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 MARCH 31, 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 April 14, 2000, 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 March 31, 2001 and 2000 4
Consolidated Statement of Cash Flow for the Three-Month
Periods ended March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Pro Forma Statement of Operations for the Three-Month
Period ended March 31, 2000 8
Item 2 Plan of Operations 9
Part II Other Information
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Default upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Reports of Form 8 - K 10
Signatures 11
Part I Financial Information
Item 1 Financial Statements
Yifan Communications, Inc.
Consolidated Balance Sheet
March 31, 2001 December 31, 2000
ASSETS (Unaudited)
Current Assets
Cash in banks ........................... $ 113,243 $ 303,376
Accounts receivable ..................... 89,748 54,830
Prepaid expenses ........................ 123,488 240,815
----------- -----------
Total Current Assets ....................... 326,478 599,021
----------- -----------
Fixed Assets
Computer and software equipment ......... 91,029 85,878
Accumulated depreciation ................ (15,406) (11,906)
----------- -----------
Total Fixed Assets ......................... 75,623 73,972
----------- -----------
Other Assets
Capitalized Software .................... 597,583 534,799
Goodwill ................................ 937,000 922,500
----------- -----------
Total other assets ......................... 1,536,583 1,457,299
----------- -----------
Total assets ............................... $ 1,938,683 $ 2,130,292
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .............................. $ 33,539 $ 97,468
Wages payable ................................. 13,000 13,000
----------- -----------
Total Current Liabilities ........................ 46,539 110,468
Long Term Liabilities ............................ 0 0
----------- -----------
Total liabilities ................................ 46,539 110,468
----------- -----------
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 ................................ (464,060) (336,382)
----------- -----------
Total Stockholders' Equity ....................... $ 1,892,145 $ 2,019,824
----------- -----------
Total Liabilities and Equity ..................... $ 1,938,683 $ 2,130,292
=========== ===========
The accompanying notes are an integral part of these financial statements.
Yifan Communications, Inc.
Consolidated Statement of Income (Loss)
Three-Months Ended
March 31, 2001 March 31, 2000
Income
Merchandise Sales ..................... $ 152,667
Less: Cost of Goods Sold .............. 145,679
------------
Gross Margin on Merchandise Sales ..... 6,988
Advertising Revenue ................... 12,283
------------
Gross Profit ............................. 19,271
Operating Expenses
Administrative Expenses ............... 41,833 $ 300
Professional Fees ..................... 80,101
Consulting services ................... 8,640
Network Expenses ...................... 7,838
Advertising ........................... 1,598
------------
Auto Expense .......................... 1,545
Telephone expenses .................... 1,066
Rent .................................. 677
Travel & Entertainment ................ 418
Shipping and Freight .................. 613 0
------------ ------------
Total Operating Expense .................. 144,320 $ 300
------------
Net Operating Income (Loss) .............. ($ 125,049) ($ 300)
------------
Total Taxes ........................... 0 0
------------ ------------
Net Income (loss) after taxes ............ ($ 125,049) ($ 300)
------------ ------------
Other deductions
Depreciation .......................... 3,500 1,042
------------ ------------
Total other deductions ................... 3,500 1,042
------------ ------------
Other Income
Interest income ....................... 869
------------
Net Income (loss) for the period ......... ($ 127,680) ($ 1,342)
============ ============
Net Income (loss) per common share ....... ($ .01) ($ .00)
============ ============
Weighted average number of common
shares outstanding ..................... 13,726,951 316,206
============ ============
The accompanying notes are an integral part of these financial statements.
Yifan Communications, Inc.
Consolidated Statement of Cash Flows
Three-Months Ended
March 31, 2001 March 31, 2000
Cash flow from operating activities
Net income (loss) ............................. ($127,680) ($ 1,342)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization ................. 3,500 1,042
(Increase) decrease in accounts receivable .... (34,918)
(Increase) decrease in prepaid expenses ....... 117,327
(Increase) decrease in other assets .......... (79,284)
Increase (decrease) in current liabilities .... (63,929) 300
Total adjustments ................................ (57,304) 1,342
--------- ---------
Net cash provided (used) by operating activities . ($184,984) $ 0
--------- ---------
Cash flows from investing activities
Cash purchases of equipment ................... (5,151)
---------
Net cash provided (used) by investing activities . (5,151)
---------
Net increase (decrease) in cash .................. (190,135)
Cash at beginning of period ...................... 303,376 0
--------- ---------
Cash at end of period ............................ $ 113,241 $ 0
========= ---------
The accompanying notes are an integral part of these financial statements.
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-month period ended March 31, 2001 are not
fairly comparable with the operating results for the three-month period ended
March 31, 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 1O-KSB filed on May 14, 2000.
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
December 31, 2000. The related statements of operations, cash flow and
stockholders' equity reflect the operations of the Company for the year ended
December 31, 2000
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 March 31, 2001, the Company realized
approximately $12,283 in advertising revenue and approximately $152,667 in
revenue from merchandising transactions. After deducting the associated cost of
goods sold, the Company's merchandising activities contributed approximately
$7,000 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:
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..
(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. A
total of $120,150 in non-cash administrative and legal fees were charged to
expense during the three-month period ended March 31, 2001. The $120,150 balance
will be charged to expense during the three-month period ended June 30, 2001.
(e) Net 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 three-month period ended March 31, 2001, the Company generated
approximately $12,300 in advertising revenue from a contract with DoubleClick,
Inc. It also generated approximately $152,700 in revenue from merchandising
transactions.
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 DoubleClick 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 three-month period
ended March 31, 2000
YIFAN COMMUNICATIONS INC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
Historical
Yifan.Com Yifan Combined
Inc. Communications Companies
Revenues .......................... $ 0 $ 0 $ 0
Operating Expenses ................ 29,617
General And Administrative ........ 664 300 964
Depreciation And Amortization ..... 2,225 1,042 3,267
-------- -------- --------
Operating Income (Loss) ........... (32,547) (1,342) (33,889)
Other Income (Expenses) ........... 11 11
Net Income (Loss) ................. ($32,547) ($ 1,342) ($33,878)
(a) Basis of presentation
The unaudited pro forma statement of operations for the three-month period ended
March 31, 2001 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:
(a) The Company affected a 1 for 40 reverse split of its common stock and
increased its authorized capital;
(b) 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;
(c) The company issued 179,921 shares of post-reverse split common stock to
certain finders who assisted in the negotiation of the transaction;
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.
Results of Operations.
At March 31, 2000, Yifan.com had $588,240 in total assets, including
$104,617 in cash, $42,703 in equipment and $440,919 in capitalized software
development costs. At that date, Yifan.com had $5,353 in liabilities and net
stockholders' equity of $582,887.
At 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.
At March 31, 2001, we had $1,938,683 in total assets, including $113,243 in
cash, $213,236 in accounts receivable and prepaid expenses, $75,623 in
equipment, $599,583 in capitalized software development costs and $937,000 in
investments and goodwill. At that date, we had $46,539 in current liabilities.,
resulting in a net stockholders' equity of $1,892,145.
We have never generated revenues from web hosting, software sales or
business services. During the three-month period ended March 31, 2000, we
generated $12,283 in advertising revenue from our contract with DoubleClick and
$152,667 in revenue from merchandising transactions. After deducting the
associated cost of goods sold, our merchandising activities contributed
approximately $7,000 in gross profit. We expect that revenue from our contract
with DoubleClick will constitute the bulk of our advertising revenue until
additional sponsorships can be negotiated. We do not anticipate a limited
customer base for our grocery diversion activities.
We incurred a net loss of $127,680 during the three-month period ended
March 31, 2001. After adjusting for $120,150 in non-cash compensation expense
and $3,500 in non-cash depreciation expense, our EBITDA for the three-month
period ended March 31, 2001 was ($4,030). During the three-month period ended
March 31, 2001, we invested $5,101 in new equipment and approximately $65,000 in
software development.
Plan of Operations for Our Company
We anticipate that our Company will continue to incur operating losses for
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 will increase in the future and we may never
achieve or sustain profitability.
At March 31, 2001, we had $1,892,145 in stockholders' equity and $279,940
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.
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 13,726,951shares 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
On March 15, 2001 we hired Mr. Primitivo Iglesias. Mr. Iglesias has
served as a member of our board of directors since March 15, 2001 and will
become our president and chief executive officer on May 15, 2001.
Ms. Sally A. Fonner served as a member of our board of directors until
March 15, 2001, when she voluntarily resigned her position on the board to
accommodate the appointment of Mr. Iglesias. Ms. Fonner's resignation was not
based on any disagreement with the Company on any matter relating to the
Company's operations, policies or practices and she will continue to serve
as our manager of administrative affairs until July 31, 2001.
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.
May 14, 2001
Yifan Communications, Inc.
By: /s/
----------------------------
Yifan He, Principal Executive
Officer,
Principal Financial Officer,
Principal Accounting Officer and
Director