SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
Amendment No. 2
(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
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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
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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 September 12, 2001.
INDEX
PAGE
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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 5
Interim Consolidated Statement of Operations for the period
ended March 31, 2001 6
Interim Consolidated Statement of Cash Flows for the period
ended March 31, 2001 7
Notes to Interim Consolidated Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis or Plan of Operation 11 - 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
YAPALOT COMMUNICATIONS HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Stated in U.S. Dollars)
March 31 December 31
2001 2000
---------- -----------
A S S E T S
CURRENT
Cash $ 67,530 $ 151,835
Accounts receivable 4,978 1,248
Sales taxes receivable 3,782 27,574
Due from shareholder (Note 4) 12,565 24,408
Prepaid and sundry 7,002 -
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$ 95,857 $ 205,065
CAPITAL ASSETS (Note 3) 1,004,450 1,060,173
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$ 1,100,307 $ 1,265,238
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L I A B I L I T I E S
CURRENT
Accounts payable and accrued liabilities $ 684,446 $ 599,603
Current portion of bank term loan (Note 4) 34,479 34,479
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$ 718,925 $ 634,082
BANK TERM LOAN, Less current portion (Note 4) 133,739 133,739
SHAREHOLDERS' ADVANCES (Note 5) 301,111 301,111
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$ 1,153,775 $ 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 1,024,143 1,016,983
CUMULATIVE TRANSLATION ADJUSTMENT (48,885) (41,462)
DEFICIT (1,048,726) (799,215)
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$ (53,468) $ 196,306
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$ 1,100,307 $ 1,265,238
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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 Loss 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) - (799,215)
Foreign Currency Translation Adjustment - - - - (41,462) (41,462)
Imputed interest on shareholder loans 20,983 20,983
------------ --------- ---------- ----------- --------- ----------
BALANCE - December 31,2000 20,000,000 $ 20,000 1,016,983 $ (799,215) $(41,462) $ 196,306
FROM JANUARY 1,2001 TO MARCH 31,2001
Net Loss - - - (249,511) - (249,511)
Foreign Currency Translation Adjustment - - - - (7,423) (7,423)
Imputed interest on shareholder loans 7,160 7,160
------------ --------- ---------- ----------- --------- ----------
BALANCE - March 31,2001 20,000,000 $ 20,000 1,024,143 $(1,048,726) $(48,885) $ (53,468)
============ ========= ========== =========== ========= ==========
See accompanying notes.
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
(Stated in U.S. Dollars)
REVENUE $ 222,384
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EXPENSES
Advertising and promotion $ 22,431
Bad debts 11,292
Bank charges and interest 19,006
General and office 6,560
Insurance 36
Management salaries 32,734
Professional fees 71,180
Rent 7,834
Telephone and communication 91,273
Travel 512
Wages, commissions and benefits 129,221
Amortization 79,816
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$ 471,895
NET LOSS $ (249,511)
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OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment $ (7,423)
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DEFICIT - Beginning of period $ (799,215)
NET LOSS FOR THE PERIOD (249,511)
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DEFICIT - End of period $ (1,048,726)
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LOSS PER COMMON SHARE (Note 7) $ (0.01)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 20,000,000
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See accompanying notes.
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
(Stated in U.S. Dollars)
CASH FROM (USED IN) OPERATIONS
Net loss $ (249,511)
Adjustments to reconcile net loss to net cash
provided by operating
activities:
Amortization 79,816
Non-cash imputed interest 7,160
Changes in assets and liabilities relating to operations
Accounts receivable (3,730)
Accounts payable and accrued liabilities 108,635
Prepaid and sundry assets (7,002)
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NET CASH USED IN OPERATIONS $ (64,632)
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CASH USED IN INVESTING ACTIVITIES
Purchase of capital assets $ (24,093)
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CASH FROM IN FINANCING ACTIVITIES
Net amounts from shareholder $ 11,843
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EFFECT OF EXCHANGE RATE CHANGES ON CASH $ (7,423)
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NET DECREASE IN CASH DURING THE PERIOD $ (84,305)
CASH - Beginning of period 151,835
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CASH - End of period $ 67,530
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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
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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
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$1,204,458 $200,008 $1,004,450 $1,060,173
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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 of Canada 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 amounts due
from a shareholder. This balance is being offset with salary amounts that
have been accrued toward Mr. Barzakay in connection with his management
agreement with the company.
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 $ 301,111
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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
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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 matrialize 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 shown as
owing 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 of the original
loan balance to the financial institution with the Canadian government
guaranteeing the remaining seventy-five percent of the original loan balance.
Notwithstanding above, Mr. Barzakay entered into an agreement with the Company
whereby he is responsible for repaying 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. During the
quarter, we increased our customer contracts by $59,350. 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 $222,384. Our resulting
loss for this period of $249,511 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 cost of ongoing organizational development to ensure
we meet the needs of our current and projected operations, 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 $129,221 of wages and other payroll
costs this quarter.
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 $390,657. Our cumulative net loss
of $1,048,726 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
$356,181. 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 $95,857 at March 31, 2001 compared to $205,065 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 cash 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 March 31, 2001.
As of March 31, 2001, current liabilities totaled $718,925 compared to $634,082
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
United States dollars. As indicated in the notes to this financial information,
any translation adjustment to the reporting currency would be included in
equity.
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: September 12, 2001
By: /s/ Yuval Barzakay
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Yuval Barzakay, Chairman and
Chief Executive Officer