FILER:
COMPANY DATA:
- ------------
COMPANY CONFORMED NAME: YP.NET, INC.
CENTRAL INDEX KEY: 0000875711
STANDARD INDUSTRIAL CLASSIFICATION: INTERNET ADVERTISING
IRS NUMBER: 85-0206668
STATE OF INCORPORATION: NEVADA
FISCAL YEAR END: 930
FILING VALUES:
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FORM TYPE: 10-QSB
SEC ACT:
SEC FILE NUMBER: 00-24217
FILM NUMBER:
BUSINESS ADDRESS:
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STREET 1: 4840 EAST JASMINE STREET, SUITE 105
CITY: MESA
STATE: AZ
ZIP: 85205
BUSINESS PHONE: 480-654-9646
MAIL ADDRESS:
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STREET 1: 4840 EAST JASMINE STREET, SUITE 105
CITY: MESA
STATE: AZ
ZIP: 85205
U.S. Securities and Exchange Commission
Washington, D.C. 20549
____________________
FORM 10-QSB
____________________
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
[X] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
For the transition period from _____________ to _______________
____________________
Commission File Number 0-24217
____________________
YP.NET, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 85-0206668
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4840 East Jasmine St. Suite 105
Mesa, Arizona 85205
(Address of principal executive offices)
(480) 654-9646
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 X No
--- ---
The number of shares of the issuer's common equity outstanding as of March
31, 2001 was 41,450,798 shares of common stock, par value $.001.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
YP.NET, INC.
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Comparative Balance Sheets
as of March 31, 2001 . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations
for the Three Months and Six Months Ended
March 31, 2001 (unaudited) and 2000 (unaudited). . . . . . 3
Consolidated Statements of Cash Flows
for the Three Months and Six Months
Ended March 31, 2001 (unaudited) and 2000 (unaudited). . . . 4
Notes to the Consolidated Financial Statements . . . . . . . 5-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . 8-11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 11-12
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 12
SIGNATURES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
YP.NET, INC.
CONSOLIDATED
BALANCE SHEETS
AS OF MARCH 31, 2001
ASSETS
MARCH 31,
2001
(unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents $ 271,962
Accounts Receivable 2,817,783
Prepaid Expenses 118,280
Direct Response Marketing - Net 151,753
Deferred income taxes 836,488
-----------
TOTAL CURRENT ASSETS 4,196,267
-----------
PROPERTY AND EQUIPMENT:
Furniture and Fixtures 197,260
Equipment & Computer Equipment 258,183
Leasehold Improvements 317,507
LESS: Accumulated Depreciation and Amortization (337,762)
-----------
TOTAL PROPERTY AND EQUIPMENT 435,188
-----------
OTHER ASSETS:
Intangible Assets 5,010,000
Deposits 23,287
LESS: Accumulated Amortization (858,333)
-----------
TOTAL OTHER ASSETS 4,174,954
-----------
TOTAL ASSETS 8,806,410
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade Accounts Payable 63,578
Income Taxes Payable 841,363
Accrued Expenses 46,494
Finova Line-Of-Credit - Note 1 499,992
Short-Term Notes Payable - Note 2 524,726
Short-Term Notes Payables - Note 3 863,216
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TOTAL CURRENT LIABILITIES 2,839,370
-----------
LONG-TERM LIABILITIES:
Deferred income taxes 105,868
-----------
TOTAL LONG-TERM LIABILITIES 105,868
-----------
TOTAL LIABILITIES 2,945,238
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STOCKHOLDER' EQUITY:
Common Stock $.001 par value, 50,000,000 shares 40,836
40,615,464 and 40,560,464 issued and outstanding
For March 31, 2001.
Additional Paid In Capital 5,445,587
Treasury Stock (179,822)
Retained Earnings 554,572
-----------
TOTAL STOCKHOLDERS' EQUITY 5,861,173
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,806,410
-----------
See the accompanying notes to these unaudited financial statements
2
YP.NET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
Three Month Six Month Three Month Six Month
Ended Ended Ended Ended
March 31, 2000 March 31, 2000 March 31, 2000 March 31, 2000
----------------------------------------------------------------------
(unaudited)
INCOME
Revenue $ 4,138,223 $ 8,664,846 $ 3,826,077 $ 6,123,557
COST OF SALES 2,440,354 5,320,758 1,653,116 2,728,601
---------------- ---------------- ---------------- ----------------
GROSS PROFIT 1,697,869 3,344,088 2,172,961 3,394,956
---------------- ---------------- ---------------- ----------------
SELLING EXPENSES 24,666 35,472 985 20,783
GENERAL AND ADMINISTRATIVE 564,800 1,138,504 777,242 2,312,101
DEPRECIATION AND AMORTIZATION 158,803 304,715 156,006 311.254
---------------- ---------------- ---------------- ----------------
TOTAL EXPENSES 748,269 1,478,692 934,233 2,644,138
---------------- ---------------- ---------------- ----------------
EARNINGS (LOSS) FROM OPERATIONS 949,599 1,865,397 1,238,728 750,818
---------------- ---------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
Other Income 6,776 16,212 13,204 35,247
Interest Income/(Expense) (99,572) (268,398) (200,506) (372,154)
---------------- ---------------- ---------------- ----------------
TOTAL OTHER INCOME (EXPENSE) (92,796) (252,186) (187,302) (336,907)
---------------- ---------------- ---------------- ----------------
Net Income (Loss) Before Income Taxes 856,804 1,613,210 1,051,426 413,911
Provisions for Income Taxes 277,819 515,830 (100,494) -0-
---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ 578,984 $ 1,097,380 $ 1,151,920 $ 413,907
================ ================ ================ ================
EARNINGS (LOSS) PER SHARE:
Basic Earnings (Loss) Per Share $ 0.01 $ 0.03 $ 0.03 $ 0.01
================ ================ ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON 39,667,871 40,108,701 40,695,622 40,230,409
================ ================ ================ ================
SHARES OUTSTANDING
Diluted Earnings (Loss) Per Share $ 0.01 $ 0.03 $ 0.03 $ 0.01
================ ================ ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON 39,667,871 40,108,701 40,695,622 40,230,409
================ ================ ================ ================
AND COMMON SHARE EQUIVALENTS OUTSTANDING
See the accompanying notes to these unaudited financial statements
3
YP.NET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
Three Six Months Three Six Months
Months Ended Months Ended
Ended March 31, Ended March March 31,
March 31, 2001 31, 2000 2000
2001
----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (unaudited)
Net Income $ 578,984 $ 1,097,380 $ 1,151,920 $ 413,911
Adjustments to reconcile net income to net cash used by
operating activities.
Depreciation and amortization 45,045 77,208 36,006 71,254
Officers & Consultants paid with common stock -0- 59,700 25,691 763,169
Common stock surrendered (384,310) (494,310) 120,000 240,000
Amortization of intellectual property 113,750 227,500 -0- -0-
Income tax benefit 277,819 515,830 (100,494) -0-
(Increase) decrease in assets
Trade accounts receivable 1,140,986 888,099 (1,135,405) (1,706,357)
Customer acquisition costs -0- 138,846 (45,237) 147,588
Other Receivables -0- -0- -0- 77,182
Prepaid and other current assets 127,150 (57,503) -0- (116,231)
Other assets (10,000) (10,000) (3,081) 31,368
Increase (decrease) in liabilities
Trade accounts payable (547,225) (39,439) 311 16,469
Accrued liabilities (92,241) (281,707) (69,222) (195,226)
Deferred revenue -0- -0- -0- (81,190)
---------------- ---------------- ---------------- ----------------
NET CASH PROVIDED (USED) IN
OPERATING ACTIVITIES 2,121,604 (19,511) (338,062) 1,249,959
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (9,697) (9,697) (3,349) (159,594)
---------------- ---------------- ---------------- ----------------
NET CASH USED BY INVESTING
ACTIVITIES (9,697) (3,349) (159,594) (9,697)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from line of
credit -0- -0- 65,940 897,648
Principal repayments on notes payable (1,237,631) (2,059,559) (100,000) (550,665)
---------------- ---------------- ---------------- ----------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (2,059,559) (34,060) 346,983 (1,237,631)
NET INCREASE (DECREASE) IN CASH 2,630 52,349 (56,920) (147,673)
CASH AT BEGINNING OF PERIOD 269,331 219,613 164,570 255,323
---------------- ---------------- ---------------- ----------------
CASH AT END OF PERIOD $ 271,961 $ 271,961 $ 107,650 $ 107,650
================ ================ ================ ================
See the accompanying notes to these unaudited financial statements
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
1. Basis of Presentation
The accompanying unaudited financial statements represent the consolidated
financial position of YP.Net, Inc. ("the Company") for the three and six months
ended March 31, 2001 and 2000 include results of operations of the Company and
Telco Billing, Inc. ("Telco"), its wholly owned subsidiary, and cash flows for
the three and six months ended March 31, 2001 and 2000. These statements have
been prepared in accordance with generally accepted accounting principles
("GAAP")for interim financial information and the instructions for Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments to these unaudited financial
statements necessary for a fair presentation of the results for the interim
period presented have been made. The results for the three and six months
period ended March 31, 2001 may not necessarily be indicative of the results for
the entire fiscal year. These financial statements should be read in
conjunction with the Company's Form 10-KSB for the year ended September 30,
2000, including specifically the financial statements and notes to such
financial statements contained therein.
2. Summary of Significant Accounting Policies
The accounting policies followed by the Company, and the methods of applying
those policies, which affect the determination of its financial position,
results of operations and cash flows are summarized below:
Cash and Cash Equivalents
- ----------------------------
Cash and cash equivalents include all short-term liquid investments that are
readily convertible to known amounts of cash and have original maturities of
three months or less. At times cash deposits may exceed government insured
limits.
Principles of Consolidation
- -----------------------------
The consolidated financial statements include the Company and its wholly owned
subsidiary, Telco. All intercompany accounts in consolidation have been
eliminated.
Revenue Recognition
- --------------------
The Company's revenue is generated by customer subscription of directory and
advertising services. Revenue is recognized monthly for services subscribed in
that specific month. The Company utilizes outside billing companies to transmit
billing data that is forwarded to Local Exchange Carriers ("LECs"). Monthly
subscription fees are included on the telephone bills of the LEC customers. The
Company recognizes revenue based on net billings accepted by the LECs. Net
billings result from gross submittals reduced by billing records rejected by the
LEC's and adjusted for resubmittals. Revenue is reported gross of fees charged
by the billing company and the LEC's.
Fair Value of Financial Instruments
- ---------------------------------------
5
The carrying amounts for investments in marketable securities, trade accounts
receivable, trade accounts payable, accrued liabilities and notes payable,
approximate their fair value due to the short maturity of these instruments.
The Company has determined that the recorded amounts approximate fair value.
Net Earnings Per Share
- -------------------------
Net earnings per share are calculated using the weighted average number of
shares of common stock outstanding during the year. The Company has adopted the
provisions of Statement of Financial Accounting Standards No. 128, Earnings Per
Share.
Use of Estimates
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
This may affect the reported amounts of assets and liabilities and disclosure of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Stock-Based Compensation
- -------------------------
Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), established accounting and disclosure requirements
using a fair-value based method of accounting for stock-based employee
compensation. In accordance with SFAS 123, the Company has elected to continue
accounting for stock based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25.
3. Business Combination
On June 16, 1999, the Company exchanged 17,000,000 shares of its common stock
for all of the common stock of Telco (2,000 shares).
4. Intangible Asset
In connection with the Company's acquisition of Telco, the Company is required
to provide payment of licensing fees for the use of the Internet domain name or
Universal Resource Locator ("URL") Yellow-Page.Net. The URL is recorded at its
---------------
cost net of accumulated amortization. The Company's management believes that
the Company's business is dependent on its ability to utilize this URL given the
recognition of the "yellow page" term. The Company's management believes that
the current revenue and cash flow generated using the URL Yellow-Page.Net
---------------
substantiates the net book value of the asset. The Company will periodically
analyze the net book value of this asset and determine if impairment has
incurred. The URL is amortized on an accelerated basis over the twenty-year
term of the licensing agreement.
5. Notes Payable and Line of Credit
Notes payables are recorded and interest is accrued in accordance with the
individual terms of each note. Notes payable at March 31, 2001 were as follows:
Note 1: The Company entered into an agreement with Finova Capital Corporation
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("Finova") for a $3,000,000 revolving line of credit with interest payable at
the prime rate plus three percent. The amount available to be drawn under the
line of credit is limited to 80% of eligible accounts receivable. At March 31,
2001 the line of credit had an outstanding balance of $499,992. Assets of the
Company, specifically accounts receivables, secure the line of credit. The line
of credit expires on August 31, 2003, and the institution may withdraw the line
with a notification within 90 days. Finova gave notice that it desires to
withdraw its line of credit. Since that time the Company has executed six
forbearance agreements dated August 15, 2000, November 3, 2000, January 3, 2001,
6
February 8, 2001, March 8, 2001, and May 8, 2001 respectively. Each Forbearance
Agreement has reduced the availability of funds to the Company from the Line of
Credit. The January 3, 2001 forbearance reduced the line of credit from
$1,500,000 to $1,000,000. The February 8, 2001 forbearance reduced the line of
credit from $1,000,000 to a ceiling of $750,000. The March 8, 2001 forbearance
reduced the line of credit from $750,000 to a ceiling of $500,000, April 8, 2001
reducing the line of credit from $500,000 to a ceiling of $250,000, and in May
8, 2001 again forbearance reduced the line of credit from $250,000 to a ceiling
of $125,000. Management, with the co-operation of Finova had already reduced
the outstanding Balance below the new ceiling prior to signing the new
forbearance. The Company can draw funds against the ceiling so long as eligible
accounts receivable, as collateral exceeds the ceiling. This existing
forbearance expires June 8, 2001
Note 2: The Company entered into a loan agreement with Mr. Joseph Van Sickle
- -------
during the acquisition of Telco under which Mr. Van Sickle lent $2,000,000 to
the Company. At March 31, 2001 this note payable had an outstanding balance of
$524,726. Mr. Van Sickle is a shareholder of the Company and owns approximately
one percent of the Company's outstanding stock. Mr. Van Sickle is not a member
of management and currently has no position on the Board of Directors of the
Company.
Note 3: The Company entered into an agreement with Matthew & Markson, Ltd., an
- -------
Antigua corporation ("M&M"), in conjunction with the acquisition of Telco for
the license of the URL Yellow-Page.Net. The Company agreed to pay M&M
---------------
$5,000,000 to license URL Yellow-Page.Net. At March 31, 2001 the M&M note
---------------
payable had an outstanding balance of $863,216. M&M owns approximately 20% of
the Company's outstanding stock.
6. Common Stock
Transactions in the Company's common stock issued for the acquisition of assets,
products, or services are accounted for at 90% of fair value. Fair value is
determined based on the closing price of the Company's common stock on the date
of the transaction, or the fair value of the asset, product, or service
received.
7. Income Taxes
The Company provides for income taxes based on the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which among
other things, requires that recognition of deferred income taxes be measured by
the provisions of enacted tax laws in effect at the date of financial
statements. The provision for income taxes for interim periods is calculated on
the basis of the expected effective rate for the full year.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and our plans and expectations. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed elsewhere in this Form 10-QSB or incorporated herein by reference. See
"Forward-Looking Statements" below.
OVERVIEW
YP.Net, Inc. ("we" or "our" refers to the "Company")was originally
incorporated in Nevada in 1996 as Renaissance Center, Inc. Renaissance Center
and Nuclear Corporation merged in 1997. Our articles of incorporation were
restated in July 1997 and our name was changed to Renaissance International
Group, Ltd. Our name was later changed to RIGL Corporation in July 1998. With
the acquisition of Telco Billing, Inc. ("Telco"), the Company shift of the focus
of our business and changed its name to YP.Net, Inc., effective October 1, 1999.
The new name was chosen to reflect our focus on our Internet-based yellow page
services.
We provide Internet-based yellow page listing services on our
Yellow-Page.Net and YP.Net Web sites. We acquired Telco in June 1999, changing
- --------------- ------
our primary business focus to become an Internet-based yellow page listing
service. Our websites serve as a search engine for yellow page listings in the
United States and Canada. We charge our customers for a preferred listing of
their businesses on our websites.
We have experienced continued increases in competition in the Internet
yellow page market, and continue to seek joint venture and investment
acquisition opportunities to potentially lessen the effects of competition in
the electronic yellow page markets.
We utilized direct mailings as our primary marketing program. We have
experienced some attrition in our customer base since September 2000. However,
we have implemented a customer contact programs with the goals of assisting us
in maintaining our customer base and growing our customer base without direct
mail marketing efforts. We resumed our direct mailing program in February 2001
on a limited basis. As of September 30, 2000, we had 130,592 customers
subscribing to our services. As of March 31, 2001, we had 103,187 customers. We
believe the decrease in our customer base for these periods was primarily the
result of natural attrition we have not sent a direct mailer to customers since
June 2000 due to our election to close any open issues with the Federal Trade
Commission. We have continued our customer contact program to attempt to
increase our customer satisfaction and limit customer attrition. This program
has and will continue to provide decrease in attrition and better customer
satisfaction.
Expenditures related to professional fees were significant in the three and
six months period ended March 31, 2001 and 2000. Management believes that these
expenditures will not be as significant in future periods. Management also
believes the professional fees expended to reach an agreement with the Federal
Trade Commission has adversely effected our current earnings for the three month
and six months ended March 31, 2001. Management is actively pursuing rescission
and cancellation of certain common and preferred stock that was previously
issued for services. Management has presently entered into a written offer to
settle this dispute with some of the recipients and the return of approximately
66% of the disputed shares held by those recipients (approximately 82,000
shares). If offers to settle are rejected, legal action regarding the disputed
shares may adversely affect our future earnings due to costs of potential
litigation. If we are successful in canceling some or all of these shares, our
total outstanding shares will decrease which could affect our earners per share.
8
On March 9, 2001, the Company retained S.G. Martin Securities LLC to serve
as its investment banker for a one year period commencing March 9, 2001. S.G.
Martin will assist in implementing the Company's strategic business and capital
formation plans and programs. They will also assist the Company in its
presentation to the brokerage community and with introductions to security firms
and brokers other than S.G.Martin.
Our new co-branded syndication with I411.com has provided our preferred
customers and those using our site to finds goods and services easier and
faster. This arrangement has allowed us to have additional advertising space on
our website which Management believes will bring in additional revenue. With
I411.com powering our sites we will have more pages with our "Look and Feel".
This has allowed us to have more control over content, which management believes
will help attract more people to our site. The company now has the ability to
sell syndicate yellow page sites. The company is already able to offer our
client visible storefronts. Through visible storefronts our clients will be able
to set up "Web Stores" easily and cheaply; complete with the ability to
utilitized credit cards to process orders. Management is currently testing these
products and believes that they have the potential to add income.
Management believes that our Direct Response Program if partnered with
other reputable companies could be an additional source of revenue. The Company
has embarked on a program to find and solicit promotional partners for its
Direct Response Program on a test basis.
RESULTS OF OPERATIONS
Our Internet yellow page services is currently the sole source of our
revenue. Revenues were $4,138,223 and $8,664,846 for the three and six month
periods ended March 31, 2001, respectively, compared to $3,826,077 and
$6,123,557 for three and six month periods ended March 31, 2000, respectively.
Until other sources of revenue are developed, our total revenues will be
directly dependent upon the number of customers subscribing to our preferred
listing service. We are presently, seeking other revenue sources from
advertising media through our new co-branding agreement with I411.com.
Cost of Sales were $2,440,354 and $5,320,758 for three and six month
periods ended March 31, 2001, respectively, compared to $1,653,116 and
$2,728,601 for three and six month periods ended March 31, 2000, respectively.
Cost of sales is comprised of dilution expenses, direct mailer marketing costs,
allowances for bad debt and our billing costs. Dilution expenses include
customer credits and any other receivable write-downs. Dilution expenses were
approximately $1,754,068 for the three months ended March 31, 2001 compared to
$945,000 for March 31, 2000. Cost of sales inclusive of dilution expenses has
primarily increased because the expenses are directly related to the increase in
revenue. Our cost of sales has increased also because an increase in dilution
primarily due to the increase in competitive local exchange carriers (CLEC) that
cannot be billed through the LEC's. We have made corrective steps to counter
the increase in CLEC's by billing on credit cards and ACH.
Selling expenses were $24,666 and $35,472 for three and six month periods
ended March 31, 2001, respectively, compared to $985 and $20,783 for three and
six month periods ended March 31, 2000, respectively. Selling costs are
primarily associated with general advertising and marketing of other revenue
sources.
9
General and administrative expenses were $564,800 and $1,138,504 for three
and six month periods ended March 31, 2001, respectively, compared to $777,242
and $2,312,101 for three and six month periods ended March 31, 2000,
respectively. These costs are primarily related to customer service staffing,
which we believe provides better service to our customers. For the three months
ended March 31, 2001 our professional fees were 264,228 compared to $163,000 for
March 31, 2000, due primarily to defending and negotiating with the Federal
Trade Commission related to the allegations that the Company engaged in the
settlement of advertising in June 2000.
Interest expense net of interest income was $92,796 and $252,186 for three
and six month periods ended March 31, 2001, respectively, compared to $187,302
and $336,907 for three and six month periods ended March 31, 2000, respectively.
Interest expense was a result of our outstanding debt. This outstanding debt
included debt incurred in connection with the acquisition of the URL
Yellow-Page.Net. The reduction in interest expense is due to a decrease in the
- ----------------
amount outstanding under our credit facility with Finova Capital Corporation,
Matthew Markson Ltd, and to Joseph and Helen Van Sickle.
Net Income was $578,985 or $.01 per diluted share, and $1,097,380 or $.03
per diluted share, for the three and nine month periods ended March 31, 2001,
compared to $1,151,920, or $.03 per diluted share, and $413,907, or $.01 per
diluted share, for the three and nine month periods ended March 31, 2000. Unlike
prior periods the Net Income for the current period reflects the provision for
income taxes required now that the tax loss carry forwards for Telco billing
have all been utilized. The decrease in Net income is primarily due to the
attrition of our customers from reduced marketing efforts due to the Federal
Trade Commssion's requirements. We have made corrective changes to increase
marketing efforts.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $2,121,605 for the six months
period ended March 31, 2001, compared to cash used by operating activities of
($338,062) for the six months period ended March 31, 2000. Revenue was generated
solely from providing electronic yellow page listing advertising. Cash from
operating activities for the six months period ended March 31, 2001 was used to
increase our prepaid expenses ($57,503), and to decrease trade accounts
receivables by $888,099; customer acquisition $138,846; trade accounts payable
($39,429); and accrued liabilities ($281,707). Cash in the six months period
ended March 31, 2000 was generated by an increase in our accounts receivables
$1,706,3577, in prepaid assets $116,231, and in accounts payable $16,469 and by
decreases in customer acquisition costs $147,588; other receivables $77,182;
accrued liabilities ($195,226); and deferred revenue ($81,190).
Cash used by investing activities was $9,697 for the six month period ended
March 31, 2001, compared to $159,594 for the six months ended March 31, 2000. We
purchased additional computer equipment of $9,697 for March 31, 2001 compared to
$159,594 for March 31, 2000.
Cash provided by financing activities was $2,059,559 for six month period
ended March 31, 2001, compared to cash provided by financing activities of
$346,983 for the six months ended March 31, 2000. The cash used represents
total payments made to reduce the principle balances of the outstanding notes
for March 31, 2001. Cash provided by financing activities was $346,983 for the
six months period ended March 31, 2000; we realized cash of $897,648 from
advances on our line of credit and utilized $550,665 to pay notes payable. The
$550,665 represents the total payments made to reduce the principal balances of
the outstanding notes.
We have an existing asset collateralized line of credit with Finova Capital
Corporation ("Finova"). Because of certain defaults under the terms of the loan
agreement, which occurred under prior management, Finova exercised its right to
terminate the agreement. We have entered into letter agreements whereby Finova
has agreed to forbear the exercise of any of its available remedies through June
8, 2001. Our line of credit has been reduced to $1,400,000 on November 6, 2000;
reduced to $1,200,000 on December 5, 2000; reduced to $1,000,000 on January 6,
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2001; reduced to $750,000 on February 8, 2001; reduced to $500,000 on March 8,
2001, reduced to $250,000 April 8, 2001, reduced to $0.00 on June 8, 2001.
Management is seeking other potential lenders that specialize in financing
businesses utilizing LEC billings. We do not anticipate these changes to have
an adverse affect on our ability to continue operating at our current levels.
OTHER CONSIDERATIONS
There are numerous factors that affect the Company business and the results
of its operations. Sources of these factors include general economic and
business conditions, federal and state regulation of our business activities,
the level of demand for our services, the level and intensity of competition in
the Internet-based yellow page industry and the pricing pressures that may
result, our ability to develop new services based on new or evolving technology
and the market's acceptance of those new services, our ability to timely and
effectively manage periodic product transitions, the services, customer and
geographic sales mix of any particular period, and our ability to continue to
improve our infrastructure (including personnel and systems) to keep pace with
the growth in its overall business activities.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-QSB
contains express or implied forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act.
We intend that such forward-looking statements be subject to the safe harbors
created thereby. We may make written or oral forward-looking statements from
time to time in filings with the SEC, in press releases, quarterly conference
calls or otherwise. The words "believes," "expects," "anticipates," "intends,"
"forecasts," "project," "plans," "estimates" and similar expressions identify
forward-looking statements. Such statements reflect our current views with
respect to future events and financial performance or operations and speak only
as of the date the statements are made.
Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. Our actual
results may differ materially from such statements. Factors that cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Form 10-QSB, as well as those discussed in our Form 10-KSB
which is incorporated by reference in this Form 10-QSB.
Although we believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate with
the result that there can be no assurance the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded, as a representation that the
future events, plans, or expectations contemplated will be achieved. We
undertake no obligation to publicly update, review, or revise any
forward-looking statements to reflect any change in our expectations or any
change in events, conditions, or circumstances on which any such statements
based. Our filings with the SEC, including the Form 10-KSB, may be accessed at
the SEC's Web site, www.sec.gov.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
YP.Net is involved in various legal proceedings and claims as described in
our Form 10-KSB for the year ended September 30, 2000.
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We settled YP.Net, Inc vs. BJM Consulting, Inc. ("BJM") on January 11,
2001. BJM has agreed to return 500,000 shares of the Company's common stock that
was issued by prior management and has agreed to return the stock since they did
not perform the services required by its contract. By a further prior agreement
YP.Net purchased additional consulting services from BJM Consulting Inc. Payment
for those new services that began in October of 2000 was 500,000 shares of
common stock and was to be paid in full upon completion and was not deemed
earned until fully completed. Those service were to include but not be limited
to advise the Company on the availability of potential lenders in the Company's
market niche, assist in evaluating potential Public Relation firms and Investor
Relations firms, and contact market makers to regain our listing on the OTC:
Bulletin Board and to provide other financial services. These services will be
rendered in a three months period and was completed during this period. No other
material developments have occurred in any of these proceedings. The costs
associated with these legal proceedings could be significant and could adversely
affect the results of our future operations. An unfavorable result in any of
these proceedings could also adversely affect our operations. The stock issued
to BJM Consulting, Inc. is restricted common shares under 144 rules with a
one-year restriction. The stock has been recorded at 90% of average bid and ask
price as of January 11, 2001.
On June 26, 2000 the Federal Trade Commission ("FTC") filed a complaint
against the Company and other defendants alleging that the Company and other
defendants were engaged in deceptive advertising practices and sought a
preliminary injunctive and the appointment of a receiver business and to freeze
all our assets. The alleged deceptive practices related to a check mailer
solicitation utilized in our marketing activities. On July 13, 2000, YP.Net and
all other defendants entered into a global settlement with the FTC, resulting in
dismissal of the receiver and termination of the asset freeze. Subsequently, we
have met with the FTC and anticipate a final settlement of the matter to be
negotiated. The legal fees and litigation related to the FTC allegation have
adversely affected our profitability and caused our marketing efforts to be
greatly curtailed. We have entered into a Stipulated Final Judgement and Order
For Permanent Injunction and other Equitable Relief with the FTC. We are
waiting final signature from the Honorable Stephen M. McNamee and at that time
the order will become permanent. The company has never admitted liability. The
order, in the opinion of management, should not materially and adversely effect
the Company's business.
ITEM 2. CHANGES IN SECURITIES
In January 11, 2001 YP.Net issued 500,000 common shares to BJM Consulting,
Inc. as payment for completion of specific services rendered. In a separate
agreement that resolved a dispute between the parties BJM Consulting, Inc,
agreed to return all of the pervious shares received for work not completed in
the amount of 500,000 common shares. (Refer to Part II, Item 1 "Legal
Proceedings") The shares were issued in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
10.1 S.G. Martin Securities LLC
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended March 31,
2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
YP.NET, INC.
Dated: March 15, 2001 By /s/ Angelo Tullo
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Angelo Tullo, Chairman of the Board
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