusive stores. Currently, in connection with promotional efforts aimed at network growth, the Company has ceased charging franchise fees, continuing fees and royalties to our exclusive store. As such, total franchise fees for the three months ended March 31, 2013 and March 31, 2012 were $0.

Cost of Goods Sold

Cost of goods sold consists primarily of the costs of the products sold, including freight in charges on those goods.

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Selling Expenses

Selling expenses include costs incurred in connection with performing general selling activities, such as sales commissions, freight-out charges, marketing and advertisement costs, shipping and handling costs, and sales salaries.

General and Administrative Expenses

General and administrative expenses include the costs of non-selling related salaries and related employee benefits, professional service fees, rent and depreciation, warehousing costs, office supplies, bad debts expense, and amortization of intangible assets (land).

Shipping and Handling Costs

ASC 605-45-20 (formerly EITF No. 00-10, “Accounting for Shipping and Handling Fees and Costs” ) establishes standards for the classification of shipping and handling costs. Shipping and Handling costs include shipping and handling costs related to shipping and handling our products from our warehouses to buyers’ designated locations at our exclusive or non-exclusive franchise stores, and company owned stores (collectively referred to as the “Stores”). Shipping and handling costs that are billed to Stores are classified as revenue, while those costs not billed to Stores are classified as selling expenses. Shipping and handling costs billed to customers and included within revenue for the three months ended March 31, 2013 and 2012 were $0 because the Company did not charge any shipping and handling expenses from Stores. Shipping and handling costs not billed to Stores and included within selling expenses for the three months ended March 31, 2013 and 2012 were $75,800 and $189,972, respectively.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs of $51,926 and $25,593 are included in selling expenses for the three months ended March 31, 2013 and 2012, respectively.

Foreign Currency and Comprehensive Income

The accompanying financial statements are presented in US dollars. The functional currency is the Renminbi (“RMB”) of the PRC. The financial statements are translated into US dollars from RMB at period-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation. At March 31, 2013 and December 31, 2012, the cumulative translation adjustment of $4,557,225 and $4,391,004, respectively, was classified as an item of other comprehensive income in the stockholders’ equity section of the consolidated balance sheet. For the three months ended March 31, 2013 and 2012, translation adjustment was $166,221and $480,807, respectively.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740 (formerly SFAS 109, “Accounting for Income Taxes.”) Under the asset and liability method as required by ASC 740, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under ASC 740, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. As of March 31, 2013 and December 31, 2012, the Company did not have any deferred tax assets or liabilities, and as such, no valuation allowances were recorded at March 31, 2013 and December 31, 2012.

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ASC 740 clarifies the accounting and disclosure for uncertain tax positions and prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under ASC 740, evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The Company’s operations are subject to income and transaction taxes in the United States and the PRC jurisdictions. Significant estimates and judgments are required in determining the Company’s worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, and as a result the ultimate amount of tax liability may be uncertain. However, the Company does not anticipate any events that would lead to changes to these uncertainties.

Restrictions on Transfer of Assets Out of the PRC

Dividend payments by the Company are limited by certain statutory regulations in the PRC. No dividends may be paid by the Company without first receiving prior approval from the Foreign Currency Exchange Management Bureau. However, no such restrictions exist with respect to loans and advances.

Financial Instruments

ASC 825 (formerly SFAS 107, “Disclosures about Fair Value of Financial Instruments”) defines financial instruments and requires disclosure of the fair value of those instruments. ASC 820 (formerly SFAS 157, “Fair Value Measurements”), adopted July 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for current receivables and payables, including short-term loans, qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments, their expected realization and, if applicable, the stated rate of interest is equivalent to rates currently available. The three levels are defined as follows:

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

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3: inputs to the valuation methodology are unobservable and significant to the fair value.

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The Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 820.

Stock-Based Compensation

The Company records stock-based compensation expense pursuant to ASC 718 (formerly SFAS 123R, “Share Based Payment.”) The Company uses the Black-Scholes option pricing model which requires the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes option pricing model may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with ASC 718 using an option pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Stock-based compensation expense is recognized based on awards expected to vest, and there were no estimated forfeitures as the Company has a short history of issuing options. ASC 718 (formerly SFAS 123R) requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

There was no stock based compensation for the three months ended March 31, 2013 and 2012.

Statement of Cash Flows

In accordance with ASC 230 (formerly SFAS No. 95 “Statement of Cash Flows”) cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

Segment Reporting

ASC 280 (formerly SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information”) requires use of the management approach model for segment reporting. The Company uses the management approach model for segment reporting, which is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company has determined that its operations consist of three reportable business segments as all revenue is derived from customers in the People’s Republic of China (PRC) and all of the Company’s assets are located in PRC.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, which requires entities to present information about significant items reclassified out of accumulated other comprehensive income (loss) by component either on the face of the statement where net income is presented or as a separate disclosure in the notes to the financial statements. This ASU is effective for the Company in the first quarter of fiscal 2014. We do not expect the adoption will have a significant impact on our consolidated financial statements.

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In July 2012, the FASB issued ASU 2012-02, which amends how companies test for impairment of indefinite-lived intangible assets. The new guidance permits a company to assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the annual impairment test. The ASU is effective for the Company in the first quarter of fiscal 2014. We do not expect the adoption will have a significant impact on our consolidated financial statements.

3.	Basic and Diluted Earnings Per Share

Basic and Diluted Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. At March 31, 2013 and December 31, 2012, the Company had 0 and 0 warrants outstanding that were anti-dilutive.

The following is a reconciliation of the basic and diluted earnings per share:

	For the three months ended March 31,
	2013		2012
Net income (loss) for earnings per share	$	8,221	$	(93,903	)

Weighted average shares used in basic computation		16,775,113		16,775,113

Diluted effect of warrants		-		-

Weighted average shares used in diluted computation		16,775,113		16,775,113

Earnings (loss)per share, basic	$	0.00	$	(0.01	)

Earnings (loss)per share, diluted	$	0.00	$	(0.01	)

4.	Property and Equipment

Property and equipment consisted of the following:

	March 31, 2013			December 31, 2012
Vehicle	$	74,154		$	73,924
Furniture and office equipment		367,091			365,147
Other assets		-			-
Total property and equipment		441,245			439,071
Accumulated depreciation		(117,394	)		(96,366	)
Net property and equipment	$	323,851		$	342,705

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Depreciation expense included in selling, general and administrative expenses for the three months ended March 31, 2013 and 2012 was $20,690 and $4,026, respectively.

5.	Other Receivables

Other receivables consisted of the following:

	March 31, 2013			December 31, 2012
Hongrong Real Estate Company	$	2,249,170		$	2,242,185
Deposit for office rent		32,200			32,100
Others		84,995			561,750
Subtotal		2,366,365			2,836,035
Allowance of other receivable		(2,249,170	)		(2,242,185	)
Total	$	117,195		$	593,850

The Company loaned $2,249,170 to Hongrong Real Estate Company (“Hongrong”), an unrelated party, on August 20, 2012. The loan is due on August 19, 2013 and secured by a building owned by Hongrong as a collateral. An allowance of $2,249,170 was reserved due to the uncertainty of the collection as of March 31, 2013.

An allowance for loans receivable is recorded when circumstances indicate that collection of all or a portion of a specific balance is unrecoverable. The Company provides for allowances on other accounts receivable on a specific identification basis. Certain other loans receivable amounts are charged off against the allowance after a sufficient period of collection efforts. Subsequent cash recoveries are recognized as other income in the period when they occur. $2,249,170and $2,242,185 were reserved as bad debt expenses for other receivable as of March 31, 2013 and December 31, 2012, respectively.

6.	Related parties

Related party receivable amounted to $681,567 and $642,000 as of March 31, 2013 and December 31, 2012, respectively. Related party receivable is company loans with 10% annual interest rate to the CEO for operating advances collateralized with the CEO's personal property. The term of the loan is from August 28, 2012 to May 27, 2013.

On January 3, 2011, the Company leased a land use right of 503 Chinese acres of land with twenty years term from Yumin Village, Sun Gang County, Jin An District (“Yumin Village”) for the company’s agricultural and forestry business at an annual rent of approximately $94,500. The Company paid approximately $94,500 and $94,500 rent for the years ended December 31, 2011 and 2012, respectively.

On January 1, 2011, the Company leased 5,006 Chinese acres of land from Yumin Village for thirty years at an annual rent of approximately $961,000 (RMB 6,007,200). The Company paid approximately $961,000 and $0 rent for the years ended December 31, 2011 and 2012, respectively.

On December 9, 2012, the Company transferred land use right of the 5,006 and 503 Chinese acres of land together with plants grown on the leased land to Lu’an Senyuan Ecological Park Ltd. (“Senyuan”), an affiliated company controlled and owned by the father and ex-wife of the CEO of Guoying, for approximately $1,123,500, due by October 2015. Guoying will make payment of the unpaid rent of $964,156 (RMB 6,007,200) of the 5,006 Chinese acres of land for year 2012 due to Yumin Village from the receivable due from Senyuan.

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In the three months ended March 31, 2013, Senyuan paid $37,527 (RMB499,800) to the Company and the payment was booked as reduction of operating expenses.The Company has fully reserved bad debt expenses allowance for the balance of related party receivable from Senyuan due to the uncertainty of the collection.

Advances

The current advances to suppliers amounted to $20,061,302and $17,532,739 as of March 31, 2013 and December 31, 2012, respectively. The Company initially booked all advances for construction of property and equipment as construction in progress. The Company then adjusts the amount that has not been used in construction in progress to long term advances for construction of property and equipment based on percentage of completion.

Long term advances related to construction amounted to $13,772,262 and $13,954,191 as of March 31, 2013 and December 31, 2012, respectively. The advances to suppliers for construction of its property and equipment are classified as long-term since the assets to which the advances relate are long-term assets. If the Company determines that the products for which it prepaid will not be delivered then an impairment charge is taken. The Company transfers long term advances related to construction to construction in progress once used in construction.

8.	Intangible Assets

Intangible assets amounted to $15,295,000 and $15,381,250 as of March 31, 2013 and December 31, 2012, respectively. Intangible assets consisted of the following:

	March 31, 2013			December 31, 2012
Trade mark	$	1,352		$	1,348
Land use rights		16,100,000			17,215,013
Less accumulated amortization		(806,352	)		(1,835,111	)
Land use rights, net	$	15,295,000		$	15,381,250

The Chinese government owns all land in the PRC. However, the government grants "land use rights" for terms ranging from 20 to 50 years. The Company is amortizing the cost of land use rights over the usage terms of 30 years. Intangible assets are reviewed at least annually and more often if circumstances dictate, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2013, the Company determined that there had been no impairment.

Approximately $15,740,000 was paid to an unrelated party - Pingqiao Industrial Park in Luan city, Anhui Province, China for acquiring land use rights. The Company intends to construct a factory, research and development center and a commercial center on this land.

Approximately $6,296,000 was paid to Youbang Pharmaceuticals Co., Ltd., an unrelated party for acquiring land use rights as of December 31, 2010. The Company intended to build a warehouse and distribution center on this land. $6,296,000 was returned to the Company as of December 31, 2012. The agreement was canceled due to the seller’s failure to provide land use right certificate.

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The Company has fully reserved bad debt expenses allowance for the related party receivable from Senyuan due to the uncertainty of the collection.

Amortization expenses amounted $133,917 and $157,951 for the three months ended March 31, 2013 and 2012, respectively.

The Company amortizes Pingqiao Industrial Park land use right over 30 years as the Company estimates that it will use the land use right for the construction purpose for a period of 30 years. The Company has amortized land use right for a portion of the Pingqiao land for the period before it received a land use right certificate because the Company has advanced a down payment for the land, built constructions on the land, and received the land use right for a parcel of the land. The Company will amortize land use right for the remaining parcel of Pingqiao land when the Company pays the remaining $3.7 million land use right and builds constructions on such land.

9.	Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	March 31, 2013		December 31, 2012
Accounts payable	$	-	$	-
Accrued payroll		90,012		79,576
Claimed unpaid legal fee in dispute		145,309		145,308
Total		235,321		224,884

10.	Short Term Bank Loan

As of March 31, 2013, the Company has a short term bank loans of $1,610,000 collaterized with land use right.

One loan is from Rural Credit Cooperatives Of Luan, amounting to $805,000 as of March 31, 2013 , starting on April 28, 2012 and due on April 28, 2013, with an interest rate of 11.808% per annual, and collateralized with land use right.

The other loan is from Rural Credit Cooperatives of Luan, amounting to $805,000 as of March 31, 2013, starting on August 17, 2012 and due on August 17, 2013, with an interest rate of 11.7% per annual, and guaranteed by Anhui Juneng Guarantee Company.

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Additional loan might be obtained to fund operating activities by the Company in the future.

11.	Other Payables

Other payables at March 31, 2013 and December 31, 2012 consisted of the following:

	March 31, 2013		December 31, 2012
HaiFeng Trading Co.	$	3,284,400	$	3,274,200
Others		238,545		237,845
Total	$	3,522,945	$	3,512,045

12.	Stockholders’ Equity

Pursuant to Share Transfer Agreements dated December 2008 and 2009, Guoying Shareholders transferred 100% of shares of Guoying Electronic Group Co, Ltd. to CEH Delaware in exchange for an aggregate of 13,213,268 CEH Delaware Shares held by Sherry Li who served as nominee shareholder through 2010 February Voting Trust and Call Option Agreements for Mr. Hailong Liu who served as nominee shareholder for Guoying Shareholders , constituting 96.6% of issued and outstanding shares of CEH Delaware and for a consideration of RMB 1,000,000 (the “Purchase Price”). Guoying became a wholly foreign-owned subsidiary (“WFOE”) of CEH Delaware.

The Company entered into a Share Exchange Agreement, dated as of July 9, 2010 (the “Share Exchange Agreement”) with CEH Delaware and certain stockholders and warrant holders of CEH Delaware (the “CEH Delaware Stockholders”). Pursuant to the Share Exchange Agreement, on July 15, 2010, 10 CEH Delaware Stockholders transferred 100% of the outstanding shares of common stock and preferred stock and 100% of the warrants to purchase common stock of CEH Delaware held by them, in exchange for an aggregate of 13,785,902 newly issued shares of the Company’s Common Stock (including 13,665,902 shares of common stock issued pursuant to the Share Exchange Agreement dated July 22, 2010, and 120,000 shares of common stock issued to consultants related to their professional services) and warrants to purchase an aggregate of 1,628,570 shares of our Common Stock. The shares of the Company’s common stock acquired by the CEH Delaware Stockholders in such transactions constitute approximately 82.2% of the Company’s issued and outstanding Common Stock giving effect to the share and warrant exchange and the sale of the Company’s Common Stock pursuant to the Subscription Agreement, but not including any outstanding purchase warrants to purchase shares of the Company’s common stock, including the warrants issued pursuant to the Subscription Agreement. In connection with the closing of the Share Exchange Agreement, CEH Delaware purchased from the former principal stockholder of Buyonate an aggregate of 4 million shares of our common stock and then agreed to the cancellation of such shares.

The Share Exchange resulted in (i) a change in our control with a shareholder of CEH Delaware owning approximately 82.2%of issued and outstanding shares of the Company’s common stock, including the shares of common stock sold to PIPE investors pursuant to the Subscription Agreement, (ii) CEH Delaware becoming our wholly-owned subsidiary, and (iii) appointment of Mr. Hailong Liu as the Company’s sole director, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer.

The exchange of shares pursuant to the July 10, 2010 Share Exchange was accounted for as a reverse acquisition at historical cost since the controlling stockholder and beneficial owner of CEH Delaware obtained control of the Company and the management of CEH Delaware became the management of the Company. Mr., Liu, who maintained control of Guoying prior to the mergers and subsequently, obtained control of CEH Delaware pursuant to 2009 Share Transfer, effectively obtained control of the Company upon completion of Share Exchange subject to the Voting Trust Agreement and Call Option Agreement.

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Shares issued for cash

There was no issuance of common stock for cash during the three months ended March 31, 2013.

Warrants

On July 9, 2010, in connection with the Share Exchange Agreement between the Company and CEH Delaware, the Company issued 314,285 series A warrants to CEH Delaware shareholders. The series A warrants carry an exercise price of $2.19 and a 3-year term. The Company also issued 314,285 series B warrants to CEH Delaware shareholders. The series B warrants carry an exercise price of $2.63 and a 3-year term. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

On July 9, 2010, in connection with the Share Subscription, the Company issued 497,303 series C warrants with an exercise price of $3.70 and a 3-year term to investors. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

On July 9, 2010, in connection with the Share Purchase Agreement, the Company issued 497,303series D warrants with an exercise price of $4.75 and a 3-year term to a professional who held warrants with CEH Delaware. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

On July 9, 2010, in connection with the Share Exchange Agreement between the Company and CEH Delaware, the Company issued 1,000,000 series E warrants with an exercise price of $0.25. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

On July 13, 2010, in connection with the Share Subscription Agreement, the Company issued to Hunter Wise, a placement agent series F(i) warrants to purchase 31,429 shares of Common Stock exercisable for a period of five years at an exercise price of $1.75 per share and series F(ii) warrants to purchase 94,329 shares of Common Stock exercisable for a period of five years at an exercise price of $2.64 per share. In connection with the subscription, the Company issued to American Capital Partners, a placement agent series F(iii) warrants to purchase 104,592 shares of Common Stock exercisable for a period of five years at an exercise price $2.64 per share.

On July 9, 2010, in connection with share issuance, the Company issued 50,000 series G warrants with an exercise price of $2.64 and a 3-year term to a professional firm. The Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction.

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The Company is not required to register the shares of Common Stock issuable upon exercise of our Series F and Series G warrants at this time and the Company cannot estimate when or whether it will be required to register such shares.

The fair value of the Series C and Series D warrants that were issued as part of the Company’s July 2010 private placements were $393,592 and $113,680, respectively. The fair value of the Series E and Series F warrants that were issued to the placement agent in July 2010 were $4,119,275 and $435,901, respectively. The fair value of the Series G warrants that were issued to a professional firm in July 2010 was $87,538. The total fair value of the warrant issued was $5,149,986, however, all of these warrants were issued to investors in the private placement, the placement agent or a professional firm that performed services directly related to the private placement. The recording of the value of these warrants had no impact in the financial statements as the entry was to debit and credit additional paid in capital for the value of the warrants of $5,149,986.

Warrants consisted of the following:

	Warrants Outstanding		Warrants Exercisable		Weighted Average Exercise Price		Average Remaining Contractual Life		Intrinsic Value
Outstanding, December 31, 2011		2,903,526		2,903,526	$	2.30		2.41	$	-
Granted		-		-		-		-		-
Forfeited		-		-		-		-		-
Exercised		-		-		-		-		-
Outstanding, December 31, 2012		2,903,526		2,903,526		2.30		1.41		-
Granted		-		-		-		-		-
Forfeited		-		-		-		-		-
Exercised		-		-		-		-		-
Outstanding, March 31, 2013		2,903,526		2,903,526	$	2.30		1.16	$	-

Warrants referred to in the preceding paragraphs do not trade in an active securities market, and as such, the Company estimates the fair value of these warrants using the Black-Scholes option pricing model using the following assumptions:

	March 31, 2013			December 31, 2012
Series A, B, C, D, G
Annual dividend yield		-			-
Expected life (years)		0.75			1.00
Risk-free interest rate		0.30	%		0.30	%
Expected volatility		12	%		12	%

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	March 31, 2013			December 31, 2012
Series E, F
Annual dividend yield		-			-
Expected life (years)		2.75			3.00
Risk-free interest rate		0.30	%		0.30	%
Expected volatility		12	%		12	%

13.	Statutory Reserve Fund

The laws and regulations of the PRC require that before a Sino-foreign cooperative joint venture enterprise distributes profits to its partners, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions determined at the discretion of the board of directors, after the statutory reserves. The statutory reserves include the surplus reserve fund, the common welfare fund, and the enterprise fund. These statutory reserves represent restricted retained earnings.

The Company is required to transfer 10% of its net income, as determined in accordance with the PRC’s accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.

The transfer to this reserve must be made before distribution of any dividends to shareholders. For the three months ended March 31, 2013 and 2012, the Company transferred $0and $0, respectively, to this reserve. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Enterprise fund

The enterprise fund may be used to acquire fixed assets or to increase the working capital to expand production and operations of the Company. No minimum contribution is required and the Company has not made any contribution to this fund. For the three months ended March 31, 2013 and 2012, the Company transferred $0 and $0, respectively, to this reserve.

14.	Employee Welfare Plan

The Company has established its own employee welfare plan in accordance with Chinese law and regulations. The Company makes contributions to an employee welfare plan. The total expense for the above plan was $34,678 and $31,809 for the three months ended March 31, 2013 and 2012, respectively.

15.	Other Income (Expense)

Other income for the three months ended March 31, 2013 amounted to $260,989. Other expense for the three months ended March 31, 2012 amounted to $815. Other income includes mainly $261,791interest income. Other expense for the three months ended March 31, 2013 and 2012 are as follows:

	For the three months ended March 31,
	2013			2012
Other expense:
Financial Income (expense)	$	261,791		$	(815	)
Other income		-			-
Other expense		(802	)		-
Total other income (expense)	$	260,989		$	(815)

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16.	Income Tax

The Company is registered in the State of Nevada and has operations in primarily two tax jurisdictions – the People’s Republic of China and the United States. For operation in the US, the Company has incurred net accumulated operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of March 31, 2013. Accordingly, the Company has no net deferred tax assets.

Our effective tax rates were approximately 0% and 0% for the three months ended March 31, 2013 and 2012, respectively. Currently the local government and central government tax benefit will expire on March 31, 2013 and December 31, 2013, respectively. Our effective tax rate was lower than the U.S. federal statutory rate due to the fact that our operations are carried out in foreign jurisdictions, which are subject to lower income tax rates.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31, 2013 and 2012:

	2013			2012

U.S. Statutory rates		34.00	%		34.00	%

Foreign income not recognized in USA		(34.00	)		(34.00	)

China income taxes		25.00			25.00

China income tax exemption		(25.00	)		(25.00	)

Total provision for income taxes		0.00	%		0.00	%

The provision for income taxes from continuing operations on income consists of the following for the three months ended March 31, 2013 and 2012:

	For the three months ended March 31
	2013		2012
US current income tax expense (benefit)
Federal	$	—	$	—
State	$	—	$	—
PRC current income tax expense (benefit)	$	—	$	—
Total provision for income tax	$	—	$	—

United States of America

As of March 31, 2013, the Company in the United States had approximately $2,378,190 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. The deferred tax assets for the United States entities at March 31, 2013 consists mainly of net operating loss incurred in 2011 and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future.

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The following table sets forth the significant components of the net deferred tax assets for operation in the US as of March 31, 2013 and December 31, 2012.

	March 31, 2013			December 31, 2012
Net operation loss carry forward	$	(2,378,190	)	$	(2,378,190	)
Total deferred tax assets		784,803			784,803
Less: valuation allowance		(784,803	)		(784,803	)
Net deferred tax assets		—			—
Change in valuation allowance	$	—		$	—

People’s Republic of China (PRC)

Under the Income Tax Laws of the PRC, the Company’s subsidiaries are generally subject to an Enterprise Income Tax (EIT) at a standard rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The State Tax Bureau of Lu’An City, Anhui province issued an income tax benefit approval to Guoying on September 2, 2007 providing that Guoying is subject to income tax and VAT benefit treatment of reduced rate of RMB 7,500 tax payment per year (including income tax and VAT) valid from October 1, 2007 until December 31, 2010. The State Tax Bureau of Lu’An City, Anhui province issued an income tax benefit approval to Guoying on December 10, 2011 providing that Guoying is subject to income tax and VAT benefit treatment of reduced rate of RMB 7,500 tax payment per year (including income tax and VAT) valid from December 1, 2011 until December 31, 2013. However, according to the approval, Guoying has option to pay more tax per year at its discretion. Therefore, currently, Guoyingis charged at a fixed annual amount of reduced tax rate of no less than RMB7, 500 per year that changes every year to cover all types of taxes including income taxes. The income tax expenses for the three months ended March 31, 2013 and 2012 are $0 and $0, respectively. There were no significant book and tax basis differences.

17.	Concentration of Credit Risks and Uncertainties and Commitments and Contingencies

Credit Risk

The Company’s practical operations are all carried out in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.

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

Concentration of credit risk exists when changes in economic, industry or geographic factors similarly affect groups of counter parties whose aggregate credit exposure is material in relation to the Company’s total credit exposure.

For the three months ended March 31, 2013 and 2012, there is no major customer that individually comprised more than 10% of the Company’s total sales.

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There are four major vendors accounting for over 10% of the Company’s total purchases for the three months ended March 31, 2013, with ShangdongHuangming Solar Power Sales Co. accounting for 29%, Lu’AnZhongxing Trade Co. accounting for 16%, Shenzhen Skyworth · RGB Electronics Co. Anhui Branch accounting for 14%, Ningbo HailuElectric Appliance Co., Ltd. accounting for 11%. The accounts payable balance as of March 31, 2013 for these four vendors was $0. There are two major vendors each accounting for over 10% of the Company’s total purchases for the year ended March 31, 2012, with ShangdongHuangming Solar Power Sales Co. accounting for 44%, Guangdong Zhigao air conditioners Co. accounting for 10%. T he accounts payable balance as of March 31, 2012 for these two vendors was $0.

The Company’s exposure to foreign currency exchange rate risk primarily relates to cash and cash equivalents and short-term investments, denominated in the U.S. dollar. Any significant revaluation of RMB may materially and adversely affect the cash flows, revenues, earnings and financial position of the Company.

Contingency

The Company is in litigation with its prior attorney, who commenced an action against the company in the Supreme Court of the State of New York County of New York on February 2011 for approximately $145,308.14 plus accrued interest for legal services provided to China Financial Services, a financial advisory firm, on behalf of the Company. The Company intends to contest this action and believes that there are defenses available to the Company. This amount has been accrued as of March 31, 2013 and is included in accrued expenses.

In connection with our private placement in July and August 2010, we entered into a Subscription Agreement with the investors which set forth the rights of the investors to have the registrable shares registered with the SEC for public resale. Pursuant to the registration rights provisions, we agreed to file the registration statement pursuant to the Subscription Agreement to be declared effective by the Securities and Exchange Commission (the “Commission”) by the date (the “Required Effectiveness Date”) which is not later than the earlier of (x) one hundred eighty (180) calendar days after the final closing date of the Offerings dated July 9, 2010, or (y) ten (10) business days after oral or written notice to the Company or its counsel from the Commission that it may be declared effective. The registration statement has not been declared effective before the Required Effectiveness Date (the “Required Effectiveness Failure”). As liquidated damages (“Liquidated Damages”), the Company shall deliver to the Subscribers, as on a pro-rata basis an amount equal to one-half percent (0.5%) of the aggregate Issue Price of the Purchased Securities owned of record by such Subscribers on the first business day after the Non-Registration Event and for each subsequent thirty (30) day period. The maximum aggregate Liquidated Damages payable to the Subscriber under this Agreement shall be five percent (5%) of the aggregate Issue Price paid by the Subscribers. The registration statement was not declared effective by Required Effectiveness Date, as such an Effectiveness Failure occurred and the Company made an estimate of the probable amount in year 2012 that it would pay in damages and accrued $262,500.

In connection with our private placement in July and August 2010, the Company entered into an Amended and Restated Settlement Agreement with investor representatives and certain investors dated July 18, 2012, wherein the Company has paid $179,020.51 as of June 30, 2012 and it agreed to pay additional $50,000 by July 31, 2012 and the remaining $33,479.49 by August 31, 2012. As of September 30, 2012, the Company has made payment of Liquidated Damages in full amount of $262,500. In consideration of full payment of liquidated damages, the investors forever releases and discharges the Company, its shareholders, subsidiaries, affiliates, successors, and assigns (collectively, the "Releasees") from any and all claims, demands, causes of action, and liabilities of any kind whatsoever arising out of or in connection with the Subscription Agreements and Share Exchange Agreement, and the failure of the Company to perform any of its obligations thereunder up to the execution date of the Amended Settlement Agreement. In particular, the investors agreed to waive their rights to claim any more liquidated damages and declare any future Event of Default under Section 7(o) “Further Registration Statements”, Section 7(r) “Uplisting” and Section 9(d) “Non-Registration Events” of their Subscription Agreements.

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Further, pursuant to Section 7(d) of the Subscription Agreement, the Company has right to terminate or suspend registration statement or its reporting and filing obligations, unless relevant securities laws and regulations provide otherwise, until the later to occur of (i) two (2) years after the Final Closing Date by August 2012, or (ii) the Purchased Securities can be resold or transferred by the Subscribers pursuant to Rule 144(b)(1)(i) since August 2011.

Operating Leases

The Company leases various facilities under operating leases that terminate on various dates.

The Company incurred rent expenses of $40,384 and $40,087 for the three months ended March 31, 2013 and 2012 respectively.

The lease expenses for the next five years are estimated to be as follows:

2014	$	130,253
2015		12,727
2016		12,727
2017		12,727
2018		5,303
Thereafter		-
Total	$	173,737

Obligations for Land Use Rights

The Company entered into a Land Investment Agreement on October 28, 2010 and a supplemental Deposit Agreement on December 28, 2010 with the management committee of Pingqiao Industrial Park (the “Pingqiao Committee”), under which the Pingqiao Committee is obligated to assist the Company to obtain a land use right for 164,983 square meters (approximately 300 Chinese acres) to be issued by local people's government where our construction and investment project will be built. The Land Use Right Certificate is to be approved and issued by People’s Government of Yu An District and Pingqiao Committee is the management committee in charge of project investment on this parcel of land. 120 Chinese acres of this land is for commercial use and 180 Chinese acres of this land is for industrial use. The Company paid RMB 100 million (approximately $15.74 million) of the purchase price as of December 31, 2010. The Company is not obligated to pay the remaining $3.7 million until it receives the land use right certificate issued by relevant PRC government pursuant to the Land Investment Agreement. The Company believes that if the land use right certificate is not granted to the Company by the local government, the Company will get a refund of the retainer from Pingqiao Committee pursuant to its contractual rights.

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18.	Segment information

ASC 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

The Company was organized into three main business segments: (1) Exclusive franchise stores, (2) Non-exclusive franchise stores, and (3) Company owned stores. The following table presents a summary of operating information for the three months ended March 31, 2013 and 2012, and certain year-end balance sheet information as of March 31, 2013 and December 31, 2012, respectively.

	For the three months ended March 31,
	2013		2012
Revenues from unaffiliated customers:
Exclusive franchise stores	$	3,909,069	$	9,780,970
Non-exclusive stores		401,690		3,057,228
Company owned stores		1,193,501		660,298
Consolidated	$	5,504,260	$	13,498,496
Gross Profit:
Exclusive franchise stores	$	324,738	$	650,640
Non-exclusive stores		32,733		203,070
Company owned stores		126,271		54,468
Consolidated	$	483,742	$	908,178

Depreciation and amortization:
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate		154,607		161,976
Consolidated	$	154,607	$	161,976
Capital expenditures:
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate	805		379,304
Consolidated	$	805	$ 379,304

Identifiable assets:	As of March 31, 2013		As of December 31, 2012
Exclusive franchise stores	$	-	$	-
Non-exclusive stores		-		-
Company owned stores		-		-
Corporate		61,558,379		59,940,697
Consolidated	$	61,558,379	$	59,940,697

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19.	Subsequent Events

Related party receivable of $681,567 as of March 31, 2013 was due from the CEO of Guoying by May 27, 2013. The CEO of Guoying paid the related party receivable in full in May 2013.

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

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the unaudited condensed consolidated financial statements of the Company for the three months ended March 31, 2013 and 2012, and should be read in conjunction with such financial statements and related notes included in this report. Those statements in the following discussion that are not historical in nature should be considered to be forward looking statements that are inherently uncertain. Actual results and the timing of the events may differ materially from those contained in these forward looking statements due to a number of factors, including those discussed in the “Forward-Looking Statements” set forth elsewhere in this Quarterly Report on Form 10-Q.

Overview

China Electronics Holdings, Inc (the “Company”, “we”, “our”, “us”), formerly named Buyonate, Inc., was incorporated in the State of Nevada on July 9, 2007 to engage in developing user-friendly/child friendly interactive digital software for children. The Company was in the development stage through December 31, 2008. The year 2009was the first year the Company was considered an operating company, engaging in retail and wholesale distribution of consumer electronics and appliances in certain rural markets in the People’s Republic of China.

China Electronic Holdings, Inc. (“CEH Delaware”) was organized on November 15, 2007, as a Delaware corporation. Prior to February 10, 2010, CEH Delaware was a development stage company attempting to manufacture and sell carbon and graphite electrodes and planning to manufacture and sell electronic products in the People’s Republic of China through its own stores and franchise stores.

Lu’anGuoying Electronic Sales Co., Ltd., a PRC corporation, (“Guoying”) was established on January 4, 2002. Guoying sells electronic products in the PRC through its company-owned stores and to exclusive franchise stores and non-exclusive stores.

In August 2012, Guoying contributed $945,054 to the capital of Lu An GuoyingOpto-Electronics Technology Co., Ltd. (“Opto-Electronics”) which is 99% owned by Guoying. Mr. Hailong Liu, the CFO and Chairman of Guoying, contributed $9,630 to the capital of and owns 1% of Opto-Electronics.

Pursuant to a Share Transfer Agreement entered into on December 26, 2008 (the “2008 Share Transfer Agreement”) between the shareholders of Guoying (the “Guoying Shareholders”) and CEH Delaware, CEH Delaware agreed to acquire 40% of the outstanding equity securities of Guoying (the “Guoying Shares”) from the Guoying Shareholders in consideration for RMB 400,000. Pursuant to a Share Transfer Agreement entered into on December 31, 2009 (the “2009 December Share Transfer Agreement”) between Guoying Shareholders and CEH Delaware, CEH Delaware agreed to acquire the remaining Guoying Shares from Guoying Shareholders in consideration for RMB 600,000. The amount of RMB400, 000 was paid in February 2010 by CEH Delaware. As a result of the transaction, Guoying became a wholly foreign-owned subsidiary (“WFOE”) of CEH Delaware.

On July 9, 2010, we consummated a Share Exchange Agreement with certain Selling Stockholders. Pursuant to the Share Exchange Agreement, 10 former stockholders of our subsidiary, CEH Delaware, transferred to us 100% of the outstanding shares of common stock and preferred stock of CEH Delaware and 100% of the warrants to purchase common stock of CEH Delaware held by them, in exchange for an aggregate of 13,785,902 newly issued shares of our Common Stock and warrants to purchase an aggregate of 1,628,570 shares of our Common Stock. CEH Delaware’s outstanding Series A warrants were exchanged on a one-for-one basis for Series A warrants of the Company to purchase an aggregate of 314,285 shares of Common Stock, with an exercise price of $2.19 per share. CEH Delaware’s outstanding Series B warrants were exchanged on a one-for-one basis for Series B warrants of the Company to purchase an aggregate of 314,285 shares of Common Stock, with an exercise price of $2.63 per share. CEH Delaware’s outstanding $1.00 warrants were exchanged on a one-for-one basis for Series E warrants of the Company to purchase an aggregate of 1,000,000 shares of Common Stock, with an exercise price of $0.25 per share. Subsequent to the consummation of the Share Exchange through a merger with a wholly owned subsidiary, Buyonate, Inc. changed its name to China Electronics Holdings, Inc. The merger and name change were approved by the Financial Industry Regulatory Authority (“FINRA”) and the Common Stock began trading under the symbol “CEHD.OB” on August 23, 2010.

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Results of Operations

Wholesale and Retail of Consumer Electronics Appliances

We operated 2 company-owned stores as of March 31, 2013. We opened our headquarters company-owned store located in Guangcai Big Market in the second quarter of 2011.

As of March 31, 2013, we have exclusive franchise agreements with 306 exclusive franchise stores operated under the Guoying brand name (the “Exclusive Franchise Stores”). We entered into franchise agreements with 247, 61, 93, 91 and 0 new exclusive franchise stores in 2009, 2010, 2011, 2012 and first quarter of 2013, respectively. We terminated our exclusive franchise agreement with 47, 0, 233, 131 and 0 exclusive franchise stores in 2009, 2010, 2011, 2012 and first quarter of 2013, respectively. Both our Company-owned stores and our exclusive franchise stores only sell merchandise that we provide as their exclusive wholesaler, and such merchandise includes Guoying branded products as well as products from major wholesalers and manufacturers, such as Sony, Samsung and LG.

As of March 31, 2013, we have non-exclusive franchise agreements with 176 stores (the “Non-Exclusive Franchise Stores”) to which we provide Guoying branded merchandise on a non-exclusive wholesale basis. We entered into franchise agreements with 111, 557, 1, 20and 0 non-exclusive franchise stores in 2009, 2010, 2011, 2012 and first quarter of 2013, respectively. We terminated our non-exclusive franchise agreements with 15, 18, 362, 198and 0 non-exclusive franchise stores in 2009, 2010, 2011, 2012 and first quarter of 2013, respectively.

We currently target customers in county, township and villages (the third, fourth and fifth tiers of markets) in rural areas in Anhui Province of China. Our distribution and sales network currently covers twelve districts and counties in Anhui province, namely Shou County, Shu City, Jin An, Yu An, Huo Shan, Jinn Sai, HuoQiu, Gu Shi, Ye Ji, Fei West, Fei East, and Huai Nan Districts.

In August 2011, our Board decided to terminate our exclusive and non-exclusive franchise agreements with a number of stores in order to strengthen and grow the Company’s business after concluding that the rapid growth of the number of stores serviced by the Company and aggressive business expansion had caused deficiencies in the Company’s internal controls and management. The following criteria was used to determine which stores (“Disqualified Exclusive Stores” and “Disqualified Non-Exclusive Stores”) to close (i) exclusive franchise stores that sold merchandise supplied by other wholesalers in breach of the exclusive franchise agreement; (ii) exclusive and non-exclusive franchise stores that failed to obey the Company’s pricing and resulting in lower profit margins; and (iii) stores located remotely Lu An City that result in higher transportation and logistics expenses to us. During the year ended December 31, 2012, we closed 0 company-owned stores, terminated our contracts with 131 exclusive franchise stores, and terminated our contracts with 198 non-exclusive franchise stores. During the three months ended March 31, 2013, we closed 0 company-owned stores, terminated our contracts with 0 exclusive franchise stores, and terminated our contracts with 0 non-exclusive franchise stores. We will continue to evaluate and decide if we need to terminate any more stores in 2013.

When we use the terms "open" or "opened" in referring to an exclusive or non-exclusive franchise store, we mean that we had entered into a franchise agreement with such store and that it was in operation. When we use the terms "close," "closed" or "terminated" in reference to an exclusive or non-exclusive franchise store we mean that we had terminated our agreement with such store.

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Logistics and Transportations

We entered into a Land Investment Agreement for 300 Chinese acres (164,983 square meters) land with Pingqiao Industrial Park. We originally planned to build our LED manufacturing facility on the land. We filed a proposal to obtain permission to enter into the LED manufacturing business with the Reform and Development Commission of Yu An District, Lu An City on May 13, 2011. We obtained a construction permit issued by the Housing and Urban-Rural Development Bureau of Yu An District, Lu An City on October 28, 2011 to build an LED manufacturing facility on the Pingqiao Land. Due to a change in the Company’s business plans, we determined to build logistic centers on 38,449 square meters of the land.Our plan was to construct four warehouses/logistics centers to provide distribution channels and logistics transportation services to deliver merchandise and Guoying branded products to counties, townships and villages in Hubei, Henan and Anhui provinces. We have started construction of four warehouses located on the Pingqiao land since October 2011. Each warehouse is 4,800 square meters. We currently stopped the construction of four logistics centers due to lack of sufficient capital.

The Company will continue focusing on becoming a significant retailer and wholesaler of consumer electronics and appliances to rural markets with a goal of having a national distribution network throughout China. The Company’s working capital will continue to be used to develop wholesale and retail business. The Company does not have sufficient capital to build an LED manufacturing and logistics centers at this time. Thus the Company will continue its electronics distribution business while it moves slowly on the development of its LED business and the construction of its logistics centers by seeking business opportunities, partners and financing.

Three months ended March 31, 2013 Compared with Three months ended March 31, 2012

Revenues

Our net revenue for the three months ended March 31, 2013 was $5,504,260, a decrease of 59.2%, or $7,994,236, from $13,498,496 for the three months ended March 31, 2012.

For the three months ended March 31, 2013, net revenue from exclusive franchise stores was $3,909,069, a decrease of 60.0%, or $5,871,901, from $9,780,970 for the three months ended March 31, 2012. There were 306 exclusive franchise stores as of March 31, 2013, same as the 306 exclusive franchise stores as of December 31, 2012. The Company entered into franchise agreements with 0 exclusive stores and terminated its agreement with 0 exclusive stores in the first quarter of 2013.

For the three months ended March 31, 2013, net revenue from non-exclusive stores was $401,690, a decrease of 86.9%, or $2,655,538, from $3,057,228 for the three months ended March 31, 2012. There were 176 non-exclusive stores as of March 31, 2013, same as the 176 non-exclusive stores as of December 31, 2012. The Company entered into a non-exclusive franchise agreement with 0 non-exclusive stores and terminated its agreement with 0 non-exclusive stores in the first quarter of 2013.

For the three months ended March 31, 2013, net revenue from company owned stores was $1,193,501, an increase of 80.8%, or $533,203, from $660,298 for the three months ended March 31, 2012. The increased revenue from company-owned stores was mainly because Company enhanced management for Company-owned stores. The Company hired specialists to improve products placements in stores, increased staff training of products knowledge, improved store image, continued promotion activities, and improved after sales customer service.

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Revenue Classified by Store Type

Our disaggregation of revenue and cost of sales by each store type in the three months ended March 31, 2013 and 2012 are as follows:

Three Months-Ended 3/31/2012	Non-Exclusive Franchise Stores		Exclusive Franchise Stores		Company-Owned Stores		Total
Revenue	$	3,057,228	$	9,780,970	$	660,298	$	13,498,496
Cost of Sales	$	2,854,158	$	9,130,330	$	605,830	$	12,590,318
Gross Profit	$	203,070	$	650,640	$	54,468	$	908,178

Three Months-Ended 3/31/2013	Non-Exclusive Franchise Stores		Exclusive Franchise Stores		Company-Owned Stores		Total
Revenue	$	401,690	$	3,909,069	$	1,193,501	$	5,504,260
Cost of Sales	$	368,957	$	3,584,331	$	1,067,230	$	5,020,518
Gross Profit	$	32,733	$	324,738	$	126,271	$	483,742

Sales and Average Per Store Sales of Same Stores

Same Stores are defined as stores that we opened or entered into franchise agreements with prior to 2012 and that have been in continuous operation as of March 31, 2013 and excludes stores that were newly opened or closed or with which we entered into or terminated franchise agreements in 2012 or 2013. Same Store Sales are defined as sales from the Same Stores.

Same Stores Sales in three months ended March 31, 2012 and 2013, and the increase or decrease experienced as a percentage of Same Store Sales are as follows:

Same Store Sales	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference		Change
Non-Exclusive Franchise Stores	$	392,570	$	-	$	392,570		100	%
Exclusive Franchise Stores	$	2,480,539	$	274,626	$	2,205,913		803	%
Company-Owned Stores	$	1,193,501	$	660,298	$	533,203		81	%
Total	$	4,066,610	$	934,924	$	3,131,686		335	%

The primary reason for the increase in Same Stores Sales was the increase in sales from exclusive stores (“Same Exclusive Franchise Stores”), increase in sales from non-exclusive stores (“Same Non-Exclusive Franchise Stores”), and increase in sales from company-owned stores (“Same Company-Owned Stores”). The increase in our sales in Same Exclusive Franchise stores is a result of the company’s many efforts in assisting such stores. For example, the Company increased support to long-term customers of Exclusive stores with good credits. For example, the Company provided promotion activities, conduct customer surveys and marketing analysis, and provide advisory services in terms of sales and pricing strategies as well as post sale service to its long term customers with good credentials.

The number of Same Stores included in the calculation of average sales of per-store Same Stores is as follows:

Number of Same Stores	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012
Non-Exclusive Franchise Stores		156		156
Exclusive Franchise Stores		217		217
Company-Owned Stores		2		2

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The average sales per-store of Same Stores and its trend up or down are as follows:

Average Per-Store Same Store Sales	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference		Change
Non-Exclusive Franchise Stores	$	2,516	$	-	$	2,516		100	%
Exclusive Franchise Stores	$	11,431	$	1,266	$	10,165		803	%
Company-Owned Stores	$	596,751	$	330,149	$	266,602		81	%

Sales and Average Per Store Sales of New Stores

New Stores are defined as stores that were newly opened or with which we entered into a franchise agreement in either 2013 or 2012 that are in existence under normal business operations as of March 31, 2013 and excluding stores that closed in 2013 or 2012 (“New Stores”). New Store Sales are defined as sales from the New Stores. 2012 New Store Sales refer to the sales from New Stores opened or with which we entered into a franchise agreement in 2012 and not closed in 2013. 2013 New Store Sales refer to the sales generated in 2013 from both New Stores opened or with which we entered into a franchise agreement in 2012 and 2013 that have not closed as of the end of March 31, 2013.

New Stores Sales operating in both 2012 and 2013, and the increase experiences at a percentage are as follows:

New Store Sales	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	9,120	$	-	$	9,120			100	%
Exclusive Franchise Stores	$	1,402,116	$	1,447,260	$	(45,144	)		(3	)%
Company-Owned Stores	$	-	$	-	$	-			-	%
Total	$	1,411,236	$	1,447,260	$	(36,024	)		(2	)%

The primary reason for the decrease in New Stores Sales was the decrease of sales from new exclusive franchise stores (the “New Exclusive Franchise Stores”), offset by the increase in sales from new Non-Exclusive franchise stores (the “New Non-Exclusive Franchise Stores). The increase of sales from New Non-Exclusive Franchise Stores is due to the fact that the Company had 20 New Non-Exclusive Franchise Stores had sales in the three months ended March 31, 2013and only 1 in the three months ended March 31, 2012. The decrease of sales from exclusive stores is because of the decreased per stores sales for new exclusive franchise stores due to less sales to new stores in 2013 compared to 2012.

The number of new stores included in the calculation of average per store sales of New Stores is as follows:

Number of New Stores	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012
Non-Exclusive Franchise Stores		20		1
Exclusive Franchise Stores		91		75
Company-Owned Stores		-		-

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The average sales per-store of New Stores and its trend as a percentage of New Store Sales are as follows:

Average Per-Store New Store Sales	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	456	$	-	$	456			100	%
Exclusive Franchise Stores	$	15,408	$	19,297	$	(3,889	)		(20	)%
Company-Owned Stores	$	-	$	-	$	-			-	%

Sales and Average Per Store Sales of Closed Stores

Closed Stores are defined as stores that were closed or with which the Company terminated its agreement in either 2013 or 2012 (the “Closed Stores”). Closed Store Sales are defined as sales from the Closed Stores. 2012 Closed Store Sales refer to sales generated in 2012 from stores whose franchise agreements were terminated or which closed in 2012 or 2013. 2013 Closed Store Sales refer to sales generated in 2013 from stores whose franchise agreements were terminated or which closed in 2013.

Closed Store Sales in 2012 and 2013, and the change experienced as a percentage are as follows:

Closed Store Sales	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	3,057,228	$	(3,057,228	)		(100	)%
Exclusive Franchise Stores	$	26,414	$	8,059,084	$	(8,032,670	)		(99.7	)%
Company-Owned Stores	$	-	$	-	$	-			-	%
Total	$	26,414	$	11,116,312	$	(11,089,898	)		(99.8	)%

The decrease in Closed Store Sales results from the fact that Stores whose franchise agreements were terminated or which closed in 2012 generated no sales for the Company in the three months ended March 31, 2013. The Company resolved to close (i) exclusive franchise stores that sold merchandise supplied by other wholesalers in breach of the exclusive franchise agreement; (ii) exclusive and non-exclusive franchise stores that failed to obey the Company’s pricing strategies, resulting in lower profit margins; (iii) stores located remotely from Lu An City that resulted in higher transportation and logistics expenses to us; and (iv) stores that sold brands of merchandise not supplied by us. The Company closed two Company-owned stores to concentrate its resources in managing Company-owned stores.

The number of closed stores included in the calculation of average per-store sales of Closed Stores is as follows:

Number of Closed Stores	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/202
Non-Exclusive Franchise Stores		-		198
Exclusive Franchise Stores		-		131
Company-Owned Stores		-		-

The average per-store sales of Closed Stores and its trend of increase or decrease are as follows:

Average Per-Store Closed Store Sales	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	15,441	$	(15,441	)		(100	)%
Exclusive Franchise Stores	$	-	$	61,520	$	(61,520	)		(100	)%
Company-Owned Stores	$	-	$	-	$	-			-	%

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Other information

The following is a summary of revenue by product line for the three months ended March 31, 2013 and 2012:

	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012
Solar Power Products	$	738,771	$	6,045,658
Air Conditioner	$	1,542,936	$	2,198,022
Refrigerator	$	389,491	$	1,745,284
TV	$	1,421,471	$	2,601,700
Washer	$	969,349	$	765,257
Others	$	442,242	$	142,575
Total	$	5,504,260	$	13,498,496

The decrease of revenue for the three months ended March 31, 2013 compared to the same period last year is mainly due to the decreased sales from Solar-powered products. Solar-powered products sales decreased by $5,306,887, or 87.8%, from $6,045,658 in the three months ended March 31, 2012 to $738,771 in the same period in 2013. The decrease is mainly due to decreased solar-powered products sales of Huayang Brand. The decrease is due to increased market competition of solar-powered products, fulfilled market, and Huayang’s failure to increase its sales in the market.

Cost of Goods Sold

Our cost of goods sold for the three months ended March 31, 2013 was $5,020,518, a decrease of $7,569,800, or 60.1%, compared to 12,590,318 for the three months ended March 31, 2012. The decrease was mainly due to the decrease in sales.

	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012

Cost of goods sold from non-exclusive stores	$	368,957	$	2,854,158
Cost of goods sold from exclusive franchise stores		3,584,331		9,130,330
Cost of goods sold from company-owned stores		1,067,230		605,830
Cost of goods sold	$	5,020,518	$	12,590,318

For the three months ended March 31, 2013, cost of goods sold from non-exclusive stores was $368,957, a decrease of 87.1%, or $2,485,201, from $2,854,158for the three months ended March 31, 2012. The decrease was in line with the decrease in sales from non-exclusive stores.

For the three months ended March 31, 2013, cost of goods sold from company-owned stores was $1,067,230, an increase of 76.2%, or $461,400, from $605,830 for the three months ended March 31, 2012. The increase was in line with the increase in sales from company-owned stores.

For the three months ended March 31, 2013, cost of goods sold from exclusive franchise stores was $3,584,331, a decrease of 60.7%, or $5,545,999, from $9,130,330 for the three months ended March 31, 2012. The decrease was in line with the decrease in sales from exclusive stores.

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Cost of goods sold and Average Per Store Cost of goods sold of Same Stores

Same Store Cost of Goods Sold	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference		Change
Non-Exclusive Franchise Stores	$	360,583	$	-	$	360,583		100	%
Exclusive Franchise Stores	$	2,275,502	$	256,156	$	2,019,346		788	%
Company-Owned Stores	$	1,067,231	$	604,439	$	462,791		77	%
Total	$	3,703,316	$	860,595	$	2,842,721		330	%

The average cost of goods sold per-store of same Stores and its trend as a percentage of Same Store Cost of goods sold are as follows:

Average Per-Store Same Store Cost of Goods Sold	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference		Change
Non-Exclusive Franchise Stores	$	2,311	$	-	$	2,311		100	%
Exclusive Franchise Stores	$	10,486	$	1,180	$	9,306		788	%
Company-Owned Stores	$	533,615	$	302,220	$	231,395		77	%

Cost of goods sold and Average Per Store Cost of goods sold of New Stores

New Store Cost of Goods Sold	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	8,373	$	-	$	8,373			100	%
Exclusive Franchise Stores	$	1,284,813	$	1,349,017	$	(64,204	)		(5	)%
Company-Owned Stores	$	-	$	-	$	-			-	%
Total	$	1,293,186	$	1,349,017	$	(55,831	)		(4	)%

The average cost of goods sold per-store of New Stores and its trend as a percentage of New Store cost of goods sold are as follows:

Average Per-Store New Store Cost of Goods Sold	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	419	$	-	$	419			100	%
Exclusive Franchise Stores	$	14,119	$	17,987	$	(3,868	)		(22	)%
Company-Owned Stores	$	-	$	-	$	-			-	%

Cost of goods sold and Average Per Store Cost of goods sold of Closed Stores

Closed Store Cost of Goods Sold	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	2,854,158	$	(2,854,158	)		(100	)%
Exclusive Franchise Stores	$	24,016	$	7,525,157	$	(7,501,140	)		(99.7	)%
Company-Owned Stores	$	-	$	1,391	$	(1,391	)		(100	)%
Total	$	24,016	$	10,380,706	$	(10,356,689	)		(99.8	)%

The average cost of goods sold per-store of Closed Stores and its trend as a percentage of Closed Store cost of goods sold are as follows:

Average Per-Store Closed Store Cost of Goods Sold	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	14,415	$	(14,415	)		(100	)%
Exclusive Franchise Stores	$	-	$	57,444	$	(57,444	)		(100	)%
Company-Owned Stores	$	-	$	-	$	-			-

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Other information

The following is a summary of cost of goods sold by product line for the three months ended March 31, 2013 and 2012:

	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012
Solar Power Products	$	681,169	$	5,463,232
Air Conditioner	$	1,397,260	$	2,049,376
Refrigerator	$	353,194	$	1,624,610
TV	$	1,301,785	$	2,424,812
Washer	$	880,593	$	713,826
Others	$	406,517	$	134,462
Total	$	5,020,518	$	12,590,318

Gross Profit

Gross profit for the three months ended March 31, 2013 was $483,742, a decrease of $424,436, or approximately 46.7%, compared to $908,178 for the three months ended March 31, 2012.

For the three months ended March 31, 2013, gross profit for non-exclusive stores was $32,733, a decrease of 83.9%, or $170,337, from $203,070 for the three months ended March 31, 2012. The decrease was mainly due to the decreased sales from non-exclusive stores.

For the three months ended March 31, 2013, gross profit for exclusive franchise stores was $324,738, a decrease of 50.1%, or $325,902, from $650,640 for the three months ended March 31, 2012. The decrease was mainly due to the decreased sales from exclusive franchise stores.

For the three months ended March 31, 2013, gross profit for company-owned stores was $126,271, an increase of 131.8%, or $71,803, from $54,468 for the three months ended March 31, 2012. The increase was mainly due to increased sales from company-owned stores.

Gross profit and Average Per Store Gross Profit of Same Stores

Same Store Gross Profit	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference		Change
Non-Exclusive Franchise Stores	$	31,987	$	-	$	31,987		100	%
Exclusive Franchise Stores	$	205,037	$	18,469	$	186,568		1,010	%
Company-Owned Stores	$	126,271	$	55,859	$	70,412		126	%
Total	$	363,295	$	74,328	$	288,967		389	%

The average gross profit per-store of same Stores and its trend as a percentage of Same Store gross profit are as follows:

Average Per-Store Same Store Gross Profit	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference		Change
Non-Exclusive Franchise Stores	$	205	$	-	$	205		100	%
Exclusive Franchise Stores	$	945	$	85	$	860		1,010	%
Company-Owned Stores	$	63,135	$	27,929	$	35,206		126	%

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Gross Profit and Average Per Store Gross Profit of New Stores

New Store Gross Profit	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference		Change
Non-Exclusive Franchise Stores	$	746	$	-	$	746		100	%
Exclusive Franchise Stores	$	117,303	$	98,243	$	19,060		19	%
Company-Owned Stores	$	-	$	-	$	-		-	%
Total	$	118,049	$	98,243	$	19,806		20	%

The average cost of gross profit per-store of New Stores and its trend as a percentage of New Store gross profit are as follows:

Average Per-Store New Store Gross Profit	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	37	$	-	$	37			100	%
Exclusive Franchise Stores	$	1,289	$	1,310	$	(21	)		(2	)%
Company-Owned Stores	$	-	$	-	$	-			-	%

Gross Profit and Average Per Store Gross Profit of Closed Stores

Closed Store Gross Profit	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012			Difference			Change
Non-Exclusive Franchise Stores	$	-	$	203,070		$	(203,070	)		(100	)%
Exclusive Franchise Stores	$	2,398	$	533,928		$	(531,530	)		(99.6	)%
Company-Owned Stores	$	-	$	(1,391	)	$	1,391			(100	)%
Total	$	2,398	$	735,607		$	(733,209	)		(99.7	)%

The average gross profit per-store of Closed Stores and its trend as a percentage of Closed Store gross profit are as follows:

Average Per-Store Closed Store Gross Profit	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012		Difference			Change
Non-Exclusive Franchise Stores	$	-	$	1,026	$	(1,026	)		(100	)%
Exclusive Franchise Stores	$	-	$	4,076	$	(4,076	)		(100	)%
Company-Owned Stores	$	-	$	-	$	-			-	%

Other information

The following is a summary of gross profit by product line for the three months ended March 31, 2013 and 2012:

	Three Months-Ended 3/31/2013		Three Months-Ended 3/31/2012
Solar Power Products	$	57,602	$	402,426
Air Conditioner	$	145,676	$	148,646
Refrigerator	$	36,297	$	120,674
TV	$	119,686	$	176,888
Washer	$	88,756	$	51,431
Others	$	35,725	$	8,113
Total	$	483,742	$	908,178

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Gross Profit Rate

Gross profit rate for the three months ended March 31, 2013 was 8.79%, an increase of approximately 30.6%, compared to 6.73% for the three months ended March 31, 2012. The increase of gross profit rate is because the change of product portfolios in our sales during the three months ended March 31, 2013 compared to the same period last year. We sold less low margin solar-powered products during the three months ended March 31, 2013 compared to the same period last year. The Company continues to improve managing its sales network as well as products offered, which continuously requires us to review pricing on existing products and existing sales channels. We expect that our pricing strategies will continue to evolve to market conditions and expect improvements to have a marginalizing effect on the noted increase in gross profit rates at exclusive franchise stores as changes in product offerings mature along with their related pricing strategies.

For the three months ended March 31, 2013, gross profit rate for exclusive franchise stores was 8.31%, an increase of 24.9% compared to 6.65% for the three months ended March 31, 2012. The increase of gross profit rate is because the change of product portfolios in our sales during the three months ended March 31, 2013 compared to the same period last year.

For the three months ended March 31, 2013, gross profit rate for non-exclusive stores was 8.15%, an increase of 22.7%, compared to 6.64% for the three months ended March 31, 2012. The increase of gross profit rate is because the change of product mix in our sales during the three months ended March 31, 2013 compared to the same period last year.

For the three months ended March 31, 2013, gross profit rate for company-owned stores was 10.58%, an increase of 28.3%, compared to 8.25% for the three months ended March 31, 2012. The increase of gross profit rate is because the change of product mix in our sales during the three months ended March 31, 2013 compared to the same period last year. In the three months ended March 31, 2013, the Company decreased the sales of low margin solar-powered products due to less demand from the market.

Operating Expenses

Operating expenses for the three months ended March 31, 2013 were $736,135, a decrease of $265,131, or 26.5%, from $1,001,266 for the three months ended March 31, 2012.

Selling expenses for the three months ended March 31, 2013 were $356,565, a decrease of $127,209, or 26.3%, from $483,774 for the three months ended March 31, 2012. The decrease of selling expenses relates primarily to decreased shipping and handling and decreased sales commission expenses due to decreased sales.

General and administrative expenses for the three months ended March 31, 2013 were $459,888, a decrease of $57,604, or 11.1%, from $517,492 for three months ended March 31, 2012. The decrease is mainly due to decreased consulting expenses offset by increased amortization expenses.

During the three months ended March 31, 2013 and 2012, recovery of debt expenses of $80,318 and $0 were recorded as a reduction of operating expenses.

Net Operating Loss

Our net operating loss for the three months ended March 31, 2013 was $252,393, an increase of $159,305, or 171.1%, from $93,088 for the same period in 2012. The increase was mainly due to sales and gross profit decreased more than operating expenses decreased.

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Other Income (Expense)

Our net other income for the three months ended March 31, 2013 was $260,989, an increase of $261,804, or 32,123.2%, from net other expense $815 for the same period in 2012. The increase of other income was mainly due to increase in interest income of $261,791 during the three months ended March 31, 2013.

Provision for Income Taxes

Under the Income Tax Laws of the PRC, the Company’s subsidiaries are generally subject to an Enterprise Income Tax (EIT) at a standard rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The State Tax Bureau of Lu’An City, Anhui province issued an income tax benefit approval to Guoying on December 10, 2011 providing that Guoying is subject to income tax and VAT benefit treatment out of a reduced rate of RMB 7,500 tax payment per year (including income tax and VAT) valid from December 1, 2011 until December 31, 2013 subject to Guoying's option to pay more in taxes should it elect to do so. Therefore, currently, Guoying is charged at a fixed annual reduced tax rate no less than RMB7, 500 per year that changes every year to cover all types of taxes including income taxes. The income tax expenses for the three months ended March 31, 2013 and 2012 are $0 and $0, respectively. There were no significant book and tax basis differences.

Net Income (Loss) Attributable to China Electronics Holdings, Inc.

Our net income attributable to China Electronics Holdings, Inc. for the three months ended March 31, 2013 was $8,221, an increase of $102,124, or 108.8%, from net loss attributable to China Electronics Holdings, Inc. of $93,903 for the same period in 2012. The increase was mainly due to the increase in financial income during the three months ended March 31, 2013.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the three months ended March 31, 2013 or during the three months ended March 31, 2012 that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Liquidity and Capital Resources

As of March 31, 2013, we had cash and cash equivalents of $183,042, an increase of $173,577 from $9,465 as of December 31, 2012. We have historically funded our working capital needs with amounts from operations, advance payments from customers, bank borrowings, and capital from shareholders. Our working capital requirements are influenced by the level of our operations, and the timing of accounts receivable collections.

The following table sets forth a summary of our cash flows for the periods indicated:

	March 31, 2013			March 31, 2012
Net cash provided by operating activities	$	131,208		$	245,850
Net cash used in investing activities		(805	)		(379,304	)
Net cash used in financing activities		42,751			-
Effect of rate changes on cash		423			1,235
Increase /(Decrease) in cash and cash equivalents		173,577			(132,219	)
Cash and cash equivalents, beginning of period		9,465			171,838
Cash and cash equivalents, end of period	$	183,042		$	39,619

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Net cash provided by operating activities was $131,208 for the three months ended March 31, 2013, compared to net cash provided by operating activities was $245,850 for the three months ended March 31, 2012, a decrease of $114,642 or 46.6%.The decrease of net cash provided by operating activities was primarily due to more increases in advances offset by decreased net loss and less decrease in accounts receivable in the three months ended March 31, 2013 compared to the same period in 2012.

The Company received a land use right certificate issued by People’s Government of Yu An District on April 16, 2012 with a validation term of 50 years until 2062 for 38,449 square meters, including 19,200 square meters where the four warehouses are built on. We are obligated to pay to Pingqiao Committee approximately $3.7 million when People’s Government of Yu An District is ready to issue us the land use right certificate for the rest of land. Due to burdensome and repetitive approval procedures, we have not been granted land use right certificate for the rest of land. We are currently negotiating with the local government to obtain a Land Use Right Certificate for rest of the land but we are not certain when such land use right certificate will be granted to us. If we cannot generate sufficient cash from our operations to pay for the remaining balance of land purchase price in an immediate short term of time when Yu An District Government completes its approval procedures to issue us the land use right certificate for rest of the land, the PRC government may evict our personnel from the premises and remove our manufacturing facilities that we built on the premises. Such action would have a very significant and negative impact on our operations and business.

Growth Strategies

We funded our growth strategy from our working capital and below are a summary of approximately how much we have spent in year 2012 and estimates for 2013 to achieve our growth strategies:

Growth Strategies	Estimate in2013		Spent in 2012

Develop new company-owned stores in Anhui Province	$	2,300,000		629,600

Develop new exclusive franchise stores in Anhui, Hunan and Hubei Provinces	$	-		472,200

Develop new non-exclusive stores in Anhui, Hunan and Hubei Provinces	$	-		1,574,000

Constructions for logistics centers	$	-		7,787,000

We purchased 300 Chinese acres land with Pingqiao Industrial Park. The land was originally to be used to build our LED manufactures and due to change of our business plan, portion of which was used to build our logistics centers located in Lu An City to establish distribution channels and logistics transportation services to deliver merchandise and Guoying branded products to counties, townships and villages in Hubei, Henan and Anhui provinces. We have started construction of four warehouses located on Pingqiao land since October 2011. Each logistics center is 4,800 square meters and total is 19,200 square meters. The Company currently stops construction of four logistic centers.

In August 2012, Guoying invested $945,054 to establish Opto-Electronics which is 99% owned by Guoying. Mr. Hailong Liu, the CEO and Chairman of Guoying, invested $9,546 and owned 1% of Opto-Electronics. We filed a proposal to seek approval to enter into the LED manufacturing business with the Reform and Development Commission of Yu An District, Lu An City on May 13, 2011 and we obtained planning permit for the project and land construction issued by Housing and Urban-Rural Development Bureau of Yu An District, Lu An City on October 28, 2011. We have obtained permits to build LED manufactures on Pingqiao land. We are seeking business partners and financing to further continue the LED manufacturing and wholesale business.

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Investing Activities

Net cash used in investing activities was $805 for the three months ended March 31, 2013, compared $379,304 used in investing activities for the three months ended March 31, 2012, a decrease of $378,499, or 99.8%. The decrease of net cash used in investing activities was primarily due to less investment in construction in progress in the three months ended March 31, 2013 compared to the same period 2012.

Financing Activities

Net cash provided by financing activities was $42,751for the three months ended March 31, 2013, compared to $0 for the three months ended March 31, 2012. The increase was mainly due to more increased related party receivable in the three months ended March 31, 2013 compared to the same period 2012.

Inflation and Changing Prices

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. As of July2009, 2010, 2011, and 2012, the rates of inflation in China were 5.9%, negative 0.7%, 6.4%, and 1.8% respectively. Fluctuations in inflation in China compared to inflation in the U.S. is likely to result in fluctuations in the exchange rate between U.S. dollars and RMB, which will in turn affect our financial position and results of operations.

Contractual Obligations

Our significant contractual obligations are as follows:

The Company incurred rent expenses of $40,384 and $40,087 for the three months ended March 31, 2013 and 2012, respectively.

The lease expenses for the next five years are estimated to be as follows:

2013	$	130,253
2014		12,727
2015		12,727
2016		12,727
2017		5,303
Thereafter		-
Total	$	173,737

Obligations for Land Use Rights

The Company entered into a Land Investment on October 28, 2010 and a supplemental Deposit Agreement on December 28, 2010 with the management committee of Pingqiao Industrial Park (the “Pingqiao Committee”), under which the Pingqiao Committee is obligated to assist the Company to obtain a land use right for 300 Chinese acres to be issued by local peoples government. At first we decided to use the land to build our LED manufacturing facility. Then due to the shrink of LED market and demand, we decide to use the land to build our logistics centers located in Lu An City to establish distribution channels and logistics transportation services to deliver merchandise and Guoying branded products to counties, townships and villages in Hubei, Henan and Anhui provinces. We have started construction of four warehouses located on Pingqiao land since October 2011. Each logistics center is 4,800 square meters and total is 19,200 square meters. We currently do not have sufficient capital to continue the construction at this time and the Company will continue its electronics distribution business while it moves slowly on the development of construction of logistic center by seeking business partners and financing. The Company paid RMB 100 million (approximately $15.74 million) of the purchase price as of December 31, 2010. The Company is not obligated to pay the remaining $3.7 million until it receive the land use right certificate issued by relevant PRC government pursuant to the Land Investment. The Company received a land use right certificate issued by peoples government of Yu An District on April 16, 2012 with a validation term of 50 years until 2062 for 38,449 square meters where the four warehouses are built on. The Company has not received land use right certificate for the remaining parcels of land. The Company believes that if the land use right certificate is not granted to the Company by the local government, the Company will get a refund of the retainer from Pingqiao Committee pursuant to its contractual rights as set forth in Section 8 of Investment Agreement between Ping Bridge Industrial Park and Lu’anGuoying Electronics Sales Co.

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Application of Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us include revenue recognition, contingencies, income taxes, and stock-based compensation.

See Note 2, Summary of Significant Accounting Policies, to the Notes to Consolidated Financial Statements for a complete discussion of related accounting policies.

Revenue Recognition – Product Sales

The Company receives revenue from sale of electronic products. The Company's revenue recognition policies are in compliance with ASC 605 (previously Staff Accounting Bulletin 104). The Company recognizes all product sales revenue at the date of shipment to customers, when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company recognizes product sales revenue from exclusive franchise stores and non-exclusive franchise stores when the products are delivered to the respective store. Product sales to all franchise stores are recorded at the gross amount billed to the store as we have determined that we are principal to the transaction because we are the primary obligor in the arrangement.

No return rights are granted to franchise stores if they are unable to sell purchased inventories to end users. Additionally, our product sales from company-owned stores are covered by the respective manufacturers’ return and warranty policies and we receive full reimbursement for any costs associated with returns and warranty payments. As such, we do not estimate deductions or allowance for sales returns.

Our sales are covered by the manufacturers’ return and warranty policies and we receive a full reimbursement for costs associated with returns and warranty payments. Therefore, we do not estimate deductions or allowance for sales returns. The Company’s revenue from sales is presented as gross revenue. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposit.

Our products delivered to customers are checked on site by the customers and, once the products are accepted by customers, they sign the acceptance notice. Rewards or incentives given to our customers are an adjustment of the selling prices of our products; therefore, the consideration is characterized as a reduction of revenue in our income statement.

The Company recognizes its revenues net of value-added taxes (“VAT”).

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Revenue Recognition – Franchise Fees

Franchise fees, including area development and initial franchise fees, continuing fees, and royalties (collectively referred to as “franchise fees”) received from exclusive franchise stores and non-exclusive franchise stores for the right to establish new stores and royalties are charged to franchisees based on a percentage of a franchised store’s sales.

Currently, in connection with promotional efforts aimed at network growth, the Company has ceased charging franchise fees, continuing fees and royalties to our franchisees.

Legal and Other Contingencies

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial statements.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We 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 should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial statements.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating expected dividends. In addition, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be impacted.

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Recent Accounting Pronouncements

FASB Accounting Standards Update No. 2012-11

In December 2012, the FASB issued the FASB Accounting Standards Update No. 2012-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2012-11”).This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.

The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of ASU 2012-11 is not expected to significantly impact the Company’s consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures as required under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of March 31, 2013, the Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2013. The Company does not have a Chief Financial Officer that is familiar with the accounting and reporting requirements of a U.S. publicly-listed company, nor does it have a financial staff with accounting and financial expertise in U.S. generally accepted accounting principles (“US GAAP”) reporting. In addition, the Company does not believe it has sufficient documentation concerning its existing financial processes, risk assessment and internal controls. There are also certain deficiencies in the design or operation of the Company’s internal control over financial reporting that has adversely affected its disclosure controls that may be considered to be “material weaknesses.”

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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 were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1A. Risk Factors

The purchase of our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “2012 Form 10-K”), our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this report, and our consolidated financial statements and related notes included in Item 1 of Part I of this report. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the Securities and Exchange Commission.

Item 6 - Exhibits

The following exhibits are filed with this report:

31.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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.

	CHINA ELECTRONICS HOLDINGS, INC.


	By:	/s/ Hailong Liu
	Name:	Hailong Liu
	Title:	Chairman, Chief Executive Officer and President
		(principal executive officer) & Chief Financial Officer (principal financial officer and principal accounting officer)

Date: August 2, 2013

CHINA ELECTRONICS HOLDINGS, INC AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

AS OF MARCH 31, 2013 AND DECEMBER 31, 2012

(UNAUDITED)