SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
COMMISSION FILE NUMBER 0 - 23672
YIFAN COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
DELAWARE 06-1607651
(state or other jurisdiction of (I.R.S. Employer
incorporation of organization) identification No.)
41-60 Main Street, Suite 210
Flushing, Queens, New York 11355
(address of principal executive office) (Zip Code)
Issuer's Telephone Number (727) 443-3434
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$0.008 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
On December 10, 2001, the issuer had a total of 13,726,951 shares of
common stock, $0.008 par value, issued and outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
Page 1
TABLE OF CONTENTS
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets 3
Consolidated Statement of Operation for the Three-Month
Periods ended September 30, 2001 and 2000 4
Consolidated Statement of Cash Flow for the Three-Month
Periods ended September 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Pro Forma Statement of Operations for the Three-Month
Period ended June 30, 2000 8
Item 2 Plan of Operations 9
Part II Other Information
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Default upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Reports of Form 8 - K 11
Signatures 12
Page 2
Part I Financial Information
Item 1 Financial Statements
Yifan Communications, Inc.
Consolidated Balance Sheet
September 30, December 31,
2001 2000
------------ ------------
ASSETS (Unaudited)
Current Assets
Cash in banks $ 145,100 $ 303,376
Accounts receivable 9,400 54,830
Prepaid expenses 4,088 240,815
------------ ------------
Total Current Assets 158,588 599,021
------------ ------------
Fixed Assets
Computer and software equipment 91,028 85,878
Accumulated depreciation (26,533) (11,906)
------------ ------------
Total Fixed Assets 64,495 73,972
------------ ------------
Other Assets
Capitalized software 646,261 534,799
Goodwill 937,000 922,500
------------ ------------
Total Other Assets 1,583,261 1,457,299
------------ ------------
Total Assets $ 1,806,344 $ 2,130,292
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 390 $ 97,468
Wages payable 12,184 13,000
------------ ------------
Total Current Liabilities 12,574 110,468
Long Term Liabilities 0 0
------------ ------------
Total liabilities 12,574 110,468
------------ ------------
Stockholders Equity
Common Stock, $.008 par value,
authorized 100,000,000 shares,
issued and outstanding 13,726,951 shares 109,815 109,815
Additional paid-in capital 2,246,391 2,246,391
Retained earnings (562,436) (336,382)
------------ ------------
Total Stockholders' Equity $ 1,793,770 $ 2,019,824
------------ ------------
Total Liabilities and Equity $ 1,806,344 $ 2,130,292
============ ============
The accompanying notes are an integral part of these financial statements.
Page 3
Yifan Communications, Inc.
Consolidated Statement of Income (Loss)
Three-months Ended Nine-months Ended
------------------------------- --------------------------------
Sept 30, 2001 Sept 30, 2000 Sept 30, 2001 Sept 30, 2000
------------- ------------- ------------- -------------
Net sales $ 378,915 -- $ 908,819 --
Cost of goods sold 330,559 -- 795,993 --
------------- ------------- ------------- -------------
Gross profit 48,356 -- 112,826 --
Selling, general & administrative 29,272 151,076 324,181 197,604
Research and development -- -- -- --
------------- ------------- ------------- -------------
Net Income(Loss) from operations $ 19,084 ($ 151,076) ($ 211,355) ($ 197,604)
Depreciation and amortization 5,564 4,471 14,627 9,276
------------- ------------- ------------- -------------
Net Income (Loss) before
extraordinary item 13,521 ($ 155,546) ($ 226,012) ($ 206,880)
Extraordinary item -- -- -- --
------------- ------------- ------------- -------------
Net Income (loss) for the period $ 13,521 ($ 155,546) ($ 226,012) ($ 206,880)
Net Income (loss) per common share
before extraordinary item $ 0.00 ($ 0.31) ($ 0.02) ($ 0.41)
Net income (loss) per common share $ 0.00 ($ 0.31) ($ 0.02) ($ 0.41)
Shares used in calculation of
Net income (loss) per Share 13,726,951 503,581 13,726,951 503,581
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
Page 4
Yifan Communications, Inc.
Consolidated Statement of Cash Flows
Nine Months Ended
-----------------
Sept 30, 2001 Sept 30, 2000
------------- -------------
Cash flow from operating activities
Net income (loss) ($ 226,012) ($ 203,738)
Adjustments to reconcile net income to
net cash provided (used) by operating activities
Depreciation and amortization 14,627 128,726
(Increase) decrease in accounts receivable 45,430
(Increase) decrease in prepaid expenses and other
current assets 236,757 (1,204,496)
Increase (decrease) in accounts payable and other
current liabilities (97,894) (10)
Increase (decrease) in notes payable -- --
------------ ------------
Net adjustments to reconcile net income to
net cash provided (used) by operating activities 198,920 (1,075,780)
------------ ------------
Net cash provided (used) by operating activities ($ 27,163) ($1,279,518)
------------ ------------
Cash flows from investing activities
Cash purchases of equipment (5,150)
Capitalized software development (111,462)
Acquisition (14,500) --
------------ ------------
Net cash provided (used) by investing activities (131,112) --
------------ ------------
Cash flows from financing activities
Proceeds from issuance of stock -- 1,558,782
------------ ------------
Net cash provided (used) by financing activities -- 1,558,782
------------ ------------
Net increase (decrease) in cash (158,275) 280,264
Cash at beginning of period 303,376 139,141
------------ ------------
Cash at end of period $ 145,101 $ 419,405
============ ============
The accompanying notes are an integral part of these financial statements.
Page 5
YIFAN COMMUNICATIONS, INC.
NOTES TO Consolidated FINANCIAL STATEMENTS
1. Nature of Business
------------------
Yifan Communications, Inc. (the "Company") is an Internet communications
and software development company that delivers content, community and commerce
targeted to the needs of the Chinese community in North America. The Company
provides a free service that gives its registered users access to a variety of
online features. The Company also provides Internet advertising and value-added
business services designed to enhance the Internet presence of its clients. The
Company currently operates under five principal Internet domain names
"yifan.com," "yifan.net," "yifannet.com," "gotofind.com" and "yifanmall.com."
All of the Company's Internet products and services are written in the Chinese
language. The Company's business goal is to capitalize on the growth of the
Internet among Chinese users and become a worldwide leader in the Chinese
language market.
2. Basis Of Presentation
---------------------
(a) Interim Financial Statements.
-----------------------------
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The statements are unaudited but,
in the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
(b) Intervening Business Combination Transaction.
---------------------------------------------
Operating results for the three- and nine-month periods ended September
30, 2001 are not fairly comparable with the operating results for the three- and
nine-month periods ended September 30, 2000 because of an intervening business
combination transaction that closed on July 30, 2000. In connection with this
business combination the Company acquired all of the issued and outstanding
stock of Yifan.com, Inc. in exchange for newly issued shares of the Company's
common stock. For further information on this business combination transaction,
refer to the financial statements and footnotes thereto for the year ended
December 31, 2000 included in the Company's Annual Report on Form 10-KSB.
3. Summary of Significant Accounting Policies
------------------------------------------
(a) Reverse merger method of accounting
-----------------------------------
Following the acquisition, the former management of Yifan.com, Inc.
became the management of the Company and the former stockholders of Yifan.com
were issued approximately 92% of the outstanding shares of the Company's $.008
par value common stock.
In accordance with generally accepted accounting principles, the
Company's acquisition of Yifan.com has been accounted for as a reverse merger.
As a result, Yifan.com has been treated as the acquiring entity and the Company
has been treated as the acquired entity for accounting purposes, even though the
Company is the acquiring entity for legal purposes.
The historical financial information of Yifan.com, Inc. has become the
historical financial information of the Company in connection with the
acquisition. Similarly, the historical equity and earnings of Yifan.com, Inc.
prior to the acquisition have been retroactively restated for the equivalent
number of shares to be received in connection with the acquisition.
The balance sheet reflects the financial position of the Company as of
September 30, 2001 and December 31, 2000. The related statements of operations,
cash flow and stockholders' equity reflect the operations of the Company for the
three- and nine-month periods ended September 30, 2001.
Page 6
YIFAN COMMUNICATIONS, INC.
NOTES TO Consolidated FINANCIAL STATEMENTS
3. Summary of Significant Accounting Policies--continued
-----------------------------------------------------
(b) Use of estimates
----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(c) Revenue recognition
-------------------
During the three-month period ended September 30, 2001, the Company
realized $10,541 in advertising revenue, $26,314 in revenue from software sales
and $342,060 in revenue from merchandising transactions. After deducting the
associated cost of goods sold, the Company's merchandising activities
contributed approximately $48,356 in gross profit during the three-months ended
September 30, 2001.
During the nine-month period ended September 30, 2001, the Company
realized $29,008 in advertising revenue, $31,264 in revenue from software sales
and $848,547 in revenue from merchandising transactions. After deducting the
associated cost of goods sold, the Company's merchandising activities
contributed approximately $112,826 in gross profit during the nine months ended
September 30, 2001.
Advertising revenues and revenue from software sales are recognized when
earned, and merchandising revenues are recognized when the products are shipped
to the purchaser.
In future periods, the Company expects to generate revenues from a
variety of sources including:
o Retail sales from its yifanmall.com web site
o Wholesale grocery sales from its grocer2grocer web site
o Web solutions including software sales and web site development,
o Hosting and maintenance service fees, and
o Advertising service fees.
The company now serves more than 3 million page views per day from which
revenue can be generated.
(d) Non-cash compensation and legal fees
------------------------------------
During 2000, the Company issued 180,000 shares of Common Stock as
compensation under an administrative services agreement and 360,000 shares of
Common Stock as compensation under a legal services agreement. For accounting
purposes, all such transactions were recorded at a value of $.89 per share.
Non-cash administrative and legal fees of $160,200 were charged to expense
during the nine-month period ended September 30, 2001. Non-cash administrative
and legal fees of $240,300 were charged to expense during the nine-month period
ended September 30, 2001. The Company does not anticipate significant non-cash
expenses for administrative and legal fees in future periods.
(e) Net Income (loss) per share
---------------------------
Net income or loss per share is computed by dividing the net income or
loss for the period by the weighted average number of common shares outstanding
during the period. For presentation purposes, the number of shares outstanding
during the period ended June 30, 2001 has been restated to give retroactive
effect to a 1 for 40 reverse stock split effected in September 2000. The company
showed a net income for the first time in the quarter ending September 30, 2001.
4. Concentration of Risks
During the three-month period ended September 30, 2001, the Company
generated approximately $10,542 in advertising revenue, as compared with
approximately $6,184 in advertising revenue for the three-months ended June 30,
2001. Website advertisement income increased as a direct result of an increase
in web traffic. The company now serves more than 3 million page views per day.
Page 7
YIFAN COMMUNICATIONS, INC.
NOTES TO Consolidated FINANCIAL STATEMENTS
4. Concentration of Risks --continued
----------------------------------
During the three-month period ended September 30, 2001, the Company
generated approximately $342,060 in merchandising revenue, as compared with
$353,821 in merchandising revenue for the preceding three-months.
Since the Company's advertising and merchandising activities did not
commence until the fourth quarter of the year ended December 31, 2000, it is
impossible to predict whether there will be significant concentrations of risk
in future periods. The Company expects the revenue from its 24/7 Media contract
to comprise the bulk of its advertising revenue until additional advertising
sponsorships can be negotiated. The Company does not anticipate a limited
customer base for its future merchandising activities.
5. Unaudited Pro Forma Statement of Operations for the six months ended
--------------------------------------------------------------------
June 30, 2000
- -------------
YIFAN COMMUNICATIONS INC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
Historical
---------------------------
Yifan.com Smart Games Combined
Inc. Interactive Companies
---------- ---------- ----------
Revenues $ 0 $ 0 $ 0
General and Administrative 51,334 8,815 60,149
---------- ---------- ----------
Operating Income (Loss) (51,334) (8,815) (60,149)
Extraordinary Item -- 197,970 197,970
---------- ---------- ----------
Net Income (Loss) ($ 51,334) $ 189,155 $ 137,821
(a) Basis of presentation
---------------------
The unaudited pro forma statement of operations for the six months ended
June 30, 2000 is presented as if the Yifan acquisition occurred at the beginning
of the period. The unaudited pro forma statement of operations may not
necessarily be indicative of the results which would actually have occurred if
the Yifan acquisition had been in effect on the date or for the period indicated
or which may result in the future.
(b) Description of Yifan acquisition
--------------------------------
On July 30, 2000, the Company entered into a business combination
agreement Yifan.com, inc., a New York corporation, and all its stockholders. In
connection With this agreement:
(i) The Company affected a 1 for 40 reverse split of its common stock
and increased its authorized capital;
(ii) The stockholders of Yifan.com, Inc. contributed all of their
interest in Yifan.com, Inc. to the Company solely in exchange for
11,994,750 shares of post-reverse split common stock;
(iii) The company issued 179,921 shares of post-reverse split common
stock to certain finders who assisted in the negotiation of the
transaction;
Page 8
Item 2. Plan of Operations.
Prior Operations of Smart Games Interactive
Yifan Communications, Inc. (the "Company") was previously known as Smart
Games Interactive, Inc. ("Smart Games"). In 1998, Smart Games liquidated
substantially all its inventories and other operating assets and used the
proceeds to reduce its' outstanding liabilities. At December 31, 1998, Smart
Games had no material assets and substantial unpaid liabilities. Smart Games did
not generate any revenues in 1999 or the first 7 months of 2000.
In connection with the implementation of a restructuring plan, Smart
Games sold 15,000,000 shares of its $.0002 par value common stock ("Old Common")
to Tobem Investments, Ltd. for $75,000 in cash on March 31, 2000. Smart Games
then commenced discussions to negotiate settlement its' debts. As a result of
these negotiations, Smart Games creditors ultimately agreed to accept aggregate
cash payments of $88,107 in full and final settlement of all outstanding debts.
Immediately prior to the closing of the Yifan Transaction, Smart Games had no
ongoing operations, no material assets and no material liabilities.
Liquidity and Capital Resources
On September 30, 2000, Yifan.com had $1,704,467 in total assets,
including $419,405 in cash, $57,173 in equipment, $472,939 in capitalized
software development costs and $397,500 in goodwill. At that date, Yifan.com had
$0 in liabilities and net stockholders' equity of $1,707,467.
On December 31, 2000, we had $2,130,292 in total assets, including
$303,376 in cash, $295,645 in accounts receivable and prepaid expenses, $73,792
in equipment, $534,799 in capitalized software development costs and $922,500 in
investments and goodwill. At that date, we had $110,468 in current liabilities.,
resulting in a net stockholders' equity of $2,019,824.
On September 30, 2001, we had $1,806,344 in total assets, including
$145,100 in cash, $13,488 in accounts receivable and prepaid expenses, $64,495
in equipment, $646,261 in capitalized software development costs and $937,000 in
investments and goodwill. At that date, we had $12,574 in current liabilities.,
resulting in a net stockholders' equity of $1,793,770.
Results of Operations
OVERVIEW. During the nine-month period ended September 30, 2001, we
realized $29,008 in advertising revenue, $31,264 in revenue from product sales
and $848,547 in revenue from merchandising transactions. After deducting the
associated cost of goods sold, our merchandising activities contributed
approximately $112,826 in gross profit during the nine months ended September
30, 2001.
We incurred a net loss of $226,012 during the nine-month period ended
September 30, 2001. After adjusting for $240,300 in non-cash compensation
expense and $14,657 in non-cash depreciation expense, our EBITDA for the
six-month period ended September 30, 2001 was $28,945. During the nine-month
period ended September 30, 2001, we invested $5,151 in new equipment and
approximately $101,100 in software development.
In future periods, we expect to generate revenues from a variety of
sources including:
o Retail sales from our yifanmall.com web site
o Wholesale grocery sales from our grocer2grocer web site
o Web solutions including software sales and website development,
o Hosting and maintenance service fees, and
o Advertising service fees.
Page 9
The company now serves more than 3 million page views per day from which
revenue can be generated
ADVERTISING ACTIVITIES. During the fourth quarter of 2000, we realized
$13,183 in advertising revenue under a contract with Double-Click. During the
first quarter of 2000, our revenue under the Double-Click contract was $12,283.
During the second quarter of 2000, we terminated our contract with Double-Click
and entered into a new agreement with 24/7 Media, Inc. As a result, our
advertising revenue during the second quarter of 2001 declined to $6,184. We
believe this decline in advertising revenue during the second quarter is solely
attributable to the transition from Double-Click to 24/7 Media and that our
advertising revenue in future periods will be greater under the 24/7 Media
agreement than they were under the Double-Click contract. Advertising revenue
increased in the third quarter due directly to an increase in web traffic. We
expect that revenue from our contract with 24/7 Media will constitute the bulk
of our advertising revenue until additional sponsorships can be negotiated.
MERCHANDISING ACTIVITIES. During the fourth quarter of the year ended
December 31, 2000, we generated $102,998 in revenue from merchandising
activities and after deducting the associated cost of goods sold, our
merchandising activities contributed approximately $6,000 in gross profit.
During the first quarter of 2001, our revenue from merchandising activities
increased to $152,667 and our gross profit from merchandising activities
increased to $7,000. During the second quarter of 2001, our revenue from
merchandising activities increased to $353,821 and our gross profit from
merchandising activities increased to $34,064. We do not anticipate a limited
customer base for our merchandising activities.
WEBSITE DEVELOPMENT ACTIVITIES. During third quarter of 2001, our revenue
from website development activities was $26,313. Website advertisement income
increased in the quarter ended September 30, 2001. This increase was caused
directly by the increase in web traffic. The company currently serves more than
3 million page views per day. We expect our revenues from website development
activities to increase in future periods and do not anticipate a limited
customer base for these activities.
NON-CASH EXPENSES. During 2000, we issued 180,000 shares of Common Stock
as compensation under an administrative services agreement and 360,000 shares of
Common Stock as compensation under a legal services agreement. For accounting
purposes, all such transactions were recorded at a value of $.89 per share.
Non-cash administrative and legal fees of $240,300 were charged to expense
during the nine-month period ended September 30, 2001. We not anticipate
significant non-cash expenses for administrative and legal fees in future
periods.
Plan of Operations for Our Company
The company showed a profit for the first time in the quarter ended
September 30, 2001. We anticipate that our Company may incur operating losses in
the foreseeable future due to a high level of planned operating and capital
expenditures, increased sales and marketing costs, additional personnel costs,
greater levels of product development and our overall expansion strategy. It is
likely that our operating losses may increase in the future and we may never
sustain profitability.
At September 30, 2001, we had $1,793,770 in stockholders' equity and
$146,014 in net current assets. We believe our net current assets will be
adequate to provide for our operating and capital expenses for a period of not
more than three months from the date of this Report. Thereafter, we will need
additional capital to pay our operating expenses and finance our planned
expansion.
We will need at least $3 to $5 million in additional capital in the
immediate future. In addition, long-term capital requirements are difficult to
plan in the rapidly changing Internet industry. We currently expect that we will
need capital to pay our ongoing operating costs, fund additions to our portal
network and computer infrastructure, pay for the expansion of our sales and
marketing activities and finance the acquisition of complementary assets,
technologies and businesses. We intend to pursue additional financing as
opportunities arise.
Page 10
Our ability to obtain additional financing in the future will be subject
to a variety of uncertainties. The inability to raise additional funds on terms
favorable to us, or at all, would have a material adverse effect on our
business, financial condition and results of operations. If we are unable to
obtain additional capital when required, we will be forced to scale back our
planned expenditures, which would adversely affect our growth prospects.
We have the authority to issue 100,000,000 shares of Common Stock and
10,000,000 shares of preferred stock without a vote of the stockholders. A total
of 13,726,951 shares of Common Stock were issued and outstanding on December 31,
2000 and at the date of this Report.
The Board will have the authority to issue all or any part of our
authorized and unissued capital stock to raise additional capital or finance
acquisitions. The Board will also have the authority to fix the rights,
privileges and preferences of the holders of Preferred Stock, which may be
superior to the rights of holders of the Common Stock. It is likely that we will
seek additional equity capital and attempt to acquire other companies or
operating assets in the future as we develop our business and implement our
growth strategy. A future issuance of additional shares of Common Stock or
Preferred Stock will probably dilute the percentage ownership interest of our
current shareholders and may dilute the book value per share of the Company's
outstanding equity securities.
As a result of our limited operating history, our business model and our
growth strategy are unproven. We cannot be certain that our business model and
our growth strategy will be successful or that we will be able to compete
effectively, achieve market acceptance or otherwise address the risks associated
with our existing and proposed business activities.
Part 2. Other Information
Item 1 Legal Proceedings
None
Item 2 Changes in Securites
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
Mr. Primitivo Iglesias voluntarily resigned his position as president and
chief executive officer on August 15, 2001. Mr. Yifan He has been appointed as
our new President since then.
Item 6 Reports on Form 8-K
None
Page 11
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
September 10, 2001
Yifan Communications, Inc.
By: /s/ Yifan He
-------------------------------------
Yifan He, Principal Executive Officer,
Principal Financial Officer, Principal
Accounting Officer and Director
Page 12