SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(X) Quarterly Report pursuant to Section 13 or l5 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31,2001
OR
( ) Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from January 1,2001 to March 31,2001
Commission File Number: 0-28514
YAPALOT COMMUNICATIONS HOLDINGS INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 98-0160284
- ------------------------------ -----------------------
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification Number)
4884 Dufferin Street, Unit 1, Toronto, Ontario M3H 5S8
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(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: 416-736-8882
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N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
--- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 20,000,000 shares of Common Stock,
par value $0.001 per share were outstanding as of July 20,2001.
INDEX
PAGE
Part I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Balance Sheet as at March 31,2001 4
Interim Consolidated Statement of Changes in Shareholders'
Equity for the period ended March 31,2001 and for the period from
date of inception to December 31,2000 5
Interim Consolidated Statement of Operations for the period ended
March 31,2001 and for the period from date of inception to December
31,2000 6
Interim Consolidated Statement of Cash Flows for the period ended
March 31,2001 and for the period from date of inception to December
31,2000 7
Notes to Interim Consolidated Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis or Plan of Operation 11 - 12
Part II. OTHER INFORMATION 14
Item 3. Certain Relationships and Related Transactions 14
Item 4. Description of Securities 14
Item 5. Changes in Auditors' 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,2001
(Unaudited)
(Stated in U.S. Dollars)
March 31 December 31
2001 2000
-------- -----------
A S S E T S
CURRENT
Cash $ - $ 151,835
Accounts receivable 4,978 1,248
Sales taxes receivable 3,782 27,574
Prepaid and sundry 39,590 24,408
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$ 48,350 $ 205,065
CAPITAL ASSETS (Note 3) 1,004,450 1,060,173
---------- -----------
$ 1,052,800 $ 1,265,238
========== ===========
L I A B I L I T I E S
CURRENT
Bank indebtedness $ 102,716 $ -
Accounts payable and accrued liabilities 499,251 599,603
Current portion of bank term loan (Note 4) 34,479 34,479
---------- -----------
$ 636,446 $ 634,082
BANK TERM LOAN, Less current portion (Note 4) 133,739 133,739
SHAREHOLDERS' ADVANCES (Note 5) 302,793 301,111
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$ 1,072,978 $ 1,068,932
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SHAREHOLDERS' DEFICIT
SHARE CAPITAL ISSUED AND PAID UP (Note 6) $ 20,000 $ 20,000
CAPITAL IN EXCESS OF PAR VALUE 996,000 996,000
CUMULATIVE TRANSLATION ADJUSTMENT (82,600) (41,462)
CUMULATIVE IMPUTED INTEREST 28,888 20,983
DEFICIT (982,466) (799,215)
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$ (20,178) $ 196,306
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$ 1,052,800 $ 1,265,238
========== =============
See accompanying notes.
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(Stated in U.S. Dollars)
Accumulated
Common Shares Capital in Other
Paid Up Excess of Accumulated Comprehensive
Number Amount Par Value Deficit Income Total
-------- -------- ----------- ------------- --------------- ----------
FROM INCEPTION TO DECEMBER 31,2000
ISSUE OF COMMON SHARES
Founder shares issued at inception 16,000,000 $ 16,000 - $ - $ - $ 16,000
Shares issued in August,2000 4,000,000 4,000 996,000 - - 1,000,000
NET LOSS - - - (799,215) (20,479) (819,694)
BALANCE - December 31,2000 20,000,000 $ 20,000 996,000 $(799,215) $ (20,479) $ 196,306
FROM JANUARY 1,2001 TO MARCH 31,2001
NET LOSS - - - (183,251) (33,233) (216,484)
BALANCE - March 31,2001 20,000,000 $ 20,000 996,000 $(982,466) $ (53,712) $ (20,178)
See accompanying notes.
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(Unaudited)
(Stated in U.S. Dollars)
For the Period Ended
March 31 December 31
2001 2000
----------- ------------
(3 Months) (12 Months)
REVENUE $ 222,384 $ 168,273
------------ -----------
EXPENSES
Advertising and promotion $ 22,431 $ 389,086
Bad debts 11,292
-
Bank charges and interest 19,006 40,962
General and office 6,560 59,924
Insurance 36 5,862
Professional fees 71,180 161,182
Rent 7,834 24,892
Telephone and communication 91,273 223,359
Travel 512 20,411
Wages, commissions and benefits 128,241 226,960
Amortization 79,816 120,192
Less - Gain on foreign exchange (32,546) (305,342)
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$ 405,635 $ 967,488
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NET EARNINGS (LOSS) $ (183,251) $ (799,215)
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OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment $ (41,138) $ (41,462)
Imputed interest on shareholder loans 7,905 20,983
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$ (33,233) $ (20,479)
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DEFICIT - Beginning of period $ (799,215) $ -
NET EARNINGS (LOSS) FOR THE PERIOD (183,251) (799,215)
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DEFICIT - End of period $ (982,466) $ (799,215)
============ =============
LOSS PER COMMON SHARE (Note 7) $ (0.01) $ (0.05)
============ =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 20,000,000 17,529,412
============ =============
See accompanying notes.
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Stated in U.S. Dollars)
For the Period
Ended
March 31 December 31
2001 2000
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(3 Months) (12 Months)
CASH FROM (USED IN) OPERATIONS
Net loss $ (183,251) $ (799,215)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Amortization 79,816 120,192
Non-cash imputed interest 7,905 20,983
Changes in assets and liabilities relating to operations
Accounts receivable (3,730) (1,248)
Accounts payable and accrued liabilities (76,560) 572,028
Prepaid and sundry assets (15,182) (24,408)
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NET CASH USED IN OPERATIONS $ (191,002) $ (111,668)
------------ ------------
CASH USED IN INVESTING ACTIVITIES
Purchase of capital assets $ (24,093) $(1,180,364)
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CASH FROM FINANCING ACTIVITIES
Advances from shareholders $ 1,682 $ 301,111
Loan proceeds - 168,218
Capital shares issued - 1,016,000
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NET CASH FROM FINANCING ACTIVITIES $ 1,682 $ 1,485,329
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EFFECT OF EXCHANGE RATE CHANGES ON CASH $ (41,138) $ (41,462)
----------- -------------
NET INCREASE IN CASH DURING THE PERIOD $ (254,551) $ 151,835
CASH - Beginning of period 151,835 -
------------ -------------
CASH (INDEBTEDNESS) - End of period $ (102,716) $ 151,835
============ =============
See accompanying notes.
YAPALOT COMMUNICATIONS HOLDINGS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,2001
(Unaudited)
(Stated in U.S. Dollars)
The financial information for the period ended March 31,2001 presented in this
Form 10-QSB has been prepared from accounting records of Yapalot Communications
Holdings Inc. (the "Company") without audit. The information furnished reflects
all adjustments which are, in the opinion of management, necessary for a fair
statement of the results of this interim period. The results of operations for
the period ended March 31,2001 are not necessarily indicative of the results to
be expected for a full year.
1. NATURE OF OPERATIONS
Yapalot Communications Holdings Inc. was incorporated under the laws of the
State of Delaware on April 6,2000 and has adopted a fiscal year end of
December 31. The company's activities consist of the development and
deployment of Voice Over Internet Protocol (VoIP) network services around
the world as well as developing different communications solutions utilizing
VoIP technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Consolidation
These interim consolidated financial statements present the combination
of the interim financial statements of Yapalot Communications Holdings
Inc., a United States company, and its wholly-owned subsidiary, Yapalot
Communications Inc., a company incorporated under the laws of the
Province of Ontario, Canada on March 8,2000.
b) Basis of Financial Statements
These interim consolidated financial statements are stated in United
States dollars, the "reporting currency". The consolidated transactions
of Yapalot Communications Holdings Inc. have been recorded in Canadian
dollars, the "functional currency", and have been restated into United
States dollars at the period end exchange rates for balance sheet items
and the average exchange rate for the period for revenues, expenses,
gains and losses. Translation adjustments to the reporting currency are
included in equity.
c) Capital Assets and Amortization
Capital assets are carried at acquisition cost less accumulated
amortization. Amortization is provided annually by the company at rates
intended to amortize the assets over their estimated useful lives as
follows:
Computer equipment - 30% Declining balance basis
Computer software - 100% Declining balance basis
Furniture and fixtures - 20% Declining balance basis
Leasehold improvements - 20% of cost
Network communications equipment - 20% Declining balances basis
Where the company determines that circumstances indicate that the
carrying value of certain capital assets may not be recoverable, the
company's policy is to write the asset down to an estimate of the future
cash flows expected to result from the use of the asset and its eventual
disposition. Such an impairment loss will be charged to operations in
the current year.
d) Revenue Recognition
The Company records its revenue from customer contracts as services are
provided.
YAPALOT COMMUNICATIONS HOLDINGS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,2001
(Unaudited)
(Stated in U.S. Dollars)
e) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
f) Start-up and Other Pre-operating Expenses
Start-up and pre-operating expenses incurred by the Company are expensed
as incurred.
g) Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income", which was adopted by the
Company. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in an entity's financial
statements. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources.
h) Earnings (Loss) Per Share
Earnings (loss) per common share is based on the weighted average number
of common shares outstanding during the period.
i) General
These financial statements have been prepared in accordance with Unites
States generally accepted accounting principles (GAAP), as they relate
to these financial statements.
3. CAPITAL ASSETS
Accumulated Net Net
Cost Amortization 2001 2000
------ -------------- ------ ------
Computer equipment $ 146,111 $22,973 $ 123,138 $ 139,835
Computer software 72,867 26,754 46,113 52,355
Furniture and fixtures 67,152 6,906 60,246 63,417
Leasehold improvements 70,510 7,238 63,272 66,434
Network communication equipment 847,818 136,137 711,681 738,132
---------- -------- ---------- ----------
$1,204,458 $200,008 $1,004,450 $1,060,173
========== ======== ========== ==========
4. BANK TERM LOAN
One of the founding shareholders, Mr. Barzakay, arranged for a Canadian
Small Business Loan for the company, as part of his initial advance to the
company. As the company is liable for the debt and interest repayments, the
loan facility has been reflected as long term debt of the company. However,
as part of the intial funding agreement with the company, Mr. Barzakay has
agreed to reimburse the company annually for all principal and interest
payments. The loan is repayable in monthly payments of CDN$4,165 plus
interest at the Royal Bank prime rate plus 1.5 percent. The loan matures in
March,2005 and is personally guaranteed by Mr. Barzakay. The moneys that are
to be reimbursed to the company are included in prepaid and sundry assets.
YAPALOT COMMUNICATIONS HOLDINGS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,2001
(Unaudited)
(Stated in U.S. Dollars)
5. SHAREHOLDERS' ADVANCES
The balances due to shareholders are non-interest bearing, however in
accordance with generally accepted accounting policies, an interest rate of
7% was imputed in this non arms length arrangement. The imputed interest is
charged to operations and credited to stockholders' equity. The individual
shareholder advance amounts are as follows:
Marilyn Benlolo $ 302,793
===========
6. SHARE CAPITAL
Authorized
50,000,000 Common shares at $.001 par value
Issued
20,000,000 Common shares at $.001 par value $ 20,000
===========
7. LOSS PER COMMON SHARE
Loss per common share is calculated as the loss for the period divided by
the weighted average number of the Company's common stock outstanding.
Diluted loss per share does not differ from basic loss per share.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
We are a Voice Over IP telecommunications company whose objective is to create
shareholder value by developing operations and proprietary assets that generate
sustainable revenues and which yield long-term growth potential. Our operations
are located primarily in North America.
During the next few years, we expect to continue to implement our growth
strategy. Our growth strategy includes a global deployment of the Yapalot
Network through the following: (i) allow us to gain strategic position by
deploying Network Gateways in different parts of the world, (ii) improve asset
productivity, and (iii) improve growth potential in both emerging technologies
and key targeted vertical market sectors. To increase market share, we may also
attempt to acquire key competitors, as well as companies and assets that may
have important products and synergies with our existing operations and products.
Significant Developments
For the fiscal period ended March 31, 2001, we completed the launch of ten
initial gateways at a cost of $1,000,000. We have delayed the launch of the
previously proposed 22 additional gateways pending adequate financing of
approximately $2,500,000. The ten initial gateways were financed using the
private funds of our founding shareholders. We believe that we will generate
sufficient positive cash flow from operations to meet operating requirements.
This belief is founded on our current customer base revenue stream. Yapalot may
acquire Clarent equipment at reduced prices and favorable installment payment
terms on each Gateway which will allow for future development. In addition, we
are also working on Approved Agent Agreements which we anticipate will be
completed by year end. Management has also put plans into effect to
significantly build the current monthly customer acquisition base to
approximately 700. This growth is not expected to materialize until 3rd or 4rth
quarter of this year. The customer growth is expected to be accomplished through
a planned increase in advertising expenditures in 3rd quarter and the hiring of
additional sales staff during the 2nd quarter. If we do not generate sufficient
positive cash flow to meet cash requirements, we may, from time to time, seek to
raise capital from additional sources, including setting up lines of credit,
project specific financings and public or private debt or equity financings.
However, there can be no assurance that we will be able to obtain any sort of
financing on commercially acceptable terms, if at all.
Management has also detected a discrepancy in the initial liability due payable
to Yuval Barzakay. Although the liability still exists, it is held through a
financial institution, under the name of the corporation, as opposed to Yuval
Barzakay. This liability is a Canadian government-guarantee Small Business Loan
with Yuval Barzakay personally guaranteeing twenty five percent. As such Mr.
Barzakay pays all principal and interest payments on the loan to Yapalot on an
annual basis.
We are a holding company and have no independent operating history other than
through Yapalot Communications. Inc. Expenses for the period ended December 31,
2000 represent consolidated costs since inception.
COMPARISON OF THE PERIOD ENDED MARCH 31, 2001 TO THE PERIOD ENDED DECEMBER 31,
2000.
During the current quarter ended March 31, 2001, we maintained our current
customer base. No additional gateways were installed at this time. Marketing
initiatives have been reduced. We have also minimized our staffing to core
essentials which include programming, IT, customer service, and administrative.
This was a cost cutting initiative coherent with current market trends of
reducing overhead and streamlining operations towards faster profitability. Many
of todays start-up companies are faced with the hard reality that investment
banking financing and VC financing is a lot more difficult to come by as these
institutions are more reluctant to invest as they have seen the NASDQ and the
DOW decline so sharply. Institutions are listening to companies that can
demonstrate that they have the resolve to reduce costs, streamline operations,
and show a road to profitability sooner than later.
RESULTS OF OPERATIONS For the 3 months ended March 31,2001:
During this quarter ended March 31, 2001, we increased our revenue activities,
signing customers to contracted revenues amounting to $672,957, of which
$450,573 remains to be collected as the related service is provided. Our
resulting loss for this period of $191,088 reflects a significant increase in
various corporate expenses in the period compared with the prior periods, as
operations continue to roll out. This period's loss is largely a result of a
deferral of the recognition of the unserviced portion of the customer contract
revenues, as well as anticipated costs from our advertising program, which cost
us $22,431 in this quarter. In addition, we also developed the remaining
proportion of our planned staffing level this quarter, resulting in $128,241 of
wages and other payroll costs this quarter.
The net loss for the current quarter was also affected by the cost of
professional legal, accounting and other services during the period, which grew
out of our ongoing organizational development to ensure we meet the needs of our
current and projected operations. Amortization of capital assets in the amount
of $79,816 this quarter also represents a significant cost, due to the increased
installation cost of our gateways. Most other expenses have developed rather
normally during this period, considering our increased infrastructure
requirements as we continue to develop our client base and resulting operating
costs.
For the cumulative 12 months ended March 31,2001
For the cumulative period from incorporation, April 6, 2000, to March 31, 2001,
we began increasing our contracted revenues to $841,230, of which $450,573 will
be recognized as revenue when the related service has been provided by us. Our
cumulative net loss of $973,851 for the twelve months ended March 31,2001 is
largely a result of anticipated costs of $411,517 from the initial advertising
program, as well the development of a significant proportion of our planned
staffing level, resulting in administration and sales wages paid out during this
cumulative period of $355,201. The net loss for the current cumulative period
also reflects the accumulated cost of professional legal, accounting and other
services required to ensure our ongoing organizational development meets the
needs of our current and projected operations. The accumulated amortization cost
of capital assets of $200,008 also represents a significant charge against
revenues, due to the cumulative installation cost of our gateways. Most other
expenses have developed rather normally during this period, considering our
increased infrastructure requirements as we continue to develop our client base
and resulting operating costs.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are funds generated by loans from the founding
shareholders. Additional information on the loan agreement is described in note
4 to the Company's Consolidated Financial Statements set forth in Part III
hereto.
Current assets totaled $483,410 at March 31, 2001 compared to $573,304 at
December 31, 2000. The decrease in the last quarter is attributable to the
utilization of cash for additional payments on gateway purchases, maintaining
our infrastructure as the business develops, and our acquiring customer service
contracts to be collected over the current operating cycle. At March 31, 2001,
we had a cash overdraft and no short-term deposits. As customers pay for the
service by automatic credit card payments, we anticipate an orderly collection
of the balance of Accounts Receivable as at March 31, 2001.
As at March 31, 2001, current liabilities totaled $1,085,368 compared to
$1,015,692 at December 31, 2000. The increase is largely attributable to
recognizing an increasing portion of our contracted revenues as current deferred
revenues, as the service period relates to the coming current periods. In
addition, the current liabilities are also reduced by the continuation of
payments against current supplier balances, under initial financing terms on the
gateway hardware received by us, and increased from carrying a bank overdraft as
a result of the increasing carrying costs of our developing infrastructure.
Our operations are carried out in Canadian dollars. Our reporting currency is in
Unites States dollars. As indicated in the notes to this financial information,
any translation adjustment to the reporting currency would be included in
equity.
During the cumulative period ended March 31, 2001, we conducted an offering
pursuant to Regulation D, Rule 504 of the Securities Act of 1933, as amended, to
accredited investors of 4,000,000 shares of common stock at $0.25 to raise
$1,000,000 for working capital.
FORWARD LOOKING STATEMENTS
Statements that are not historical facts included in this registration statement
are "forward looking statements" and involve risks and uncertainties that could
cause actual to differ from projected results. Such statements address
activities, events or developments that we expect, believe, project, intend or
anticipate will or may occur, including such matters as future capital, business
strategies, expansion and growth of our operations and future net cash flows.
Factors that could cause actual results to differ materially are described
throughout this statement. Cautionary disclosures include, among others: general
economic conditions, the markets for and market price of our services, the
strength and financial resources of our competitors, our ability to find and
retain skilled personnel, the results of financing efforts and regulatory
developments and compliance. We disclaim any obligation to update or revise any
forward-looking statement to reflect events or circumstances occurring hereafter
or to reflect the occurrence of anticipated or unanticipated events, other than
as required by law.
ITEM 7. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
OTHER INFORMATION
ITEM 8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Yapalot Communications Inc. currently has an outstanding loan to Marilyn Benlolo
in the amount of $302,793. The loan is interest free and the funds were used to
finance Yapalot Communications Inc. since its inception in March 2000. The loan
is for a term of no less than one year and is payable after one year or when
revenues reach a level in which the loan can be repaid.
Yuval Barzakay arranged for a Canadian Small Business Loan for us in the amount
of $168,794. As part of the initial funding agreement with us, Mr. Barzakay
agreed to reimburse us annually for all principal and interest payments. The
loan is repayable in monthly payments of CDN$4,165 plus interest at the Royal
Bank prime rate plus 1.5 percent. The loan matures in March 2005 and is
personally guaranteed by Mr. Barzakay.
ITEM 10. DESCRIPTION OF SECURITIES
We have authorized 50,000,000 shares of common stock, $.001 par value per share.
As of December 31, 2000, there were 20,000,000 shares issued and outstanding.
All shares are of the same class and have the same rights, preferences and
limitations. Holders of shares are entitled to receive dividends in cash,
property or shares when and if dividends are declared by the Board of Directors
out of funds legally available therefore. The By-Laws impose no limitations on
the payment of dividends. A quorum for any meeting of shareholders is a majority
of shares then issued and outstanding and entitled to be voted at the meeting.
Holders of shares are entitled to one vote per share. Upon liquidation,
dissolution or winding up of our business, any assets will be distributed to the
holders of shares after payment or provision for payment of all our debts,
obligations or liabilities. There are no preemptive rights, subscription rights,
or redemption provisions relating to the shares and none of the shares carries
any liability for further calls.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
YAPALOT COMMUNICATIONS HOLDINGS INC.
Dated: July 20, 2001
By
--------------------------------------
Yuval Barzakay, Chairman and
Chief Executive Officer