SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(X) Quarterly Report pursuant to Section 13 or l5 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2001
OR
( )Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from _________ to __________
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
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(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
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 June 30, 2001.
INDEX
PAGE
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as at June 30,2001 3
Interim Consolidated Statement of Changes in Shareholders'
Equity for the period ended June 30,2001 and from date
of inception to June 30,2000 4
Interim Consolidated Statement of Operations for the period ended
June 30,2001 and from date of inception to June 30,2000 5
Interim Consolidated Statement of Cash Flows for the period ended
June 30,2001 and from date of inception to June 30,2000 6
Notes to Interim Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis or Plan of Operation 10 -12
Part II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
YAPALOT COMMUNICATIONS HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Stated in U.S. Dollars)
June 30 December 31
2001 2000
--------- ------------
A S S E T S
CURRENT
Cash $ 34,806 $ 151,835
Accounts receivable 7,449 1,248
Sales taxes receivable - 27,574
Prepaid and sundry 76,425 24,408
------------ -----------
$ 118,680 $ 205,065
CAPITAL ASSETS (Note 3) 930,383 1,060,173
------------ -----------
$ 1,049,063 $1,265,238
L I A B I L I T I E S
CURRENT
Accounts payable and accrued liabilities $ 777,620 $ 599,603
Current portion of bank term loan (Note 4) 34,479 34,479
------------ -----------
$ 812,099 $ 634,082
BANK TERM LOAN, Less current portion (Note 4) 133,739 133,739
SHAREHOLDERS' ADVANCES (Note 5) 301,111 301,111
------------ -----------
$ 1,246,949 $1,068,932
------------ -----------
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 (31,679) (41,462)
CUMULATIVE IMPUTED INTEREST 32,536 20,983
DEFICIT (1,214,743) (799,215)
------------- -------------
$ (197,886) $ 196,306
------------- -------------
$ 1,049,063 $1,265,238
============= =============
3
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 JUNE 30, 2001
NET EARNINGS (LOSS) - - - (415,528) 21,336 (394,192)
------------ -------- --------- ----------- -------- ----------
BALANCE - June 30, 2001 20,000,000 $ 20,000 996,000 $(1,214,743) $ 857 $ (197,886)
============ ======== ========= =========== ======== ==========
See accompanying notes.
4
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(Unaudited)
(Stated in U.S. Dollars)
For the Period Ended
----------------------------
June 30 June 30
2001 2000
---------- ----------
REVENUE $ 474,332 $ -
EXPENSES
Advertising and promotion $ 11,174 $ -
Bad debts 18,562 -
Bank charges and interest 25,785 3,423
General and office 18,481 10,480
Insurance 36 -
Professional fees 255,325 34,567
Rent 14,678 8,533
Telephone and communication 164,322 30,022
Travel 731 1,055
Wages, commissions and benefits 217,594 13,914
Amortization 160,256 10,070
Foreign exchange loss 2,916 -
---------- ----------
$ 889,860 $ 112,064
---------- ----------
NET LOSS $ (415,528) $ (112,064)
---------- ----------
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment $ 9,783 $ (1,368)
Imputed interest on shareholder loans 11,553 -
$ 21,336 $ (1,368)
----------- ----------
DEFICIT - Beginning of period $ (799,215) $ -
NET LOSS FOR THE PERIOD (415,528) (112,064)
----------- ----------
DEFICIT - End of period $(1,214,743) $ (112,064)
=========== ==========
LOSS PER COMMON SHARE (Note 7) $ (0.02) $ (0.01)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 20,000,000 16,000,000
=========== ==========
5
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Stated in U.S. Dollars)
For the Period Ended
June 30 June 30
2001 2000
---------- ----------
CASH FROM (USED IN) OPERATIONS
Net loss $ (415,528) $ (112,064)
Adjustments to reconcile net loss to net
cash provided by operating
activities:
Amortization 160,256 10,070
Non-cash imputed interest 11,553 -
Changes in assets and liabilities relating to operations
Accounts receivable (6,201) -
Accounts payable and accrued liabilities 205,590 372,460
Prepaid and sundry assets (52,017) (103,146)
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NET CASH FROM (USED IN) OPERATIONS $ (96,347) $ 167,320
------------ -----------
CASH USED IN INVESTING ACTIVITIES
Purchase of capital assets $ (30,465) $ (463,482)
Incorporation costs paid - (3,846)
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NET CASH USED IN INVESTING ACTIVITIES $ (30,465) $ (467,328)
------------ ------------
CASH FROM FINANCING ACTIVITIES
Advances from shareholders $ - $ 135,900
Loan proceeds - 168,218
Capital shares issued - 16,000
------------ ------------
NET CASH FROM FINANCING ACTIVITIES $ - $ 320,118
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ 9,783 $ (1,368)
------------ ------------
NET INCREASE (DECREASE) IN CASH DURING THE PERIOD $ (117,029) $ 18,742
CASH - Beginning of period 151,835 -
------------ ------------
CASH (INDEBTEDNESS) - End of period $ 34,806 $ 18,742
============ ============
6
YAPALOT COMMUNICATIONS HOLDINGS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(Unaudited)
(Stated in U.S. Dollars)
The financial information for the period ended June 30, 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 June 30, 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.
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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 $ 146,919 $ 33,249 $ 113,670 $ 139,835
Computer software 72,867 33,341 39,526 52,355
Furniture and fixtures 67,152 10,077 57,075 63,417
Leasehold improvements 71,000 10,967 60,033 66,434
Network communication equipment 852,893 192,814 660,079 738,132
---------- --------- -------- ----------
$1,210,831 $280,448 $ 930,383 $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.
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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 $ 301,111
============
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.
9
Item 2. Management's Discussion and Analysis or Plan of Operation
This report contains statements that are not historical facts which are "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as
amended. The company's results 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.
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.
10
Significant Developments
For the fiscal period ended June 30, 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. Mr. Yuval Barzakay, the company's chief executive
officer,has concluded a three week tour within Asia with the investment
community in efforts to raise the required financing. 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 the 3rd or 4rth quarter of this year. The customer
growth is expected to be accomplished through a planned increase in advertising
expenditures in the 3rd quarter, as well as a hiring program for additional
staff. 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.
We are a holding company and have no independent operating history other than
through Yapalot Communications. Inc.
COMPARISON OF THE PERIOD ENDED JUNE 30, 2001 TO THE PERIOD ENDED JUNE 30, 2000.
During the six months ended June 30, 2001, we maintained our current customer
base. No additional gateways were installed during this time. There are no print
or media marketing initiatives at this time, except a small telemarketing
initiative to maintain customer loyalty and acquire new customers. . Staffing
remains unchanged from Q1 2001. Our Q1 cost cutting initiative is working to
allow the company to maintain its present operations while the company is
seeking financing. While the company seeks additional financing, only payables
integral to maintaining network operations and customer satisfaction are being
addressed. The cost cutting initiative that started in Q1 2001 is coherent with
current market trends of reducing overhead and streamlining operations towards
faster profitability. Many of today's 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 6 months ended June 30, 2001:
During the period ended June 30, 2001, we increased our revenue activities,
signing customers to contracted revenues amounting to $474,332. Our resulting
loss for this period of $415,528 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 anticipated
costs from professional advisors due to an increase in the need for contract and
agreement reviews and the ongoing cost of utilizing the network systems in this
period. The net loss for the current period 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. Professional fees amounted to $255,325, an
increase of $220,758 or 86% from $34,567 for the corresponding period of the
prior year. In addition, we also developed the remaining proportion of our
planned staffing level this quarter, resulting in $217,594 of wages and other
payroll costs during this period, an increase of $203,680 or 94% from $13,914
for the corresponding period of the prior year.
Amortization of capital assets in the amount of $160,256during this period, an
increase of $150,186 or 94% from $10,070 for the corresponding period of the
prior year. This represents a significant charge against revenues, due to the
increased installation cost of our gateways. Most of our 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 15 months ended June 30, 2001
For the cumulative period from incorporation, April 6, 2000, to June 30, 2001,
we began increasing our contracted revenues to $642,605. Our cumulative net loss
of $1,214,743 for the fifteen months ended June 30,2001 is largely a result of
anticipated costs of $400,260 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
$444,554. 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
$280,448 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.
11
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.
Current assets totaled $118,680 at June 30, 2001 compared to $205,065 at
December 31, 2000. The decrease in current assets 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. The current assets
are increased in the period by prepaid rental payments and by the servicing of
the Small Business Loan owed by the company, which had been arranged by Yuval
Barzakay. Under the management agreement, Mr. Barzakay is responsible for these
principal and interest repayments until the company is profitable. At June 30,
2001, we had cash of $34,806 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 of June 30, 2001, current liabilities totaled $812,099 compared to $634,082
at December 31, 2000. The increase is largely attributable to a reduced level of
payments against balances owing under the initial financing terms on the gateway
hardware received by us and from an increase in recent professional fees as a
result of the increasing amount of contracts and agreements that require legal
scrutiny.
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.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None.
b. Reports on Form 8-K
None.
12
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: August 20, 2001 By /s/ Yuval Barzakay
-----------------------------------
Yuval Barzakay, Chairman and Chief
Executive Officer
13