UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended      June 30, 2015

 

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)

 

086-0571-88381700

(Registrant’s telephone number, including area code)

 

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check whether the issuer (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 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 No 12b-2 of the Exchange Act).

Yes  ☐   No  ☒

 

As of August 14, 2015, the registrant had 25,292,527 shares of common stock outstanding.

 

TABLE OF CONTENTS

 

 

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014		2
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Six Months Ended June 30, 2015 and 2014 (Unaudited)		3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended June 30, 2015 and 2014 (Unaudited)		4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (Unaudited)		5
Notes to Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosure About Market Risk		29
Item 4. Controls and Procedures		29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		30
Item 1A. Risk Factors		30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 3. Defaults Upon Senior Securities		30
Item 4. Mine Safety Disclosures		30
Item 5. Other Information		30
Item 6. Exhibits		30
Signatures		31

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

YOSEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2015				2014
ASSETS
Current assets:
Cash and equivalents		$	58,927			$	1,557,586
Accounts receivable, net			233,766				356,550
Inventories			1,381,765				1,622,031
Advances to suppliers			489,735				1,121,775
Advance to related party			64,150				—
Prepaid expenses and other current assets			48,184				49,445
Total current assets			2,276,527				4,707,387
Property and equipment, net			37,403				44,285
Total assets		$	2,313,930			$	4,751,672
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term loans		$	821,180			$	961,147
Notes payable			1,642,360				3,013,766
Accounts payable			262,048				320,403
Accrued expenses and other payable			589,153				678,890
Advance from related party			57,542				434,395
Advance from customers			9,724				47,739
Income tax payable			885,133				882,879
Total current liabilities			4,267,140				6,339,219
Long-term loans			492,708				488,719
Total liabilities		$	4,759,848			$	6,827,938
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.001 par value, 50,000,000 shares authorized, 25,292,527 issued and outstanding as of June 30, 2015 and December 31, 2014			25,292				25,292
Additional paid-in capital			26,846,804				26,715,554
Subscription receivable			(50,000	)			(50,000	)
Statutory reserve			11,542,623				11,542,623
Other comprehensive income			7,891,114				7,910,491
Accumulated deficit			(48,701,751	)			(48,220,226	)
Total stockholders’ deficit			(2,445,918	)			(2,076,266	)
Total liabilities and stockholders’ deficit		$	2,313,930			$	4,751,672

 

 

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

 

YOSEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

SIX MONTHS ENDED JUNE 30, 2015 and 2014 (UNAUDITED)

		2015				2014
Net sales		$	4,360,497			$	7,316,160
Cost of sales			4,143,539				6,695,838
Gross profit			216,958				620,322
Selling, general and administrative expenses			518,428				576,361
Income (loss) from continuing operations			(301,470	)			43,961
Other (income) expense:
Interest income			(303	)			(129	)
Other income			(2,446	)			(214,439	)
Other expense			29,297				40,975
Total other (income) expense			26,548				(173,593	)
Income (loss) from continuing operations before income taxes			(328,018	)			217,554
Provision for income taxes			—				38,953
Net income (loss) from continuing operations			(328,018	)			178,601
Net loss from discontinued operations, net of income taxes			(153,507	)			(146,975	)
Net income (loss)			(481,525	)			31,626
Foreign currency translation adjustments			19,377				11,727
Comprehensive income (loss)		$	(462,148	)		$	43,353
Basic and diluted income (loss) per share:
Continuing operations			(0.01	)			0.01
Discontinued operations			(0.01	)			(0.01	)
Net loss per share		$	(0.02	)		$	—
Weighted average shares outstanding:
Basic			25,292,527				25,570,533
Diluted			25,292,527				25,570,533

 

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

 

 

YOSEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED JUNE 30, 2015 and 2014 (UNAUDITED)

		2015				2014
Net sales		$	1,819,601			$	3,053,135
Cost of sales			1,671,145				2,762,071
Gross profit			148,456				291,064
Selling, general and administrative expenses			229,919				288,149
Income (loss) from continuing operations			(81,463	)			2,915
Other (income) expense:
Interest income			(26	)			(55	)
Other income			—				(113,170	)
Other expense			58,461				26,127
Total other (income) expense			58,435				(87,098	)
Income (loss) from continuing operations before income taxes			(139,898	)			90,013
Provision for income taxes			—				25,187
Net income (loss) from continuing operations			(139,898	)			64,826
Net loss from discontinued operations, net of income taxes			(82,744	)			(57,358	)
Net income (loss)			(222,642	)			7,468
Foreign currency translation adjustments			7,990				1,541
Comprehensive income (loss)		$	(214,652	)		$	9,009
Basic and diluted income (loss) per share:
Continuing operations			(0.01	)			—
Discontinued operations			—				—
Net loss per share		$	(0.01	)		$	—
Weighted average shares outstanding:
Basic			25,292,527				25,570,533
Diluted			25,292,527				25,570,533

 

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

 

 

YOSEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2015 and 2014 (UNAUDITED)

 

 

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

 

 

		2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(481,525	)	$	31,626
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			(26,042	)		15,086
Stock based compensation			131,000			186,452
(Increase) decrease in assets:
Accounts receivable			122,988			(452,025	)
Inventories			250,790			(566,606	)
Prepaid expenses and other current assets			46,381			(31,579	)
Advance to suppliers			623,485			292,864
Increase (decrease) in current liabilities:
Accounts payable			(58,931			79,958
Accrued expenses and other payable			(92,894			411,290
Advance from customer			(38,092
Income tax payable			(4,933			36,575
Net cash used in operating activities			472,227			3,641
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short term loans			(147,232	)		(162,874)
Repayment of notes payable			(1,390,525	)		-
Advance (to) from related party			(442,804	)		81,205
Advance from stock subscription			—			368,000
Net cash used in operating activities			(1,980,561	)		286,331
Effect of exchange rate changes on cash and equivalents			9,675			26,514
Net decrease in cash			(1,498,659	)		316,486
Cash and equivalents, beginning of period			1,557,586			1,426,018
Cash and equivalents, end of period		$	58,927		$	1,742,504
Supplemental disclosure of cash flow information:
Interest paid		$	114,351		$	135,065
Income taxes paid		$	—		$	-

YOSEN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015 AND 2014 (UNAUDITED)

 

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.

 

ORGANIZATIONAL CHART

 

Our corporate structure as of June 30, 2015 is as follows:

 

 

* These entities ceased operation as of December 31, 2011.

** These entities ceased operation as of December 31, 2012.

*** This entity ceased operation as of June 30, 2014

 

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, Sanhe 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. Yosen Trading was incorporated on January 6, 2014 under the laws of the State of New York, its functional currency is USD. 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 $(328,018) for the six months ended June 30, 2015. The Company had accumulated deficit of $48,701,751 as of June 30, 2015. 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, Zhejiang and Yosen Trading, 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 and Yiwu 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.

 

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. Allowance for doubtful accounts was $975,321 (unaudited) and $1,000,607 as of June 30, 2015 and December 31, 2014, respectively.

 

Inventories, net

  

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 June 30, 2015 and December 31, 2014, inventory consisted entirely of finished goods.

 

Advances to Suppliers

 

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

 

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 June 30, 2015 and December 31, 2014, property and equipment consisted of the following:

 

		2015				2014
		(Unaudited)
Automotive		$	51,068			$	70,232
Office equipment			156,294				186,187
Subtotal			207,362				256,419
Less: accumulated depreciation			(169,959	)			(212,134	)
Total		$	37,403			$	44,285

 

 Long-Lived Assets

 

The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with FASB ASC 360 “Property, Plant and Equipment”, which 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 June 30, 2015 (unaudited) and December 31, 2014, there were no significant impairments of its long-lived assets.

 

Fair Value of Financial Instruments

 

FASB ASC Topic 825, “Financial Instruments,” requires 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 Loans

 

As of June 30, 2015 and December 31, 2014, short-term loans consisted of the following:

 

		2015				2014
		(Unaudited)
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			821,180	*			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
		$	821,180			$	961,147

* Short-term bank loan was renewed on July 16, 2015.

 

Long-term Loans

 

As of June 30, 2015 and December 31, 2014, long-term loan consisted of the following:

 

		2015				2014
		(Unaudited)
Bank loan from Bank of Hangzhou, dated July 11, 2014, due on July 8, 2016, with an annual interest rate of 7.38% payable monthly		$	492,708			$	488,719
		$	492,708			$	488,719

 

 

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.

 

(a) Zhejiang

 

Zhejiang 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. 88.5%, 90.7%, 95.2%, 97.6% of the Company's revenue came from sales to customers at outlets installed inside department stores (i.e., store in store model) during the three and six months ended June 30, 2015 and 2014, respectively and is mainly achieved through 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. 11.5%, 9.3%, 4.8%, 2.4% of the Company's revenue came from wholesale during three and six months ended June 30, 2015 and 2014, respectively. Recognition of income in wholesale is based on the contract terms. All wholesale payments were made at the point of sale. 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:

 

Goods are sold at customer outlets which the Company’s sales people operate, and inventory of goods is under joint control by the outlets 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 is included in 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:

 

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.

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.

(b) Yosen Trading

Yosen Trading records revenue when merchandise is delivered to the customers.  During the six months ended June 30, 2015, Yosen trading had 11.4% of revenue from retail and 88.6% from wholesale. During the three months ended June 30, 2015, Yosen trading had 74.8% of revenue from wholesale and 25.2% from retail.

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.

 

Shipping and Handling Fees

 

The Company follows FASB ASC Sub-topic 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 general and administrative expenses which were $51,723, $54,879, $349 and $543 for the three and six months ended June 30, 2015 and 2014, 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 general and administrative expenses. Such management fees were $60,550 and $99,952, $18,956 and $25,802 in general and administrative expenses for the three and six months ended June 30, 2015 and 2014, respectively.

 

Share Based Payment

 

The Company follows FASB ASC Sub-topic 718-10, “Compensation-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. FASB ASC Sub-topic 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. There was no advertising expense for the three and six months ended June 30, 2015 and 2014.

 

Income Taxes

 

The Company utilizes FASB ASC Topic 740, “Income Taxes.” ASC Topic 740 requires a company to use the asset and liability method of accounting for income taxes, whereby 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.

 

Under FASB Sub-topic 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.

 

Basic and Diluted Earnings (Loss) per Share

 

Loss per share is 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 (loss) per share. Excluded from the calculation of diluted earnings (loss) per share for the three and six months ended June 30, 2015 and 2014 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. 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 14). 

 

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 adoption of ASU 2014-08 did not have a material impact on the Company’s consolidated financial statements

 

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.

 

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

 

The promissory notes as of June 30, 2015 and December 31, 2014 are as follows:

 

		2015				2014
Promissory note issued by Bank of Chouzhou, dated January 16, 2015, due on July 17, 2015, bearing zero interest		$	1,642,360	*			—
Promissory note issued by Bank of Chouzhou, dated July 16, 2014, due on January 15, 2015, bearing zero interest			—				3,013,766
		$	1,642,360			$	3,013,766

* Notes payable was repaid on July 17, 2015 without renewal.

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.

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.

On May 26, 2015, Yosen Group, Inc. (the “Company”) offered to issue and sell in a private placement (the “Private Placement”) to accredited investors an aggregate of 15,000,000 units of the Company (“Units”), at a purchase price of $0.25 per Unit, for aggregate proceeds of approximately $3.75 million. Each Unit consists of one share of Common Stock and a three-year warrant to acquire one share of Common Stock at $0.25. The Units were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”) due to the fact that the offering of these shares were not made in the United States and that none of the accredited investors is a U.S. Person (as defined in the Act).

The Subscription Agreements provide that the proceeds of the Private Placement will be placed in escrow pending the closing of the Private Placement, which is expected to occur in the third quarter of 2015 (the “Closing”). The Company intends to use the proceeds of the Private Placement as working capital. The Company has not yet received any proceeds from this Private Placement.

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 June 30, 2015:

 

Outstanding																Exercisable
Exercise Price				Number of Shares				Weighted Average Remaining Life (Years)				Weighted Average Exercise Price				Number of Shares				Weighted Average Exercise Price
Options:
$	20.8				10,000				1.5			$	20.8				10,000			$	20.8
Warrants:
$	0.25				1,850,000				1.15			$	0.25				1,850,000			$	0.25

 

During the three and six months ended June 30, 2015, the Company did not issue any stock options. The 10,000 stock options outstanding as of June 30, 2015 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 June 30, 2015, 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 June 30, 2015, none of the shares available for issuance under the 2014 Plan were issued.

 

Note 7 - 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 the three and six months ended June 30, 2015 and 2014.

 

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. In the three and six months ended June 30, 2015, US entities incurred net operating losses of $94,465 and $225,852. As a result, $32,118 and $76,790 of deferred tax assets and valuation allowance was recorded for the three and six months ended June 30, 2015.

 

The PRC subsidiaries, Wang Da, Yiwu and Zhejiang are subject to the PRC income tax at a rate of 25%. In the three and six months ended June 30, 2015, the PRC operating subsidiaries incurred a net operating loss of $128,177 and $255,633. 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, $32,044 and $63,918 of deferred tax assets and valuation allowance were recorded in three and six months ended June 30, 2015 for the PRC subsidiaries.

 

The components of deferred tax assets and liabilities as of June 30, 2015 (unaudited) and December 31, 2014 were as follows:

 

		2015				2014
Deferred tax assets:		(Unaudited)
U.S. net operating losses		$	76,790			$	159,634
PRC net operating losses			63,918				156,616
Total deferred tax assets			140,708				316,250
Less valuation allowance			(140,708	)			(316,250	)
		$	—			$	—

 

Reconciliation of the differences between the statutory US Federal income tax rate and the effective rate for the three months ended June 30, 2015 and 2014 is as follows:

		2015				2014
Tax (Credit) at US Statutory Rate			(34.0	)%			34.0	%
Tax rate difference			5.2	%			(2.5	)%
State, net of federal			—	%			34.7	%
Valuation allowance			28.8	%			43.9	%
Utilization of NOL			—	%			(50.9	)%
Other			—	%			17.9	%
Effective rate			—	%			77.1	%

Reconciliation of the differences between the statutory US Federal income tax rate and the effective rate for the six months ended June 30, 2015 and 2014 is as follows:

 

		2015				2014
Tax (Credit) at US Statutory Rate			(34.0	)%			34.0	%
Tax rate difference			4.8	%			(7.3	)%
State, net of federal			—	%			32.3	%
Valuation allowance			29.2	%			52.0	%
Utilization of NOL			—	%			(72.4	)%
Other			—	%			16.6	%
Effective rate			—	%			55.2	%

 

Note 8 - COMMITMENTS

 

The Company leases office facilities under operating leases that terminate through 2019. Rent expense for the three and six months ended June 30, 2015 were $46,176 and $92,315, respectively.  Rent expense for the three and six months ended June 30, 2014 was zero.

 

The future minimum obligations under these agreements are as follows by years as of June 30, 2015:

 

	2015			$	191,979
	2016				188,191
	2017				193,826
	2018				199,641
	2019				101,296
	Total			$	874,933

 

Note 9 - 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% of the profit after tax to the surplus reserve fund and additional 5-10% to the public affair fund. The public welfare fund reserve was limited to 50% of the registered capital. Effective January 1, 2006, there is now only one fund requirement. The reserve is 10% of income after tax, not to exceed 50% 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 June 30, 2015, the Company had allocated $11,542,623 to these non-distributable reserve funds.

 

Note 10 – DISCONTINUED OPERATIONS

 

Letong ceased operations in 2011, Yiwu ceased operation in 2013. Wang Da ceased operation in 2014. As such, Letong, Yiwu and Wang Da 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 June 30, 2015 (unaudited) and December 31, 2014 included in the Consolidated Balance Sheets:

 

		June 30, 2015				December 31, 2014
Cash		$	2,152			$	1,391,806
Inventories			16,679				103,110
Accounts receivable			1,262				—
Property, plant and equipment			37,403				25,183
Total assets			57,496				1,520,099
Short-term loans			821,180				814,531
Notes payable			1,642,360				3,013,766
Accounts payable			3				—
Advance from related party			57,542				—
Other payable			24,202				39,883
Total liabilities			2,545,287				3,868,180
Net assets		$	(2,487,791	)		$	(2,348,081	)

 

 

The following table summarizes the operating results of the discontinued operations for the three and six months ended June 30, 2015 and 2014 included in the Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited):

 

		Three Months Ended June 30,
		2015				2014
Sales, net		$	—			$	86,582
Cost of sales			66,550				85,427
Gross profit			(66,550	)			1,155
General and administrative expenses			(1,376	)			17,531
Loss from discontinued operations			(67,926	)			(16,376	)
Other expense			(14,818	)			(40,982	)
Loss before income taxes			(82,744	)			(57,358	)
Provision for income taxes			—				—
Net loss from discontinued operations, net of income tax		$	(82,744	)		$	(57,358	)

 

		Six Months Ended June 30,
		2015				2014
Sales, net		$	—			$	343,100
Cost of sales			86,930				336,623
Gross profit			(86,930	)			6,477
General and administrative expenses			18,541				43,065
Loss from discontinued operations			(68,389	)			(36,588	)
Other expense			(85,118	)			(110,387	)
Loss before income taxes			(153,507	)			(146,975	)
Provision for income taxes			—				—
Net loss from discontinued operations, net of income tax		$	(153,507	)		$	(146,975	)

Note 11 - OTHER COMPREHENSIVE INCOME

 

Other comprehensive income as included in stockholders’ deficit for the six months ended June 30, 2015 and 2014, represents foreign currency translation adjustment.

 

Note 12 - CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS

 

The Company’s operations are 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, 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 13 - MAJOR CUSTOMERS, VENDORS AND CREDIT RISK

 

During the three months ended June 30, 2014, four customers accounted for more than 10% of the Company’s sales, which represented 25.0%, 16.3%, 11.2% and 10.2%, respectively of the Company’s sales. During the six months ended June 30, 2014, two customers accounted for more than 10% of the Company’s sales, which represented 28.5% and 14.7%, respectively of the Company’s sales. As of June 30, 2014, three customers comprised more than 10% of the Company’s accounts receivable, which represented 29.0%, 26.9% and 15.5%, respectively. One vendor comprised more than 10% of the Company’s accounts payable, which represented 11.5% of the Company’s accounts payable.

 

During the three months ended June 30, 2015, two customers accounted for more than 10% of the Company’s sales, representing 44.6% and 15.7%, respectively of the Company’s sales. During the six months ended June 30, 2015, three customers accounted for more than 10% of the Company’s sales, representing 32.3%, 19.3% and 10.6%, respectively of the Company’s sales. As of June 30, 2015, two customers comprised more than 10% of the Company’s accounts receivable, representing 53.8% and 25.3%. Two vendors comprised more than 10% of the Company’s accounts payable, representing 78.6% and 12.6% of the Company’s accounts payable.

 

Note 14 - SEGMENT INFORMATION

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: 

 

		Three Months Ended June 30, 2015 (Unaudited)
			Mobile				International
			Phones				Trade				Other				Total
Sales, net		$	1,715,352			$	104,249			$	—			$	1,819,601
Cost of sales			(1,601,842	)			(69,303	)			—				(1,617,145	)
Gross profit (loss)			113,510				34,946				—				148,456
Selling, general and administrative expenses			(100,954	)			(85,216	)			(43,750	)			(229,920	)
Income (loss) from continuing operations			12,556				(50,270	)			(43,750	)			(81,464	)
Other Income (expenses)			(57,989	)			(325	)			(120	)			(58,434	)
Provision for income taxes			—				—				—				—
Net income from continuing operations			(45,433	)			(50,595	)			(43,870	)			(139,898	)
Net loss from discontinued operations			—				—				(82,744	)			(82,744	)
Net income		$	(45,433	)		$	(50,595	)		$	(126,614	)		$	(222,642	)

 

		Six Months Ended June 30, 2015 (Unaudited)
			Mobile				International
			Phones				Trade				Other				Total
Sales, net		$	4,129,787			$	230,710			$	—			$	4,360,497
Cost of sales			(3,974,012	)			(169,527	)			—				(4,143,539	)
Gross profit (loss)			155,775				61,183				—				216,958
Selling, general and administrative expenses			(232,030	)			(155,148	)			(131,250	)			(518,428	)
Income from continuing operations			(76,255	)			(93,965	)			(131,250	)			(301,470	)
Other Income (expense)			(25,911	)			(397	)			(240	)			(26,548	)
Provision for income taxes			—				—				—				—
Net income from continuing operations			(102,166	)			(94,362	)			(131,490	)			(328,018	)
Net loss from discontinued operations			—				—				(153,507	)			(153,507	)
Net income		$	(102,166	)		$	(94,362	)		$	(284,997	)		$	(481,525	)

		June 30,				December 31,
Total Assets		2015				2014
		(Unaudited)
Mobile Phones		$	1,781,463			$	2,559,845
International Trade			482,672				658,328
Other			49,795				1,533,499
		$	2,313,930			$	4,751,672

 

 

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

 

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. 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. You are cautioned not to place undue reliance on these forward-looking statements. 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 and represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control.

 

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.  The following discussion contains forward-looking statements.  Our actual results may differ significantly from those projected in the forward-looking statements.  Factors that may cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in  “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Overview

 

Yosen owns 100% of Capital and Capital owns 100% of Joy & Harmony and Sanhe. Until August 14, 2007, when it made the change to its ownership structure described in the next paragraph to comply with certain requirements of the 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. On July 6, 2009, Zhejiang and Yiwu completed the acquisition of Jinhua Baofa Logistic Ltd (“Jinhua”).  Jinhua was incorporated under the laws of PRC on December 27, 2001.

 

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 the 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, 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 $500,000. On August 15, 2007, we executed a series of contractual agreements between Capital and Zhejiang. The contractual agreements gave 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 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.

 

As a result of the Merger Agreement, the reorganization was treated as an acquisition by the accounting acquiree, accounted for as a recapitalization and reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data were retroactively restated. Accordingly, the financial statements include the following:

 

(1) The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the legal acquirer at historical cost.

 

(2) The statements of operations include the operations of the accounting acquirer for the period presented and the operations of the legal acquirer from the date of the merger.

 

Pursuant to a share exchange agreement, dated August 3, 2006, we issued 183,150 shares of restricted common stock to the former shareholders of Sanhe, valued at $3,750,000, which was the fair value (“FV”) of the shares at the date of the share exchange agreement. This amount is included in the cost of net assets and goodwill purchased.

 

Pursuant to a share exchange agreement, dated November 28, 2006, we issued 544,622 newly issued shares of common stock to the former shareholders of Joy & Harmony, valued at $11,000,000, which was the FV of the shares at the date of exchange agreement. This amount is included in the cost of net assets and goodwill purchased.

 

On July 6, 2009, Yosen’s subsidiaries, Zhejiang and Yiwu completed acquisition of Jinhua, a company organized under the laws of the PRC. Zhejiang acquired 90% and Yiwu acquired 10% of the equity interests in Jinhua from the shareholders of Jinhua for RMB120,000,000 ($17,500,000) in cash.

 

Sanhe and Letong ceased operations in 2011. Joy & Harmony ceased operation in 2011 and dissolved in 2013. Yiwu closed all its stores in stores locations in 2012. Jinhua ceased operation in October 2012

 

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.

 

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, for the purpose of engaging primarily in international trade and wholesale business, initially with tile, kitchen cabinet, granite and marble products.

 

Results of Operations for the Three and Six Months Ended June 30, 2015 and 2014

  

Reportable Operating Segments

  

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.

 

		Three Months Ended June 30,								Percentage
Mobile phones		2015				2014				Change
Revenue		$	1,715,352			$	2,464,488				(30.4	)%
Gross Profit		$	113,510			$	175,664				(35.4	)%
Profit Margin			6.6	%			7.1	%			(0.5	)%
Operating Loss		$	12,556			$	(20,941	)			160.0	%

 

		Six Months Ended June 30,								Percentage
Mobile phones		2015				2014				Change
Revenue		$	4,129,787			$	6,119,537				(32.5	)%
Gross Profit		$	155,775			$	391,392				(60.2	)%
Profit Margin			3.8	%			6.4	%			(2.6	)%
Operating Income (Loss)		$	(76,255	)		$	30,505				(350.0	)%

 

For the three months ended June 30, 2015, Mobile phones generated revenue of $1,715,352, a decrease of $749,136 or 30.4% compared to $2,464,488 for the three months ended June 30, 2014. For the six months ended June 30, 2015, Mobile phones generated revenue of $4,129,787, a decrease of $1,989,750 or 32.5% compared to $6,119,537 for the six months ended June 30, 2014. The decrease in revenue was primarily due to lack of new products introduced by Apple and Samsung in the first half year of 2015.

 

Gross profit decreased $62,154 or 35.4% from $175,664 for the three months ended June 30, 2014 to $113,510 for the three months ended June 30, 2015. Profit margin decreased from 7.1% in the three months ended June 30, 2014 to 6.6% in the three months ended June 30, 2015, a decrease of 0.5%.  Gross profit decreased $235,617 or 60.2% from $391,392 for the six months ended June 30, 2014 to $155,775 for the six months ended June 30, 2015. Profit margin decreased from 6.4% in the six months ended June 30, 2014 to 3.8% in the six months ended June 30, 2015, a decrease of 2.6%.  The decrease in gross profit was a result of the increase in unit cost.

 

Operating income was $12,556 for the three months ended June 30, 2015, an increase of $33,497 or 160.0% compared to operating loss of $(20,941) for the three months ended June 30, 2014. Operating loss was $(76,255) for the six months ended June 30, 2015, compared to operating income of $30,505 for the six months ended June 30, 2014. Change in operating losses was primarily due to change in management fee, labor cost and rent expenses.

b)

International Trade

 

Starting first quarter 2015, Yosen Trading is engaged in international trade and wholesale business, primarily selling tile, kitchen cabinet, granite and marble products in the New York Market.

 

		Three Months Ended June 30,								Percentage
International Trade		2015				2014				Change
Revenue		$	104,249			$	588,647				(82.3	)%
Gross Profit			34,945				115,400				(69.7	)%
Profit Margin			33.5	%			19.6	%			13.9	%
Operating (Loss)			(50,270	)			112,180				(144.8	)%

 

		Six Months Ended June 30,								Percentage
International Trade		2015				2014				Change
Revenue		$	230,710			$	1,196,623				(80.7	)%
Gross Profit			61,182				228,930				(73.3	)%
Profit Margin			26.5	%			19.1	%			7.4	%
Operating (Loss)			(93,965	)			225,569				(141.7	)%

 

 For the three months ended June 30, 2015, International Trade segment generated revenue of $104,249, a decrease of 82.3% compared to $588,647 for the three months ended June 30, 2014 . For the six months ended June 30, 2015, International Trade segment generated revenue of $230,710, a decrease of 80.7% compared to $1,196,623 for the three months ended June 30, 2014 . The decrease in revenue was primarily due to Yosen Trading focusing on wholesale business of stone products in the first half year of 2015.

 

Gross profit decreased 69.7% from $115,400 for the three months ended June 30, 2014 to $34,945 for the three months ended June 30, 2015. Gross profit decreased 73.3% from $228,930 for the six months ended June 30, 2014 to $61,182 for the six months ended June 30, 2015. The decrease in gross profit was a result of the decrease in sales. Profit margin increased 13.9% and 7.4% in the three and six months ended June 30, 2015 compared to the corresponding periods in 2014. Profit margin increased primary due to its focus on stone products.

 

Operating loss was $(50,270) for the three months ended June 30, 2015, an decrease of $162,140 or 144.8% compared to operating income $112,180 for the three months ended June 30, 2014. Operating loss was $(93,965) for the six months ended June 30, 2015, an decrease of $319,534 or 141.7% compared to operating income $225,569 for the three months ended June 30, 2014. Operating loss decreased primarily due to the increase in operating expenses and decrease in gross profit.

 

Total Company

 

Net Sales

 

Net sales for the three months ended June 30, 2015 decreased by 40.4%, to $1,819,601compared to $3,053,135 for the three months ended June 30, 2014. Net sales for the six months ended June 30, 2015 decreased by 40.4%, to $4,360,497 compared to $7,316,160 for the six months ended June 30, 2014. The decrease was primarily attributable to the closing of mobile phone retail stores and revenue decrease in international trade business.

 

Percentage of Sales

 

Percentage of sales from retail and wholesale operations for each segment is as follows in the three months ended June 30, 2015:

 

		Mobile Phones				International Trade				Total
Retail			88.5	%			25.2	%			56.9	%
Wholesale			11.5	%			74.8	%			43.1	%

 

Percentage of sales from retail and wholesale operations for each segment is as follows in the six months ended June 30, 2015:

 

		Mobile Phones				International Trade				Total
Retail			90.7	%			11.6	%			51.2	%
Wholesale			9.3	%			88.4	%			48.8	%

Percentage of sales from retail and wholesale operations for each segment is as follows in the three months ended June 30, 2014:

 

		Mobile Phones				International Trade				Total
Retail			95.2	%			28.3	%			61.7	%
Wholesale			4.8	%			71.7	%			38.3	%

 

		Mobile Phones				International Trade				Total
Retail			95.2	%			28.3	%			61.7	%
Wholesale			4.8	%			71.7	%			38.3	%

 

Percentage of sales from retail and wholesale operations for each segment is as follows in the six months ended June 30, 2014:

 

		Mobile Phones									International Trade					Total
Retail					97.6	%						23.7	%				60.6		%
Wholesale					2.4	%						76.3	%				39.4		%

 

Cost of Sales

 

Cost of sales (“COS”) for the three months ended June 30, 2015 was $1,671,145 compared to $2,762,071 for the three months ended June 30, 2014, a decrease of 39.5%. COS for the six months ended June 30, 2015 was $4,143,539 compared to $6,695,838 for the six months ended June 30, 2014, a decrease of 38.1%. The decreased COS for the three and six months was a result of the decrease in sales from the comparable periods.

 

Gross Profit

 

Gross profit for the three months ended June 30, 2015 was $148,456 compared to gross profit of $291,064 for the three months ended June 30, 2014, a decrease of 49.0%. Gross profit for the six months ended June 30, 2015 was $216,958 compared to gross profit of $620,322 for the six months ended June 30, 2014, a decrease of 65.0%. The decreased gross profit for the three and six months ended June 30, 2015 was due to lower gross profit generated from mobile phone sales and the international trade business.

 

Profit Margin

 

Profit margin for the three months ended June 30, 2015 was 8.2% compared to 9.5% for the three months ended June 30, 2014. Profit margin for the six months ended June 30, 2015 was 5.0% compared to 8.5% for the six months ended June 30, 2014. The profit margin decrease was mainly attributed to lower profit margin in mobile phone business.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the three months ended June 30, 2015 were $229,919 or 12.6% of net sales, compared to $288,149 or 9.4% of net sales for the three months ended June 30, 2014, an increase of 3.2% of sales. Selling, general and administrative expenses for the six months ended June 30, 2015 were $518,428 or 11.9% of net sales, compared to $576,361 or 7.9% of net sales for the six months ended June 30, 2014, an increase of 2.0% of sales. The increase in selling, general and administrative expenses was primarily due to increase in rent and store management fees.

 

Operating Income (Loss) from Continuing Operations

 

Operating loss for the three months ended June 30, 2015 was $(81,463) or (4.5)% of net sales compared to operating income of $2,915 or 0.1% of net sales for the three months ended June 30, 2014. Operating loss for the six months ended June 30, 2015 was $(301,470) or (6.9)% of net sales compared to operating income of $43,961 or 0.6% of net sales for the six months ended June 30, 2014. Lower gross profit and higher operating expense was the key factors for the increase in operating loss from continuing operations during the three and six months ended June 30, 2015 compared to 2014.

Provision for Income Taxes

 

The provision for income taxes for the three and six months ended June 30, 2015 were $0 due to losses incurred by Zhejiang and Yosen Trading. The provision for income taxes the three and six months ended June 30, 2014 were $25,187 and $38,953 attributed to Yosen Trading.

 

Net Income (Loss) from Continuing Operations

 

Net loss from continuing operations was $(204,724) or (7.7)% of net sales for the three months ended June 30, 2015 compared to net income of $64,826 or 2.9% of net sales for the three months ended June 30, 2014. Net loss from continuing operations was $(328,018) or (7.5)% of net sales for the six months ended June 30, 2015 compared to net loss of $178,601 or 2.4% of net sales for the six months ended June 30, 2014. Lower gross profit and higher operating expenses was the key factors for the increase in net loss from continuing operations during the three and six months ended June 30, 2015 compared to 2014.

 

Net Loss from Discontinued Operations

 

Net loss from discontinued operations for the three months ended June 30, 2015 was $(82,744) compared to $(57,358) for 2014, a decrease of $25,386. Net loss from discontinued operations for the six months ended June 30, 2015 was $(153,507) compared to $(146,975) for 2014, a decrease of $6,532. Net Loss from discontinued operations remained flat.

Net Income (Loss)  

Net loss was $(222,642) for the three months ended June 30, 2015 compared to net income of $7,468 for the three months ended June 30, 2014. Net loss was $(481,525) for the six months ended June 30, 2015 compared to net income of $31,626 for the six months ended June 30, 2014. The increase in net loss was due to decrease in gross profit and increase in operating 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.

 

		Six Months Ended June 30,
		2015				2014
RMB/$ exchange rate at period end			0.1642				0.1625
Average RMB/$ exchange rate for the periods			0.1636				0.1629

 

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 $7,990 in the three months ended June 30, 2015 and $1,541 in the comparable period in 2014. Yosen recorded a foreign currency gain of $19,377 in the six months ended June 30, 2015 and $11,727 in 2014, which is a separate line item on the Statements of Operations and Comprehensive Loss.

Liquidity and Capital Resources

During the six months ended June 30, 2015, cash has been mostly generated from financing activities. Operations and liquidity needs are funded primarily through cash flows from bank loans. Cash and equivalents were $58,927 at June 30, 2015, compared to $1,557,586 at December 31, 2014.

 

 

Our cash flows for the six month periods are summarized as follows:

 

		Six Months Ended June 30,
		2015				2014
Net cash provided by (used in) operating activities		$	472,227			$	3,641
Net cash used in financing activities			(1,980,561	)			286,331
Effect of exchange rate change on cash and equivalents			9,675				26,514
Net increase (decrease) in cash and equivalents			(1,498,659	)			316,486
Cash and equivalents at beginning of period			1,557,586				1,426,018
Cash and equivalents at end of period		$	58,927			$	1,742,504

 

Operating Activities

 

Net cash provided by operating activities was $472,227 for the six months ended June 30, 2015 compared to $3,641 for the six months ended June 30, 2014.  Net cash provided by operating activities was mainly attributable to several factors, including (i) decrease in advance to suppliers of $623,485, (ii) decrease in inventories of $250,790, and (iii) decrease in accounts receivable of $122,988, add back of stock compensation of $131,000.

		Six Months Ended June 30,
		2015				2014				Percentage Change
Sales, Net		$	4,360,497			$	7,316,160				(40.4	)%
Accounts receivable		$	233,766			$	664,575				(64.8	)%

 

Accounts receivable decreased 64.8% in the first six months of 2015 while sales decreased 40.4%. Management monitors and periodically assesses the collectability of accounts receivable to ensure the allowance for bad debts account is reasonably estimated. Collection of accounts receivable is based on the terms of legally binding documents. Our accounts receivable department has periodically reviewed the allowance for doubtful accounts. The bad debts allowance is based on the aging of receivables, credit history and credit quality of the customers, the term of the contracts as well as the balance outstanding. If an account receivable item is considered probable to be uncollectible, it will be charged to bad debts accordingly.

 

Cash and equivalents as of June 30, 2015 and December 31, 2014 were solely bank accounts in US and China. Specifically, cash and equivalents for each subsidiary as of June 30, 2015 and December 31, 2014 included:

 

Name of Entities

Region

Currency

June 30, 2015

December 31, 2014

Yosen

US entity

USD

14,078

44,317

Yosen Trading

US entity

USD

20,657

—

Zhejiang

Chinese entity

RMB

134,198

9,365

Yiwu

Chinese entity

RMB

7,944

688,114

Wang Da

Chinese entity

RMB

5,158

8,527,842

 

Cash equivalents held in the PRC subsidiaries are not freely transferrable outside the country. The amounts not freely transferable as of June 30, 2015 and December 31, 2014 were RMB 8,684,068 ($1,410,851) (unaudited) and RMB 147,300 ($24,192).

 

Capital Expenditures

 

We did not have any capital expenditures for the first six months of 2015 or 2014.

Working Capital Requirements

 

Historically operations and short term financing have been sufficient to meet our cash needs. We believe we will be able to generate revenues from sales and raise capital through private placement offerings of our equity securities to provide the necessary cash flow to meet anticipated working capital requirements. 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. Future expansion will be limited by the availability of financing products and raising capital.

 

Off-Balance Sheet Arrangements

 

We have never entered into any off-balance sheet arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

 

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.

Revenue Recognition

 

Our revenues are generated from sales of electronics products. All of our revenue transactions contain standard business terms and conditions. We determine the appropriate accounting for these transactions after considering (1) whether a contract exists; (2) when to recognize revenue on the deliverables; and (3) whether all elements of the contract have been fulfilled and delivered. In addition, our revenue recognition policy requires an assessment as to whether collection is reasonably assured, which inherently requires us to evaluate the creditworthiness of our customers. Changes in judgments on these assumptions and estimates could materially impact the timing or amount of revenue recognition.

 

Please refer to Note 2 in the footnotes to the financial statements for detailed description of our revenue recognition policy.

 

Inflation

 

Neither inflation nor changing prices has had a material impact on the Company’s net sales, revenues or continuing operations during the past three fiscal years.

 

After Sales Service

 

The after-sales services 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.

 

Tabular Disclosure of Contractual Obligations

 

Not applicable.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. 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, our management conducted an evaluation of our disclosure controls and procedures as of June 30, 2015, 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 concluded that, as of such date, the Company’s disclosure controls and procedures were not effective due to the material weakness in our internal controls identified in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosures.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the first six months of 2015 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1.    Legal Proceedings.

 

We are not currently a party to any material legal proceedings. From time to time, however, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.

 

Item 1A. Risk Factors.

 

There have been no material changes from the Risk Factors previously disclosed in the Company’s Annual Report on Form 10-K for its year ended December 31, 2014.

 

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

 

None.

 

Item 3.    Defaults Upon Senior Securities.

 

None.

 

Item 4.   Mine Safety Disclosures.

 

Not applicable.

 

Item 5.   Other Information.

 

None.

 

Item 6.   Exhibits.

 

Exhibit No.		Document Description
31.1		Certification of the Chief 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 Chief 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 the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101		The following financial statements from China 3C Group’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets (unaudited); (ii) the Consolidated Statements of Operations and Comprehensive Loss (unaudited); (iii) the Consolidated Statements of Cash Flows (unaudited); and, (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text.

 

SIGNATURES

 

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

 

	YOSEN GROUP, INC.
Date: August 14, 2015	By:	/s/ Zhenggang Wang
		Name:   Zhenggang Wang
		Title: Chief Executive Officer and Chairman
		(Principal Executive Officer)
Date: August 14, 2015	By:	/s/ Weiping Wang
		Name:   Weiping Wang
		Title: Chief Financial Officer (Principal Accounting and Financial Officer)

 

EXHIBIT INDEX

 

Exhibit No.		Document Description
31.1		Certification of the Chief 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 Chief 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 the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

 

101 The following financial statements from China 3C Group’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets (unaudited); (ii) the Consolidated Statements of Operations and Comprehensive Loss (unaudited); (iii) the Consolidated Statements of Cash Flows (unaudited); and, (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text.