UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

 

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the fiscal year ended December 31, 2014

 

OR

 

☐

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 000-28767

 

YOSEN GROUP, INC.

 

(Exact name of registrant as specified in its charter)

 

Nevada		88-0403070
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

368 HuShu Nan Road

 

HangZhou City, Zhejiang Province, China 310014

 

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: 086-0571-88381700

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.001 par value

 

Title of class

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐    No ☒ 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No ☒

 

Indicate by check mark whether the registrant: (1) 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.   Yes ☒      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). Yes ☒     No ☐

 

 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

  

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 ☐	Accelerated filer ☐
	Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company  ☒

 

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

  

The aggregate market value of the 19,847,356 shares of voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $14,290,096 as of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, based on the last sale price of the registrant’s common stock on such date of $0.72 per share, as reported on the OTC Bulletin Board.

 

As of April 8, 2015, there were 25,292,356 shares of the registrant’s common stock outstanding.

 

Documents incorporated by reference: None.

 

 

 

 

 

YOSEN GROUP, INC.

 

Table of Contents

 

PART I
Item 1	Business	4
Item 1A	Risk Factors	9
Item 1B	Unresolved Staff Comments	12
Item 2	Properties	13
Item 3	Legal Proceedings	13
Item 4	Mine Safety Disclosures	13
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6	Selected Financial Data	15
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A	Quantitative and Qualitative Disclosure About Market Risk	23
Item 8	Financial Statements and Supplementary Data	23
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	23
Item 9A	Controls and Procedures	24
Item 9B	Other Information	25
PART III
Item 10	Directors, Executive Officers and Corporate Governance	26
Item 11	Executive Compensation	29
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	30
Item 13	Certain Relationships and Related Transactions, and Director Independence	31
Item 14	Principal Accountant Fees and Services	31
PART IV
Item 15	Exhibits, Financial Statement Schedules	32
	Index to Consolidated Financial Statements

 

 

2

 

 

 

Forward Looking Statements

 

 We have included and from time to time may make in our public filings, press releases or other public statements, certain statements, including, without limitation, those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 “forward-looking statements”. In some cases these statements are identifiable through the use of words such as “anticipate,”“believe,”“estimate,”“expect,”“intend,”“plan,”“project,”“target,”“can,”“could,”“may,”“should,”“will,”“would” and similar expressions. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts nor guarantees or assurances of future performance and represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. You are therefore cautioned not rely on these forward-looking statements.

 

Except as required by applicable law, including securities laws, we do not intend to update any of the forward-looking statements to conform to actual results.

 

 

3

 

 

 

PART I

 

ITEM 1. BUSINESS

 

Overview

 

Yosen Group, Inc. (formerly known as “China 3C Group”) (including our subsidiaries unless the context indicates otherwise, the “Company”, “Yosen,”“Yosen Group,”“we,” or “us”) was incorporated on August 20, 1998 under the laws of the State of Nevada. Before July 2009, we were only engaged in the resale and distribution of third party products and generated 100% of our revenue from resale of items such as mobile phones, facsimile machines, DVD players, stereos, speakers, MP3 and MP4 players, iPods, electronic dictionaries, CD players and audio systems. On July 6, 2009, we acquired Jinhua Baofa Logistic Ltd. (“Jinhua”).  At that point, we started providing transportation logistics services to businesses in Eastern China.

 

In 2007 we began operating under a “store in store” business model. The “store in store” business model resulted in expanded marketing channels, thus, stimulated the growth of sales in 2007 and 2008. We used to operate “stores in stores” under the brand names Hangzhou Wang Da, Yiwu YongXin, Shanghai Joy & Harmony and Hangzhou Sanhe. However, starting in 2009, we had declining sales under the model due to increased competition from direct stores and large department stores and the impact of the economic slowdown. As a result, we closed Shanghai Joy & Harmony and Hangzhou Sanhe in 2011. During 2012, Yiwu YongXin and Jinhua ceased operations. During 2013 Wang Da ceased operation.. As of December 31, 2014, we operated 24 “stores in stores”, under the brand name Zhejiang YongXin.

 

Under the stores in stores model, we distribute our products mainly via the so-called concessionaire agreements with larger department stores, supermarkets, large electronics retail stores, and other retailers. Under this model, companies such as Yosen own their own outlets within larger stores and in so doing assume responsibility for most financial and operational aspects of those outlets including capital cost, inventory, wages, product selections, pricing, and general management. Our retail partners are compensated via margin they earn on the products we sell. This model is similar to that employed by many department stores in the US. However, it is different from the model found at large electronics retailers like Best Buy and general retailers like Wal-Mart. We found that many investors are curious as to why the model in China differs from that in the US. We believe the main reasons are:

 

·          We decrease the financial risk for our retail partners by assuming responsibility for the inventory and capital expense associated with distributing our products.

 

·          We decrease operational risk for our retail partners by hiring and managing employees and handling logistics issues such as wholesale purchase and delivery and returns and after-sales service.

 

·          We decrease merchandising risk for our retail partners by bringing product expertise and specific market knowledge that is difficult for large retailers to develop on their own across a broad range of product categories.

 

·          China’s size, regional differences, logistical difficulties, managerial challenges, underdeveloped credit markets, and rapid growth rate increases risk for all retailers and drive the need to mitigate risk which is why our retail partners rely on us.

 

On December 21, 2012, we received confirmation from the Secretary of State of the State of Nevada that the Certificate of Change Pursuant to NRS 78.209 (the “Certificate of Change”) to our Amended and Restated Articles of Incorporation to effect a reverse split of our common stock, $0.001, par value per share (the “Common Stock”), at a ratio of 1-for-5 with all fractional shares rounded up to the next whole share (the “Reverse Stock Split”) was duly filed on December 21, 2012. Immediately prior to the Reverse Stock Split, we had 93,911,327 shares of Common Stock outstanding. After the Reverse Stock Split, we had 18,782,356 shares outstanding. Pursuant to the Reverse Stock Split, the number of authorized shares of our Common Stock was reduced from 100,000,000 to 20,000,000 shares of Common Stock. Each shareholder's percentage ownership interest in the Company and proportional voting power remained unchanged after the Reverse Stock Split except for minor changes and adjustments resulting from rounding up the fractional shares.

 

Immediately, following the consummation of the Reverse Stock Split, on December 21, 2012, we filed a Certificate of Amendment to our Amended and Restated Articles of Incorporation pursuant to NRS 78.385 and 78.390 (the “Certificate of Amendment”) to increase our number of authorized shares of Common Stock from 20,000,000 to 50,000,000 shares (the “Capital Increase Amendment”) and to approve the amendment of our Articles of Incorporation to change our name to “Yosen Group, Inc.” (the “Name Change Amendment)”. The Reverse Stock Split, Capital Increase Amendment and the Name Change Amendment were approved by the board of directors (“BOD” or “Board”) of the Company on October 10, 2012. In addition, the actions taken by the BOD with respect to the Capital Increase Amendment and the Name Change Amendment were subsequently adopted by the written consent dated as of October 10, 2012 of our stockholders entitled to vote a majority of the shares of Common Stock then outstanding. The Reverse Stock Split was also ratified by these stockholders.

 

4

Following the filing of the Name Change Amendment, we changed our stock symbol to "YOSN" effective as of the opening of trading on January 30, 2013 on the OTCBB.

 

On January 6, 2014 the Company established a US based wholly-owned subsidiary, Yosen Trading Inc., a New York corporation (“Yosen Trading”), for the purpose of engaging primarily in international trade and wholesale business, initially with tile, kitchen cabinet, granite and marble products.

 

Organizational Structure

 

Capital Future Developments Limited (“Capital”) was incorporated on July 22, 2004 under the laws of the British Virgin Islands. Zhejiang YongXin Digital Technology Company Limited (“Zhejiang”), Yiwu YongXin Communication Limited (“Yiwu”), Hangzhou Wang Da Electronics Company Limited (“Wang Da”), Hangzhou Sanhe Electronic Technology, Limited (“Sanhe”), and Shanghai Joy & Harmony Electronic Development Company Limited (“Joy & Harmony”) were incorporated under the laws of the Peoples Republic of China (“PRC” or “China”) on July 11, 2005, July 18, 1997, March 30, 1998, April 12, 2004, and August 25, 2003, respectively. Yosen owns 100% of Capital and Capital owns 100% of Joy & Harmony and Sanhe. Until August 14, 2007, when it changed its ownership structure described in the next paragraph to comply with certain requirements of PRC law, Capital owned 100% of the capital stock of Zhejiang. Zhejiang owns 90% and Yiwu owns 10% of Wang Da. Zhejiang owns 90% and Wang Da owns 10% of Yiwu. On March 10, 2009 Zhejiang set up a new operating entity, Hangzhou Letong Digital Technology Co., Ltd. (“Letong”) to establish an electronic retail franchise operation for Yosen Group. On July 6, 2009, Zhejiang and Yiwu acquired Jinhua. Jinhua was incorporated under the laws of the PRC on December 27, 2001. On January 6, 2014 the Company established Yosen Trading Inc. (“Yosen Trading”), its wholly owned US based subsidiary in New York.

 

On December 21, 2005, Capital became a wholly owned subsidiary of Yosen through a merger with a wholly owned subsidiary of the Company (the “Merger Transaction”). Yosen acquired all of the issued and outstanding capital stock of Capital pursuant to a Merger Agreement dated at December 21, 2005 by and among Yosen, XY Acquisition Corporation, Capital and the shareholders of Capital (the “Merger Agreement”). Pursuant to the Merger Agreement, Capital became a wholly owned subsidiary of Yosen and, in exchange for the Capital shares, Yosen issued 7 million shares of its common stock to the shareholders of Capital, or 93% of the issued and outstanding capital stock of Yosen at the time and cash of $500,000.

 

On August 3, 2006, Capital completed the acquisition of a 100% interest in Sanhe for a cash and stock transaction valued at $8.75 million. The consideration consisted of 183,150 newly issued shares of the Company’s common stock and $5 million in cash.

 

On November 28, 2006, Capital completed the acquisition of a 100% interest in Joy & Harmony for a cash and stock transaction valued at $18.5 million. The consideration consisted of 544,622 shares of the Company’s common stock and $7.5 million in cash.

 

On August 15, 2007, we executed a series of contractual agreements between Capital and Zhejiang. The contractual agreements give Capital and its equity owners an obligation, and having ability to absorb, any losses, and rights to receive returns; however, these contractual agreements did not change the equity ownership of Zhejiang. We did not dispose Capital’s actual equity ownership of Zhejiang when we executed the contractual agreements. Capital entered into share-holding entrustment agreements with five individuals - Zhenggang Wang, Yimin Zhang, Huiyi Lv, Xiaochun Wang and Zhongsheng Bao to hold 35%, 20%, 20%, 15% and 10%, respectively, of the equity interest of Zhejiang on behalf of Capital on November 21, 2005. The entrustment agreements confirm that Capital is the actual owner of Zhejiang. Capital enjoys the actual shareholder’s rights and has the right to obtain any benefits received by the nominal holders. Zhenggang Wang is the CEO and shareholder of Yosen. Yimin Zhang, Huiyi Lv, Xiaochun Wang and Zhongsheng Bao have no other relationship with Yosen. No consideration was given to these individuals who held the equity of Zhejiang on behalf of Capital.

 

On July 6, 2009, Yosen and its subsidiary Zhejiang and Yiwu purchased 100% of Jinhua for RMB 120 million ($17.5 million) in cash.  Zhejiang acquired 90% and Yiwu acquired 10% of the equity interests in Jinhua.

 

Sanhe, Joy & Harmony and Letong ceased operations in 2011. Yiwu closed all its stores in stores locations in 2012. Jinhua ceased operations in October 2012 and legally dissolved in 2013. Joy & Harmony was legally dissolved in 2013. Wang Da closed all its stores in the second quarter 2014.

 

Zhejiang, our sole remaining Chinese subsidiary, focuses on distributing Samsung and Apple brand products. Zhejiang sells products mostly through retail stores, with a small percentage sold directly to distributors on a wholesale basis. We operate most of our retail operations through our “store in store” model. Under this model, the Company leases space in major department stores and retailers. Leasing costs can vary based on the percentage of sales, or can be fixed. In 2014 and 2013, all of our stores in stores leases were variable based on sales.

 

Yosen Trading, our only subsidiary located in US, is engaged primarily in international trade and wholesale business, primarily selling tile, kitchen cabinet, granite and marble products in the New York Market.

 

 

5

 

 

 

Our corporate structure as of December 31, 2014 was as follows:

 

 

 

 

 

* These entities ceased operation during 2011.

** These entities ceased operation during 2012.

*** This entity ceased operation during 2014.

 

Our Business

 

Information about Our Segments

 

In 2013, we only had one reportable segment in mobile phones through Zhejiang. Zhejiang focuses on distributing Samsung and Apple brand products.  On January 6, 2014 the Company established Yosen Trading which is engaged in international trade and wholesale business. As a result, starting in 2014, the Company operated in two segments: mobile phones and international trade.

 

 

6

 

 

 

Zhejiang

  

Zhejiang focuses on selling Samsung and Apple brand products in PRC. Zhejiang had 24 retail locations in 2014.

 

The five largest suppliers and customers for Zhejiang in 2014 were:

 

Top 5 suppliers		Top 5 customers
China PTAC Communication Services Co., Ltd (Zhejiang)		Lianhua Supermarket Holdings Co. Limited
Beijing Kuren Communication Technology Company Limited		Lianhua Supermarket Holdings Co. Limited Gongshu Shiji Lianhua Supermarket Co. Limited
Hangzhou Pushun Digital Communication Technology Co. Ltd		Huarun Vanguard Supermarket (Zhejiang) Company Limited
Sichuang Changhong IT products Company Limited		Hangzhou Tiantian WuMart Group
Tianyi Telecom Company Limited		Zhejiang Shiji Lianhua Supermarket Holdings Co. Limited

 

The five largest suppliers contributed 57.0% of our purchases, two of which accounted for more than 10%, representing 20.8%,and 10.6%, respectively. The five largest customers contributed 81.1% of revenues of Zhejiang in 2014, four of which accounted for more than 10%, representing 28.3%, 18.1%, 14.8% and 14.7%, respectively. The loss of any of these four major customers will have a material adverse affect on the Company’s business and operations.

 

The main competitors of Zhejiang include Ningbo Haishu Xunda Communications Equipment Co., Ltd, Hangzhou Jingjie Telecom Technology Co., Ltd, Phone World Digital Chain Group Co., Ltd., Zhejiang Gomei Electronics Group Co., Ltd and Hangzhou Tianxiang Telecom Equipment Co., Ltd.

 

Yosen Trading

 

Yosen Trading is engaged in international trade and wholesale business. The five largest suppliers contributed 49.3% of the purchases, one of which accounted for more than 10%, representing 12.2% of purchases. The five largest customers contributed 84.7% of revenues of Yosen Trading in 2014, four of which accounted for more than 10%, representing 37.7%, 14.3%, 12.2% and 12.0%, respectively.

 

Financial information about our segments is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 14, Segment Information, of the Notes to the Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

 

Intellectual Property

 

We consider our logos important to our business.  We applied to register 10 logos with the State Administration of Industry and Commerce in China in 2007 and are currently awaiting their approval. We have one registered trademark.

 

Seasonality and Quarterly Fluctuations

 

Our electronics sales businesses experience fluctuations in quarterly performance. Traditionally, the first quarter has a greater amount of sales reflected by our electronics business due to the New Year’s holiday in China. Nevertheless, at times, China can experience particularly inclement weather in January and February which can disrupt the Company’s supply chain management systems. As our business model is to operate only on several days of inventory, the effects of such weather disruptions can be severe.

  

Customers

 

Four customers accounted for 10% or more of our total revenue in 2014, representing 24.2%, 15.5%, 12.7% and 12.6% respectively. Therefore, the loss of any one of these four customers would have a material impact on our business.

 

Backlog

 

We do not have a material amount of backlog orders as of December 31, 2014.

 

 

 

7

 

 

Government Contracts

 

No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Chinese government.

 

Competition

 

We compete against other consumer electronics retailers and wholesalers. We compete principally on the basis of product assortment and availability and value pricing, customer service, store location and convenience and after-sales services. We believe our broad product assortment, competitive pricing and convenient store locations differentiate us from most competitors. Our stores compete by emphasizing a complete product and service solution and value pricing. In addition, our trained and knowledgeable sales and service staff allow us to tailor the offerings to meet the needs of our customers. 

 

Research and Development

 

We have not engaged in any material R&D activities during the past two years.

   

Environmental Matters

 

We are subject to China’s National Environmental Protection Law, as well as a number of other national and local laws and regulations regulating air, water and noise pollution and setting pollutant discharge standards. We believe that all our operations are in material compliance with all applicable environmental laws. We did not incur any costs to comply with environmental laws in 2014 or 2013.

 

Employees

 

The Company currently has 90 employees, all of whom are full time. Zhejiang has 85 employees, Yiwu 1 and Wang Da 1, Yosen Trading 3, all of whom are full-time.

 

The Company has no collective bargaining agreements with any unions.

 

 

 

8

 

 

ITEM 1A.   RISK FACTORS

 

Risk Factors Associated with Our Business

 

A general economic downturn, a recession in China or sudden disruption in business conditions may affect consumer purchases of discretionary items, including consumer and business products, which could adversely affect our business. Consumer spending is affected by a number of factors, including general economic conditions, the level of unemployment, inflation, interest rates, energy costs, gasoline prices and consumer confidence generally, all of which are beyond our control. Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products. In addition, disruptions in business conditions as a result of a terrorist attack, retaliation and the threat of further attacks or retaliation, war, adverse weather conditions and climate changes or other natural disasters, pandemic situations or large scale power outages can have a short or, sometimes, long-term impact on consumer spending. A downturn in the economy in China, including any recession or a sudden disruption of business conditions in China’s economy, could adversely affect our business, financial condition, and results of operation.

 

Non-performance by our suppliers may adversely affect our operations by delaying delivery or causing delivery failures, which may negatively affect demand, sales and profitability.  We purchase various products from our suppliers.  We would be materially and adversely affected by the failure of our suppliers to perform as expected.  We could experience delivery delays or failures caused by production issues or delivery of non-conforming products if its suppliers failed to perform, and we also face these risks in the event any of its suppliers becomes insolvent or bankrupt.

   

With the markets being highly competitive, we may not be able to compete successfully. Many of our competitors have substantially greater revenues and financial resources than we do. We may not be able to compete favorably and increased competition may substantially harm our business, business prospects and results of operations. If we are not successful in our target markets, our sales could decline, our margins could be negatively impacted and we could lose market share, any of which could materially harm our business, results of operations and profitability.

 

If we are unable to successfully integrate the businesses we acquire, our ability to expand our product offerings and geographic reach may be significantly limited. To expand our product offerings and grow our customer base by reaching new customers through expanded geographic coverage, we may acquire businesses we believe are complementary to our growth strategy. Acquisitions involve numerous risks, including difficulties in the assimilation of acquired operations, loss of key personnel, distraction of management’s attention from other operational concerns, failure to maintain supplier relationships, inability to maintain goodwill of customers from acquired businesses, and the inability to meet projected financial results that supported how much was paid for the acquired businesses.

 

Our business will be harmed if we are unable to maintain our supplier alliance agreements. We have exclusive licensing/distribution agreements with key suppliers in a number of product categories in Eastern China, in particular Zhejiang and Jiangsu provinces and Shanghai City. Our business will be harmed if we are unable to maintain these agreements or are limited in our ability to gain access to additional agreements with suppliers with terms as favorable as our current agreements .

 

If we do not anticipate and respond to changing consumer preferences in a timely manner, our operating results could materially suffer. Our business depends, in part, on our ability to introduce successfully new products to consumers, the frequency of such introductions, the level of consumer acceptance, and the related impact on the demand for existing products. Failure to predict accurately constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions, or to address effectively consumer concerns, could have a material adverse effect on our revenue, results of operations and standing with our customers.

 

We have a material weakness in our internal control over financial reporting (“ICFR”), and if we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may be adversely affected. We and our independent registered public accounting firm, in connection with the audit of the consolidated financial statements for 2014, have identified the following material weaknesses in our internal control over financial reporting: the ability of the Company to record transactions and provide disclosures in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

 

A “material weakness” is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We plan to take measures to remediate these deficiencies, such as providing additional training to our accounting staff in US GAAP. However, the implementation of these measures may not fully address the control deficiencies in our ICFR. Our failure to address any control deficiency could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, effective ICFR is important to prevent fraud. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our shares, may be negatively impacted by a failure to accurately report financial results.

 

 

9

 

Because our operating/business model continues to evolve it is difficult to predict our future performance, and our business is difficult to evaluate. Our business model continues to evolve over time. We do not have an extensive operating history upon which you can easily and accurately evaluate our business, or our ongoing financial condition. As our model evolves over time, we face risks and challenges due to a lack of meaningful historical data upon which we can develop budgets and make forecasts.

 

Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of further indebtedness, and increased amortization expense. Our growth model has in the past and may in the future involve acquisitions that may result in potentially dilutive issuances of equity securities or the incurrence of debt and unknown liabilities. Such acquisitions may result in significant write-offs and increased amortization expenses that could adversely affect our business and the results of our operations.

 

If our products fail to perform properly our business could suffer significantly. Although we do not currently develop or manufacturer our existing products, should they fail to perform we may suffer lost sales and customer goodwill, ongoing liability claims, license terminations, severe harm to our brand and overall reputation, unexpected costs, and reallocation of resources to resolve product issues.

 

Rapid and substantial growth is important to our overall strategy, if we are unable to manage our growth profitably and effectively, we may incur unexpected expenses and be unable to meet our financial and customer obligations. For us to meet our financial objectives we need to expand our operations to achieve necessary market share. We cannot be certain that our IT infrastructure, financial controls, systems, and processes will be adequate to support our expansion. Our future results will depend on the ability of our officers and key employees to manage changing business conditions in administration, reporting, controls, and operations. 

 

If we are unable to obtain additional financing for our future needs we may be unable to respond to competitive pressures and our business may be impaired. We cannot be certain that financing with favorable terms, or at all, will be available for us to pursue any future expansion initiatives. We may be unable to take advantage of favorable acquisitions or to respond to competitive pressures. This inability may harm our operations or financial results.

 

If we are forced to lower our prices to compete, our financial performance may be negatively impacted. We derive our sales from the resale of products. If we are forced to lower our prices due to added competition, inferior feature offerings, excess inventory, pressure for cash, declining economic climate, or any other reason, our business may suffer.

 

If we are unable to maintain existing supplier relationships or form new ones, our business and financial condition may suffer. We rely on our current and new suppliers to provide us access to competitive products for resale. If we are unable to gain access to suppliers with needed products on favorable terms our business may be negatively impacted. 

 

If we incur litigation costs in excess of our existing insurance coverage, it could adversely affect our business and financial condition. We maintain third party insurance coverage against product liability risks. However, the potential liabilities associated with product liability claims could exceed the coverage provided by such insurance, adversely affecting our financial condition.

 

We depend on the continued services of our executive officers and the loss of key personnel could affect our ability to successfully operate our business. We are highly dependent upon the services of our senior management team, particularly Zhenggang Wang, our Chairman and Chief Executive Officer and Weiping Wang, our Chief Financial Officer. The loss of any of our key executives could have a material adverse effect upon our operating results. We may not be able to hire and retain suitable replacements for our executives if their services were lost. We do not maintain key man life insurance on any of these individuals.

 

We may not be able to continue to operate as a going concern. We incurred a net loss of $1.1 million for the year ended December 31, 2014. We also had a stockholders' deficit of $2.8 million as of December 31, 2014. These conditions raise a substantial doubt as to whether we can continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our registered independent public accountants have included an emphasis of matter paragraph in their report on the financial statements relating to our ability to continue as a going concern.

 

Risks Related to Doing Business in China

 

Our business operations take place primarily in China. Because Chinese laws, regulations and policies are continually changing, our Chinese operations will face several risks summarized below.

 

Limitations on Chinese economic market reforms may discourage foreign investment in Chinese businesses. The value of investments in Chinese businesses could be adversely affected by political, economic and social uncertainties in China. The economic reforms in China in recent years are regarded by China’s central government as a way to introduce economic market forces into China. Given the overriding desire of the central government leadership to maintain stability in China amid rapid social and economic changes in the country, the economic market reforms of recent years could be slowed, or even reversed.

 

 

 

10

 

 

 

Certain political and economic considerations relating to China could adversely affect our company. China is transitioning from a planned to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the Chinese economy still operates under five-year and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in China’s economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations, or the official interpretation thereof, which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.

 

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures. 

 

Due to various restrictions under PRC laws on the distribution of dividends by our PRC operating companies, we may not be able to pay dividends to our stockholders. The Wholly Foreign Owned Enterprise (“WFOE”) Law (1986), as amended and The WFOE Law Implementing Rules (1990), as amended, contain the principal regulations governing dividend distributions by WFOEs. Under these regulations, WFOEs, such as Zhejiang and Wang Da, may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, Zhejiang and Wang Da are required to set aside a certain amount of any accumulated profits each year (a minimum of 10%, and up to half of their registered capitals), to fund certain reserve funds. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC.  If we ever determine to pay a dividend, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of such dividends from the profits of Wang Da and Zhejiang.

 

Currency conversion and exchange rate volatility could adversely affect our financial condition and the value of our common stock. The PRC government imposes control over the conversion of Renminbi, or RMB, into foreign currencies. Under the current unified floating exchange rate system, the People’s Bank of China, or PBOC, publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day’s dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.

 

Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of RMB into foreign exchange by Foreign Investment Enterprises, or FIEs, for use on current account items, including the distribution of dividends and profits to foreign investors, is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign exchange to their foreign exchange bank accounts in China. Conversion of RMB into foreign currencies for capital account items, including direct investment, loans, and security investment, is still under certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.

 

Enterprises in China, including FIEs, which require foreign exchange for transactions relating to current account items, if within a certain limited amount may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs. 

 

Convertibility of foreign exchange for capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE or its relevant branches must be sought.

 

Our wholly owned subsidiary Zhejiang is a FIE to which the Foreign Exchange Control Regulations are applicable. There can be no assurance that we will be able to obtain sufficient foreign exchange to pay dividends or satisfy other foreign exchange requirements in the future.

 

 

 

11

 

 

 

Between 1994 and 2004, the exchange rate for RMB against the US dollar remained relatively stable, most of the time in the region of RMB8.28 to $1.00. However, in 2005, the Chinese government announced it would begin pegging the exchange rate of the RMB against a number of currencies, rather than just the US dollar. As our operations are primarily in China, any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues, financial condition and the value of our common stock. For example, to the extent that we need to convert US dollars into RMB for our operations, appreciation of this currency against the US dollar could have a material adverse effect on our business, financial condition, results of operations and the value of our common stock. Conversely, if we decide to convert our Renminbi into US dollars for the purpose of declaring dividends on our common stock or for other business purposes and the US dollar appreciates against the RMB, the US dollar equivalent of our earnings from our subsidiaries in China would be reduced.

 

The legal system in China has inherent uncertainties that may limit the legal protections available in the event of any claims or disputes with third parties. The legal system in China is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the central government has promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. As China’s foreign investment laws and regulations are relatively new and the legal system is still evolving, the interpretation of many laws, regulations and rules is not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit the remedies available in the event of any claims or disputes with third parties. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

 

Risks Associated With Our Common Stock

 

There is a limited public market for our common stock. There is currently a limited public market for our common stock. Holders of our common stock may, therefore, have difficulty selling them, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any shares of common stock will be able to be sold without incurring a loss. Any such market price of the common stock may not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the common stock in the future. Further, the market price for the common stock may be volatile depending on a number of factors, including business performance, industry dynamics, news announcements or changes in general economic conditions.

 

Our common stock is subject to the "penny stock" rules of the SEC. The SEC has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Because we do not intend to pay cash dividends on our common stock, stockholders will not be able to receive a return on their shares unless they sell them.. Although the Company’s two operating subsidiaries in China paid $525 in dividends during 2005, we have no current plans for declaring or paying dividends in the foreseeable future. We intend to retain earnings, if any, to provide funds for the development of our business.  Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them at a price higher than that which they initially paid for such shares. Also, as described in the risk factor entitled “Due to various restrictions under PRC laws on the distribution of dividends by our PRC operating companies, we may not be able to pay dividends to our stockholders” above, the laws of the PRC may prohibit or restrict us from paying dividends.

 

 

 

12

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None. 

 

ITEM 2. PROPERTIES

 

The Company does not own any real estate properties and leases the following:

  

Zhejiang

 

1.

Zhejiang’s headquarters consisting of office space located in Hangzhou, Zhejiang province, China, under a one-year lease which expires in October 2015.

 

Yosen Trading

 

1.

Yosen Trading's warehouse located in Queens, NY under a five-year lease which expires in June 2019.

 

The Company believes its leased spaces are adequate and suitable to maintain and develop its business operations.

 

ITEM 3. LEGAL PROCEEDINGS

 

Neither we nor our subsidiaries are party to any material pending legal proceedings, and neither our property nor our subsidiaries’ property is the subject of any material pending legal proceedings. None of our directors, officers, affiliates or holders of 5% or more of our common stock, or any associate or any such person, is currently a party adverse to us or our subsidiaries.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not Applicable.

 

 

 

13

 

 

Part II

 

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s common stock is quoted on the OTCBB under the symbol “YOSN.OB.” The following table sets forth the quarterly high and low closing bids of our common stock as quoted on the OTCBB during 2013 and 2014.

  

 

		Low Bid*				High Bid*
2013
Quarter ended March 31		$	0.21			$	1.01
Quarter ended June 30		$	0.13			$	0.40
Quarter ended September 30		$	0.01			$	0.33
Quarter ended December 31		$	0.16			$	0.45
2014
Quarter ended March 31		$	0.22			$	0.90
Quarter ended June 30		$	0.55			$	1.06
Quarter ended September 30		$	0.43			$	0.72
Quarter ended December 31		$	0.06			$	0.53

 

 

*

The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The quotations were adjusted for the Company’s 1-for-5 reverse stock split.

 

Stockholders

 

As of the close of business on April 1, 2015, there were 84 holders of record of the Company’s common stock.

 

Dividends

 

The Company did not pay any dividends during 2014 and 2013. The Company has no current plans to declare cash dividends on its common stock in the future. If the Company ever determines to pay a dividend, it may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency from the PRC for the payment of such dividends from the profits of its operating subsidiaries in China.  

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

Equity Compensation Plan Information

 

The following is a summary of all of our equity compensation plans as of December 31, 2014:

  

Plan Category		Number of securities issued upon exercise of outstanding options, warrants and rights				Number of restricted shares issued				Weighted average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)
		(a)				(b)				(c)				(d)
Equity Compensation Plans Approved by Shareholders			-							$	-				-
Equity Compensation Plans Not Approved by Shareholders			150,000 (2)				7,600,000	(1)		$	-				-

 

 

 

	(1)	Represents 4,100,000 shares issued under the 2011 Plan and 3,500,000 shares issued under the 2013 Plan to employees and consultants of the Company.
	(2)	Represents 150,000 shares issued upon exercise of warrants.

 

14

 

 

On March 3, 2011, the Company’s BOD adopted the Yosen Group 2011 Restricted Stock Plan (the “2011 Plan”).  The 2011 Plan provides for the granting of restricted stock awards to employees, directors and consultants of the Company and the employees, directors and consultants of the Company’s affiliates. Under the 2011 Plan, 600,000 shares of the Company’s common stock were initially available for issuance for awards.  The 2011 Plan shall continue in effect, unless sooner terminated, or until the tenth anniversary of the date on which it is adopted by the Board is reached. On May 17, 2012, the Company amended the 2011 Plan to increase the number of shares of common stock available for issuance to 4,100,000. Effective May 17, 2012, the Company granted 3,500,000 shares of restricted common stock to the Company’s Chief Executive Officer pursuant to the terms of his employment agreement. The shares shall vest over three years with 1,166,666 vesting on the first anniversary of the grant date, 1,166,666 on the second and 1,166,667 on the third. As of December 31, 2013, all shares available for issuance under the 2011 Plan were issued.

 

On July 19, 2012, the BOD adopted the Yosen Group, Inc. 2012 Omnibus Securities and Incentive Plan (the “2012 Plan”).  The 2012 Plan provides for granting of distribution equivalent rights, incentive stock options, non-qualified stock options, performance share awards, performance unit awards, restricted stock awards, stock appreciation rights, tandem stock appreciation rights, unrestricted stock awards or any combination of the foregoing, as may be best suited to the circumstances of the particular employee, director or consultant.  Under the 2012 Plan, 3,500,000 shares of the Company’s common stock are available for issuance for awards.  Each award shall remain exercisable for a term of 10 years from the date of its grant. The price at which a share of common stock may be purchased upon exercise of an option shall not be less than the closing sales price of the common stock on the date such option is granted.  As of December 31, 2013, all shares available for issuance under the 2012 Plan were issued.

 

On December 23, 2014, the Company’s BOD adopted the Yosen Group 2014 Restricted Stock Plan (the “2014 Plan”).  The 2014 Plan provides for the granting of restricted stock awards to employees, directors and consultants of the Company and the employees, directors and consultants of the Company’s affiliates. Under the 2014 Plan, 600,000 shares of the Company’s common stock were initially available for issuance for awards.  The 2014 Plan shall continue in effect, unless sooner terminated, or until the tenth anniversary of the date on which it is adopted by the Board is reached. As of December 31, 2014, none of the shares available for issuance under the 2014 Plan were issued.

 

Repurchase of Securities

 

We did not repurchase any of shares of our common stock during 2013 and 2014.

 

Recent Sales of Unregistered Securities 

 

Other than described below, there were no sales of unregistered securities during 2014, the period covered by this Annual Report, which were not previously reported on a Quarterly Report on Form 10-Q or Current Report on Form 8-K filed with the SEC.

 

On December 24, 2014, the Company consummated the sale of 1,600,000 shares of common stock to one investor at a purchase price of $0.25 per share, for $400,000.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable. 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, the audited consolidated financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; and other risks be detailed from time to time in our filings with the SEC.

 

Because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements.

 

 

 

15

 

 

Results of Operations

 

Year Ended December 31, 2014 compared to Year Ended December 31, 2013

 

Reportable Operating Segments

 

In 2011, Sanhe closed all its 210 stores in stores and Letong closed its direct retail and franchise operation. In 2012, Yiwu closed all its stores in stores. In 2014, Wang Da closed all its store in stores. As such, Sanhe, Letong, Yiwu and Wang Da were reported as discontinued operations in the financial statements of 2014.

 

The Company reports financial and operating information in continuing operations through two segments, mobile phones segment by Zhejiang and international trade by Yosen Trading:

 

	a)	Mobile phones
	b)	International trade

 

a)

Mobile phones

 

Zhejiang focuses on distribution of Samsung and Apple brand products.

		Year Ended December 31,								Percentage
Zhejiang		2014				2013				Change
Revenue		$	10,902,862			$	11,414,126				(4.5	)%
Gross Profit			315,815				338,645				(6.7	)%
Profit Margin			2.9	%			3.0	%			(0.1	)%
Operating (Loss)			(524,398	)			(1,679,534	)			(68.8	)%

 

For 2014, Zhejiang generated revenue of $10,902,862, a decrease of $511,264 or 4.5% compared to $11,414,126 for 2013. Gross profit decreased $22,830 or 6.7% from $338,645 for 2013 to $315,815 for 2014. Operating losses were $524,938 in 2014, decreased $1,155,136 compared to $1,679,534 in 2013. Operating losses as a percentage of sales decreased from 14.7% in 2013 to 4.8% in 2014. The decrease in operating losses was primarily due to control on general and administrative expenses to cut losses. 

 

Profit margin was 2.9% in 2014, remained relatively stable compared to 3.0% in 2013.

 

Retail locations of Zhejiang

 

The following table reflects a roll forward during 2013 and 2014 of our retail locations (i.e., number of stores opened, number of stores closed and number of stores open at year-end). “ Store in store” refers to the sales counters where the Company’s products are displayed for sale within large-scale supermarkets, department stores and other sites. At present, all of our “stores in stores” are in Zhejiang province.

 

(Number of Locations)			Zhejiang
Locations at January 1, 2013				34
Opened during 2013				8
Closed during 2013				(14	)
Locations at December 31, 2013				28
Opened during 2014				3
Closed during 2014				(7	)
Locations at December 31, 2014				24

 

 

 

 

16

 

 

The following table reflects the square footage of each store space during 2013 and 2014.

 

(In Square Foot)			Zhejiang
Area at January 1, 2013				18,060
Opened during 2013				4,838
Closed during 2013				(7,436	)
Area at December 31, 2013				15,462
Opened during 2014				1,455
Closed during 2014				(3,812	)
Area at December 31, 2014				13,105

 

   

The following table reflects net sales per square foot for 2013 and 2014.

 

		Zhejiang
2013		$	738
2014			832

 

The following table reflects the amount of comparable or same store sales for each period (i.e., the change in sales from stores that were open for each year presented).  A “comparable store” is defined as the same “store in store,” for which sales of that “store in store” is compared in the same month or same quarter of different years, such as the comparison of the sales occurring during March 2014 and March 2013 in the same “store in store.”

 

		Zhejiang
2013		$	664
2014			695

 

Assessment of whether the stores are “comparable” is based on:

 

(1)  stores are in the same address;

 

(2)  relatively same business area (e.g. if the business area of a store has changed no more than 30%, it is regarded as having same business area; if the change in business area is more than 30%, the change in business area will be regarded as too significant as to be comparable;

 

(3)  relatively same business layout (e.g. if the layout of sales counter in a store remains unchanged over time, then that store would be regarded as a comparable store; if there is significant change in layout of a sales counter in a store, that store will not be regarded as a comparable store);

 

(4)  stores with same product mix would be regarded as comparable; if there is significant change in product mix in a store, that store will not be regarded as a comparable store; and

 

(5) with respect to net sales per square foot each year and how we treat changes in square footage, this depends on the materiality of the impact on sales per square foot as a result of an increase or decrease in square footage. By way of example, a store with an area of 130 square feet had sales of $14,000 per month in 2006, which results in approximately $108 in sales per square foot. In 2007, if the same store increased the area of operation to 140 square feet and had sales of $16,000 per month that would result in approximately $114 in sales per square foot. We would deem the $6 increase in sales per square foot to be immaterial.  Accordingly, in this case, we will use the area of 130 square feet to compare same store sales, and the additional 10 square feet will be ignored in the calculation of same store sales.

 

We consider changes in store square footage of more than 30% to be material. Stores that undergo such changes will not be accounted for as “comparable stores” because the change is too significant.

 

(6)  with respect to net sales per square foot each year and how we treat relocated stores, if a “store in store” is relocated to a different retail location, which we would refer to as a different operating environment, during the period, then that “store in store” will not be used in the same store comparison.  However, if the “store in store” is relocated to another location within the same retail location (or same operating environment) then the “store in store” sales will be used in the calculation of the same store comparison; and

 

 

 

17

 

 

(7)  with respect to net sales per square foot each year and how we treat closed stores, we treat a closed “store in store” the same way we treat a “store in store” relocated to different retail location. A closed “store in store” is not used in the same store comparison.

 

Opened and closed “stores in stores” are primarily recognized based on the duration of the agreements with the shopping centers, as well as the sale and profits of a “store in store.” Prior to opening a new “store in store” we are usually approached by a large-scale department store or supermarket that offers us the opportunity to open a “store in store.” Our decision is based on our study of the population traffic flow, the department store and supermarkets themselves, and the level of expected profitability of a potential “store in store.” Following our inspection, we sign contracts with the department store and supermarkets, which specifically address the terms and conditions of opening, closing and relocating the “stores in stores.”

 

b)

International Trade

Starting first quarter 2014, Yosen Trading is engaged in international trade and wholesale business, primarily selling tile, kitchen cabinet, granite and marble products in the New York Market.

 

		Year Ended December 31, 2014
Revenue		$	1,838,189
Gross Profit		$	357,018
Profit Margin			19.4	%
Operating Loss		$	(38,229	)

Total Company

 

Net Sales

 

Net sales from continuing operations for 2014 totaled $12,741,051, a year-over-year increase of $1,326,925 or 11.6% compared to $11,414,126 for 2013. The increase was primarily due to new revenue stream from international trade business.

 

Percentage of Sales

 

In 2014, the Company earned 87.9% of its sales from its retail and 12.1% from its wholesale operations compared to 98.8% from retail and 1.2% from wholesale in 2013.

 

Percentage of sales from retail and wholesale operations for each segment is as follows in 2014:

 

			Zhejiang				Yosen Trading				Total
Retail			96.6	%			79.2	%			87.9	%
Wholesale			3.4	%			20.8	%			12.1	%

 

Percentage of sales from retail and wholesale operations for each segment is as follows in 2013:

 

			Zhejiang				Yosen Trading				Total
Retail			98.8	%			-	%			98.8	%
Wholesale			1.2	%			-	%			1.2	%

 

Cost of Sales

 

Cost of sales from continuing operations (“COS”) for 2014 totaled $12,068,218, or 94.7% of sales compared to $11,075,481, or 97.0% of for 2013. The decrease in the COS was a result of the decrease in sales.   

 

Profit Margin

 

Profit margin in 2014 increased to 5.3% compared to 3.0% in 2013. The profit margin increase was mainly attributed to newly established international trade business having a higher profit margin.

 

Because the Company does not include the costs for its distribution network in COS, its gross profit and profit margin as a percentage of net sales (“profit margin”) may not be comparable to those of other retailers that may include distribution costs in cost of sales and in gross profit and profit margin. 

 

18

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for 2014 totaled $1,665,118, or 13.1% of net sales, compared to $3,603,202, or 31.6% for 2013. General and administrative expenses decreased as a percentage of sales. The decrease in selling, general and administrative expenses was primarily due to decrease in staff related cost and store management fees.

 

Loss from Continuing Operations

 

Operating loss for 2014 was $992,285 or (7.8)% of net sales compared to $3,264,557 or (28.6)% for 2013. Lower general and administrative expenses contributed to the decrease in loss from operations.

 

Provision for Income Taxes

 

Provision for income taxes for 2014 and 2013 were $0 due to losses incurred by both Zhejiang and Yosen Trading.

 

Net Loss from Continuing Operations

 

Net loss from continuing operations for 2014 was $823,721 or (6.5)% of net sales compared to $3,270,098 or (28.6)% for 2013. Lower general and administrative expenses contributed to the decrease in loss from operations.

 

Net Loss from Discontinued Operations

 

Net loss from discontinued operations for 2014 was $272,255 compared to $356,590 for 2013, a decrease of $84,335. The decrease in net loss from discontinued operations was due to Jinhua having losses in 2013 but legally dissolved in 2014.

 

Net Loss 

 

Net loss for 2014 was $1,095,976 compared to $3,626,688 for 2013, a decrease of $2,530,712. The decrease in net loss was primarily due to decreased G&A expenses. 

 

Foreign Currency Translation Adjustments

 

The impact of foreign translation from our accounts in RMB to US dollar on Yosen’s operating results was not material. During the translation process, the assets and liabilities of all PRC subsidiaries are translated into US dollars at period-end exchange rates. The revenues and expenses are translated into US dollars at average exchange rates of the periods. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income within stockholders’ equity.

 

		2014				2013
RMB/$ exchange rate at year end			0.1629				0.1637
Average RMB/$ exchange rate for the years			0.1628				0.1615

 

Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency were included in the consolidated results of operations. As a result of the translation, Yosen recorded a foreign currency gain of $7,220 in 2014 and $7,768 in 2013, which is a separate line item on the Statements of Operations and Comprehensive Loss.   

 

Liquidity and Capital Resources

 

Cash has historically been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings.

 

Cash and equivalents were $1,557,586 at December 31, 2014 and current assets totaled $4,707,387. The Company’s current liabilities were $6,339,219 at December 31, 2014. Working capital deficiency at December 31, 2014 was $(1,631,832). During 2014, net cash used in operating activities was $274,177.

 

Cash and equivalents were $1,426,018 at December 31, 2013 and current assets totaled $3,927,806. The Company’s current liabilities were $5,264,878 at December 31, 2013. Working capital deficiency at December 31, 2013 was $(1,337,072). During 2013, net cash used in operating activities was $962,511.

 

The Company had short-term loans of $961,147 and $2,618,487, respectively as of December 31, 2014 and 2013. The Company had long-term loans of $488,719 and $490,966, respectively as of December 31, 2014 and 2013.

 

19

 

 

The WFOE Law (1986), as amended and The WFOE Law Implementing Rules (1990), as amended, contain the principal regulations governing dividend distributions by WFOEs. Under these regulations, WFOEs, such as Wang Da and Zhejiang may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, Wang Da and Zhejiang are required to set aside a certain amount of any accumulated profits each year (a minimum of 10%, and up to an aggregate amount equal to half of its registered capital), to fund certain reserve funds. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. The Company’s two subsidiaries in China paid $525 in dividends during 2005, however, we do not intend to pay dividends on our common stock in the foreseeable future. If we ever determine to pay a dividend, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of such dividends from the profits of Zhejiang.

 

		Year Ended December 31,
		2014				2013
Net cash used in operating activities		$	(274,177	)		$	(962,511	)
Net cash used in investing activities			(10,185	)			-
Net cash provided by financing activities			421,222				1,857,686
Effect of exchange rate change on cash and equivalents			(5,292	)			74,347
Net increase in cash and equivalents			131,568				969,522
Cash and equivalents at beginning of year			1,426,018				456,496
Cash and equivalents at end of year		$	1,557,586			$	1,426,018

 

Operating Activities

 

Net cash used in operating activities was $274,177 in 2014 compared to $962,511 in 2013. This decrease was mainly attributable to (i) a decrease in net losses of $2,530,712 from $(3,626,688) in 2013 to $(1,095,976) in 2014, (ii) increase in accounts payable of $103,826 and accrued expenses of $480,845 (iii) increase in advance from CEO of $434,063 offset by the increase in accounts receivable of $143,432, increase in inventory of $138,520 and advance to suppliers of $368,187 in 2014, adding back the non-cash item, stock compensation expense of $361,453.

   

Investing Activities

 

		2014				2013
Net cash used in investing activities		$	(10,185	)		$	-

 

Net cash used in investing activities in 2014 was $10,185 in equipment purchase. Net cash used in investing activities in 2013 was zero.

 

Financing Activities

 

The Company had short-term loans of $961,147 and $2,618,487, respectively as of December 31, 2014 and 2013. The Company had notes payable of $3,013,766 and $1,391,071, and long-term loan of $488,719 and $490,966, respectively as of December 31, 2014 and 2013.

 

		2014				2013
Net cash provided by financing activities		$	421,222			$	1,857,686

 

 

Net Increase in Cash and Equivalents

 

		2014				2013
Net increase in cash and equivalents		$	131,568			$	969,523

 

Cash and Equivalents

 

		2014				2013
Cash and equivalents		$	1,557,586			$	1,426,018

 

 

 

20

 

 

 

Cash and equivalents as of December 31, 2014 and 2013 were solely bank accounts in the US and China. Specifically, cash and equivalents for each subsidiary as of December 31, 2014 and 2013 included:

 

Name of Entity		Region		Currency		2014				2013
Yosen Group		US entity		USD			44,317				135
Capital		BVI entity		USD			-				-
Yosen Trading		US entity		RMB			9,365				-
Zhejiang		Chinese entity		RMB			688,114				167,678
Yiwu		Chinese entity		RMB			8,527,842				8,526,143
Sanhe		Chinese entity		RMB			3,354				743
Wang Da		Chinese entity		RMB			12,403				17,694

 

Cash equivalents held in the PRC subsidiaries are not freely transferrable outside the country. The amounts not freely transferable as of December 31, 2014 and 2013 were RMB9,231,713($1,503,904) and RMB8,712,716 ($1,425,883), respectively.

 

Capital Expenditures

 

Capital expenditures for purchase of fixed assets during 2014 and 2013 were $10,185 and $0, respectively.

 

Working Capital Requirements

 

We have funded our business operations through cash generated from operations and short-term loans. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. We believe our currently available working capital, primarily cash from operations, may not be adequate to execute our business operations. This would likely require us to obtain additional funds from equity or debt markets. We currently have no commitments from any financing sources. There is no assurance we will be able to raise any funds on terms favorable to us, or at all. In the event we issue shares of equity or convertible securities, the shares held by our existing stockholders would be diluted. Future expansion will be limited by the availability of financing products and raising capital.

 

Going Concern

 

As discussed in Note 2 to the financial statements, The Company realized net loss of $1,095,976 and $3,626,688 for 2014 and 2013, respectively. The Company had accumulated deficit of $48,220,226 as of December 31, 2014. In addition, the Company’s cash position substantially deteriorated from 2010. These issues raise substantial doubt regarding the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are 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.

 

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

 

 

21

 

After Sales Service

 

The after-sales services that we provide to our customers are primarily repair and maintenance. If a customer buys a product from us and needs repairs, we can usually arrange to have the manufacturer repair the product. In certain cases, clerks in our stores are able to make the repairs directly.

 

Recent Accounting Pronouncements

 

The FASB has issued ASU No. 2013-04, Liabilities (Topic 405), “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date .” ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in US GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-04 did not have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): “Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force)”. ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current US GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013 and interim periods within those years. The adoption of ASU 2013-11 did not have a material impact on the Company’s consolidated financial statements

 

In April 2014, the FASB issued ASU No. 2014-08 (ASU 2014-08), Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition.

 

In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the standard on our ongoing financial reporting.

 

In June 2014, the FASB issued ASU No. 2014-10 (ASU 2014-10), Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. ASU 2014-10 eliminates the requirement to present inception-to-date information about income statement line items, cash flows, and equity transactions, and clarifies how entities should disclosure the risks and uncertainties related to their activities. ASU 2014-10 also eliminates an exception provided to development stage entities in Consolidations (ASC Topic 810) for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The presentation and disclosure requirements in Topic 915 will no longer be required for interim and annual reporting periods beginning after December 15, 2014, and the revised consolidation standards will take effect in annual periods beginning after December 15, 2015. Early adoption is permitted. The Company adopted the provisions of ASU 2014-10 effective for its financial statements for the interim period ended June 30, 2014, and will no longer present the inception-to-date information formally required.

 

In August 2014, the FASB issued ASU No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.  The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact the adoption of ASU 2014-15 on the Company’s financial statement presentation and disclosures.

 

 

22

 

In November 2014, the FASB issued ASU No. 2014-16 (ASU 2014-16), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in this ASU do not change the current criteria in US GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. The ASU applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of ASU 2014-16 is not expected to have a material effect on the Company’s consolidated financial statements.

 

In January 2015, the FASB issued ASU No. 2015-01 (Subtopic 225-20) - Income Statement - Extraordinary and Unusual Items. ASU 2015-01 eliminates the concept of an extraordinary item from US GAAP. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.

 

In February, 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements of the Company are included following the signature page to this Form 10-K.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Resignation of Goldman Kurland &Mohidin, LLP as Principal Accountant

 

1.   On January 14, 2015, Goldman Kurland & Mohidin LLP (“GKM”) advised Yosen Group, Inc (the “Company”) of  its resignation as the independent registered public accounting firm for the Company.  

 

2.   The resignation of GKM was approved by the Board of Directors of the Company.

 

3.  GKM audited the financial statements of the Company as at and for the years ended December 31, 2013, its report thereon expressed uncertainty as to the Company’s ability to continue as a going concern,  such report did not otherwise contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.  

 

4.   During the Company’s fiscal year ended December 31, 2013 and through the date of this Current Report on Form 8-K (this “Form 8-K”): (i) there were no disagreements between the Company and GKM on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of GKM would have caused GKM to make reference to the subject matter of the disagreement in its report on the Company's financial statements for such years or during the interim period through the date of this Form 8-K, and (ii) there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

 

5.   The Company provided GKM with a copy of the disclosures in the Form 8-K reporting the resignation of GKM and requested that GKM  furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not GKM agreed with the Company's statements in the Form 8-K. A copy of the letter furnished by GKM in response to that request was filed as Exhibit 16.1 to the Form 8-K.

 

 

23

 

  

Engagement of MJF & Associates, APC as Principal Accountant

 

1.   On January 19, 2015, the Company engaged MJF & Associates, APC (“MJF”) as its registered independent public accountants for the fiscal year ended December 31, 2014. The decision to engage MJF was approved by the Board of Directors of the Company.

 

2.   During the Company's fiscal years ended December 31, 2013 and December 31, 2012, and through the date of the Company’s Form 8-K reporting the engagement of MJF, the Company did not consult with MJF on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on the Company's financial statements, and MJF did not provide either a written report or oral advice to the Company that MJF concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of  Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of December 31, 2014, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that as of December 31, 2014, the Company’s disclosure controls and procedures were not effective due to the material weakness in our internal controls identified below.

 

Disclosure controls and procedures are designed to provide that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated, recorded, processed, summarized, communicated to our management, including our principal executive officer and principal financial officer and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). ICFR refers to the process designed by, or under the supervision of, our principal executive and principal financial officers, and effected by the BOD, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and includes those policies and procedures that: 

 

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

 

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our ICFR based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, and due to the material weakness described below, management concluded that our ICFR was not effective as of December 31, 2014.

 

Our management identified the following material weakness: the ability of the Company to record transactions and provide disclosures in accordance with US GAAP. The current staff in our accounting department is inexperienced in US GAAP. They need substantial training to meet the demands of a US public company. The accounting skills and understanding necessary to fulfill the requirements of US GAAP-based reporting, including the preparation of financial statements and consolidation, are inadequate.

 

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, ICFR may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

 

24

 

 

Remediation Initiative

 

We intend to provide additional training in US GAAP and disclosure requirements under US securities law to our staff, in particular, to our key accounting personnel.

 

Attestation Report of the Independent Registered Public Accounting Firm

 

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm. Our management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only our management’s report in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.

OTHER INFORMATION

 

None.  

 

 

25

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table sets forth the name, age and position of each of our executive officers and directors.

 

Name		Age		Position
Zhenggang Wang		46		Chief Executive Officer and Chairman of the Board
Weiping Wang		48		Chief Financial Officer
Xinchuan Kong		40		President
Chenghua Zhu		39		Director
Mingjun Zhu		46		Director
Rongjin Weng		51		Director
Wei Kang Gu		69		Director

  

There are no family relationships between or among any of the executive officers or directors of the Company. Below are brief descriptions of the backgrounds and experiences of the officers and directors: 

 

Zhenggang Wang, Chief Executive Officer and Chairman of the Board

 

Mr. Wang has been the Company’s chief executive officer and chairman of its BOD since December 2005. He is also the founder, chairman and chief executive officer of Zhejiang YongXin Digital Technology Company Limited, a holding company to hold interests in Hangzhou Wang Da Electronics Company, Limited and Yiwu YongXin Telecommunication Company, Limited, both of which are based in China. Mr. Wang established Yiwu YongXin Telecommunication Company, Limited in 1997, and he serves as its chairman and chief executive officer. In 1998, Mr. Wang established Hangzhou Wang Da Electronics Company, Limited, which is in the business of distributing cellular telephone phones. Mr. Wang is the chairman and chief executive officer of Hangzhou Wang Da Electronics Company, Limited.  Mr. Wang does not hold any other directorships with reporting companies in the United States.

 

Weiping Wang, Chief Financial Officer 

 

Mr. Weiping Wang has been the Company’s Chief Financial Officer since June 21, 2011. Mr. Weiping Wang joined the Company in January 2010 and served as Assistant General Manager of Zhejiang Yongxin Technology Limited, a subsidiary of the Company. Before joining the Company, Mr. Wang served as Deputy General Manager in Shaanxi Aokai Food Co., Ltd, a food producer from 2005 to 2009, where his responsibilities included overseeing customer relations and supporting the General Manager with management of day-to-day operations. In 2004, Mr. Wang worked as a sales manager for Jinhua Aokai Trade Co. Ltd. From 1986 until 2003, Mr. Wang worked as a regional sales manager for Zhejiang Mifeng Group Co., Ltd. Mr. Wang received his Bachelor’s Degree in Business Administration from Zhejiang University, China.

 

Xinchuan Kong, President

 

Mr. Kong has been the Company’s President since December 2010. Mr. Kong served as the chief executive officer of Zhejiang YongXin Digital Technology Company, a subsidiary of the Company, from February 2010 to December 2010.  From May 2005 to January 2010, Mr. Kong served as a project manager at Hangzhou Ruisi Management Consulting Group.  From May 2003 to April 2005, Mr. Kong served as the assistant to the Chairman of Shanghai Jinjian Food Co. Ltd.  Mr. Kong received his Bachelor’s Degree in English from Henan Institute of Education and a Master’s Degree in Economics from Zhejiang University, China.

 

Chenghua Zhu, Director

 

Ms. Zhu has been a director of the Company since June 2006.  Ms. Zhu has been a senior project manager of Shanghai Shengzhang, a certified public accounting firm since 2004. Prior thereto, she was project manager at Shanghai Jiarui and Hubei Dahua, two certified public accounting firms in China.  Ms. Zhu does not hold any other directorships with reporting companies in the United States.

 

Mingjun Zhu, Director

 

Mr. Zhu has been a director of the Company since June 2006. Mr. Zhu has been General Manager of Zhejiang Mingda, a certified public accounting firm, since 2006. Mr. Zhu was General Manager of Zhejiang Mingda Management Consulting Company from 2004 to 2006. From 1993 to 2004, he was Deputy Director of Yiwu Zhicheng, a certified public accounting firm.  Mr. Zhu does not hold any other directorships with reporting companies in the United States.

 

 

26

 

 

Rongjin Weng, Director

 

Mr. Weng has been a director of the Company since December 2005.  Mr. Weng has been Chairman of Langsha Group, a large sock manufacturer in China, since 1995. Mr. Weng established Langsha Knitting Company Limited in 1995, and has served as its chairman and chief executive officer since that time. Mr. Weng holds a MBA from Shanghai Jiao Tong University. Mr. Weng does not hold any other directorships with reporting companies in the United States. 

 

Wei Kang Gu, Director

 

Mr. Gu has been a director of the Company since December 2005. Mr. Gu has been a Professor of Electronic Engineering at Zhejiang University, a major research university comprised of 22 colleges, since 1999. Mr. Gu also serves on the Board of Bird Ningbo Company, a Chinese manufacturer of mobile phones. Mr. Gu also serves as Vice Chairman of Zhejiang Electronic Association. Mr. Gu received a bachelors’ degree from Zhejiang University.  Mr. Gu does not hold any other directorships with reporting companies in the United States.

 

Term

 

Each director serves for a one-year term after which they may stand for re-election at the Company’s annual meeting of stockholders. Each of our directors serves until his resignation or removal. Our officers serve at the pleasure of our BOD.

 

Involvement in Certain Legal Proceedings

 

There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations.

  

Director Qualifications

 

We seek directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our businesses. We also seek directors who possess the qualities of integrity and candor, who have strong analytical skills and who are willing to engage management and each other in a constructive and collaborative fashion, in addition to the ability and commitment to devote significant time and energy to service on the Board and its committees. We believe that all of our directors meet the foregoing qualifications.

 

The Nominating and Corporate Governance Committee and the Board believe that the leadership skills and other experiences of its Board members, as described below, provide the Company with a range of perspectives and judgment necessary to guide our strategies and monitor their execution and led to the decision to appoint them to the Board.

 

Zhenggang Wang: Mr. Zhenggang Wang has more than 20 years of experience in the PRC electronics market. He is the founder of the Company and has demonstrated strong leadership throughout the development of the Company.

 

Chenghua Zhu: Ms. Chenghua Zhu has a strong accounting background and has worked as a manager in various CPA firms. Her expertise in financial reporting qualifies her to be a member of the Board and the Audit Committee. 

 

Mingjun Zhu: Mr. Mingjun Zhu has extensive knowledge in accounting and financial reporting. His prior work as a consultant and his expertise in accounting enables him to offer valuable perspectives on the Company’s budgeting and financial reporting.

 

Rongjin Weng: Mr. Weng as Chairman of Langsha Group, brings leadership and management expertise to the Board.

 

Wei Kang Gu: Mr. Gu had previously served as a director to a Chinese electronic company. He is also Vice Chairman of Zhejiang Electronic Association, which provides the Board with industry expertise.

 

Board Practices

 

Our business and affairs are managed under the direction of our BOD. The primary responsibilities of our BOD are to provide oversight, strategic guidance, counseling and direction to our management. It is our current expectation that the BOD will meet regularly on a quarterly basis and additionally as required.

 

 

27

 

 

Board’s Role in Risk Oversight

 

The BOD as a whole has responsibility for risk oversight, with reviews of certain areas being conducted by the relevant BOD committees. These committees then provide reports to the full BOD. The oversight responsibility of the BOD and its committees is enabled by management reporting processes that are designed to provide visibility to the BOD about the identification, assessment, and management of critical risks. These areas of focus include strategic, operational, financial and reporting, succession and compensation, compliance, and other risks. The BOD and its committees oversee risks associated with their respective areas of responsibility, as summarized below.

 

Board Committees and Designated Directors

 

The BOD has a Compensation Committee, a Nominating and Corporate Governance Committee and an Audit Committee.  Our BOD has determined that Chenghua Zhu, Mingjun Zhu, Rongjin Weng and Wei Kang Gu, are “independent” under the current independence standards of NASDAQ Marketplace Rule 4200(a)(15) and meet the criteria for independence set forth in Rule 10A-3(b)(1) under the US Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our BOD has also determined that these persons have no material relationships with us — either directly or as a partner, stockholder or officer of any entity — which could be inconsistent with a finding of their independence as members of our BOD.

 

Audit Committee

 

The Company’s Audit Committee consists of Mingjun Zhu, Chairman and members Rongjin Weng and Chenghua Zhu. All such audit committee members are considered “independent” under the current independence standards of NASDAQ Marketplace Rule 4200(a)(15) and meet the criteria for independence set forth in Rule 10A-3(b)(1) of the Exchange Act as determined by the BOD.  The BOD has determined that we have at least one audit committee financial expert, as defined in the Exchange Act, serving on our audit committee. Mingun Zhu is the “audit committee financial expert”.

 

Compensation Committee

 

Our Compensation Committee consists of Wei Kang Gu, Chairman and Rongjin Weng. Each of the above-listed compensation committee members were or are considered “independent” under the current independence standards of NASDAQ Marketplace Rule 5605(a)(2) and meet the criteria for independence set forth in Rule 10A-3(b)(1) of the Exchange Act as determined by the BOD. The Compensation Committee makes recommendations to the BOD concerning salaries and incentive compensation for our officers, including our Chief Executive Officer, and employees and administers our stock option plans. No member of our Compensation Committee has at any time been an officer or employee of ours or our subsidiaries. No interlocking relationship exists between our BOD or Compensation Committee and the BOD or compensation committee of any other company, nor has any interlocking relationship existed in the past. 

 

Communications with the Board of Directors

 

The BOD maintains a process for stockholders to communicate with the Board. Stockholders wishing to communicate with the BOD or any individual director must mail a communication addressed to the Secretary of the Company, Yosen Group, 368 HuShu Nan Road, HangZhou City, Zhejiang Province, China 310014. Any such communication must state the number of shares of our common stock beneficially owned by the stockholder making the communication. All of such communications will be forwarded to the full BOD or to any individual director or directors to whom communication is directed unless the communication is clearly of a marketing nature or is inappropriate, in which case we have the authority to discard the communication or taking appropriate legal action regarding the communication.

 

Nominating and Corporate Governance Committee

 

Our Nominating and Corporate Governance Committee (“NCGC”) consists of Mingjun Zhu, Chairman and member Wei Kang Gu. Each of the above-listed nominating committee members are considered “independent” under the current independence standards of NASDAQ Marketplace Rule 5605(a)(2) and meet the criteria for independence set forth in Rule 10A-3(b)(1) of the Exchange Act as determined by the BOD.  The Nominating and Corporate Governance Committee assists the BOD in identifying qualified individuals to become board members, in determining the composition of the BOD and in monitoring a process established to assess Board effectiveness.

 

Changes in Director Nomination Process for Stockholders

 

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s BOD since the filing of the Company’s Annual Report on Form 10-K for 2013.

 

 

 

 

28

  

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the executive officers and directors of the Company and every person who is directly or indirectly the beneficial owner of more than 10% of any class of security of the Company to file reports of ownership and changes in ownership with the SEC. Such persons also are required to furnish our company with copies of all Section 16(a) forms they file. Based solely on our review of copies of such forms received by us, we believe that during 2014, the executive officers and directors of the Company and every person who is directly or indirectly the beneficial owner of more than 10% of any class of security of the Company complied with the filing requirements of Section 16(a) of the Exchange Act.

 

Code of Ethics

 

We adopted a corporate code of ethics that establishes the standards of ethical conduct applicable to our officers, directors and employees, including our principal executive officer and our principal financial and accounting officer and persons performing similar functions. The Code of Business Conduct and Ethics is filed as Exhibit 14 to our Annual Report on Form 10-K. A written copy of the Code of Business Conduct and Ethics will be provided upon request at no charge by writing to our Chief Financial Officer, Yosen Group, Inc., 368 HuShu Nan Road, HangZhou City, Zhejiang Province, China 310014.

ITEM 11. EXECUTIVE COMPENSATION

 

The following table sets forth the cash and other compensation paid by us in 2014 and 2013 to our Chief Executive Officer (the “named executive officer”. Our Chief Executive Officer was the only executive officer who received total compensation greater than $100,000 in 2014.

  

SUMMARY COMPENSATION TABLE

 

Name and
Principal														Stock				Option
Position		Year				Salary				Bonus				Awards				Awards				Total
Zhenggang Wang, CEO			2014			$	4,242			$	-			$	-			$	-			$	4,242
			2013			$	30,805			$	-			$	350,000 (1)			$	-			$	380,805

 

(1)

Valuation based on the dollar amount of option grants recognized for financial statement reporting purposes pursuant to ASC 718. The stock value was calculated based on the closing price of $0.3 per share on the date of grant.

 

Employment Agreements

 

On May 17, 2012, we entered into an employment agreement with Zhenggang Wang, to serve as our Chief Executive Officer and Chairman. The term of the Employment Agreement shall continue for a period of 36 months until May 17, 2015 unless earlier terminated as set forth in the employment agreement, and thereafter on a month to month basis unless and until terminated upon no less than 30 days prior written notice by either us or Mr. Wang.

 

Pursuant to the terms of the employment agreement, we will pay Mr. Wang as compensation a base salary in cash of (i) $40,000 per annum for the year beginning on May 17, 2012 (the “Effective Date”) and ending on the first anniversary of the Effective Date, (ii) $20,000 per annum for the year beginning on the first anniversary of the Effective Date and ending on the second anniversary of the Effective Date and (iii) $20,000 per annum for the year beginning on the second anniversary of the Effective Date and ending on the third anniversary of the Effective Date . In addition, we granted 3,500,000 shares of restricted common stock to Mr. Wang. The shares shall vest over three years with 1,1666,666 vesting on the first anniversary of the grant date. 1,1666,666 on the second and 1,1666,667 on the third, in each case, subject to Mr. Wang continuing to serve the Company as the Chief Executive Officer on such applicable vesting date.

 

Pursuant to the terms of Mr. Wang’s Employment Agreement, if Mr. Wang’s employment is terminated by us without cause (as defined in the employment agreement), then we shall pay Mr. Wang in lieu of other damages, an amount equal to his then current base salary payable in installments at the same time the Company pays salary to its other senior executive employees for a period of one year, provided Mr. Wang complies with all confidentiality, non-solicitation and non-compete provisions set forth in the employment agreement. In addition, upon any termination of Mr. Wang’s employment by us without cause (i) any shares of restricted stock granted to Mr. Wang pursuant to his employment agreement and not vested at the time of termination but that are scheduled to vest within one year of the termination date shall immediately vest and (ii) we shall maintain during the one year period following his termination all employee benefit plans and programs which Mr. Wang participated in immediately prior to such termination.

 

We do not have employment agreements with any other of our executive officers.

 

 

29

 

 

Outstanding Equity Awards At Year-End

 

There were no outstanding unexercised options, unvested stock or other equity incentive plan awards held by the named executive officer as of December 31, 2014.

 

Pension Benefits

 

We do not have any pension benefit plans.

 

Nonqualified Deferred Compensation

 

We do not maintain any non-qualified defined contribution or deferred compensation plans.

 

Potential Payments Upon Termination or Change in Control

 

See “Employment Agreements” above for a description of potential payments to Mr. Wang upon termination.

Compensation of Directors

 

Our directors did not receive compensation during 2014 for services as members of the Company’s Board:

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table lists, as of April 11, 2014, the number of shares of common stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our directors and our named executive officer and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each stockholder’s address is c/o Yosen Group, Inc., 368 HuShu Nan Road, Hang Zhou City, Zhejiang Province, China 310014.

 

The percentages below are calculated based on 25,292,356 shares of common stock issued and outstanding on April 8, 2015:

 

		Amount of				Percentage of
Name of Beneficial Owner		Beneficial Ownership				Beneficial Ownership
Zhenggang Wang		5,445,000			21.5%
Wei Kang Gu		-			-
Chenghua Zhu		-			-
Mingjun Zhu		-			-
Rongjin Weng		-			-
All directors and executive officers as a group (7 persons)		5,495,000			21.7%

 

 

 

30

 

 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with Related Parties

 

None.

 

Director Independence

 

The BOD has determined that each of our directors, except Zhenggang Wang, is an “independent director” as defined in the Marketplace Rules of the Nasdaq Stock Market (“NASDAQ”).  

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

On January 5, 2009, the Company, on the recommendation of the Audit Committee of its BOD, engaged Goldman Kurland and Mohidin LLP (“GKM”) as its independent registered public accounting firm.   On January 14, 2015, GKM advised the Company of  its resignation as the independent registered public accounting firm for the Company.  On January 19, 2015, the Company engaged MJF as its registered independent public accountants for the fiscal year ended December 31, 2014.

The following represents fees for professional audit services rendered by MJF and GKM for 2014 and 2013, respectively.

 

Audit Fees

 

The aggregate fees billed by our current auditors, MJF, for professional services rendered for the audit of our annual financial statements for 2014 was $55,000. The aggregate fees billed by our former auditors, GKM, for for professional services rendered for the audit of our annual financial statements for 2013 was $100,448.

 

Audit Related Fees

 

We incurred no audit related fees to GKM during 2014 and 2013.

 

Tax Fees

 

Neither MJF or GKM did not render any services for tax compliance, tax advice and tax planning during the years ended December 31, 2014 and 2013.

 

All Other Fees

 

Neither MJF or GKM did not bill us any additional fees that are not disclosed under audit fees, audit related fees or tax fees during 2014 and 2013.

 

Audit Committee Pre-Approval Process, Policies and Procedures

 

The Audit Committee has adopted pre-approval policies for all services, including both audit and non-audit services, provided by our independent auditors.  For audit services, each year the independent auditor provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be formally accepted by the Audit Committee before the audit process commences.  The independent auditor also submits an audit services fee proposal, which also must be approved by the Audit Committee before the audit process commences.  The audit, tax, and all other fees and services described above were pre-approved for 2014 and 2013.

 

 

31

 

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)           (b)           The exhibits listed on the Exhibit Index are filed as part of this Annual Report.

  

EXHIBIT INDEX

 

 

Exhibit No		Document Description
3.1		Amended and Restated Articles of Incorporation of the Registrant (24)
3.2		By-laws of the Registrant (1)
4.1		Yosen Group Amended 2005 Equity Incentive Plan (2)
4.2		Yosen Group 2011 Restricted Stock Plan (19)
4.3		Amendment to the Company’s 2011 Restricted Stock Plan (20)
4.4		The Company’s 2012 Omnibus Securities and Incentive Plan (22)
10.1		Stock Purchase Agreement, dated as of October 17, 2005, by and among Sun Oil & Gas, Inc., EH&P Investments, John D. Swain, Fred Holcapek, PH Holding Group, Ma Cheng Ji, Zhou Wei, Zeng Xiu Lan, Gu Xiao Dong, Jacksonville Management Limited, Colin Wilson, Alliance Capital Management, Inc., Hanzhong Fang and China US Bridge Capital, Limited (3)
10.2		Consulting Services Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang YongXin Digital Technology Company Limited (4)
10.3		Operating Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang YongXin Digital Technology Company Limited (4)
10.4		Proxy and Voting Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang YongXin Digital Technology Company Limited (4)
10.5		Option Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang YongXin Digital Technology Company Limited (4)
10.6		Equity Pledge Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang YongXin Digital Technology Company Limited (4)
10.7		Subscription Agreement, dated as of December 20, 2005, between the Registrant and Huiqi Xu. (5)
10.8		Consulting Agreement, dated as of December 20, 2005, among the Registrant, Wen-An Chen and Huoqing Yang. (5)
10.9		Guarantee Contract between the Registrant and Shenzhen Shiji Ruicheng Guaranty and Investment Company Limited, dated as of December 21, 2005. (6)
10.10		Agreement and Plan of Merger, dated as of December 21, 2005, among the Registrant, YX Acquisition Corporation, Capital Future Development Limited, Zhenggang Wang, Yimin Zhang, Weiyi Lv, Xiaochun Wang, Zhongsheng Bao, Simple (Hongkong) Investment & Management Company Limited, First Capital Limited, Shenzhen Dingyi Investment & Consulting Limited and China US Bridge Capital Limited. (6)
10.11		Form of Promissory Note dated December 21, 2005. (6)
10.12		Share Exchange Agreement, dated as of November 28, 2006, among Yosen Group, Capital Future Development Limited (“Capital”), Shanghai Joy & Harmony Electronics Company Limited, and the shareholders of Capital. (7)
10.13		Form of Securities Purchase Agreement, dated July 13, 2007, by and among the Registrant and certain subscribers (8)
10.14		Letter of Intent for Strategic Partnership, dated November 22, 2007, between the Registrant’s subsidiary Zhejiang Yongxin Technology Limited and Hangzhou Xituo Network Technology Company (9)
10.15		Consignment Agreement, dated January 2, 2008, between the Registrant’s subsidiary Hangzhou Shan He Electric Company Limited and Hangzhou Lotour Digital Products Business Company Limited (10)
10.16		Consignment Agreement, dated January 3, 2008, between the Registrant’s subsidiary Hangzhou Wang Da Electric Company Limited and Hangzhou Lotour Digital Products Business Company Limited (10)
10.17		Acquisition Agreement dated December 19, 2008 by and among Zhejiang YongXin Digital Technology Company Limited, Yiwu YongXin Communication Limited Jinhua Baofa Logistic Limited and the shareholders of Jinhua Baofa Logistic Limited (12)
10.18		Amendment to Acquisition Agreement dated April 4, 2009 by and among Zhejiang YongXin Digital Technology Company Limited, Yiwu YongXin Communication Limited and the shareholders of Jinhua Baofa Logistic Limited (13)

 

 

 

32

 

 

 

 

10.19		Compensation Agreement, dated November 27, 2009, between Yosen Group and Joseph Levinson (14)
10.20		Board of Directors Agreement, dated December 8, 2006, among Yosen Group and Kenneth T. Berents (15)
10.21		Yosen Group 2008 Omnibus Securities and Incentive Plan (16)
10.22		Stock Option Agreement Director Non-Qualified Stock Option, dated December 1, 2008 and effective as of January 15, 2009, between Yosen Group and Kenneth Berents (16)
10.23		Stock Option Agreement Director Non-Qualified Stock Option, dated December 1, 2008 and effective as of January 15, 2009, between Yosen Group and Kenneth Berents (16)
10.24		Stock Option Agreement Director Non-Qualified Stock Option, dated December 1, 2008 and effective as of January 15, 2009, between Yosen Group and Kenneth Berents (16)
10.25		Stock Option Agreement with Todd L. Mavis, dated April 21, 2009, between Yosen Group and Todd L. Mavis (16)
10.26		Agreement dated May 3, 2007 between Yosen Group and Joseph Levinson (16)
10.27		Letter Agreement dated June 16, 2009 between Yosen Group and Jian Zhang (17)
10.28		Share-holding entrustment agreement dated November 21,2005 between Capital Future Developments Limited and Huiyi Lv (23)
10.29		Share-holding entrustment agreement dated November 21,2005 between Capital Future Developments Limited and Xiaochun Wang (23)
10.30		Share-holding entrustment agreement dated November 21,2005 between Capital Future Developments Limited and Yimin Zhang (23)
10.31		Share-holding entrustment agreement dated November 21,2005 between Capital Future Developments Limited and Zhenggang Wang (23)
10.32		Share-holding entrustment agreement dated November 21,2005 between Capital Future Developments Limited and Zhongsheng Bao (23)
10.33		Employment Agreement dated May 17, 2012 by and between the Company and Zhenggang Wang (20)
10.34		Loan Agreements, dated July 16, 2012, between the Company and Zhejiang Chouzhou Commercial Bank, dated July 16, 2013 (21)
10.35		Subscription Agreement, dated as of August 23, 2013, between the Registrant and Jessie Wong (25)
10.36		Subscription Agreement, dated as of August 23, 2013, between the Registrant and Wa Cheung (25)
10.37		Consulting Agreement, dated as of December 30, 2013, between the Registrant and Yunge Huang (26)
10.38		Consulting Agreement, dated as of December 30, 2013, between the Registrant and Weiguo Xu (26)
10.39		Subscription Agreement, dated as of December 24,2014, between the Registrant and Shu Chen (27)
14.1		Code of Business Conduct and Ethics (11)
21.1		List of Subsidiaries (18)
31.1		Certification of Principal Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2		Certification of the Principal Accounting and Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)*
32.2		Certification of Principal Accounting and Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)*

 

 

101.INS		XBRL Instance Document *
101.SCH		XBRL Taxonomy Extension Schema Document. *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB		XBRL Taxonomy Extension  Labels Linkbase Document *
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *

 

 

33

 

 

 

 

(1)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on January 3, 2007.
(2)	Incorporated by reference from the Registrant’s Registration Statement on Form S-8 (File No. 333-141173) dated March 9, 2007.
(3)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on October 21, 2005.
(4)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on September 11, 2007.
(5)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 20, 2005.
(6)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 22, 2005.
(7)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 11, 2006.
(8)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on July 17, 2007.
(9)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on November 28, 2007.
(10)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on January 17, 2008.
(11)	Incorporated by reference from the Registrant’s Annual Report filed with the SEC on Form 10-K on March 27, 2008.
(12)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 29, 2008.
(13)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on April 9, 2009.
(14)	Incorporated by reference from the Registrant’s Annual Report filed with the SEC on Form 10-K on April 16, 2009.
(15)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 14, 2006.
(16)	Incorporated by reference from the Registrant’s Registration Statement on Form S-8 (File No. 333-159200) dated May 13, 2009.
(17)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on June 22, 2009.
(18)	Incorporated by reference from the Registrant’s Annual Report filed with the SEC on Form 10-K on April 16, 2010.
(19)	Incorporated by reference from the Registrant’s Annual Report filed with the SEC on Form 10-K on May 18, 2011.
(20)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on May 23, 2012.
(21)	Incorporated by reference from the Registrant’s Quarterly Report filed with the SEC on Form 10-Q on November 14, 2012.
(22)	Incorporated by reference from the Registrant’s Registration Statement on Form S-8 (File No. 333-182754) dated July 19, 2012.
(23)	Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on April 16, 2012.

(24)	Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on April 12, 2013.
(25)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on August 26, 2013.
(26)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 31, 2013.
(27)	Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 29, 2014.

 

 

* Filed herewith

 

 

34

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 6th day of April 2015.

 

	YOSEN GROUP, INC.
		/s/ Zhenggang Wang
		Zhenggang Wang
		Chief Executive Officer and Chairman
		(Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this amended report has been signed below by the following persons on behalf of the Company and in the capacities indicated below and on the dates indicated.

 

Signatures		Title		Date
/s/ Zhenggang Wang				April 8, 2015
Zhenggang Wang		Chief Executive Officer and
		Chairman (Principal Executive
		Officer)
/s/ Xinchuan Kong
Xinchuan Kong		President		April 8, 2015
/s/ Weiping Wang
Weiping Wang		Chief Financial Officer (Principal		April 8, 2015
		Accounting and Financial Officer)
/s/ Chenghua Zhu
Chenghua Zhu		Director		April 8, 2015
/s/ Mingjun Zhu
Mingjun Zhu		Director		April 8, 2015
/s/ Rongjin Weng
Rongjin Weng		Director		April 8, 2015
/s/ Wei Kang Gu
Wei Kang Gu		Director		April 8, 2015

 

 

35

 

 

 

YOSEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014

 

TABLE OF CONTENTS

 

Reports of Independent Registered Public Accounting Firms	F-1 - F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations and Comprehensive Loss	F-4
Consolidated Statements of Stockholders’ Deficit	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Yosen Group, Inc.

We have audited the accompanying consolidated balance sheets of Yosen Group, Inc. and subsidiaries (the “Company”) as of December 31, 2014 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for the year then ended. Yosen Group, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Yosen Group, Inc. as of December 31, 2014 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements were prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred significant losses from operations and has stockholders’ deficit of $2,076,226. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

MJF & Associates, APC

Los Angeles, California

March 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

515 S. Flower Street, Suite 3600, Los Angeles, CA 90071 Telephone: (213) 626-2701 Fax: (866) 510-6726

 

 

F - 1

 

 

 

F - 2

  

 

 

YOSEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		December 31,				December 31,
		2014				2013
ASSETS
Current assets:
Cash and equivalents		$	1,557,586			$	1,426,018
Accounts receivable, net			356,550				214,260
Inventories			1,622,031				1,490,415
Advances to suppliers			1,121,775				756,779
Advance to related party			-				-
Prepaid expenses and other current assets			49,445				40,334
Total current assets			4,707,387				3,927,806
Property and equipment, net			44,285				41,575
Total assets		$	4,751,672			$	3,969,381
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term loans		$	961,147			$	2,618,487
Notes payable			3,013,766				1,391,071
Accounts payable			320,403				217,670
Accrued expenses and other payable			678,890				197,893
Advance from related party			434,395				-
Advance from customers			47,739				-
Income tax payable			882,879				839,757
Total current liabilities			6,339,219				5,264,878
Long-term loans			488,719				490,966
Total liabilities		$	6,827,938			$	5,755,844
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.001 par value, 50,000,000 shares authorized, 25,292,527 and 23,542,527 issued and outstanding as of December 31, 2014 and 2013			25,292				23,542
Additional paid-in capital			26,715,554				25,918,351
Subscription receivable			(50,000	)			(50,000	)
Statutory reserve			11,542,623				11,542,623
Other comprehensive income			7,910,491				7,903,271
Accumulated deficit			(48,220,226	)			(47,124,250	)
Total stockholders’ deficit			(2,076,266	)			(1,786,463	)
Total liabilities and stockholders’ deficit		$	4,751,672			$	3,969,381

 

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

 

 

F - 3

 

 

 

YOSEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31,

 

 

		2014				2013
Net sales		$	12,741,051			$	11,414,126
Cost of sales			12,068,218				11,075,481
Gross profit			672,833				338,645
Selling, general and administrative expenses			1,665,118				3,603,202
Loss from continuing operations			(992,285	)			(3,264,557	)
Other (income) expense
Interest income			(225	)			(5,247	)
Other income			(501,367	)			(175,727	)
Other expense			333,028				186,515
Total other (income) expense			(168,564	)			5,541
Loss from continuing operations before income taxes			(823,721	)			(3,270,098	)
Provision for income taxes			-				-
Net loss from continuing operations			(823,721	)			(3,270,098	)
Net loss from discontinued operations, net of income taxes			(272,255	)			(356,590	)
Net loss			(1,095,976	)			(3,626,688	)
Foreign currency translation adjustments			7,220				7,768
Comprehensive loss		$	(1,088,756	)		$	(3,318,920	)
Basic and diluted loss per share:
Continuing operations			(0.03	)			(0.17	)
Discontinued operations			(0.01	)			(0.02	)
Net loss per share		$	(0.04	)		$	(0.19	)
Weighted average shares outstanding:
Basic			23,667,185				19,487,890
Diluted			26,406,694				20,178,371

  

 

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

 

 

F - 4

 

 

 YOSEN GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

YEARS ENDED DECEMBER 31, 2014 AND 2013

 

										Additional												Other								Total
		Common Stock								Paid-In				Subscription				Statutory				Comprehensive				Accumulated				Stockholders'
		Shares				Amount				Capital				Receivable				Reserve				Income				Deficit				Deficit
Balance at January 1, 2013			18,782,527			$	18,782			$	24,041,779			$	(50,000	)		$	11,542,623			$	7,895,503			$	(43,497,562	)		$	(48,875	)
Foreign currency translation adjustments			-				-				-				-				-				7,768				-				7,768
Issuance of common stock for financing			2,000,000				2,000				638,000				-				-				-				-				640,000
Issuance of common stock for compensation			2,760,000				2,760				1,238,572				-				-				-								1,241,332
Net loss			-				-				-				-				-				-				(3,626,688	)			(3,626,688	)
Balance at December 31, 2013			23,542,527			$	23,542			$	25,918,351			$	(50,000	)		$	11,542,623			$	7,903,271			$	(47,124,250	)		$	(1,786,463	)
Foreign currency translation adjustments			-				-				-				-				-				7,220				-				7,220
Issuance of common stock for financing			1,600,000				1,600				398,400				-				-				-				-				400,000
Issuance of common stock for warrants exercise			150,000				150				37,350				-				-				-				-				37,500
Stock compensation			-				-				361,453				-				-				-				-				361,453
Net loss			-				-				-				-				-				-				(1,095,976	)			(1,095,976	)
Balance at December 31, 2014			25,292,527			$	25,292			$	26,715,554			$	(50,000	)		$	11,542,623			$	7,910,491			$	(48,220,226	)		$	(2,076,266	)

 

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

 

 

F - 5

 

 

 

YOSEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,

 

		2014				2013
Operating activities:
Net loss		$	(1,095,976	)		$	(3,626,688	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			6,448				1,517
Gain on disposal of property, plant and equipment							-
Loss on settlement of debt			-				140,000
Stock based compensation			361,453				1,241,333
(Increase)/decrease in assets:
Accounts receivable			(143,432	)			665,568
Inventories			(138,520	)			529,964
Prepaid expenses and other current assets			(9,355	)			161,717
Advances to suppliers			(368,187	)			11,650
Advance to related party			-				501,814
(Increase)/decrease in current liabilities:
Accounts payable			103,826				(574,465	)
Accrued expenses and other payables			480,845				(2,346	)
Advance from related party			434,063				-
Advance from customers			47,728				-
Income tax payable			46,930				(12,575	)
Net cash used in operating activities			(274,177	)			(962,511	)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(10,185	)			-
Net cash used in investing activities			(10,185	)			-
							-
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of short-term bank loans			(1,644,094	)			-
Net proceeds from long-term bank loans			-				484,614
Net proceeds from notes payable			1,627,816				1,373,072
Net proceeds from equity financing			437,500				-
Net cash provided by financing activities			421,222				1,857,686
Effect of exchange rate changes on cash and equivalents			(5,292	)			74,348
Net increase (decrease) in cash and equivalents			131,568				969,523
Cash and equivalents, beginning of year			1,426,018				456,495
Cash and equivalents, end of year		$	1,557,586			$	1,426,018
Supplemental disclosure of cash flow information:
Income taxes paid		$	-			$	-
Interest paid		$	266,901			$	230,552

 

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

 

 

F - 6

 

 

 

YOSEN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

Note 1 - ORGANIZATION

 

Yosen Group, Inc. (the “Company” or “Yosen”) was incorporated on August 20, 1998 under the laws of the State of Nevada. Capital Future Developments Limited - BVI (“Capital”) was incorporated on July 22, 2004 under the laws of the British Virgin Islands (“BVI”). Zhejiang YongXin Digital Technology Company Limited (“Zhejiang”), Yiwu YongXin Communication Limited (“Yiwu”), Hangzhou Wang Da Electronics Company Limited (“Wang Da”), Hangzhou Sanhe Electronic Technology Limited (“Sanhe”), Shanghai Joy & Harmony Electronics Company Limited (“Joy & Harmony”), and Jinhua Baofa Logistic Ltd (“Jinhua”) were incorporated under the laws of Peoples Republic of China (“PRC”) on July 11, 2005, July 18, 1997, March, 30, 1998, April 12, 2004, August 20, 2003 and December 27, 2001, respectively. All dollar amounts are in thousands, unless otherwise indicated.

 

On December 21, 2005, Capital became a wholly owned subsidiary of Yosen through a reverse merger (“Merger Transaction”). Yosen acquired all of the issued and outstanding capital stock of Capital pursuant to a Merger Agreement dated December 21, 2005 by and among Yosen, XY Acquisition Corporation, Capital and the shareholders of Capital (the “Merger Agreement”). Pursuant to the Merger Agreement, Capital became a wholly owned subsidiary of Yosen and, in exchange for the Capital shares, Yosen issued 7,000,000 shares of its common stock to the shareholders of Capital, representing 93% of the issued and outstanding capital stock of Yosen at that time and cash of $500.

 

On August 3, 2006, Capital completed the acquisition of a 100% interest in Sanhe for a cash and stock transaction valued at $8,750. The consideration consisted of 183,150 newly issued shares of the Company’s common stock and $5,000 in cash.

 

On November 28, 2006, Capital completed the acquisition of a 100% interest in Joy & Harmony for a cash and stock transaction valued at $18,500. The consideration consisted of 544,622 shares of the Company’s common stock and $7,500 in cash.

 

On August 15, 2007, we executed a series of contractual agreements between Capital and Zhejiang. The contractual agreements give Capital and its equity owners an obligation, and having ability to absorb, any losses, and rights to receive returns; however, these contractual agreements did not change the equity ownership of Zhejiang. We did not dispose Capital’s actual equity ownership of Zhejiang when we execute the contractual agreements. Capital entered into share-holding entrustment agreements with five individuals - Zhenggang Wang, Yimin Zhang, Huiyi Lv, Xiaochun Wang and Zhongsheng Bao to hold 35%, 20%, 20%, 15% and 10%, respectively, of the equity interest of Zhejiang on behalf of Capital on November 21, 2005. The entrustment agreements confirm that Capital is the actual owner of Zhejiang. Capital enjoys the actual shareholder’s rights and has the right to obtain any benefits received by the nominal holders. Zhenggang Wang is the CEO and shareholder of Yosen. Yimin Zhang, Huiyi Lv, Xiaochun Wang and Zhongsheng Bao have no other relationship with Yosen. No consideration was given to these individuals who held the equity of Zhejiang on behalf of Capital.

 

On July 6, 2009, Yosen and its subsidiary Zhejiang and Yiwu purchased 100% of Jinhua for RMB 120 million ($17,500) in cash.  Zhejiang acquired 90% and Yiwu acquired 10% of the equity interests in Jinhua.

 

On January 6, 2014 the Company established Yosen Trading Inc. (“Yosen Trading”), its wholly owned US based subsidiary in New York. Yosen Trading is engaged primarily in international trade and wholesale business, primarily selling tile, kitchen cabinet, granite and marble products in the New York Market.

 

 

F - 7

 

 

 

ORGANIZATIONAL CHART

 

Our corporate structure as of December 31, 2014 is as follows:

 

ORGANIZATIONAL CHART

 

 

 

* These entities ceased operation in 2011.

** The entity ceased operation in 2012.

*** The entity ceased operation in 2013.

 

 

F - 8

 

 

 

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).  The Company’s subsidiaries – Wang Da, Yiwu, Joy & Harmony, Sanhe, Jinhua and Zhejiang’s functional currency is the Chinese Renminbi (“RMB”), however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$”, or “USD”). Yosen is the parent company incorporated on August 20, 1998 under the laws of the State of Nevada. The parent company does not have operations. Its main activities were incurring public company expenses. Yosen pays all its expenses in USD, its functional currency. Capital was incorporated on July 22, 2004 under the laws of the BVI. Capital is a holding company and does not have operations. As a result, we determined its functional currency is USD.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company realized net loss of $1,095,976 and $3,626,688 for 2014 and 2013, respectively. The Company had accumulated deficit of $48,220,226 as of December 31, 2014. In addition, the Company’s cash position substantially deteriorated from 2010. There can be no assurance that the Company will become profitable or that it will survive as a public company. These issues raise substantial doubt regarding the Company’s ability to continue as a going concern.

 

Starting from 2011, we closed most of our stores in stores locations and laid off most of our employees. We retained highly qualified personnel and a small number of stores with stable revenues. As a result, we significantly cut our operating expenses and our losses are decreasing over time. We are now concentrating on improving our product mix, upgrading the stores that are currently open and strengthening cooperation with China Telecom, China Unicom and other large state-owned operators to develop new businesses.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Yosen and its wholly owned subsidiaries Capital, Wang Da, Yiwu, Joy & Harmony, Sanhe and Jinhua and variable interest entity Zhejiang, collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.

 

Currency Translation

 

The accounts of Zhejiang, Wang Da, Yiwu, Joy & Harmony, Jinhua and Sanhe were maintained, and its financial statements were expressed RMB. Such financial statements were translated into USD in accordance with FASB ASC Topic 830-10, “Foreign Currency Translation,” with the RMB as the functional currency. According to FASB ASC Topic 830-10, assets and liabilities were translated at the ending exchange rate, stockholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the year. The resulting translation adjustments are reported as other comprehensive income in accordance with FASB ASC Topic 220, “Reporting Comprehensive Income,” as a component of shareholders’ equity. Transaction gains and losses are reflected in the consolidated statements of operations and comprehensive loss.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Risks and Uncertainties

 

The Company is subject to risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

 

 

 

F - 9

 

Contingencies

 

Certain conditions may exist as of the date the financial statements are issued, which could result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

 

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

 

Accounts Receivable, net

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary. Reserves are recorded primarily on a specific identification basis. Allowances for doubtful debts were as follows:

 

						Additions
Year		Balance at  January 1,				Charged to expenses				Charged to other comprehensive loss				Deductions				Balance at  December 31,
2014		$	745,714			$	254,892			$	-			$	-			$	1,000,607
2013		$	959,026			$	43,458			$	-			$	(256,770	)		$	745,714

 

Inventories

  

Inventories are valued at the lower of cost (determined on a weighted average basis) or market.  Management compares the cost of inventories with the market value and allowance is made for writing down their inventories to market value, if lower. As of December 31, 2014 and 2013, inventory consisted entirely of finished goods valued at $1,622,031 and $1,490,415, respectively.

Property and Equipment, net

 

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:

 

Automotive	5 years
Office Equipment	5 years

 

 

As of December 31, 2014 and 2013, property and equipment consisted of the following:

 

		2014				2013
Automotive		$	70,232			$	63,254
Office equipment			186,187				184,007
Sub Total			256,419				247,261
Less: accumulated depreciation			(212,134	)			(205,686	)
Total		$	44,285			$	41,575

 

 

 

F - 10

 

 

Long-Lived Assets

 

The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with FASB ASC Topic 360, “Property, Plant and Equipment” , requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of December 31, 2014 and 2013, there were no significant impairments of its long-lived assets.

 

Fair Value of Financial Instruments

 

FASB ASC Topic 825, “Financial Instruments” , requires that the Company disclose estimated fair values (“FVs”) of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of FV.

Short-term Bank Loans

 

As of December 31, 2014 and December 31, 2013, short-term loans consisted of the following:

 

		2014				2013
Bank loan from Bank of Chouzhou, dated July 16, 2014, due on July 15, 2015, with an annual interest rate of 6.9% payable monthly, personally guaranteed by the CEO		$	814,531			$	-
Bank loan from Bank of Hangzhou, dated September 26, 2014, due on March 24, 2015, with an annual interest rate of 10.0% payable monthly*			146,616				-
Bank loan from Bank of Chouzhou, dated July 16, 2013, due on July 15, 2014, with an annual interest rate of 6.6% payable monthly, personally guaranteed by the CEO			-				818,277
Bank loan from Bank of Chouzhou, dated July 17, 2013, due on July 16, 2014, with an annual interest rate of 6.6% payable monthly, personally guaranteed by the CEO			-				1,636,554
Bank loan from Bank of Hangzhou, dated September 24, 2013, due on March 21, 2014, with an annual interest rate of 12.0% payable monthly*			-				163,656
		$	961,147			$	2,618,487

 

* Bank loan has been repaid without renewal.

 

Long-term Loans

 

As of December 31, 2014 and December 31, 2013, long-term loan consisted of the following:

 

		2014				2013
Bank loan from Bank of Hangzhou, dated July 11, 2013, due on July 8, 2016, with an annual interest rate of 7.38% payable monthly		$	488,719			$	490,966
		$	488,719			$	490,966

 

 

 

 

F - 11

 

 

Revenue Recognition

 

In accordance with FASB ASC Topic 605, “Revenue Recognition,” the Company recognizes revenues when there is persuasive evidence of an arrangement, product delivery and acceptance have occurred, the sales price is fixed and determinable, and collectability of the resulting receivable is reasonably assured.

 

The Company records revenues when title and the risk of loss pass to the customer.  Generally, these conditions occur on the date the customer takes delivery of the product.  Revenue is generated from sales of Yosen products through two main revenue streams:

 

1.

Retail. 87.9% and 98.8% of the Company's revenue came from sales to customers at outlets installed inside department stores etc. (i.e. store in store model) during 2014 and 2013, respectively and is mainly achieved through two broad categories:

 

a.

Purchase contracts . Sales by purchase contracts have terms of 15-30 days from the transfer of goods to the customer. Under this method, the Company delivers goods to places designated by the customers and receives confirmation of delivery. At that time, ownership and all risks associated to the goods are transferred to the customers and payment is made within 30 days. The Company relieves its inventory and recognizes revenue upon receipt of confirmation from the customer.

 

b.

Point of sale transfer of ownership . Under this method, the Company’s products are placed in third party stores and sold by the Company’s sales people. Upon purchase of the item by the customer, the Company relieves its inventory and recognizes revenue related to that item.

 

2.

Wholesale. 12.1% and 1.2% of the Company's revenue came from wholesale during 2014 and 2013, respectively. Recognition of income in wholesales is based on the contract terms. Upon purchase of the item by the customer, the Company relieves its inventory and recognizes revenue related to that item.

 

Sales revenue is therefore recognized on the following basis:

 

1.

Store in store:

 

a.

For goods sold under sales and purchase contracts, revenue is recognized when goods are received by customers.

 

b.

For goods at customer outlets which the Company’s sales people operate, and inventory of goods is under joint control by the customers and the Company, revenue is recognized at the point of sale to the end buyer. Yosen has title and owns the inventory under joint control. Such joint controlled inventory has been properly included in reported inventory balance of Yosen’s financial statements.

During public holidays or department store celebration periods, we provide certain sales incentives to retail customers to increase sales, such as gift giving and price reductions. These are the only temporary incentives during the specified periods. Sales made to our retail customers as a result of incentives are immaterial as a percentage of total sales revenue.

 

2.

Wholesale:

 

a.

Revenue is recognized at the date of goods are received by wholesale customers. We operate our wholesale business by selling large volume orders to second-tier distributors. Revenues from wholesale are recognized at point of sale. Net sales already take into account revenue dilution as they exclude inventory credit, discount for early payment, product obsolescence and return of products and other allowances. Net sales also take into account the return of products in accordance with relevant laws and regulations in China. The Company is in the process of winding down its wholesale business. It will only focus on retail business in the future.

 

F - 12

 

 

Return policies

 

Our return policy complies with China’s laws and regulations on consumer’s rights and product quality. In accordance with Chinese law, consumers can return or exchange used products within seven days only if the goods do not meet safety and health requirements, endanger a person’s property, or do not meet the advertised performance. If the conditions and requirements as set out in the relevant laws and regulations are met, the retail stores are entitled to accept a return of the goods from the consumer. In such cases, the Company shall accept the returns unconditionally. Goods returned will be redirected to the production factory or supplier who shall bear all losses on the returns in accordance the laws and regulations. Consumer returns or exchanges of products that have not been used, where the packaging has not been damaged, are honored if such return or exchange is within seven days. If a consumer returns a product, the Company must refund the invoice price to the consumer. The Company will then be responsible for returning the goods to the production factory or supplier. At that time the Company can recover the price based on the purchase and sale contract with the producer or supplier. However, when goods are returned, the Company loses the profit margin that it records when revenue is recognized, regardless of whether the production factory or supplier takes the product back or not.

 

The return rights granted to wholesale customers are similar to the rights granted to retail customers. Once wholesale customers purchase the products, they follow the same return policy as retail customers. We do not honor any return from wholesale customers other than if the products don’t meet laws and regulations or quality requirements. If the wholesale customers have a high inventory level or product obsolescence caused by lower market demands or other operational issues, the wholesale customers bear their own losses. When a wholesale customer returns products, the Company will return the products to the suppliers or manufacturers. A sales return and allowance is recorded at the sales price. Meanwhile, a purchase return and allowance entry is recorded at the invoice price because the suppliers or manufacturers bear the losses. The net effect is that the Company derecognizes the gross profit when a return takes place, but does not record any loss on the cost of the returned item back to the supplier or manufacturer.

 

In light of the aforesaid PRC laws and regulations and the Company's arrangements with suppliers, we do not provide an accrual for any estimated losses on subsequent sale of the return of products.  As a result we do not engage in assessing levels of inventory in the distribution channel, product obsolescence and/or introductions of new products, as none of those factors have any impact on us with respect to estimating losses on subsequent sale of returned goods.  Goods return policy strictly complies with the laws and regulations in China on consumer rights and product quality requirements. If the conditions and requirements as set out in the relevant laws and regulations are met, customers are able to return the goods unconditionally. In such cases, the Company shall accept the returns unconditionally. Goods returned will be redirected back to the manufacturers or suppliers who shall meet all losses on returns in accordance the laws and regulations. The Company will only be responsible for assisting the process of execution of goods return. The Company shall not bear any loss from goods returned. As a result, we do not provide any accrual on subsequent return of goods sold.

 

Unlike the US retail market, sellers do not accept returns caused by any change in the sales market or change in customers’ preferences in China. Therefore, the Company generally does not honor any return except for a product defect. As such, situations relating to return of goods from overstock in distribution channels, product obsolescence and over-budgeted goods from launching of new products will not exist.

 

The reported sales do not include estimate of returns due to defects for the period presented because we do not offer customers the right to return in China. We do not allow the customers to return the products for cash refunds, credit, or exchange for other products through general rights of return. If the products are defective, manufacturers are directly responsible for the defects. Yosen Group, as a distributor, only assists customers in returning the defective products to manufacturers. The manufacturers send replacement products to customers directly.

Cost of Sales

 

Cost of sales (“COS”) consists of actual product cost, which is the purchase price of the product less any discounts.  COS excludes freight charges, purchase and delivery costs, internal transfer, freight charges and the other costs of the Company’s distribution network, which are identified in general and administrative expenses.

 

General and Administrative Expenses

 

General and administrative (“G&A”) expenses are comprised principally of payroll and benefits costs for retail and corporate employees, occupancy costs of corporate facilities, lease expenses, management fees, traveling expenses and other operating and administrative expenses, including freight charges, purchase and delivery costs, internal transfer freight charges and other distribution costs.

 

 

F - 13

 

 

Shipping and Handling Fees

 

The Company follows FASB ASC 605-45, “Handling Costs, Shipping Costs” .  The Company does not charge its customers for shipping and handling. The Company classifies shipping and handling fees as part of G&A expenses which were $10,504 and $6,516 for 2014 and 2013, respectively.

 

Vendor Discounts

 

The Company has negotiated preferred pricing arrangements with certain vendors on certain products. These arrangements are not contingent on any levels of volume and are considered vendor discounts as opposed to rebates. The Company records these discounts along with the purchase of the discounted items, resulting in lower inventory cost and a corresponding lower COS as the products are sold.

 

Management Fees Paid to the Department Stores Under “Store in Store” Model

 

Under the “store in store” business operation model, the Company may pay management fees to the department stores, which are in the form of service charges. The management fees are reflected in G&A expenses. Such management fees were $184,452 and $73,642 in G&A expenses for 2014 and 2013, respectively.

 

 

Share Based Payment

 

The Company follows FASB ASC 718-10, “Stock Compensation” , which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date FV of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.

 

Advertising

 

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses all advertising costs as incurred. Advertising expense was $0 and $6,405 for 2014 and 2013, respectively.

 

Other Income

 

Other income was $501,367 and $175,727 for the years ended December 31, 2014 and 2013, respectively. Other income consists of the following: 

 

		2014				2013
Commission income from China Unicom		$	501,302			$	88,142
Miscellaneous			65				87,575
Total other income		$	501,367			$	175,727

  

Commission income from China Unicom is related to the sales of China Unicom’s wireless service and products (i.e., rechargeable mobile phone cards).

 

Other Expense

 

Other expense was $333,028 and $186,515 for the years ended December 31, 2014 and 2013, respectively. Other expense consists of the following: 

 

		2014				2013
Loss on settlement of debt		$	-			$	140,000
Interest expense			41,767				38,160
Bank fees			2,083				6,643
Cost of providing service for China Unicom			289,178				1,712
Total other expense		$	333,028			$	186,515

 

 

F - 14

 

Income Taxes

 

The Company utilizes FASB ASC Topic 740, “Income Taxes”. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

Basic and Diluted Earnings (Loss) per Share

 

Earnings (loss) per share are calculated in accordance with FASB ASC Topic 260, “Earnings per Share”, Basic earnings (loss) per share is based upon the weighted average number of common shares outstanding. Diluted earnings (losses) per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. 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. If convertible shares and stock options are anti-dilutive, the impact of conversion is not included in the diluted net income per share. Excluded from the calculation of diluted earnings per share for 2014 and 2013 were 10,000 options, as they were not dilutive.

 

Statement of Cash Flows

 

In accordance with FASB ASC Topic 230, “Statement of Cash Flows”, cash flows from the Company’s operations are calculated based upon the functional currency, in our case the RMB. As a result, amounts related to changes in assets and liabilities reported on the statement of cash flows will not necessarily agree with the changes in the corresponding balances on the balance sheet.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable, advances to suppliers and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which is in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

 

Segment Reporting

 

FASB ASC Topic 280, “Segment Reporting,” 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 operated in one segment (i.e., mobile phones) in 2014 through Zhejiang. On January 6, 2014 the Company established Yosen Trading which is engaged in international trade and wholesale business. As a result, starting in 2014, the Company operated in two segments: mobile phones and international trade (see Note 15). 

 

Recent Accounting Pronouncements

 

The FASB has issued ASU No. 2013-04, Liabilities (Topic 405), “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in US GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-04 did not have a material impact on the Company’s consolidated financial statements.

 

F - 15

 

 

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): “Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force)”. ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current US GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. This amendment is effective for public entities for fiscal years beginning after December 15, 2013 and interim periods within those years. The adoption of ASU 2013-11 did not have a material impact on the Company’s consolidated financial statements

 

In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08 (ASU 2014-08), Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition.

 

In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current US GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the standard on our ongoing financial reporting.

 

In June 2014, the FASB issued ASU No. 2014-10 (ASU 2014-10), Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. ASU 2014-10 eliminates the requirement to present inception-to-date information about income statement line items, cash flows, and equity transactions, and clarifies how entities should disclosure the risks and uncertainties related to their activities. ASU 2014-10 also eliminates an exception provided to development stage entities in Consolidations (ASC Topic 810) for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The presentation and disclosure requirements in Topic 915 will no longer be required for interim and annual reporting periods beginning after December 15, 2014, and the revised consolidation standards will take effect in annual periods beginning after December 15, 2015. Early adoption is permitted. The Company adopted the provisions of ASU 2014-10 effective for its financial statements for the interim period ended June 30, 2014, and will no longer present the inception-to-date information formally required.

 

In August 2014, the FASB issued ASU No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.  The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact the adoption of ASU 2014-15 on the Company’s financial statement presentation and disclosures.

 

In November 2014, the FASB issued ASU No. 2014-16 (ASU 2014-16), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in this ASU do not change the current criteria in US GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. The ASU applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of ASU 2014-16 is not expected to have a material effect on the Company’s consolidated financial statements.

 

In January 2015, the FASB issued ASU No. 2015-01 (Subtopic 225-20) - Income Statement - Extraordinary and Unusual Items. ASU 2015-01 eliminates the concept of an extraordinary item from US GAAP. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.

 

 

F - 16

 

In February, 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

Note 3 –ADVANCES TO SUPPLIERS

 

Advances to suppliers represent advance payments to suppliers for the purchase of inventory. 

 

Note 4 – NOTES PAYABLE

 

As of December 31, 2014 and December 31, 2013, notes payable consisted of the following:

 

		2014					2013
Promissory note issued by Bank of Chouzhou, dated July 16, 2014, due on January 15, 2015, bearing zero interest	$	3,013,766					-
Promissory note issued by Bank of Chouzhou, dated July 17, 2013, due on January 17, 2014, bearing zero interest		-					736,448
Promissory note issued by Bank of Chouzhou, dated July 18, 2013, due on January 17, 2014, bearing zero interest		-					654,623
	$	3,013,766				$	1,391,071

 

*Promissory note of $1,629,062 was renewed to due on July 17, 2015, bearing zero interest.

 

Note 5 -COMMON STOCK

  

On May 17, 2012, the Company amended the 2011 Restricted Stock Plan and increased the number of shares of common stock that may be granted to 4,100,000. Effective May 17, 2012, the Company granted 3,500,000 shares of restricted common stock to our CEO pursuant to his employment agreement. The shares shall vest over three years with 1,166,666 vesting on the first anniversary of the grant date, 1,166,666 on the second and 1,166,667 on the third. The common stock was valued at grant date with a FV of $1,050,000. During 2012 and 2013, $218,750 and $350,000 was recognized as stock based compensation expense.

 

On July 19, 2012, the Company’s BOD adopted the Yosen Group, Inc. 2012 Omnibus Securities and Incentive Plan (the “2012 Plan”).  Under the 2012 Plan, 3,500,000 shares of the Company’s common stock were issued.  The common stock was valued at grant date with a FV of $1,750,000, which was recognized as stock based compensation expensed in 2012.

 

On August 23, 2013, the Company consummated the sale of 2,000,000 Units to two investors with each Unit consisting of: (i) one share of common stock, $0.001 par value per share (the "Common Stock"), of the Company and (ii) a three-year warrant (“Warrant”) to purchase one share of Common Stock of the Company at an exercise price of US$0.25 per share, for an aggregate total purchase price of $500,000. Pursuant to the agreement, 2,000,000 shares of Common Stock and 2,000,000 Warrant were issued in 2013. The Common Stock was valued at $320,000 using the market price of $0.16 per share at the grant date. The Warrant was valued using Black-Scholes option pricing model at the grant date with a FV of $320,000, see Note 6 for the assumptions used in valuing the Warrant. The FV of Warrant was credited to the additional paid in capital as these are equity instruments.

 

On December 30, 2013, the Company issued 2,760,000 shares of common stock, under the 2012 Plan to two consultants. The common stock was valued at grant date with a FV of $828,000, which was recognized as stock based compensation expensed in 2013.

 

On December 24, 2014, Yosen Group, Inc. (the “Company”) consummated the sale of 1,600,000 shares of common stock to one investor at a purchase price of $0.25 per share, for an aggregate total purchase price of $400,000.

 

 

F - 17

 

Note 6 - STOCK WARRANTS, OPTIONS, AND COMPENSATION

 

Stock options - Options issued have a ten-year life and were fully vested upon issuance. The option holder has no voting or dividend rights. The grant price was the market price at the date of grant. The Company records the expense of the stock options over the related vesting period. The options were valued using the Black-Scholes option-pricing model at the date of grant stock option pricing.

 

Outstanding options and warrants by exercise price consisted of the following as of December 31, 2014:

 

Outstanding																Exercisable
Exercise Price				Number of Shares				Weighted Average Remaining Life (Years)				Weighted Average Exercise Price				Number of Sh ares				Weighted Average Exercise Price
Options:
$	20.8				10,000				2.00			$	20.8				10,000			$	20.8
Warrants:
$	0.25				1,850,000				1.65			$	0.25				1,850,000			$	0.25

 

During 2013 and 2014, the Company did not issue any stock options. The 10,000 stock options outstanding as of December 31, 2014 were issued in 2007 to our former director Mr. Kenneth Berents, have a 10 year term and vested immediately upon issuance.

 

In August 2013, the Company issued stock warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.25 in conjunction with the common stock offering (See Note 5). The stock warrants expire on August 23, 2016. Stock warrants were valued using the Black-Scholes option pricing model. Assumptions used to value the warrants are similar to those used in valuing the stock options as described below.

 

Term			3 years
Expected volatility			340	%
Risk – free interest rate			0.80	%
Dividend yield			0	%
Weighted-average grant date FV		$	0.16

 

The Company determined the FV of the 2,000,000 warrants was $320,000. As of December 31, 2014, warrants to purchase 150,000 shares of common stock were exercised, 1,850,000 warrants remained outstanding.

 

On December 23, 2014, the Company’s BOD adopted the Yosen Group 2014 Restricted Stock Plan (the “2014 Plan”).  The 2014 Plan provides for the granting of restricted stock awards to employees, directors and consultants of the Company and the employees, directors and consultants of the Company’s affiliates. Under the 2014 Plan, 600,000 shares of the Company’s common stock were initially available for issuance for awards.  The 2014 Plan shall continue in effect, unless sooner terminated, or until the tenth anniversary of the date on which it is adopted by the Board is reached. As of December 31, 2014, none of the shares available for issuance under the 2014 Plan were issued.

 

Note 7 - COMPENSATED ABSENCES 

 

Regulation 45 of the labor laws in the PRC entitles employees to annual vacation leave after one year of service. In general all leaves must be utilized annually, with proper notification, any unutilized leave is cancelled.

 

 

F - 18

 

Note 8 - INCOME TAXES

 

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor were any interest expense or penalties recognized during 2014 and 2013.

 

Under ASC 740-10-25, 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.

 

The US entities, Yosen Group and Yosen Trading are subject to the US federal income tax at a rate of 34%. Yosen Group does not conduct any operations and only incurs public company expenses, such as legal fees, accounting fees, investor relations expenses and filing fees. Yosen Trading conducts international trade and wholesale business. Prior to establishing Yosen Trading in January 2014, we determined it is more likely than not that all of Yosen Group’s deferred tax assets, arising from net operating losses, will not be realized. As a result, $556,942 of deferred tax assets and valuation allowance was recorded in 2013. Starting in January 2014, Yosen Group’s deferred tax assets will be carried forward and realized in future years. In 2014, both Yosen Group and Yosen Trading incurred losses. As a result, $159,634 of deferred tax assets and valuation allowance was recorded in 2014.

 

The PRC subsidiaries, Sanhe, Wang Da, Yiwu and Zhejiang are subject to the PRC income tax at a rate of 25%. Jinhua was subject to PRC income tax using simplified tax system. In 2014 and 2013, the PRC operating subsidiaries incurred a net operating loss of $626,463 and $1,988,625. Management believes these subsidiaries will continue to incur losses in the near future due to high market competition, slowing market demand, and rising labor and fuel costs. We believe it is more likely than not that the subsidiaries will not be able to benefit from the deferred tax assets in association with the operating losses. As a result, $156,616 and $497,156 of deferred tax assets and valuation allowance were recorded in 2014 and 2013 for the PRC subsidiaries..

 

The components of deferred income tax assets and liabilities as of December 31, 2014 and 2013 are as follows:

 

		2014				2013
Deferred tax assets:
U.S. net operating losses		$	159,634			$	556,942
PRC net operating losses			156,616				497,156
Total deferred tax assets			316,250				1,054,098
Less valuation allowance			(316,250	)			(1,054,098	)
		$	-			$	-

 

Reconciliation of the differences between the statutory US Federal income tax rate and the effective rate is as follows for 2014 and 2013.

 

		2014				2013
Tax benefit at US Statutory Rate			(34.0	)%			(34.0	)%
Tax rate difference			5.1	%			4.9	%
Valuation allowance			28.9	%			29.1	%
Effective rate			-	%			-	%

 

Note 9 - COMMITMENTS

 

The Company leases office facilities under operating leases that terminate through 2019. Rent expense for 2014 and 2013 was $115,899 and $39,738, respectively. 

 

The future minimum obligations under these agreements are as follows by years as of December 31, 2014:

 

2015		$	199,549
2016			185,420
2017			190,962
2018			196,691
2019			202,592
Total		$	975,214

 

F - 19

 

Note 10 - STATUTORY RESERVE

In accordance with the laws and regulations of the PRC, a wholly-owned Foreign Invested Enterprise’s income, after the payment of the PRC income taxes, shall be allocated to the statutory surplus reserves and statutory public welfare fund. Prior to January 1, 2006, the proportion of allocation for reserve was 10 percent of the profit after tax to the surplus reserve fund and additional 5-10 percent to the public affair fund. The public welfare fund reserve was limited to 50 percent of the registered capital. Effective January 1, 2006, there is now only one fund requirement. The reserve is 10 percent of income after tax, not to exceed 50 percent of registered capital.

 

Statutory reserve funds are restricted to offset against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of December 31, 2014 and 2013, the Company had allocated $11,542,623 and $11,542,623 to these non-distributable reserve funds.

 

Note 11 – DISCONTINUED OPERATIONS

 

In 2011, Sanhe, Joy & Harmony and Letong ceased operations in 2011, Yiwu and Jinhua ceased operation in 2013. Wang Da ceased operation in 2014.. As such, Sanhe, Joy & Harmony, Letong, Yiwu and Jinhua met the conditions to be reported as discontinued operations in the financial statements, and accordingly, the results of operations have been reclassified for all periods to conform to the current period's presentation.

 

The following table summarizes the assets and liabilities of the discontinued operations as of December 31, 2014 and 2013 included in the Consolidated Balance Sheets:

 

		2014				2013
Cash		$	1,391,806			$	1,398,442
Inventories			103,110				444,717
Advance to suppliers			-				51,952
Property, plant and equipment			25,183				26,328
Total assets			1,520,099				1,921,439
Short-term loans			814,531				2,454,831
Notes payable			3,013,766				1,391,071
Accounts payable			-				19,263
Income tax payable			-				808,460
Other payable			39,883				24,084
Total liabilities			3,868,180				4,697,709
Net assets		$	(2,348,081	)		$	(2,776,270	)

 

The following table summarizes the operating results of the discontinued operations included in the Consolidated Statements of Operations and Comprehensive Loss:

 

		2014					2013
Sales, net		$	369,478			$		1,373,752
Cost of sales			362,876					(1,555,117	)
Gross profit (loss)			6,602					(181,365	)
General and administrative expenses			(58,465	)				3,680
Loss from discontinued operations			(51,863	)				(177,685	)
Other income (expenses)			(220,392	)				(178,905	)
Loss before income taxes			(272,255	)				(356,590	)
Provision for income taxes			-					-
Net loss from discontinued operations, net of income tax		$	(272,255	)		$		(356,590	)

 

Note 12 - OTHER COMPREHENSIVE INCOME   Other comprehensive income, included in stockholders’ equity for 2014 and 2013, represents foreign currency translation adjustments.     F - 20

 

Note 13- CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS

 

The Company’s operations are 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 business may be influenced 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.

  

Note 14 - MAJOR CUSTOMERS, VENDORS AND CREDIT RISK

 

During 2014, four customers accounted for 10% or more of our total revenue in 2014, representing 28.3%, 18.1%, 14.8% and 14.7% respectively. One vendor accounted for more than 10% of the Company’s purchases, which represented 17.3% in 2014. As of December 31, 2014, the Company had two customers comprised more than 10% of the Company’s accounts receivable, which represented 65.5% and 33.5%. . One vendor comprised more than 10% of the Company accounts payable, which represented 64.3%.

 

During 2013, four customers accounted for 10% or more of our total revenue in 2013, representing 20.8%, 14.1%, 11.1% and 11.0% respectively. Two vendors accounted for more than 10% of the Company’s purchases, which represented 16.9% and 15.7%, respectively in 2013. As of December 31, 2013, the Company had no customer or vendor which comprised more than 10% of the Company’s accounts receivable or accounts payable.

 

Note 15 - SEGMENT INFORMATION

 

In 2013, we only had one segment – mobile phones operated by Zhejiang. Zhejiang focuses on distributing Samsung and Apple brand products. Zhejiang’s operation was reported in “Mobile Phones” segment in 2013, as disclosed in the Consolidated Statements of Operations and Comprehensive Loss.

 

In January 2014, we established Yosen Trading which focuses on international trade and wholesale business. As a result, we have two reportable segments - mobile phones and international trade, disclosed as required by FASB ASC Topic 280, “Segment Reporting.”

 

The following table presents summarized information by segment: 

 

 

		Year Ended December 31, 2014
			Mobile			International
			Phones			Trade			Other			Total
Sales, net		$	10,902,862		$	1,838,189		$	-		$	12,741,051
Cost of sales			(10,587,048)			(1,481,170)			-			(12,068,218)
Gross profit			315,814			357,019			-			672,833
Selling, general and administrative expenses			(840,212)			(395,248)			(429,658)			(1,665,118)
Loss from continuing operations			(524,398)			(38,229)			(429,658)			(992,285)
Other Income (expense)			170,189			(937)			(688)			168,564
Provision for income taxes			-			-			-			-
Net income (loss) from continuing operations			(354,209)			(39,166)			(430,346)			(823,721)
Net loss from discontinued operations			-			-			(272,255)			(272,255)
Net income (loss)		$	(354,209)		$	(39,166)		$	(702,601)		$	(1,095,976)

 

 

 

		December 31, 2014				December 31, 2013
Mobile Phones		$	2,559,845			$	2,064,892
International Trade			658,328				-
Other			1,533,499				1,904,489
Total Assets			4,751,672				3,969,381

 

 

F - 21