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 March 31, 2002
OR
( )Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission File Number: 0-28514
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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 May 20, 2002.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Stated in U.S. Dollars)
March 31 December 31
2002 2001
----------- ------------
A S S E T S
CURRENT
Cash $ 6,112 $ 5,607
Accounts receivable 4,441 6,157
Prepaid and sundry $ 9,292 $ 9,733
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775,742 820,100
CAPITAL ASSETS (Note 3) -------- --------
$795,587 $841,597
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L I A B I L I T I E S
CURRENT
Accounts payable and accrued liabilities $630,215 $677,690
Current portion of bank term loan (Note 4) 34,479 34,479
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$664,694 $712,169
BANK TERM LOAN, Less current portion (Note 4) 61,405 71,214
SHAREHOLDERS' ADVANCES (Note 5) 301,111 301,111
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$1,027,210 $1,084,494
SHAREHOLDERS' DEFICIT
SHARE CAPITAL ISSUED AND PAID UP (Note 6) $ 20,000 $ 20,000
CAPITAL IN EXCESS OF PAR VALUE 1,044,346 1,039,076
CUMULATIVE TRANSLATION ADJUSTMENT (28,105) (35,472)
DEFICIT (1,267,864) (1,266,501)
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$(231,623) $(242,897)
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$ 795,587 $ 841,597
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YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Stated in U.S. Dollars)
Common Shares
Accumulated
Capital in Other
Paid Up Excess of Accumulated Comprehensive
Number Amount Par Value Deficit Loss Total
----------- ---------- ------------- -------------- --------------- ---------
FROM INCEPTION TO DECEMBER 31,2001 20,000,000 $ 20,000 $ 1,039,076 $ (1,266,501) $ (35,472) $ (242,897)
FROM JANUARY 1, 2001 TO March 31, 2002
Net Loss (1,363) $ (1,363)
Foreign currency translation adjustments 7,367 7,367
Imputed interest on shareholder loans 5,270 5,270
------------ ------------ ------------- ----------------- --------------- ----------
BALANCE - March 31, 2002 20,000,000 $ 20,000 $ 1,044,346 $ (1,267,864) $ (28,105) $ (231,623)
============ ============ ============= ================= =============== ==========
See accompanying notes.
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(UNAUDITED)
(Stated in U.S. Dollars)
For the three For the three
month period month period
ended March 31, ended March 31,
2001 2000
--------------- ----------------
REVENUE $ 153,173 $ 222,384
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EXPENSES
Selling, general and administrative
expenses $ 108,865 $ 319,309
Bank charges and interest 1,313 11,618
Amortization 44,358 79,816
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$ 154,536 $ 410,743
NET LOSS $ (1,363) $ (188,359)
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OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment $ 7,367 $ (26,934)
DEFICIT - Beginning year $(1,266,501) $ (799,215)
NET LOSS (1,363) (188,359)
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DEFICIT $(1,267,864) $ (971,122)
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LOSS PER COMMON SHARE (Note 7) $ (0.01) $ (0.94)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 20,000,000 20,000,000
============ =============
See accompanying notes.
YAPALOT COMMUNICATIONS HOLDINGS INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Stated in U.S. Dollars)
For the Three Month For the Three Month
Period ended March 31, Period ended March 31,
2001 2000
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CASH FROM (USED IN) OPERATIONS
Net loss $ (1,363) $(191,088)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Amortization 44,358 79,816
Prior year interest adjustment - 2,729
Non-cash imputed interest 5,270 -
Deferred revenue - 88,296
Changes in assets and liabilities
relating to operations
Accounts receivable 1,716 (78,071)
Accounts payable and accrued liabilities (47,475) (97,545)
Prepaid and sundry assets 441 (7,661)
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NET CASH FROM (USED IN) OPERATIONS $ 2,947 $ (203,524)
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CASH USED IN INVESTING ACTIVITIES
Purchase of capital assets $ - $ (24,093)
CASH FROM FINANCING ACTIVITIES
Loan (9,809) -
NET CASH FROM FINANCING ACTIVITIES $ (9,809) $ -
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EFFECT OF EXCHANGE RATE CHANGES ON CASH $ 7,367 $ (26,934)
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NET INCREASE (DECREASE) IN CASH DURING THE PERIOD $ 505 $ (254,551)
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CASH - Beginning of period $ 5,607 $ 151,835
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CASH (INDEBTEDNESS) - End of period $ 6,112 $ (102,716)
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YAPALOT COMMUNICATIONS HOLDINGS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
(Stated in U.S. Dollars)
The financial information for the period ended March 31, 2002 presented in this
Form 10-QSB has been prepared from accounting records of Yapalot Communications
Holdings Inc. (the "Company"). The information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of this period.
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 consolidated financial statements present the combination of the
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 balance 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 period.
d) Revenue Recognition
The Company records its revenue from customer contracts as services are
provided.
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 2002 2001
------- -------------- ------ ------
Computer equipment $ 152,561 $ 62,018 $ 90,543 $ 97,884
Computer Software 72,867 72,867 - -
Furniture and fixtures 67,152 18,955 48,197 50,734
Leasehold improvements 71,000 21,662 49,338 52,888
Network communication equipment 852,893 265,229 587,664 618,594
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$1,216,473 $440,731 $775,742 $820,100
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4. BANK TERM LOAN
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, one of the founding shareholders.
Mr. Barzakay has agreed to reimburse the Company annually for all principal
and interest payments.
5. SHAREHOLDERS' ADVANCES
The balance 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 amount is 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
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 results 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.
Significant Developments
For the period ended March 31,2002 we continued to slowly grow our client base.
Management continues to drive creative ideas to significantly build the current
monthly customer acquisition base from 50 to approximately 700 new customers per
month. This latter growth is expected to be accomplished through a planned
telemarketing initiative out of the United States and a newly formed corporate
sales team in Canada.
To achieve our business plan to date, we have on staff a total of 9 full time
employees comprised of customer service, administration, marketing and network
operations employees. We expect 2-5 new Corporate Account Executives to be on
staff by June 2002.
RESULTS OF OPERATIONS
For the three months ended March 31, 2002 our revenue decreased to $153,173 from
$222,384 from the period ending March 31, 2001. The Company attributes the
decrease to market conditions and a decrease in marketing expenditures. Expenses
decreased $256,207 or 62% from $410,743 for the three months ended March 31,
2001 to $154,536 for the three months ended March 31, 2002. The decrease in
expenses is principally due to the decrease in general and administrative
expenses from $319,309 and $168,865 for the three months ended March 31, 2001
and 2002, respectively. Our resulting Net Loss of $1,363 is a significant
improvement from the loss of same quarter 2001 of $188,359. The decrease in loss
is due to managements cost control initiatives. Loss per common share decreased
from $(.94) for the three months ended March 31, 2001 to $(.01) for the three
months ended March 31, 2002.
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. Yuval Barzakay, our chief
executive officer, loans the Company money from time to time which is usually
repaid by the end of the month for which it was loaned.
Current assets totaled $19,845 at March 31,2002 compared to $21,497 at
December 31, 2001. The decrease is an insignificant change. Mr. Barzakay is
still responsible for the principal and interest repayments of the small
business loan. During the three months ended March 31, 2002, additional $50,000
of accrued salary owed to Mr. Barzakay was applied against the principal and
interest repayments owed by Mr. Barzakay in connection with the Small Business
Loan. At March 31,2002 we had cash of $6,112 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, 2002, current liabilities totaled $664,694 compared to
$712,169 at December 31, 2001. The decrease is largely attributable to small
payments made by the Company against outstanding accounts payable and the
Company's reduced expenditures.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None.
Reports on Form 8-K
There were no reports on Form 8-K filed during the period.
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: May 20, 2002
By /s/ Yuval Barzakay
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Yuval Barzakay, Chairman and Chief Executive Officer