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, 2002
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 November 13, 2002, 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]
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, 2002 and 2001 5
Consolidated Statement of Operation for the Six-Month
Periods ended September 30, 2002 and 2001 6
Consolidated Statement of Cash Flow for the Periods
ended September 30, 2002 and 2001 7
Notes to Consolidated Financial Statements 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 12
Item 5 Other Information 12
Item 6 Reports of Form 8 - K 12
Signatures 12
2
Part I Financial Information
Item 1 Financial Statements
Yifan Communications, Inc.
Consolidated Balance Sheet
September 30, December 30,
2002 2001
ASSETS
Current Assets
Cash in banks ........................... $ 78,933 $ 6,571
Accounts receivable ..................... 162,123 179,881
Prepaid expenses ........................ 2,677 2,676
------------ ------------
Total Current Assets ....................... 243,733 189,128
------------ ------------
Fixed Assets
Computer and software equipment ......... 82,609 91,028
Accumulated depreciation ................ (38,583) (32,504)
------------ ------------
Total Fixed Assets ......................... 44,026 58,524
------------ ------------
Other Assets
Capitalized Software .................... 646,261 646,261
Goodwill ................................ 937,000 937,000
------------ ------------
Total other assets ......................... 1,583,261 1,583,261
------------ ------------
Total assets ............................... $ 1,871,020 $ 1,830,913
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .............................. $ 1,140 $ 1,198
Credit Cards .................................. 65 $ 0
Wages payable and Accrued Payroll Taxes ....... 3,424 14,922
Loan from Shareholder ......................... 259 0
------------ ------------
Total Current Liabilities ........................ 4,888 16,120
Long Term Liabilities ............................ 0 0
------------ ------------
Total liabilities ................................ 4,888 16,120
------------ ------------
3
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 ................................ (490,074) (336,382)
----------- -----------
Total Stockholders' Equity ....................... $ 1,866,132 $ 2,019,824
----------- -----------
Total Liabilities and Equity ..................... $ 1,871,020 $ 2,130,292
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
Yifan Communications, Inc.
Consolidated Statement of Income (Loss)
Three-Months Ended
September 30, September 30,
2002 2001
Income
Merchandise Sales ..................... $ 472,641 $ 368,373
Less: Cost of Goods Sold .............. 411,461 330,558
------------- -------------
Gross Margin on Merchandise Sales ..... 61,180 37,815
Advertising Revenue ................... 10,477 10,541
Hosting................................ 1,200 0
Software Consulting ................... 14,993 0
------------- -------------
Gross Profit ............................. 87,850 48,356
Operating Expenses
Administrative Expenses ............... $ 7,500 $ 4,463
Professional Fees ..................... 3,000 1,525
Payroll Expenses ...................... 10,904 12,522
Consulting services ................... 23,868 1,500
Network Expenses ...................... 31,032 4,921
Advertising ........................... 684 99
Auto Expense .......................... 2,014 2,539
Telephone expenses .................... 469 806
Rent .................................. 0 0
Travel & Entertainment ................ 152 0
Shipping and Freight .................. 489 896
------------- -------------
Total Operating Expense .................. 80,112 $ 29,271
------------- -------------
Net Operating Income (Loss) .............. $ 7,738 $ 19,085
------------- -------------
Total Taxes ........................... 0 0
------------- -------------
Net Income (loss) after taxes ............ $ 7,738 $ 19,085
------------- -------------
Other deductions
Depreciation .......................... 4,834 5,563
------------- -------------
Total other deductions ................... 4,834 5,563
------------- -------------
Other Income
Interest income ....................... 37 0
------------- -------------
Net Income (loss) for the period ......... $ 2,942 $ 13,521
============= =============
Net Income (loss) per common share ....... $ .00 $ .00
============= =============
Weighted average number of common
shares outstanding ..................... 13,726,951 13,726,951
============= =============
The accompanying notes are an integral part of these financial statements.
5
Yifan Communications, Inc.
Consolidated Statement of Income (Loss)
Nine-Months Ended
September 30, September 30,
2002 2001
Income
Merchandise Sales ..................... $ 1,154,401 $ 879,811
Less: Cost of Goods Sold .............. 1,017,060 795,993
------------- -------------
Gross Margin on Merchandise Sales ..... 137,341 83,818
Advertising Revenue ................... 49,221 29,007
Hosting................................ 2,200 0
Software Consulting ................... 22,393 0
------------- -------------
Gross Profit ............................. 211,155 112,825
Operating Expenses
Administrative Expenses ............... $ 12,191 $ 86,393
Professional Fees ..................... 5,728 163,226
Payroll Expenses ...................... 29,173 30,769
Consulting services ................... 39,118 5,325
Network Expenses ...................... 44,969 22,150
Advertising ........................... 984 2,225
Auto Expense .......................... 3,985 6,405
Telephone expenses .................... 1,355 3,176
Rent .................................. 0 1,369
Travel & Entertainment ................ 234 489
Shipping and Freight .................. 1,573 2,653
------------- -------------
Total Operating Expense .................. 139,310 $ 324,180
------------- -------------
Net Operating Income (Loss) .............. $ 71,845 $ (211,355)
------------- -------------
Total Taxes ........................... 0 0
------------- -------------
Net Income (loss) after taxes ............ $ 71,845 $ (211,355)
------------- -------------
Other deductions
Depreciation .......................... 14,500 14,657
------------- -------------
Total other deductions ................... 14,500 14,657
------------- -------------
Other Income
Interest income ....................... 65 0
------------- -------------
Net Income (loss) for the period ......... $ 57,410 $ (226,012)
============= =============
Net Income (loss) per common share ....... $ .00 $ (.02)
============= =============
Weighted average number of common
shares outstanding ..................... 13,726,951 13,726,951
============= =============
The accompanying notes are an integral part of these financial statements.
6
Yifan Communications, Inc.
Consolidated Statement of Cash Flows
Nine-Months Ended
Sept. 30, Sept. 30,
2002 2001
Cash flow from operating activities
Net income (loss) ............................. $ 57,410 $(226,012)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization ................. 6,079 14,627
(Increase) decrease in accounts receivable .... 17,757 45,430
(Increase) decrease in prepaid exp. & other ... 0 236,757
Increase (decrease) in current liabilities .... (11,232) (97,894)
Total adjustments ................................ 12,604 198,920
---------- ----------
Net cash provided (used) by operating activities . 70,014 $ (27,163)
---------- ----------
Cash flows from investing activities
Cash purchases of equipment ................... 1,603 (5,150)
Capitalized Software Development .............. 0 (111,462)
Acquisition ................................... 0 (14,500)
---------- ----------
Net cash provided (used) by investing activities . 65 (131,112)
---------- ----------
Net increase (decrease) in cash .................. 71,682 (158,275)
Cash at beginning of period ...................... 6,571 303,376
---------- ----------
Cash at end of period ............................ $ 78,933 $ 145,101
========== ==========
The accompanying notes are an integral part of these financial statements.
7
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 audited financial statements have been prepared in
accordance with generally accepted accounting principles.
3. Summary of Significant Accounting Policies
(a) Reverse merger method of accounting
None
(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, 2002, the Company
realized approximately $10,477 in advertising revenue, and approximately
$472,641 in revenue from merchandising transactions. After deducting the
associated cost of goods sold, the Company's merchandising activities
contributed approximately $61,180 in gross profit. Advertising revenues are
recognized when earned and grocery diversion revenues are recognized when the
products are shipped to the purchaser.
During the nine-month period ended September 30, 2002, the Company
realized approximately $49,221 in advertising revenue and approximately
$1,154,401 in revenue from merchandising transactions. After deducting the
associated cost of goods sold, the Company's merchandising activities
contributed approximately $137,341 in gross profit. Advertising revenues are
recognized when earned and grocery diversion revenues are recognized when the
products are shipped to the purchaser.
8
During the three-month period ended September 30, 2001, the Company
realized approximately $10,541 in advertising revenue and approximately $368,373
in revenue from merchandising transactions. After deducting the associated cost
of goods sold, the Company's merchandising activities contributed approximately
$37,815 in gross profit. Advertising revenues are recognized when earned and
grocery diversion revenues are recognized when the products are shipped to the
purchaser.
During the nine-month period ended September 30, 2001, the Company
realized approximately $29,007 in advertising revenue and approximately $879,811
in revenue from merchandising transactions. After deducting the associated cost
of goods sold, the Company's merchandising activities contributed approximately
$83,818 in gross profit. Advertising revenues are recognized when earned and
grocery diversion 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:
- Retail sales from its yifanmall.com web site - Wholesale grocery sales,
from its grocer2grocer web site - Web solutions including software sales
and web site development - Hosting and maintenance service fees, -
Advertising service fees.
(d) Non-cash compensation and legal fees
None
(e) Net income or 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.
4. Concentration of Risks
During the nine-month period ended September 30, 2002, the Company
generated approximately $49,221 in advertising revenue from contracts with
DoubleClick, and 247RealMedia, Inc. It also generated approximately $1,154401 in
revenue from merchandising transactions.
The Company expects the revenue from its DoubleClick and 247RealMedia
contracts 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.
Item 2. Plan of Operations.
Results of Operations.
At September 30, 2002, Yifan.com had $1,871,020 in total assets, including
$78,933 in cash, $164,800 in accounts receivable and prepaid expenses, $82,609
in equipment and $646,261 in capitalized software development costs. At that
date, Yifan.com had $4,888 in liabilities and net stockholders' equity of
$1,871,020.
9
At September 30, 2001, Yifan.com 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
goodwill. At that date, the company had $12,574 in current liabilities,
resulting in a net stockholders' equity of $1,806,344.
We have never generated revenues from web hosting, software sales or
business services.
We showed a net income of $57,410 during the nine-month period ended
September 30, 2002. After adjusting for $14,500 in non-cash depreciation expense
and $65 in dividend income, our EBITDA for the nine-month period ended September
30, 2002 was $71,845.
The company showed a net loss of ($226,012) during the nine-month period
ended September 30, 2001. After adjusting for $14,657 in non-cash depreciation
expense, our EBITDA for the nine-month period ended September 30, 2001 was
($211,355).
10
Plan of Operations for Our Company
The 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 not be able to sustain
profitability.
At September 30, 2002, we had $1,866,132 in stockholders' equity and
$238,845 in net current assets. We believe our net current assets will only be
adequate to provide for the operating and capital expenses of the company for a
short period of time 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 near
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.
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 September
30, 2002 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
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. Application of the
non-amortization provisions of the Statement did not have a material effect on
our financial position or operations.
11
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
None
Item 6 Reports on Form 8-K
None
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.
November 13, 2002
Yifan Communications, Inc.
By: /s/ Yifan He
----------------------------
Yifan He, Principal Executive
Officer,
Principal Financial Officer,
Principal Accounting Officer and
Director
12