Yasheng Group - FORM 10-Q - August 19, 2015

Attached files

file	filename
EX-99.1 - SUMMARY OF YASHENG LABOR CONTRACT - Yasheng Group	exhibit_99-1.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Yasheng Group	exhibit_32-2.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Yasheng Group	exhibit_32-1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT OF 1934 RULE 13A-14(A) OR 15D-14(A) - Yasheng Group	exhibit_31-2.htm
EX-99.2 - TEMPORARY HARDSHIP EXEMPTION - Yasheng Group	exhibit_99-2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT OF 1934 RULE 13A-14(A) OR 15D-14(A) - Yasheng Group	exhibit_31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

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

For the transition period from ___________ to ___________________

Commission File Number:

YaSheng Group

(Exact name of registrant as specified in its charter)

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

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

(650) 363-8345

(Registrant's telephone number, including area code)

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

x Yes o No

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

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o

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

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

o Yes x No

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

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

o Yes o No

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date, 155,097,355 (6-30-15).

YASHENG GROUP

TABLE OF CONTENTS

			Page
PART I	FINANCIAL INFORMATION

Item 1	Condensed Consolidated Financial Statements (unaudited)		4

		Auditor Review Report	4

		Condensed Consolidated Balance Sheets	5

		Condensed Consolidated Statements of Operations	6

		Condensed Consolidated Statements of Cash Flows	7

		Notes to Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3	Quantitative and Qualitative Disclosures about Market Risk		16

Item 4	Controls and Procedures		17

PART II	OTHER INFORMATION

Item 1	Legal Proceedings		19

Item 1A	Risk Factors		19

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		19

Item 3	Defaults Upon Senior Securities		19

Item 4	Mine Safety Disclosures		19

Item 5	Other Information		19

Item 6	Exhibits		19

Signatures			20

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders Yasheng Group

Redwood City, California

We have reviewed the accompanying condensed consolidated balance sheet of Yasheng Group and subsidiaries (the “Corporation”) as of June 30, 2015, and the related condensed consolidated statements of operations, for the three month and six month periods ended June 30, 2015 and 2014 and cash flows for the six months ended June 30, 2015 and 2014. These interim financial statements are the responsibility of the Corporation’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Yasheng Group and subsidiaries as of December 31, 2014, and the related consolidated statements of operation stockholders’ equity, and cash flows for the year then ended and in our report dated Feb 27, 2015 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2014 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

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

August 19, 2015

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

	As of
	June 30,		December 31,
	2015		2014
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		11,937,544		11,907,242
Accounts receivable, net		125,460,245		112,094,824
Inventories		356,730,338		341,756,253
Prepaid and other current assets		3,940,845		4,070,937

Total current assets		498,068,972		469,829,256

Equity and other investments		210,127		209,941

Property, plant and equipment, net		925,202,621		905,268,722
Construction in progress		6,610,767		6,960,289
Intangible assets, net		1,098,053,880		1,097,762,161

Total assets		2,528,146,368		2,480,030,369

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		25,244,680		27,402,889
Short term loans		4,498,168		4,902,762
VAT Tax payable		654,729		701,760
Current portion of long term debt		3,248,984		3,560,394
Other current liabilities		577,671		607,853

Total current liabilities		34,224,232		37,175,658

Long term payable		19,670,225		21,073,930

Total liabilities		53,894,457		58,249,586

Stockholders’ equity:
Common stock, US$1.00 par value
800,000,000 shares authorized
155,097,355 shares issued and outstanding		155,097,355		155,097,355
Accumulated other comprehensive income		448,171,148		443,988,809
Retained earnings		1,870,983,408		1,822,694,617

Total stockholders’ equity		2,474,251,911		2,421,780,781

Total liabilities and stockholders' equity		2,528,146,368		2,480,030,369

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

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

	For The Six Months Ended June 30,				For The Three Months Ended June 30,
	2015		2014		2015			2014

Net sales		439,838,973		435,435,598		229,802,909			226,224,075

Cost of goods sold		388,806,715		386,721,302		201,799,922			200,499,036

Gross profit		51,032,258		48,714,296		28,002,987			25,725,039

Operating expenses:
Sales and marketing		754,981		751,136		359,132			360,682
General and administrative		1,738,761		1,731,227		761,679			768,252
Total operating expenses		2,493,742		2,482,363		1,120,811			1,128,934

Operating profit		48,538,516		46,231,933		26,882,176			24,596,104

Interest expense		623,804		668,068		(29,254	)		2,024

Other income (expense）		374,079		496,980		136,670			233,486

Income before income tax expense		48,288,791		46,060,845		27,048,100			24,827,566
Income tax expense

Net income		48,288,791		46,060,845		27,048,100			24,827,566
		-		-		-			-
Basic earnings per share		0.31		0.30		0.17			0.16
Weighted average number of shares		155,097,355		155,097,355		155,097,355			155,097,355

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

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

	For The Six Months Ended June 30,
	2015			2014

Cash flows from operating activities:
Net income	$	48,288,791		$	46,060,845
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,401,569			6,433,024
Allowance for doubtful accounts		1,344,360			494,246

Changes in assets and liabilities:
Accounts receivable		(9,309,783	)		(9,904,721	)
Inventories		(14,974,085	)		(12,708,936	)
Prepaid and other current assets		130,092			277,420
Accounts payable		(2,158,209	)		(2,080,764	)
VAT Tax payables		(47,031	)		(38,856	)
Accrued expenses and other current liabilities		(30,182	)		(43,274	)
Net cash provided by operating activities		29,726,738			28,488,983

Cash flows from investing activities:
Purchase of assets		(31,277,665	)		(24,935,047	)
Investments		(186	)		-
Net cash used in investing activities		(13,218,471	)		(24,935,047	)

Cash flows from financing activities:


Payment on land lease		(1,403,705	)		(1,942,361	)
Increase (decrease) in debt		(716,004	)		(1,250,181	)
Net cash used in financing activities		(2,119,709	)		(3,192,542	)

Effect of exchange rate change on cash and cash equivalents		102,398			(105,424	)

Net increase (decrease) in cash and cash equivalents		30,302			255,971

Cash and cash equivalents at beginning of period		11,907,242			11,337,958
Cash and cash equivalents at end of period	$	11,937,544		$	11,593,929

Supplemental Disclosures:
Cash paid for interest		623,804			668,068
Cash paid for income taxes		-			-

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

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation, Organization and Business

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

Operating results for the period are not necessarily indicative of the results that may be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Yasheng Group's December 31, 2014 Form 10-K.

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

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

Yasheng sells its products through an extensive nationwide sales and distribution network covering 18 provinces and over 100 cities in China. Products are also sold directly to food processors as well as processed internally by the Company and then resold to supermarkets or other distributors, or further processed for retail food distribution. The Company also sells many of its products fresh within Gansu province as well as nationally to food processors and distributors, or directly to supermarkets. Customers are based primarily in China and include national and international leading companies. Products are also sold as feed for livestock, ingredients for Chinese traditional medicines as well as other important ingredients in the food industry.

2.	Summary of Significant Accounting Policies

(a)	Accounting standards

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

(b)	Fiscal year

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

(c)	Consolidation

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

(d)	Use of estimates

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(e)	Revenue recognition

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

(f)	Shipping and handling costs

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

(g)	Cash and cash equivalents

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

(h)	Inventories

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

(i)	Accounts receivable, net

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

(j)	Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is calculated on a straight-line basis over the life of the asset or the term of the lease, whichever is shorter. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment used in production is reported in cost of sales. Property and equipment are depreciated over their estimated useful lives as follows:

Buildings and improvements

20 - 40 years

Farming facilities

10 years

Machinery and equipment

7 years

Transportation and other facilities

3 - 15 years

Long-term assets of the Company are reviewed at each reporting period to assess whether the carrying value has become impaired, according to the guidelines established in FASB ASC 360-10, “Property, Plant and Equipment – Overall.” The Company also evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. No impairment of assets was recorded in the periods reported.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

	06/30/2015		12/31/2014

Buildings and improvements	$	124,138,734	$	123,603,446
Farming facilities		111,410,243		113,064,212
Machinery and equipment		15,111,529		14,873,613
Transportation		359,269,719		359,434,553
Windbreak and Sand-break trees		436,813,245		404,432,178
Total		1,046,743,470		1,015,408,002
Less: Accumulated Depreciation and amortization		121,540,849		110,139,280
Net	$	925,202,621	$	905,268,722

(k)	Intangible assets

Intangible assets consist of land use rights and are recorded at cost. Under PRC’s current property rights regime, use rights for specified periods (e.g., 40 to 70 years) can be obtained from the state through the up-front payment of land use fees. The fees are determined by the location, type and density of the proposed development. This separation of land ownership and use rights allows the trading of land use rights while maintaining state ownership of land. The Company has over 300,000 acres of agriculture land that are utilized for grazing, cultivation, and reclamation, of which 65,000 acres are under cultivation using the latest scientific technologies to produce a wide variety of agricultural products.

(l)	Impairment of long-lived assets

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

(m)	Investments

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

(n)	Foreign currency translation

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

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

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.

(o)	Income taxes

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

(p)	Earnings per share

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

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(q)	Economic and Political Risks

The Company faces a number of risks and challenges as a result of having primary operations and markets in the PRC. Changing political climates in the PRC could have a significant effect on the Company's business. Refer to the December 31 , 2014 10-K for descriptions of such risks.

(r)	Advertising expense

The Company records advertising expenses in the period incurred.

(s)	Comprehensive income

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

(t)	Recently issued accounting standards

Recently Adopted Accounting Guidance

In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards, the Financial Accounting Standards Board (FASB) issued a new standard related to revenue recognition. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard will be effective for us beginning in 2018. We are currently evaluating the impact of this at standard on our consolidated financial statements.

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. This new guidance will be effective in 2016. We are currently evaluating the impact of this standard on our consolidated financial statements.

(u)	Value added tax (VAT)

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

3.	Inventories

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

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

Inventory Breakdown	As of 06/30/2015	As of 12/31/2014
Raw material	$69,888,646	$69,104,388
Finished goods	190,028,177	179,605,652
Low value consumable goods	48,445,702	46,327,219
Packaging material	31,734,420	30,722,573
Maintenance material	16,633,393	15,996,422
Total	$356,730,338	$ 341,756,253

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.	China contribution plan

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

5.	Profit appropriation

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

6.	Concentration of risks

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

7.	Income taxes

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

Debt

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

9.	Employee benefit plans

The Company provides the following benefits for all employees:

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

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

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

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

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

10.	Operating leases

The Company has no operating leases for the periods shown.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.

Segments

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

6 Months ended 6-30-2015

Breakdown by Subsidiary Unit: US Dollar

Subsidiaries	Net sales Ended 06/30/2015		Net sales ended 06/30/2014		Cost of sales ended 06/30/2015		Cost of sales ended 06/30/2014		Gross profit ended 06/30/2015		Gross profit ended 06/30/2014
Gansu Tiaoshan Agricultural-Industrial-Commercial Group Co., Ltd	$	207,784,827	$	209,944,044	$	187,629,430	$	188,764,467	$	20,155,397	$	21,179,577
Gansu Hongtai Agricultural Technology Co., Ltd.		58,753,405		57,758,872		50,758,291		52,434,699		7,995,114		5,324,173
Gansu Xiaheqing Industrial Co., Ltd.		11,133,889		10,889,022		9,134,555		8,747,906		1,999,334		2,141,116
Gansu Jinta Hengsheng Agricultural Development Co., Ltd.		52,844,510		51,409,672		46,442,290		45,642,467		6,402,220		5,767,206
Gansu Jinta Xingsheng Industrial Co., Ltd.		52,705,055		51,259,826		45,270,561		44,382,389		7,434,494		6,877,437
Gansu Jinta Yongsheng Agricultural Development Company.		55,829,036		53,542,076		49,044,183		46,289,743		6,784,853		7,252,334
Gansu Jinta Yuantai Commercial Trading Co., Ltd.		788,251		632,085		527,405		459,632		260,846		172,453
Totals for Quarter	$	439,838,973	$	435,435,598	$	388,806,715	$	386,721,302	$	51,032,258	$	48,714,296

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

6 months ended 6-30-2015

	Net sales ended 06/30/2015		Net sales ended 06/30/2014		Cost of sales ended 06/30/2015		Cost of sales ended 06/30/2014		Gross profit ended 06/30/2015		Gross profit ended 06/30/2014		Gross profit % ended 06/30/2015		Gross profit % ended 06/30/2014
Agriculture	$	435,942 ,062	$	431,248,303	$	385,389,415	$	383,046,335	$	50,552,648	$	48,201,968		11.60		11.18
Livestock		840,719		903,366		682,854		734,342		157,864		169,024		18.78		18.71
Biotechnology		3,056,192		3,283,929		2,734,446		2,940,625		321,746		343,304		10.53		10.45
Total	$	439,838,973	$	435,435,598	$	388,806,715	$	386,721,302	$	51,032,258	$	48,714,296		11.66		11.19

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following is a discussion of our financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Form 10-Q and with our audited annual report for the year ended December 31, 2014.

Some of the statements under this quarterly report on Form 10-Q constitute forward-looking statements. These statements involve known and unknown risks, significant uncertainties and other factors which may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. Such factors include, among other things, those listed under "Risk Factors" in the Company’s December 31, 2014 10-K.

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

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

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

GENERAL

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

RESULTS OF OPERATIONS

(unaudited)

	Three Months Ended June 30, 2015					Three Months Ended June 30, 2014
	Dollars (000's)		% of Sales			Dollars (000's)		% of Sales
Net Sales	$	229,803		100	%	$	226,224		100	%
Costs of Goods Sold		201,799		88	%		200,499		89	%
Gross profit		28,002		12.1	%		25,725		11	%
Sales and marketing expenses		359		0.2	%		360		0.2	%
General and administrative expenses		762		0.3	%		768		0.3	%
Interest income		-29		-0.01	%		2		0.0	%
Other income		137		0.06	%		233		0.1	%
Net income	$	27,048		11	%	$	24,827		11	%

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

The functional currency for the Company is the RMB which is translated into US Dollars for financial reporting purposes. The average exchange rates for the periods presented were 6.1273 RMB to 1 USD for the six months ended June 30, 2015 and 6.1524 RMB to 1 USD for the six months ended June 30, 2014

Net Sales. Sales are generated primarily from our farming operations and related side line products in China. Net sales for the three months ended June 30, 2015 increased by $3.4 million, or 2% to 229.8 million as compared to $226.4 million for the three months ended June 30, 2014.

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

Gross Profit and Gross Margin. Our gross profit for the three months ended June 30, 2015 increased by $2.3 million or 8.9% to $28.0 million from $25.7 million for the three months ended June 30, 2014. The increased margin was primarily a result of the growth in the net sales.

Sales and Marketing Expenses. Our sales and marketing expenses for the three months ended June 30, 2015 decreased by $1,550 or 0.4% to $359,132 as compared to $360,682 in the prior three months ended June 30, 2014.

General and Administrative Expenses. Our general and administrative expenses for the three months ended June 30, 2015 decreased by $6,573 or 0.9% to $761,679 from $768,252 for the three months ended June 30, 2014.

Interest Income and Other Income. Our interest income for the three months ended June 30, 2015 decreased by $31,278 to -$29,254 as compared to $2,024 in the prior three months ended June 30, 2014. Our other income for the three months ended June 30, 2015 decreased by $96,816 or 41.5% to $136,670 as compared to $233,486 in the prior three months ended June 30, 2014.

Liquidity and Capital Resources

As of June 30, 2015, we had cash and cash equivalents of $11.94 million and working capital of $458 million. This compared to cash and cash equivalents of $11.6 million and working capital of $426 million as of June 30, 2014. The following table provides information about our net cash flows for the operating results presented in this report (amounts in thousands of USD).

	Six Months Ended June 30th
	2015		2014
Net cash provided by operating activities		29,726		28,489
Net cash used in investing activities		-13,218		-24,935
Net cash used in financing activities		-2,119		-3,193
Effect of foreign currency translation on cash and cash equivalents		102		-105
Cash and cash equivalents at beginning of the period		11,907		11,338
Cash and cash equivalents at end of period		11,937		11,594

Net cash provided by operating activities was $29.73 million for the six months ended June 30, 2015 as compared to $28.49 million for the six months ended June 30, 2014. Net cash used in investing activities was $13 million for the six months ended June 30, 2015 as compared to $25 million for the six months ended June 30, 2014. Net cash used in financing activities was $2.1 million for the six months ended June 30, 2015 compared with $3.2 million for the six months ended June 30, 2014.

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

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

Off-Balance Sheet Arrangements

As of June 30, 2015 and for the three months then ended, we were not party to transactions, obligations or relationships that could be considered off-balance sheet arrangements and we do not have off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Segments

See Notes to financial statements for details on the segments.

Critical Accounting Policies and Estimates

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

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

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

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

New Accounting Standards

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Our international sales accounted for very little of our net sales in the first half of 2015. As a result, we have exposure to foreign exchange risk with respect to a minor portion of our sales. Fluctuations in exchange rates, particularly in the U.S. dollar to Chinese yuan (RMB) exchange rate, do not effects materially affect our gross and net profit margins even though they could result in foreign exchange and operating losses.

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

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

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

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk - continued

Interest Rate Risk

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

Commodity Risk

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

Item 4.

Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. Our disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by us in the reports we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of June 30, 2015 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective at the reasonable assurance level.

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

(b) Changes in internal controls. During the period covered by this report, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

The Gansu Hongxin CPA, an independent registered public accounting firm, has audited the consolidated financial statements of Yasheng Group for the fiscal year ended December 31, 2014, in accordance with the auditing standards generally accepted in the United States of America and with accounting principles generally accepted in the United States of America.

Changes in Internal Control over Financial Reporting

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

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

Item 4.

Controls and Procedures - continued

Lack of PCAOB Auditor Oversight Risk and Concerns

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

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

Our Accounting Personnel have limited experience with US GAAP

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

PART II

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

None

Item 5. Other Information

None

Item 6. Exhibits

Exhibit No.	Description
31.1	Certification of Chief Executive Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
31.2	Certification of Chief Financial Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Summary of Yasheng Labor Contract
99.2	Temporary Hardship Exemption
101	Interactive data files pursuant to Rule 405 of Regulation S-T. *

* To be furnished by amendment per Temporary Hardship Exemption under Regulation S-T.

SIGNATURES

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

	YASHENG GROUP

August 19, 2015	By:	/s/ Ye Dong
		Ye Dong
		Chief Executive Officer

Attached files

Yasheng Group Reports

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