Yasheng Group - FORM 10-Q - August 14, 2014

Attached files

file	filename
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Yasheng Group	exhibit_32-2.htm
EX-99.1 - SUMMARY OF YASHENG LABOR CONTRACT - Yasheng Group	exhibit_99-1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT OF 1934 RULE 13A-14(A) OR 15D-14(A) - Yasheng Group	exhibit_31-2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT OF 1934 RULE 13A-14(A) OR 15D-14(A) - Yasheng Group	exhibit_31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - Yasheng Group	Financial_Report.xls
XML - IDEA: XBRL DOCUMENT - Yasheng Group	R9999.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Yasheng Group	exhibit_32-1.htm

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 June 30, 2014

o TRANSITION REPORT PURSUANT TO SECITON 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________________

Commission File Number:

YaSheng Group

(Exact name of registrant as specified in its charter)

California		33-0788293
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

805 Veterans Blvd., Suite 228, Redwood City, CA	94063
(Address of Principal Executive Offices)	(Zip Code)

(650) 363-8345

(Registrant's telephone number, including area code)

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

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

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.

Large accelerated filer	o		Accelerated filer	o

Non-accelerated filer	o	(Do not check if smaller reporting company)	Smaller reporting company	x

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

o Yes x No

State issuer’s revenues for its most recent fiscal year (12/31/13).$ 1,011,323,630.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified dated within the past 60 days. We are a smaller reporting company as determined pursuant to Rule 12b-2 of the Securities and Exchange Act of 1934 and Regulation S-K thereunder because the public float of our common stock is less than $75 million.

(APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes o No

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date, 155,097,355 (6-30-14).

YASHENG GROUP

TABLE OF CONTENTS

			Page
PART I	FINANCIAL INFORMATION

Item 1	Condensed Consolidated Financial Statements (unaudited)		4

		Auditor Review Report	4

		Condensed Consolidated Balance Sheets	5

		Condensed Consolidated Statements of Income	6

		Condensed Consolidated Statements of Cash Flows	7

		Notes to Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3	Quantitative and Qualitative Disclosures about Market Risk		18

Item 4	Controls and Procedures		19

PART II	OTHER INFORMATION

Item 1	Legal Proceedings		21

Item 1A	Risk Factors		21

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		21

Item 3	Defaults Upon Senior Securities		21

Item 4	Submission of Matters to a Vote of Security Holders		21

Item 5	Other Information		21

Item 6	Exhibits		21

Signatures			22

PART I FINANCIAL INFORMATION

Item 1.Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders Yasheng Group

Redwood City, California

We have reviewed the accompanying condensed consolidated balance sheet of Yasheng Group and subsidiaries (the “Corporation”) as of June 30, 2014, and the related condensed consolidated statements of income, stockholders’ equity, and cash flows for the three month and six month periods ended June 30, 2014 and 2013. These interim financial statements are the responsibility of the Corporation’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Yasheng Group and subsidiaries as of December 31, 2013, and the related consolidated statements of income, stock holders’ equity, and cash flows for the year then ended and in our report dated March 7, 2014 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2013 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/S/ Gansu Hongxin Certified Public Accountants Co., Ltd.
Lanzou, China

August 8, 2014

YASHENG GROUP
Condensed Consolidated Balance Sheets (unaudited)
(In US Dollars)

	As of
	June 30,		December 31,
	2014		2013
	(unaudited)		(audited)
ASSETS
Current assets:
Cash and cash equivalents		11,593,928		11,337,958
Accounts receivable, net		106,572,156		103,061,683
Inventories		344,282,627		318,980,143
Prepaid and other current assets		4,082,716		4,400,112

Total current assets		466,531,427		437,779,896

Equity and other investments		208,788		210,703

Property, plant and equipment, net		866,737,416		848,678,908
Construction in progress		6,755,701		7,083,472
Intangible assets, net		1,040,475,470		1,057,082,947

Total assets		2,380,708,802		2,350,835,926

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		29,124,668		31,495,004
Short term loans		5,850,995		6,560,711
VAT Tax payable		743,217		789,243
Current portion of long term debt		3,790,957		4,431,287
Other current liabilities		639,906		685,982

Total current liabilities		40,149,743		43,962,227

Long term payable		22,408,202		24,573,824

Total liabilities		62,557,945		68,536,051

Stockholders’ equity:
Common stock, US$1.00 par value
800,000,000 shares authorized
155,097,355 shares issued and outstanding		155,097,355		155,097,355
Accumulated other comprehensive income		433,233,127		443,442,989
Retained earnings		1,729,820,376		1,683,759,531

Total stockholders’ equity		2,318,150,857		2,282,299,875

Total liabilities & stockholders' equity		2,380,708,802		2,350,835,926

The accompanying notes are an integral part of these consolidated financial statements.

YASHENG GROUP
Condensed Consolidated Statements of Operations (unaudited)
(In US Dollars)

	For The Six Months Ended June 30,				For The Three Months Ended June 30,
	2014		2013		2014		2013

Net sales		435,435,598		397,900,234		226,224,075		192,744,625

Cost of goods sold		386,721,302		353,397,672		200,499,036		170,735,500

Gross profit		48,714,296		44,502,562		25,725,039		22,009,125

Operating expenses:
Sales and marketing		751,136		724,615		360,682		354,523
General and administrative		1,731,227		1,692,701		768,252		752,967
Total operating expenses		2,482,363		2,417,316		1,128,934		1,107,490

Operating profit		46,231,933		42,085,246		24,596,104		20,901,635

Interest expense		668,068		639,259		2,024		-19,567

Other income (expense）		496,980		665,239		233,486		406,838

Income before income tax expense		46,060,845		42,111,227		24,827,566		21,328,040
Income tax expense

Net income		46,060,845		42,111,227		24,827,566		21,328,040

Basic earnings per share		0.30		0.27		0.16		0.13
Weighted average number of shares		155,097,355		155,097,355		155,097,355		155,097,355

The accompanying notes are an integral part of these consolidated financial statements.

YASHENG GROUP
Condensed Consolidated Statements of Cash Flows (unaudited)
(In US Dollars)

	For The Six Months Ended June 30,
	2014		2013

Cash flows from operating activities:
Net income		46,060,845		42,111,227
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,433,024		6,451,214
Allowance for doubtful accounts		494,246		309,168

Changes in assets and liabilities:
Accounts receivable		-9,904,721		-6,195,750
Inventories		-12,708,936		-29,072,310
Prepaid and other current assets		277,420		-316,488
Accounts payable		-2,080,764		-4,485,945
Tax payables		-38,856		-44,612
Accrued expenses and other current liabilities		-43,274		-44,328
Net cash provided by operating activities		28,488,983		8,712,175

Cash flows from investing activities:
Purchase of assets		-24,935,047		-2,136,963
Investments
Net cash used in investing activities		-24,935,047		-2,136,963

Cash flows from financing activities:
Issuance of common stock
Dividens paid
Payment on land lease		-1,942,361		-3,869,848
Increase (decrease) in debt		-1,250,181		-3,005,838
Net cash provided by financing activities		-3,192,542		-6,875,685

Effect of exchange rate change on cash and cash equivalents		-105,424		493,202

Net increase (decrease) in cash and cash equivalents		255,971		192,730

Cash and cash equivalents at beginning of period		11,337,958		10,980,384
Cash and cash equivalents at end of period		11,593,929		11,173,114

Supplemental Disclosures:
Cash paid for interest		668,068		639,259
Cash paid for income taxes

The accompanying notes are an integral part of these consolidated financial statements.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation, Organization and Business

The accompanying unaudited condensed consolidated financial statement (“statements”) have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the period are not necessarily indicative of the results that may be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Yasheng Group's Form 10-K. The statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). All necessary adjustments have been made to present the financial statements in accordance with US GAAP.

Yasheng Group (“The Company”) is a California corporation with primary operations in China. The Company produces and markets high-quality farming and sideline products including livestock and poultry. It also designs, develops and markets new technologies related to agriculture.

Product offerings include 30+ major agriculture goods under 6 major product categories which include: field crops: cotton, corns, barley, hemp, wheat, flax, alfalfa; vegetables: onions, potatoes, beet, and peas; fruit trees: apples, pears, apricots; specialty crops: hops, wolfberries, cumin, liquorices; seeds: black melon seeds, sunflower seeds, corn seeds, hemp seeds,flax seeds; poultry: eggs.

Yasheng sells its products through an extensive nationwide sales and distribution network covering 19 provinces and over 118 cities in China. Products are also sold directly to food processors as well as processed internally by the company and then resold to supermarkets or other distributors, or further processed for retail food distribution. The Company also sells many of its products fresh within Gansu province as well as nationally to food processors and distributors, or directly to supermarkets. Customers are based primarily in China and include national and international leading companies. Products are also sold as feed for livestock, ingredients for Chinese traditional medicines as well as other important ingredients in the food industry.

2.	Summary of Significant Accounting Policies

(a)	Accounting standards

The consolidated financial statements have been prepared on a historical cost basis to reflect the financial position and results of operations of the Company in accordance with accounting principles generally accepted in the United States of America.

(b)	Fiscal year

The Company’s fiscal year ends on the 31st of December of each calendar year.

(c)	Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated.

(d)	Use of estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(e)	Revenue recognition

We mainly sell food products. We recognize revenue when title and risk of loss are transferred to our customers. This generally happens upon delivery of our products.

(f)	Shipping and handling costs

The Company records outward freight, purchasing and receiving costs in selling expenses; inspection costs and warehousing costs are recorded as general and administrative expenses.

(g)	Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits held by banks, and securities with maturities of three months or less. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are composed primarily of investments in money market accounts stated at cost, which approximates fair value.

(h)	Inventories

Inventories are recorded using the weighted average method and are valued at the lower of cost or market.

(i)	Accounts receivable, net

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects the Company’s best estimate of the amounts that will not be collected. In addition to reviewing delinquent accounts receivable, the Company considers many factors in estimating its general allowance, including aging analysis, historical bad debt records, customer credit analysis and any specific known troubled accounts.

(j)	Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is calculated on a straight-line basis over the life of the asset or the term of the lease, whichever is shorter. Major renewals and betterments 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 property and equipment used in production is reported in cost of sales. Property and equipment are depreciated over their estimated useful lives as follows:

Buildings and improvements

20 - 40 years

Farming facilities

10 years

Machinery and equipment

7 years

Transportation and other facilities

3 - 15 years

Long-term assets of the Company are reviewed annually to assess whether the carrying value has become impaired, according to the guidelines established in Statement of Accounting Standards (SFAS) No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." The Company also evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. No impairment of assets was recorded in the periods reported.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

	06/30/2014		12/31/2013

Buildings and improvements	$	116,021,157	$	115,517,239
Farming facilities		104,124,997		105,667,488
Machinery and equipment		14,123,370		13,900,573
Transportation		331,958,545		335,920,143
Windbreak and Sand-break Trees		410,546,673		381,277,766
Total		976,774,741		952,283,209
Less: Accumulated Depreciation and amortization		110,037,325		103,604,301
Net	$	866,737,416	$	848,678,908

(k)	Intangible assets

Intangible assets consist of land use rights and are recorded at cost. Under PRC’s current property rights regime, use rights for specified periods (e.g., 40 to 70 years) can be obtained from the state through the up-front payment of land use fees. The fees are determined by the location, type and density of the proposed development. This separation of land ownership and use rights allows the trading of land use rights while maintaining state ownership of land. The Company has over 300,000 acres of agriculture land that are utilized for grazing, cultivation, and reclamation, of which 50,000 acres are under cultivation using the latest scientific technologies to produce a wide variety of agricultural products.

(l)	Impairment of long-lived assets

The carrying amounts of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

(m)	Investments

Investments consist primarily of less than 20% equity positions in non-marketable securities and are recorded at lower of cost or market.

(n)	Foreign currency translation

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

Gains and losses resulting from foreign currency translation are recorded in a separate component of shareholders’ equity. Foreign currency translation adjustments are included in accumulated other comprehensive income in the consolidated statements of shareholders’ equity for the years presented.

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.

(o)	Income taxes

As an agricultural enterprise, the Company and all of its agricultural subsidiaries are exempted from enterprise income taxes with approval from the Gansu Provincial Bureau of Local Taxation. The only non-agricultural subsidiary, Baiyin Cement Plant, has suffered net loss for the years shown and therefore has no applicable taxable income. Because of the uncertainty of future profits, no deferred tax assets have been set up at this time.

(p)	Earnings per share

Basic earnings per share are computed using the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of common and, if dilutive, potential common shares outstanding during the year. The Company has no potentially dilutive shares for the periods shown.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(q)	Economic and Political Risks

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

(r)	Advertising expense

The Company records advertising expenses in the period incurred.

(s)	Comprehensive income

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on the accompanying consolidated balance sheets, consists of mainly the cumulative foreign currency translation adjustment.

(t)	Recently issued accounting standards

Recently Adopted Accounting Guidance

In December 2011, the Financial Accounting Standards Board (FASB) issued guidance enhancing disclosure requirements about the nature of an entity’s right to offset and related arrangements associated with its financial instruments. The new guidance requires the disclosure of the gross amounts subject to rights of set-off, amounts offset in accordance with the accounting standards followed, and the related net exposure. In January 2013, the FASB clarified that the scope of this guidance applies to derivates, repurchase agreements, and securities lending arrangements that are either offset or subject to an enforceable master nettling arrangement, or similar agreements. We have adopted this new guidance.

In February 2013, the FASB issued guidance on disclosure requirements for items reclassified out of AOCI. This new guidance requires entities to present (either on the face of the inco0me statement or in the notes to the financial statements) the effects on the line items of the income statement for amounts reclassified out of AOCI. We have adopted this new guidance. We do not anticipate a material impact with this guidance.

Recent Accounting Guidance Not Yet Adopted

In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. We do not anticipate material impacts on our consolidated financial statements upon adoption.

In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards, the FASB issued a new standard related to revenue recognition. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(u)	Value added tax (VAT)

Value added tax is a consumption tax levied on value added. While the standard VAT rate in PRC is 17%, the Company's agricultural subsidiaries enjoy a reduced VAT rate of 4%.

3.	Inventories

The major classes of inventory: raw materials, packaging materials, products in process, finished goods, stocks, low-value consumable goods, materials in transit as well as others.

The following is a breakdown of the major categories of inventories.

Inventory Breakdown	As of 06/30/2014		As of 12/31/2013
Raw material		67,449,959		64,583,540
Finished goods		183,397,353		167,437,526
Low value consumable goods		46,755,243		43,296,466
Packaging material		30,627,082		28,712,685
Maintenance material		16,052,989		14,949,927
Total		344,282,627		318,980,143

4.	China contribution plan

The Company’s subsidiaries in China participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s subsidiaries to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution.

5.	Profit appropriation

Pursuant to the laws applicable to China’s Foreign Investment Enterprises, each of the Company’s subsidiaries in China allow make appropriations from its after-tax profit to non-distributable reserve funds as determined by the Board of Directors. These reserve funds include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The general reserve fund requires annual appropriations of 10% of after-tax profit (as determined under PRC GAAP) until these reserves equal 50% of the amount of paid-in capital; the other fund appropriations are at the Company’s discretion. Payment to the statutory general reserve fund is at the Company discretion. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends.

6.	Concentration of risks

The operations of the Company are substantially located in the PRC and accordingly, investing in the shares of the Company is subject to among others, the PRC’s political, economic and legal risks.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.	Income taxes

The Company and all of its agricultural subsidiaries are exempt from income taxes in the PRC. The Company has not filed an income tax return in the US.

Debt

The Company obtains secured lending from the banks using two types of arrangements, collateral and guarantee. Collateral are loans secured against the assets of the Yasheng Group, while guarantee are loans provided with the guarantee from a third party.

9.	Employee benefit plans

The Company provides the following benefits for all employees:

A. Employee Welfare Fund: An amount equal to 14% of payroll is set aside by the Company for standard employee benefits. This fund is managed and controlled by the Company. All required payments current.

B. Open Policy Pension: The Company pays to national and community insurance agents an amount equal to 20% of payroll. This insurance continues to cover the employee subsequent to retirement.

C. Unemployment Insurance: The Company pays to the national employment administrative entities an amount equal to 1% of payroll. Any dismissed employee thereby receives a specified amount of family-support funds for a designated period.

D. Housing Surplus Reserve: The Company pays to the national housing fund administrative entities an amount equal to 10% of payroll for deposit into the employees' future housing allowance accounts.

The aforesaid items are for employee's benefits and should be accounted for as the Company's expenses.

10.	Operating leases

The Company has no operating leases for the periods shown.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.

Segments

In its operation of the business, management, including upper management and the board of director’s, reviews certain information as it relates to the Company as a whole. The information most used and useful is the profitability by subsidiary. Accordingly, these are the segments which are presented in the table below.

Breakdown by Subsidiary Unit: US Dollar

	Net Sales		Net Sales		Cost of Sales		Cost of Sales		Gross Profit		Gross Profit
Subsidiaries	ended		ended		ended		ended		ended		ended
	06/30/2014		06/30/2013		06/30/2014		06/30/2013		06/30/2014		06/30/2013
Gansu Tiaoshan Agricultural-Industrial-Commercial Group Co., Ltd	$	209,944,044	$	191,783,642	$	188,764,467	$	172,449,925	$	21,179,578	$	19,333,717
Gansu Hongtai Agricultural Technology Co., Ltd.	$	57,758,872	$	52,796,044	$	52,434,699	$	47,929,341	$	5,324,172	$	4,866,702
Gansu Xiaheqing Industrial Co., Ltd.		10,889,022		9,953,402		8,747,906		7,996,258		2,141,116		1,957,144
Gansu Jinta Hengsheng Agricultural Development Co., Ltd.		51,409,672		46,992,388		45,642,467		41,720,719		5,767,206		5,271,669
Gansu Jinta Xingsheng Industrial Co., Ltd.		51,259,826		46,855,417		44,382,389		40,568,911		6,877,438		6,286,506
Gansu Jinta Yongsheng Agricultural Development Company.		53,542,076		48,941,569		46,289,743		42,312,379		7,252,334		6,629,190
Gansu Jinta Yuantai Commercial Trading Co., Ltd		632,085		577,774		459,632		420,139		172,453		157,635

Totals for six months	$	435,435,597	$	397,900,234	$	386,721,302	$	353,397,672	$	48,714,296	$	44,502,562

Other segments that assist management in its analysis of the company's performance are the segments by product group, namely, agriculture, livestock and biotechnology. The following table contains that breakout of gross profit by product group.

6 months ended 6-30-2014

	Sales ended		Sales ended		Cost of Sales ended		Cost of Sales ended		Gross Profit ended		Gross Profit ended		Gross Profit % ended		Gross Profit %
	Sales ended		Sales ended		Cost of Sales ended		Cost of Sales ended		Gross Profit ended		Gross Profit ended		Gross Profit % ended		ended
	06/30/2014		06/30/2013		06/30/2014		06/30/2013		06/30/2014		06/30/2013		06/30/2014		06/30/2013
Agriculture	$	431,248,303		394,072,725		383,046,335	$	350,038,470	$	48,201,968	$	44,034,255		9.5		11.17
Livestock		903,366		825,746		734,342		671,245		169,024		154,501		9.3		8.00
Biotechnology		3,283,929		3,001,763		2,940,625		2,687,957		343,304		313,806		9.4		4.06
Total for Quarter	$	435,435,958	$	397,900,234	$	386,721,302	$	353,397,672	$	48,714,296	$	44,502,562		9,4		11.11

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following is a discussion of our financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our audited financial statements and the notes thereto included elsewhere in this Form 10-Q and with our annual report for the year ended December 31, 2013.

Some of the statements under "Description of Business," "Risk Factors," "Management's Discussion and Analysis or Plan of Operation," and elsewhere in this Report and in the Company's periodic filings with the Securities and Exchange Commission constitute forward-looking statements. These statements involve known and unknown risks, significant uncertainties and other factors what may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. Such factors include, among other things, those listed under "Risk Factors" and elsewhere in this Report.

In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "intends," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will obtain or have access to adequate financing for each successive phase of its growth, that there will be no material adverse competitive or technological change in condition of the Company's business, that the Company's President and other significant employees will remain employed as such by the Company, and that there will be no material adverse change in the Company's operations, business or governmental regulation affecting the Company. The foregoing assumptions are based on judgments with respect to, among other things, further economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company's control.

Although management believes that the expectations reflected in the forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither management nor any other persons assumes responsibility for the accuracy and completeness of such statements.

GENERAL

Yasheng Group (“The Company”) is a California corporation with primary operations in China. The Company designs, develops, manufactures and markets high-quality farming and sideline products including livestock and poultry. It also designs, develops and markets new technologies related to agriculture and genetic biology.

RESULTS OF OPERATIONS

(unaudited)

	Three Months Ended June 30, 2014					Three Months Ended June 30, 2013
	Dollars (000's)		% of Sales			Dollars (000's)		% of Sales
Net Sales	$	226,224		100	%	$	192,745		100	%
Costs of Goods Sold		200,499		89	%		170,736		89	%
Gross profit		25,725		11	%		22,009		11	%
Sales and marketing expenses		360		0.2	%		355		0.2	%
General and administrative expenses		768		0.3	%		753		0.4	%
Interest expense		2		0.0	%		-20		0.0	%
Other income		233		0.1	%		407		0.2	%
Net income	$	24,827		11	%	$	21,328		11	%

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

The functional currency for the Company is the RMB which is translated into US Dollars for financial reporting purposes. The average exchange rates for the periods presented were 6.1524 RMB to 1 USD for the six months ended June 30, 2014 and 6.2252 RMB to 1 USD for the six months ended June 30, 2013

Net Sales. Sales are generated primarily from our farming operations and related side line products in China. Net sales for the three months ended June 30, 2014 increased by $33.48 million, or 17.4% to $226 million as compared to $193 million for the three months ended June 30, 2013. The overall increase in net sales was primarily a result of the rising prices of agricultural products attributable to increasing demand in China. We also benefited from our expanded marketing network which covers more provinces, with more distributors and direct clients.

This year, Gansu Province has supported the construction of 100 farmers' markets, 100 farmers' markets have been built and put into use, which has increased sales revenue of company's agricultural products.

Factors of increased sales this Summer:

According to the monitoring data of the national agricultural and sideline products and agricultural materials price quotation system,which show that since the beginning of this year, fruit prices show more obvious rising trend. Compared with January 1, in June, the national prices of banana, pear, pear, orange, ponkan, Fuji apple are rising, the amount of increase is respectively 41.9％，35.9％，33.1％，32.3％，27.8％ and 21.3％. At present, the monitoring national prices of fruits are significantly higher than last year, an increase of more than twenty percent. Compared with the second quarter in 2013, the prices of 21 kinds of monitoring vegetables in the second quarter of 2014 are averaging up 14.0%.Among them, the price-rise of prices of cowpea, green bean, bitter gourd and die Peperoli are in the lead, are respectively, 40.2%, 38.9%, 38.1%, 37.3%, the amount of increase of corn price in the first half year can be up to 20% maximum.

The general rise in prices of agricultural products in the second quarter, which has increased sales revenue of agricultural products.

Depreciation of the dollar. Food, oil and other raw materials in the international market are priced in U.S. dollars. The average exchange rates for the periods presented were 6.1524 RMB to 1 USD for the six months ended June 30, 2014 and 6.2252 RMB to 1 USD for the six months ended June 30, 2013, currency proportion was down by 1.1%.

Cost of Goods Sold. Our cost of goods sold consists of the direct production costs such as raw materials, direct labor, overhead and miscellaneous other supplies. Costs were in line with sales due to continued heightened focus on cost control exercised throughout production, the increase in cost is mainly due to the growth in the net sales.

Gross Profit and Gross Margin. Our gross profit for the three months ended June 30, 2014 increased by $3.7 million or 16.9% to $25.7 million from $22 million for the three months ended June 30, 2013. The improved margin was primarily a result of the growth in the net sales.

Sales and Marketing Expenses. Our sales and marketing expenses for the three months ended June 30, 2014 increased by $6,159 or 1.7% to $360,682 as compared to $354,523 in the prior three months ended June 30, 2013.

General and Administrative Expenses. Our general and administrative expenses for the three months ended June 30, 2014 increased by $15,286 or 2% to $768,252 from $752,967 for the three months ended June 30, 2013.

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

Interest Expenses and Other Income. Our interest expense for the three months ended June 30, 2014 increased by $21,591 or -110% to $2,024 as compared to -$19,567 in the prior three months ended June 30, 2013. Our other income for the three months ended June 30, 2014 decreased by $173,352 or 42.6% to $233,486 as compared to $406,838 in the prior three months ended June 30, 2013.

Liquidity and Capital Resources

As of June 30, 2014, we had cash and cash equivalents of $11.6 million and working capital of $426 million. This compared to cash and cash equivalents of $11.2 million and working capital of $340 million as of June 30, 2013. The following table provides information about our net cash flows for the operating results presented in this report (amounts in thousands of USD).

	Six Months Ended June 30th
	2014		2013
Net cash provided by operating activities		28,489		8,712
Net cash used in investing activities		-24,935		-2,137
Net cash used in financing activities		-3,193		-6,876
Effect of foreign currency translation on cash and cash equivalents		-105		493
Cash and cash equivalents at beginning of the period		11,338		10,980
Cash and cash equivalents at end of period		11,594		11,173

Net cash provided by operating activities was $28.5 million for the six months ended June 30, 2014 as compared to $8.7 million for the six months ended June 30, 2013. Net cash used in investing activities was $25 million for the six months ended June 30, 2014 as compared to $2.1 million for the six months ended June 30, 2013. Net cash used in financing activities was $3.2 million for the six months ended June 30, 2014 compared with $6.8 million for the three months ended June 30, 2013.

We believe our cash on hand and cash flows from operations will meet our expected capital expenditures and working capital needs for the next 12 months. In addition, we may, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our production capacity or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Off-Balance Sheet Arrangements

As of June 30, 2014 and for the three months then ended, we were not party to transactions, obligations or relationships that could be considered off-balance sheet arrangements and we do not have off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Segments

See Notes to financial statements for details on the segments.

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

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements. The additional discussion below addresses our more significant judgments.

Impairment of long-lived assets. Long-lived assets, except goodwill and indefinite-lived intangible assets, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net cash flows estimated by our management to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable value.

All land in the PRC is owned by the PRC government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specific period of time. Thus, all of our land purchases in the PRC are considered to be leasehold land and are stated at cost less accumulated amortization and any recognized impairment loss.

Property, plant and equipment, net. Property, plant and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred. The principal estimated useful lives generally are: buildings – 20 years; leasehold improvement – 10 years; machinery - 10 years; furniture, fixtures and office equipment – 5 years; motor vehicle – 5 years. During the idle period of the plant, depreciation is treated as current-period charges, which is charged directly to general and administrative expense.

New Accounting Standards

See Note 1 to the Consolidated Financial Statements for information regarding other new accounting standards that could affect us.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Our international sales accounted for very little of our net sales in the first half of 2014. As a result, we have exposure to foreign exchange risk with respect to a minor portion of our sales. Fluctuations in exchange rates, particularly in the U.S. dollar to Chinese yuan (RMB) exchange rate, do not affect materially affect our gross and net profit margins even though they could result in foreign exchange and operating losses.

Our primary foreign currency exposures are transaction, cash flow and translation:

Transaction Exposure: We have certain asset and liabilities, primarily receivables, investments and accounts payable that are denominated in currencies other than the relevant entity's functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our reported consolidated financial position, results of operations and cash flows. We may enter into foreign exchange forward contracts or other instruments to minimize the short-term foreign currency fluctuations on such assets and liabilities. The gains and losses on the foreign forward contracts offset the transaction gains and losses on certain foreign currency receivables, investments and payables recognized in earnings.

Cash Flow Exposure: We have forecasted future cash flows, including revenues and expenses, denominated in currencies other than the relevant entity's functional currency. Our primary cash flow exposures include future customer collections and vendor payments.

Earnings Translation Exposure: Fluctuations in foreign currency exchange rates do not create volatility in our reported results of operations because we are required to consolidate the financial statement of all of our subsidiaries and most of our sales are in China. We decide to purchase forward exchange contracts or other instruments to offset the impact of currency fluctuations. Such contracts would be marked-to-market on a monthly basis and any unrealized gain or loss would be reported in interest and other income, net. We do not edge translation exposure at this time but may do so in the future.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk - continued

Interest Rate Risk

We are exposed to interest rate risk because some of our distributors and other vendees depend on debt financing to purchase our products and some of our subsidiaries depend on debt financing to construct facilities and to improve the farms. Although the useful life of our farm products is short, our distributors and vendees still have to pay the entire cost of their purchases at the time of shipment. As a result, many of our distributors and vendees rely on debt financing to fund their up-front cash flow needs and expenditures. An increase in interest rates could make it difficult for our distributors and vendee to secure the financings necessary to purchase, hold and resell our products, and thus lower and postpone demand for our products and reduce our net sales.

Commodity Risk

We are exposed to price risks associated with raw material purchases and sales into the domestic and foreign commodities markets.

Item 4.

Controls and Procedures.

(a) Evaluation of disclosure controls and procedures . Our disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by us in the reports we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by us in the reports it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of June 30, 2013 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective at the reasonable assurance level.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b) Changes in internal controls . During the period covered by this report, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.(c)As a Smaller Reporting Company, the Company is exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 which requires the independent auditor of a public company to issue an attestation report on the Company’s internal control over financial reporting and management’s assessment of those controls under Section 404(a).

Item 4.

Controls and Procedures - continued

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our internal control over financial reporting will prevent all errors and all frauds. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurances that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

The Gansu Hongxin CPA, an independent registered public accounting firm, has audited the consolidated financial statements of Yasheng Group for the fiscal year ended December 31, 2013, in accordance with the auditing standards generally accepted in the United States of America and with accounting principles generally accepted in the United States of America.

Changes in Internal Control over Financial Reporting

Since the first quarter of our 2010 fiscal year, we began to implement the remedial measures described above; including but without limitations to: hiring financial professionals and supporting staff in both U.S. and China; intensifying the interaction and cooperation between our U.S. and China offices; launching special employee training sessions with a focus on internal control; enhancing the design and documentation of our internal control policies and procedures to ensure appropriate controls over our financing reporting. This is an on-going process to improve our internal control and is not completed.

Excepted as described above, there were no changes in our internal control over financial reporting during the current period that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Lack of PCAOB Auditor Oversight Risk and Concerns

As a public company, we are required by the Sarbanes-Oxley law to be audited by a PCAOB registered auditor. Our auditor is based in China and has registered with the PCAOB. One of the requirements of this registration is to be inspected on a periodic basis by the PCAOB. These inspections include reviewing of the actual audit work papers prepared by our auditors as well as a review of the quality control procedures of our auditor. The SEC and the PCAOB are endeavoring to arrive at a mutual understanding as to auditor inspections with the Chinese Government. The Chinese government up until the filing of this quarterly report has not fully allowed the PCAOB inspectors to review the work papers of our auditor, although progress is being made.

Regular inspections by the PCAOB of public company auditors was one of the corner stones of the Sarbanes-Oxley law. The lack of inspections is contrary to US law and deprives the current and future shareholders of any and all benefits that would be derived by this important auditor oversight. This lack of oversight and the associated added expenses, also puts any US based audit firm in a distinct disadvantage when competing with a Chinese based audit firm for work in China.

Our Accounting Personnel have limited experience with US GAAP

Our accounting personnel have been predominately educated and trained in PRC GAAP which is different from International GAAP and US GAAP. This lack of experience and training could cause possible confusion in the application of US GAAP, weaknesses in internal control, and cause delays in the financial statement preparation process.

PART II

Item 1. Legal Proceedings

The Company is not presently a party to any material legal actions.

Item 1A. Risk Factors

See Item 3 in part above and the Company’s 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits

Exhibit No.	Description
31.1	Certification of Chief Executive Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
31.2	Certification of Chief Financial Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Summary of Yasheng Labor Contract

SIGNATURES

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

	YASHENG GROUP

August 8, 2014	By:	/s/ Ye Dong
		Ye Dong
		Chief Executive Officer

Yasheng Group - FORM 10-Q - August 14, 2014

Attached files

Yasheng Group Reports