| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 Companys subsidiaries Wang Da, Yiwu, Sanhe and Zhejiangs 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 Companys 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, Reporting Comprehensive
Income, 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 Companys 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 Companys 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 Companys 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, 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, (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.
2. Wholesale. Sales revenue is therefore recognized on the
following basis:
1. Store in store:
Goods are sold at customer outlets
which the Companys 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 Yosens 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 Chinas
laws and regulations on consumers 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 persons 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 dont 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 Companys 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. 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, 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. 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. Statement of Cash Flows In accordance with FASB ASC Topic 230, Statement
of Cash Flows, 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 companys 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 Companys 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 Entitys 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 entitys 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 entitys 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 Companys 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 Companys 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 Companys
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 Companys 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 Companys present or future consolidated financial
statements. |
