UNITED STATES
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: Commission File Number
September 30, 2000 0-23672
YIFAN COMMUNICATIONS, INC.
----------------------------
(Exact name of Small Business Issuer as specified in its charter)
Delaware 34-1692323
-------- ----------
(State of Incorporation) (IRS Employer Identification Number)
41-60 Main Street, Suite 210
Flushing, Queens, New York 11355
(727) 443-3434
------------------------------------------------------------
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.0002 par value
Common Stock Purchase Warrants
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
32,500,000 SHARES OF COMMON STOCK, $.0002 PAR VALUE, AT July 30, 2000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12 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.
Yes [_] No [X]
Traditional Small Business Disclosure Format (Check One):
Yes [_] No [X]
<PAGE>
INTRODUCTORY NOTE
This Quarterly Report on Form 10-QSB gives effect to a series of
transactions that resulted in a business combination between Yifan
Communications Inc., a Delaware corporation formerly known as Smart Games
Interactive, Inc., and Yifan.com, Inc, a New York corporation. This business
combination was completed on July 30, 2000. The following references are used in
this Quarterly Report on Form 10-QSB:
o "Yifan Transaction" refer to the business combination described in
our Current Report on Form 8-K dated August 16, 2000.
o "Yifan" shall refer to the activities of Yifan.com, Inc. and its
predecessor Yifan LLC prior to the Yifan Transaction.
o "We," "us" and "our" and the company shall refer to our ongoing
operations after the closing Yifan Transaction.
This Quarterly Report on Form 10-QSB refers to and incorporates the
following documents by reference:
o Current Report on Form 8-K filed July 30, 2000 (the "July 8-K");
o Current Report on Form 8-K filed August 14, 2000 (the "August
8-K");
o Definitive Information Statement Pursuant to Section 14(f) of the
Exchange Act dated August 2, 2000.
o Definitive Information Statement Pursuant to Section 14(c) of the
Exchange Act dated September 1, 2000; and
o Current Report on Form 8-K filed September 25, 2000 (the
"September 8-K").
This Current Report on Form 10-QSB and other documents that we file
with the SEC contain forward-looking statements about our business containing
the words "believes," "anticipates," "expects" and words of similar import.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause our actual results or performance to be
materially different from the results or performance anticipated or implied by
such forward-looking statements. Given these uncertainties, stockholders are
cautioned not to place undue reliance on forward-looking statements. Except as
specified in SEC regulations, we have no duty to publicly release information
that updates the forward-looking statements contained in this Report. An
investment in our Company involves various risks and uncertainties, including
those described elsewhere in this Report and the documents incorporated herein.
Additional risks will be disclosed from time to time in our future SEC filings.
<PAGE>
YIFAN COMMUNICATIONS, INC.
f/k/a SMART GAMES INTERACTIVE, INC.
UNAUDITED INTERIM BALANCE SHEET
September 30, 2000
<TABLE>
<CAPTION>
ASSETS Unaudited
09/30/00
<S> <C>
Current Assets
Cash 419,405
Prepaid Administrative Fees 120,150
Prepaid Legal Fees 240,300
Inventory --
Prepaid Expenses and Other Current Assets --
----------
Total Current Assets 779,855
Property, Plant & Equipment
Property, Plant & Equipment 69,079
Less: Accumulated Depreciation (11,906)
----------
Total Property, Plant & Equipment 57,173
Other Assets
Goodwill 397,500
Software Development 472,939
-----------
Total Other Assets 870,439
TOTAL ASSETS 1,707,467
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Notes Payable --
Accounts Payable --
Accrued Settlement Costs --
Other Accrued Expenses --
----------
TOTAL CURRENT LIABILITIES --
Stockholders' Equity
New Preferred Stock at Par Value ($.008)
10,000,000 shares authorized, -0- shares
issued and outstanding --
New Common stock at par value ($.008)
100,000,000 shares authorized, 13,526,951
shares issued and outstanding 108,215
Paid-in-Capital 1,802,990
Accumulated Deficit (203,738)
Total Shareholders' Equity (Deficit) 1,707,467
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (Deficit) 1,707,467
</TABLE>
<PAGE>
YIFAN COMMUNICATIONS, INC.
f/k/a SMART GAMES INTERACTIVE, INC.
UNAUDITED INTERIM STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three-months Ended Six-months Ended
Unaudited Audited Unaudited Audited
09/30/00 09/30/99 09/30/00 09/30/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales -- 7,000 -- 7,000
Cost of Goods Sold -- -- -- --
Gross Margin -- 7,000 -- 7,000
Selling, General & Administrative Costs 28,484 17,175 75,012 19,257
Research and Development Costs -- -- -- --
Depreciation & Amortization 123,921 1,665 128,726 1,665
Loss from Operations (152,405) (11,840) (203,738) (13,922)
Other Expenses -- -- -- --
Loss before Extraordinary Items (152,405) (11,840) (203,738) (13,922)
Extraordinary Items -- -- -- --
Net Income (Loss) (152,405) (11,840) (203,738) (13,922)
Accumulated Deficit, Beginning of the Period (51,334) (2,082) -- --
Accumulated Deficit, End of the Period (203,739) (13,922) (203,738) (13,922)
Net Income (Loss) per common share
before Extraordinary item (0.01) -- (0.01) --
Net Income (Loss) per common share (0.01) -- (0.01) --
Shares used in calculation 13,526,951 -- 13,526,951 --
of Net Income (Loss) per share
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YIFAN COMMUNICATIONS, INC.
f/k/a SMART GAMES INTERACTIVE, INC.
STATEMENT OF CASH FLOWS
For the Six Months Ended September 30, 2000 & 1999
Unaudited Audited
09/30/00 09/30/99
<S> <C> <C>
Cash Flows from Operating Activities
Loss before Extraordinary Activities (203,738) (13,922)
Extraordinary Item 0 --
---------- --------
Net Income (Loss) (203,738) (13,922)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used by Operating Activities:
Depreciation & Amortization 128,726 1,665
Cash Provided (used) by the change in:
Accounts Receivable -- --
Fixed Assets (35,777) (32,531)
Prepaid Expenses & Other Assets (1,168,719) (107,000)
Accounts Payable (10) 1,472
Notes Payable -- --
Accrued Expenses -- --
Net Cash used by Operating Activities (1,279,518) (150,316)
Cash Flow from Investing Activities -- --
Cash Flow from Financing Activities -- --
Common Stock Issued 1,558,782 150,316
---------- --------
Net Cash Provided From Financing Activities 1,558,782 150,316
Net Increase (Decrease) in Cash 280,264 --
Cash and Cash Equivalents, Beginning of year 139,141 --
Cash and Cash Equivalents, End of Year 419,405 --
</TABLE>
<PAGE>
PART I - ITEM 2
MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
History and Change in Control
In connection with the Yifan Transaction, we had a change in management
control and the former management of Yifan.com became the management our
company. In connection with the Yifan Transaction, the also we had a change in
ownership control and the former stockholders of Yifan.com were issued
approximately 12 million shares of our common stock, or approximately 92% of our
outstanding stock.
In accordance with generally accepted accounting principles, the Yifan
Transaction was accounted for as a reverse merger. As a result, Yifan has been
treated the acquiring entity for accounting purposes and Yifan Communications
has been treated as the acquired entity.
The historical financial information of our company is now based on the
historical operations of Yifan and the historical stockholders' equity and
earnings per share of Yifan prior to the acquisition have been retroactively
restated for the equivalent number of shares received in connection with Yifan
Transaction.
Results of Operations
Comparison of Three Months Ended September 30, 2000 and 1999. We
incurred a net loss of ($152,405), or approximately ($.01) per share, for the
three months ended September 30, 2000 as compared with a net loss of ($11,840)
for the comparable period in 1999. The $140,565 increase in our net loss is
principally attributable to the following:
Amortization of Non-Cash Legal Fees. In July 2000, we entered into a
one-year agreement for certain legal services and issued 360,000 shares of our
common stock to our attorneys as pre-paid legal fees. During the three months
ended September 30, 2000, we amortized $80,100 of the foregoing fees as a
current expense. We expect to incur comparable non-cash charges for legal fees
for the next three calendar quarters.
Amortization of Non-Cash Administrative Fees. In August 2000, we
entered into a one-year administrative management agreement and issued 180,000
shares of our common stock as pre-paid administrative fees. During the three
months ended September 30, 2000, we amortized $40,050 of the foregoing fees as a
current expense. We expect to incur comparable non-cash charges for legal fees
for the next three calendar quarters.
General and Administrative Expenses. Other general and administrative
expenses increased 66% from $17,175 for the nine months ended September 30, 1999
to $28,484 for the comparable period in 2000. This increase results from
increased costs related to technology development, web hosting, network expenses
and travel. General and administrative expenses are expected to continue at
comparable levels for the remainder of 2000 assuming operations continue at
current levels.
Comparison of Nine Months Ended September 30, 2000 and 1999. We incurred
a net loss of ($203,738), or approximately ($.02) per share, for the nine months
ended September 30, 2000 as compared with a net loss of ($13,922) for the
comparable period in 1999. The $189,816 increase in our net loss is principally
attributable to the following:
Amortization of Non-Cash Legal Fees. In July 2000, we entered into a
one-year agreement for certain legal services and issued 360,000 shares of our
common stock to our attorneys as pre-paid legal fees. During the three months
ended September 30, 2000, we amortized $80,100 of the foregoing fees as a
current expense. We expect to incur comparable non-cash charges for legal fees
for the next three calendar quarters.
Amortization of Non-Cash Administrative Fees. In August 2000, we
entered into a one-year administrative management agreement and issued 180,000
shares of our common stock as pre-paid administrative fees. During the three
months ended September 30, 2000, we amortized $40,050 of the foregoing fees as a
current expense. We expect to incur comparable non-cash charges for legal fees
for the next three calendar quarters.
General and Administrative Expenses. Other general and administrative
expenses increased 290% from $19,257 for the nine months ended September 30,
1999 to $75,012 for the comparable period in 2000. This increase results from
increased costs related to technology development, web hosting, network expenses
and travel.
Financial Condition
At September 30 2000 we had $1,707,467 in total assets, including
$419,405 in cash, $57,174 in equipment and $1,230,889 in capitalized software
development costs and other intangibles. At September 30 2000, we had $1,707,467
in stockholders' equity.
We did not receive any revenue during the nine-month period ended
September 30 2000. During the nine-months ended September 30 2000, we invested
approximately $290,619 in software development, paid a $350,000 merger and
acquisition fee and incurred a net loss of $203,738.
We have 13,526,951 shares of common stock issued and outstanding on the
date of this Quarterly Report on Form 10-QSB.
Acquisition of Yifan.com, Inc
On July 30, 2000, we entered into a reorganization agreement with Yifan
and all of its stockholders. In connection with the Yifan Transaction:
o We changed our name to Yifan Communications, Inc.;
o We implemented a 1 for 40 reverse split of our common stock
effective September 25, 2000;
o We increased our authorized capital to 100,000,000 shares of
common stock and 10,000,000 shares of preferred stock effective
September 25, 20000;
o We issued 11,994,750 shares of common stock to the former
stockholders of Yifan;
o We issued 179,921 shares of common stock to certain finders who
assisted in the negotiation of the Yifan Transaction; and
o Yifan paid a $350,000 merger and acquisition fee.
Detailed information on the Yifan Transaction is included in our August
8-K which is incorporated herein by this reference.
Plan of Operations
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.
We need to acquire the necessary skills, staff and systems to operate as
a public company. This could substantially increase our operating expenses and
occupy our senior management's time. The financial statements included in this
Information Statement do not reflect the anticipated future costs of operating
as a public company.
We have total stockholders' equity of $1,707,467 at the date of this
Quarterly Report on Form 10-QSB, including $419,405 in cash. We believe these
cash resources will be adequate to provide for our operating expenses for a
period of three to six months from the date of this Quarterly Report on Form
10-QSB. 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, our long-term capital requirements will be
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, including:
o Changes in the demand for online information services;
o Changes in the nature of our business resulting from the
introduction of new services;
o Changes in the nature of our business resulting from our entry
into new markets;
o Changes in our future results of operations, financial condition
and cash flows;
o Changes in investors' perceptions of and appetite for
Internet-related securities;
o Changes in capital markets in which we may seek to raise
financing; and
o Changes in general economic, political and other conditions in our
target markets.
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.
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 II - ITEMS 2 AND 4
CHANGES IN SECURITIES AND
SUBMISSION OF MATTERS FOR CONSENT OF SECURITY HOLDERS
On September 25, 2000, we implemented a 1 share for 40 reverse split of
our common stock in accordance with the provisions of an amendment to our
Certificate of Incorporation that was filed with the Secretary of State of
Delaware on September 22, 2000 (the "Amendment"). We did not submit the
Amendment for a vote of all our stockholders. Instead, the Amendment was adopted
based on the written consent of two stockholders who collectively owned
approximately 57% of our outstanding stock on the date of the Amendment. These
consenting stockholders also ratified the adoption of an Incentive Stock Plan
for the benefit of our employees and ratified the appointment of the firm of
Want & Ender to serve as our independent auditors for the year ended December
31, 2000.
The actions taken by written consent were described in a definitive
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934 that was mailed to our stockholders at least 20 days before the taking
of such action.
PART II - ITEM 6
REPORTS ON FORM 8-K
On July 31, 2000, we filed a Current Report on Form 8-K that discloses a
merger transaction between the Issuer and a newly created subsidiary that
changed our name from Smart Games Interactive, Inc. to Yifan Communications,
Inc. The July 8-K also discussed the filing of the Amendment and the execution
of a business combination agreement with Yifan.
On August 15, 2000, we filed a Current Report on Form 8-K that provided
detailed information on the terms of the Yifan Transaction and our future
operations. The August 8-K also included audited financial statements for Yifan
and pro forma financial information on the combined companies.
On September 25, 2000, we filed a Current Report on Form 8-K that
provided detailed information on our implementation of a 1 share for 40 reverse
split of our outstanding common stock, the ratification of our Incentive Stock
Plan and the ratification of the appointment of the firm of Want & Ender to
serve as our independent auditors for the year ended December 31, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized:
YIFAN COMMUNICATIONS, INC
-----------------------------
Date: Sept 22, 2000 /s/ Jeffery Kraft,
Chief Financial Officer
------------------- ------------------------------
