| 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, Zhejiang and Lamapai entities functional currency is the Chinese
Renminbi (RMB), however, the accompanying consolidated financial statements were translated and presented in United
States Dollars ($, or USD). Yosen is the parent company incorporated on August 20, 1998 under the laws
of the State of Nevada. The parent company does not have operations. Its main activities were incurring public company expenses.
Yosen pays all its expenses in USD, its functional currency. Capital was incorporated on July 22, 2004 under the laws of the BVI.
Capital is a holding company and does not have operations. As a result, we determined its functional currency is USD. Going Concern The accompanying consolidated financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company realized net loss of $(214,721) for the three months ended March 31, 2016. The Company
had accumulated deficit of $49,515,074 as of March 31, 2016. 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, Yosen Trading, Wang Da, Yiwu, Zhejiang, Hangzhou Lamapai, Zhejiang
Lamapai, Saizhuo and Ningbo collectively referred to as the Company. All material intercompany accounts, transactions and profits
were eliminated in consolidation. Noncontrolling Interest As of March 31, 2016, the Company
invested RMB 6,193,541($970,476) in Zhejiang Lamapai and owns 68.3% interest in Zhejiang Lamapai. The 31.7% owned by the third
parties is presented as noncontrolling interest. The Company follows Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810, Consolidation The net income attributed to the NCI is separately
designated in the accompanying consolidated statements of income and other comprehensive income (loss). Losses attributable to
the NCI in a subsidiary may exceed the NCIs interests in the subsidiarys equity. The excess attributable to the NCI
is attributed to those interests. The NCI shall continue to attribute its share of losses even if that attribution results in a
deficit NCI balance. Currency Translation The accounts of Zhejiang, Wang Da, Yiwu, Lamapai
entities 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 $984,379 (unaudited) and $975,321 as of March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015,
inventory consisted entirely of finished goods. 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 March 31, 2016 and December 31, 2015, property and equipment
consisted of the following:
March 31, 2016 December 31, 2015
(Unaudited)
Automotive $ 48,536 $ 48,253
Office equipment 149,034 152,481
Plant and equipment 64,946 200,733
Construction in progress 468,456
Subtotal 730,971 200,733
Less: accumulated depreciation (164,659 ) (162,029 )
Total $ 566,312 $ 38,704 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, Construction in progress was the costs advanced
to contractors and vendors to design, remodel and construct two new customer experience stores for Zhejiang Lamapai, in Hangzhou
and Yiwu. As of March 31, 2016, construction in progress was $468,456. We estimate the total budget to complete the store build
up will be $884,091. The Company is expected to spend additional $415,635 until completion, which will prepare the two stores for
grand opening in May and June 2016, respectively. Fair Value of Financial Instruments FASB ASC Topic 825, Financial Instruments Short-term Loans As of March 31, 2016 and December 31, 2015, short-term loans consisted
of the following:
2016 2015
Bank loan from Bank of Hangzhou, dated July 11, 2013, due on July 8, 2016, with interest rate of 7.38% payable monthly 465,268 462,200
Bank loan from Bank of Chouzhou, dated July 10, 2015, due on July 8, 2016, with interest rate of 6.0625% payable monthly, personally guaranteed by the CEO 775,446 770,333
Bank loan from Bank of Chouzhou, dated July 20, 2015, due on July 15, 2016, with interest rate of 6.0625% payable monthly, personally guaranteed by the CEO 1,550,893 1,540,666
$ 2,791,607 $ 2,773,199 Revenue Recognition In accordance with FASB ASC Topic 605, Revenue
Recognition, The Company records revenues when title and
the risk of loss pass to the customer. Generally, these conditions occur on the date the customer takes delivery of
the product. Revenue is generated from sales of Yosen products through two main revenue streams:
1. 91.1
a. Purchase contracts
b. Point of sale transfer of ownership
2. Wholesale. Sales revenue is therefore recognized on the
following basis:
1. Store in store:
a. For goods sold under sales and purchase contracts, revenue is recognized when goods are received by customers.
b.
For goods at customer outlets which
the Companys sales people operate, and inventory of goods is under joint control by the customers and the Company, revenue
is recognized at the point of sale to the end buyer. Yosen has title and owns the inventory under joint control. Such joint controlled
inventory has been properly included in reported inventory balance of 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:
a. Revenue is recognized at the date of goods are received by wholesale customers. We operate our wholesale business by selling large volume orders to second-tier distributors. Revenues from wholesale are recognized at point of sale. Net sales already take into account revenue dilution as they exclude inventory credit, discount for early payment, product obsolescence and return of products and other allowances. Net sales also take into account the return of products in accordance with relevant laws and regulations in China. The Company is in the process of winding down its wholesale business. It will only focus on retail business in the future. 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. 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 $16,298 and $39,478 in general and administrative
expenses for the three months ended March 31, 2016 and 2015, 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 months ended March 31, 2016 and 2015, respectively. 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 two segments in the first quarter of 2016 through Zhejiang and
Lamapai entities.: mobile phones and E-commerce business (see Note 15). Recent Accounting Pronouncements 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 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 2015, the FASB issued Accounting
Standards Update No. 2015-17, "Balance Sheet Classification of Deferred Taxes". The new guidance requires that all deferred
tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This
update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company
does not anticipate the adoption of this ASU will have a significant impact on its consolidated financial position, results of
operations, or cash flows. In November 2015, the FASB issued an ASU amending
the accounting for income taxes and requiring all deferred tax assets and liabilities to be classified as non-current on the consolidated
balance sheets. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The
ASU may be adopted either prospectively or retrospectively. The Company does not anticipate the adoption of this ASU will have
a significant impact on its consolidated financial position, results of operations, or cash flows. In February 2016, the FASB issued an ASU amending
the accounting for leases. The new guidance requires the recognition of lease assets and liabilities for operating leases with
terms of more than 12 months, in addition to those currently recorded, on our consolidated balance sheets. Presentation of leases
within the consolidated statements of operations and consolidated statements of cash flows will be generally consistent with the
current lease accounting guidance. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption
permitted. We are currently evaluating the impact of the ASU; however, we expect the ASU will have a material impact on our consolidated
financial statements, primarily to the consolidated balance sheets and related disclosures. In March 2016, the FASB issued an ASU amending
the accounting for stock-based compensation and requiring excess tax benefits and deficiencies to be recognized as a component
of income tax expense rather than equity. This guidance also requires excess tax benefits to be presented as an operating
activity on the statement of cash flows and allows an entity to make an accounting policy election to either estimate expected
forfeitures or to account for them as they occur. The ASU is effective for reporting periods beginning after December 15,
2016, with early adoption permitted. We are currently evaluating the impact of the ASU; however, we expect the ASU will have a
material impact on our consolidated financial statements. 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. |
