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As filed with the Securities and Exchange Commission on December 28, 2000
Commission File No. 000-31183
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 3
to
FORM 10-SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
YAPALOT COMMUNICATIONS HOLDINGS INC.
(Name of Small Business Issuer in its charter)
Delaware 51-0402715
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4884 Dufferin Street, Unit 1, Toronto, Ontario, Canada M3H 5S8
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (416) 736-8882
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock par value $.001
(Title of class)
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business............................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 11
Item 3. Description of Property............................................. 15
Item 4. Security Ownership of Certain Beneficial Owners and Management...... 16
Item 5. Directors, Executive Officers, Promoters and Control Persons........ 16
Item 6. Executive Compensation ............................................. 17
Item 7. Certain Relationships and Related Transactions ..................... 17
Item 8. Description of Securities .......................................... 18
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Stockholder Matters......................... 18
Item 2. Legal Proceedings................................................... 18
Item 3. Changes in and Disagreements with Accountants....................... 19
Item 4. Recent Sales of Unregistered Securities............................. 19
Item 5. Indemnification of Directors and Officers........................... 20
PART F/S
Financial Statements
PART III
Index to Exhibits
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Yapalot Communications Holdings Inc. was incorporated on April 6, 2000
under the laws of Delaware to deploy and market a global Internet Protocol
("IP") telecommunications network. Yapalot is the holding company for its
wholly-owned subsidiary, Yapalot Communications Inc. which was incorporated
under the laws of Canada on March 8, 2000. Yapalot Communications Holdings Inc.
and Yapalot Communications Inc. are referred to as a single entity throughout
this document as "Yapalot", "we" or "us".
We specialize in voice communication solutions over an Internet Protocol
(IP) network our network of computers around the world allows for voice
telecommunications over the Internet. We do this by moving packets of
information from one place to another over our IP network that we have deployed
and now manage. Voice traffic travels into our network from our customer's
telephones, we "packetize" (digitize the sound into small data packets) them,
send them over our IP network to the destination that the customer dialed, and
then we "unpackatize" them when they reach the destination. The final result is
a telephone call over an IP network or Voice over IP (VoIP).
Our Network Operations Center (NOC) at our head office in Toronto, Canada
manages the network. The NOC continually monitors network performance, and
trouble-shoots incidences. Two personnel control the NOC at all times to
facilitate a rapid response to network issues. Our NOC staff, led by Mr. James
Tetaka has been instrumental in the smooth operation of our network.
The long distance market is highly competitive, with numerous competitors
of varying sizes. The principal methods of competition are price, advertising,
promotion and quality. In all of our products and services Yapalot competes not
only with other widely advertised services, but also with private label
resellers that generally sell at lower prices.
GROWTH STRATEGY
Principal Business Activities
Our growth strategy is based on:
1. Rapid network growth by deploying network servers and increasing the
size of our network around the world.
2. Distribution rights to qualified persons interested in selling and
marketing Yapalot services. Distributors or "Approved Agents" will
have access to our network enabling them to market and offer Flat Rate
Unlimited long distance to customers in their territory.
3. Flat Rate Unlimited long distance voice solutions for the consumer and
business market.
4. The development of an outbound Corporate Sales team.
5. Pre-paid long distance card solution that is time sensitive and thus
enables unlimited long distance for a specified period of time.
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6. Wholesale of minutes on our network to other carriers and brokers, and
pre-paid card companies.
Network Growth
In order to expand our reach, we must deploy network servers around the
world and manage them. Initially, we began providing flat rate long distance
service in July 2000 in several major cities: Toronto, Montreal, Vancouver, Hong
Kong, Moscow, Chicago, Los Angeles, Miami and New York, and in the countries of
France, the United Kingdom, Italy and Israel. In August 2000, we expanded our
long distance services to include the entire continental United States. In
September 2000, we launched additional long distance services in German, Norway
and the Netherlands. We anticipate expanding our services in November 2000 to
include Japan and Argentina at a cost of approximately $200,000, and in December
2000 to include Greece at a cost of approximately $100,000.
We collocate (house) each of our network servers in a suitable housing
facility in a country or city. These facilities are accessible to our staff 24
hours a day, 7 days a week. Our choice of collocation vendors is a key solution
to our present and future growth potential. These vendors hold more than 200
collocation facilities around the world. They were selected because of their
global reach, which means that we can deploy additional network servers around
the world relatively quickly and unencumbered by the difficult task of having to
find suitable real estate. We have executed three-year renewable contracts with
each vendor. These temperature-controlled facilities house our computers,
network servers, digital and analogue phone lines, routers and other equipment
in a rack-mounted configuration.
Approved Agents and Master Dealers
We have already taken steps to expand to other countries, and have aligned
ourselves with vendors such as UUNET because they have a substantial global
real-estate presence to house our network equipment.
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The other way we plan to grow internationally is via distribution using
Yapalot Approved Agents. The response from interested Approved Agents has been
overwhelming with over 200 enquiries to date received from Agents around the
world through our web site. Approved Agents will sell Yapalot services in their
countries and promote the Yapalot name. The cost to the Agent is $80,000 and is
non-exclusive. We also have a Master Dealer program, which costs $500,000 and
gives exclusive distribution rights to the person or company for a specific
territory, i.e. State, Province, or small country to sell Yapalot services and
set up new Approved Agents.
Mr. Michael Seruya, Chairman of Yogen Fruz International ("Yogen Fruz"), is
providing consulting services for our Approved Agent Program and our Master
Dealer Program. Under his leadership, Yogen Fruz is credited with establishing
approximately 4,900 locations world-wide, through company-owned and franchised
frozen yogurt locations. Yogen Fruz operates a family of frozen dessert brands
under the names Yogen Fruz, I Can't Believe Its Yogurt, Bresler's Ice Cream and
Frozen Yogurt, Swensen's Ice Cream, Steve's Ice Cream, Ice Cream Churn,
Paradise, Honey Hill Farms and Golden Swirl. Yogen Fruz also franchises and
develops a coffee chain under the name of Java Coast Fine Coffees.
To date, no Approved Agents or Master Dealers have been established,
although numerous negotiations are underway.
APPROVED AGENTS- This relationship will require the Approved Agent to pay
us an initial fee of $80,000. The Agent is responsible to hire and train sales
staff to successfully sell and promote our services. This relationship is
non-exclusive and we have the right to sell more agencies in any location. The
Approved Agent is responsible for any and all costs associated with operating
his business and promoting our services. We furnish to the Approved Agent
collateral, and POP marketing material such as brochures, as may be required
from time to time to help promote our services. The purpose of the fee is to
allow the Approved Agent access to sell subscriptions to the Yapalot network.
For each subscription, the Approved Agent receives residual commissions from us
equal to 50% of the Monthly Service Fee (MSF) that we bill to the customer.
MASTER DEALER- This relationship will assign the Master Dealer an exclusive
territory, such as a country, state or province, to promote and sell our
Approved Agencies. The cost is $500,000 and this arrangement assures the Master
Dealer that we will not set up distribution or Approved Agents in a specific
territory. For each Approved Agency that the Master Dealer sells in his
territory the master dealer earns 60% of the initial Approved Agent fee and on
ongoing 5% of all MSF generated by the Approved Agent in that territory. The
Master Dealer may also operate his own Approved Agent locations under the same
terms as the Approved Agent. Essentially, the Master Dealer is a Yapalot sales
representative with an exclusive territory to develop and sell our Approved
Agencies for $80,000 each.
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UNLIMITED LONG DISTANCE
We promote our unlimited long distance package using a variety of media
that include print, television and radio advertising in the Toronto market.
Customers simply choose the destination they call the most and for $50 per
month. They can talk as long as they want from their home phone or cell phone.
If a customer in Toronto wished to call Los Angeles, he can select that
destination and for $50 per month he can talk as long as he wants to the State
of California. The U.S. destinations are broken down by state and in Canada by
Province, but for most of Europe it is by individual country. Therefore, the
cost is $50 per month for Italy, Israel, France, Norway and each of the
individual states. More countries are being added as our network grows. We have
elected to promote our unlimited package because our competitors are constantly
promoting per minute rates. Our customers never have to count minutes and they
talk as long as they want for one low rate to the destination of their choice.
(Provided that we offer service to the destination they choose).
OUR CUSTOMERS
Consumers
Initially we are marketing our Long Distance services to consumers that
have a strong ethnic diversity. We began by offering Unlimited Long Distance to
Israel from Toronto by appealing to this ethnic group, which has a strong
attachment to their homeland and family. Each global destination is targeted to
an ethnic group or corporate need for a particular destination. The primary
marketing vehicle for this segment is radio, print and TV. At the present time
we have produced television and radio commercials that are presently airing
throughout Ontario, Canada. It is our intention to have our Approved Agents both
locally and internationally when launched target and market as we have in
Canada. We also intend to reach new customers by growing our distribution by way
of retail channels authorized to sell Yapalot services. These distribution
channels may include electronic stores, variety stores, cellular stores and
others.
Corporate
By capitalizing on a successful consumer offering, we have now assembled a
corporate sales team of seven personnel including a corporate sales manager.
They have begun prospecting and promoting our corporate product offering that
also includes unlimited long distance as well as enhanced services like Global
Conference, and Global Fax. We anticipate that this sales team will grow to
approximately 20 representatives by the first quarter 2001. The team's primary
focus is to prospect small to medium sized businesses and creating tailor-made
long distance packages and enhanced services. The team will be able to
capitalize on marketing efforts already in the marketplace which has created
awareness and brand recognition of the Yapalot name.
Pre-Paid
Our pre-paid offer is different from traditional pre-paid cards marketed by
competitors. Rather than offer our customers the same or slightly lower per
minute rates, our prepaid cards are time-sensitive and offer unlimited long
distance for a specific period of time to a selected destination. For example:
(1)A customer may walk into a variety store, (2) purchases a thirty day card,
(3) he then calls the activation number on the back of the card, (4) the
computer generated voice response system (IVR) prompts him to enter his card
number (5) Then prompts him to select the destination. Once the destination is
selected by the customer, the card is activated by the IVR and is valid for
unlimited calling for thirty days to the selected destination. At the present
time, we have secured distribution of our prepaid cards through 3,000 retail
outlets on Ontario formalized by a card distribution agreement with Chris Kwon
Enterprises for a period of five years.
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Wholesale
We are able to wholesale minutes to other long distance companies and
carriers around the world. We have competitive rates and are therefore able to
sell minutes to many long distance companies and pre-paid telephone card
companies. To date, we have sold approximately 250,000 minutes a month on a
wholesale basis.
INDUSTRY BACKGROUND
As the telecommunication industry has been deregulated, competition has
corrected the high prices of long distance service with competitive cost
effective pricing. Our Voice over Internet Protocol ("VoIP") technology allows
for substantial cost savings over traditional telephone company switching
systems by eliminating all long distance tolls and replacing them with efficient
IP technology. Yapalot was formed by a team of experienced telecommunications
executives.
We have developed strategic alliances with manufacturers such as Ericsson
and Clarent Corporation ("Clarent"). We consulted with Ericsson, on a
non-exclusive basis, in connection with the initial deployment of our long
distance services. Clarent is currently the manufacturer of our Yapalot Gateway
Servers. Clarent also provides us with consulting services, technical support
and deployment support, all on a non-exclusive basis. We have a written
agreement with Clarent that may be terminated by either party with 30 days
written notice. We have also formed non-exclusive alliances with UUNET, an MCI
Worldcom company, and Appwerx. UUNET houses our technical equipment in the
countries in which we presently provide services. In addition, they provide the
IP bandwith we require for the operation of our network. We have a three year
contract with UUNET. We may renegotiate this contracts once the full term of
each is completed.
We contracted with Appwerx in May 2000 to develop the PC to phone solution.
A contract has been executed that will allow Yapalot to own the software once it
is completed. The project is expected to be completed by December 2000. The
software will allow our customers to make free calls using a PC to any phone
through a graphical interface that will be a picture of a phone.
Our purpose is to provide flexible long distance voice and data solutions
to consumers and businesses by attempting to achieve the following:
o Provide flat rate long distance packages
o Prepaid card service "One Card"
o Post paid billing scenario
o Free long distance calls: PC to phone
o Corporate long distance solutions Corporate global voice mail
o International conferencing
o Global fax
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During our first year of operations, we are focusing on global deployment
of our gateways and a Canada-wide advertising campaign, which is currently
underway. Beginning in our second year, we will place the same promotional
efforts employed in Canada to sell flat rate long distance service subscriptions
worldwide. We have the potential to sell flat rate long distance service
subscriptions in all of the countries available on the Yapalot network.
Subscriptions worldwide will be set up and managed by our customer service
center located in Toronto, Canada, through our inbound call center or through
our website.
YAPALOT'S VOIP NETWORK
Our VoIP network was developed using hardware (gateways) manufactured by
Clarent Corporation and software either manufactured by Clarent or proprietary.
We co-located our gateways with UUNET, a company which specializes in data
solutions and server location facilities for global companies, by positioning
our gateways, also known as points of presence, in specific countries in rental
space provided by UUNET. We purchased Internet bandwidth from UUNET that can
carry all data between our gateways to avoid data being carried over public
Internet service. Once our gateway is in place it is linked via the Internet to
other gateways owned and operated by Yapalot. The software is responsible for
routing all telephone, fax and video transmissions from gateway to gateway and
then terminating them through a PRI (regular telephone line). Our initial
deployment of 10 gateways in eight different countries has a one time cost of
$1,000,000 including installation, training and software. We anticipate an
additional fixed cost of $100,000 per gateway and an ongoing cost of $ 4,000 per
gateway to add an additional city to our network. Our global expansion from a
hardware standpoint is $100,000 per site with ten completed sites projected by
the end of December 2000.
YAPALOT'S PRODUCTS
In North America our services spread across two major markets: consumer and
corporate. The consumer market will be enticed by discounting long distance and
flat rate packages. While business will also be attracted by discounted rates,
they will be more anxious to use new services, such as global voice mail, global
fax and global conference.
We will provide an inbound call center located in Toronto. International
customers will subscribe to our service via e-commerce on our website or contact
their local Yapalot representative to subscribe via phone.
Our services and products will be diverse and all share a common goal: cost
reduction in global communications via voice, fax or data. The network
infrastructure will yield substantial benefits over traditional telephone
companies as follows:
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Infrastructure - Based on the Internet standard of IP, which allows for the
flow of data across the globe. This data can then carry voice, fax and video to
almost anywhere.
Performance - Voice over IP or VoIP with a standard T1 data connection can
support over 120 simultaneous phone calls in every country of presence.
Products - The ability to market long distance voice services via phone to
phone, PC to phone and PC to PC. These services can be post paid, prepaid cards
or flat rate service. These services can also migrate to the corporate world
with enhanced network abilities to link corporate offices around the world with
both voice and data transfer, conference calling and global voice mail.
Flexibility - Because the infrastructure backbone is Internet IP based, the
marketing of the services can be done anywhere in the world even without a point
of presence, hence a global reach.
E-Commerce - The ability to subscribe clients internationally via commerce
giving them access to our VoIP network.
COMPETITION FOR TELECOMMUNICATIONS SERVICES
In the world of deregulated telecommunication, competition has corrected
the high prices of long distance service with competitive cost effective
pricing. Communication is expedited due to the Internet and e-commerce.
Management believes that they can capture a substantial portion of the
international market largely due to our "Flat Rate" program. Our services
address these issues by providing value added services that combine with flat
rate service to create a reoccurring revenue stream.
An increasing number of competitors must find ways to effectively create
revenue by attracting clients at lower rates and providing new services. The
competition in North America and many parts of Europe has led to the decline in
profit margins. Bell Canada owns the phone switches and cables, but with
deregulation must wholesale airtime to AT&T, Sprint, and now Telus who resell to
Canadian consumers. Other wholesalers also have entered the market and are
repackaging in the form of Prepaid Cards, and domestic flat rate service like
London Telecom. All these companies ultimately rely on Bell who owns the
network.
According to an October 1999 International Data Corporation report, the
worldwide Internet protocol telephony market will explode from 310 million
minutes of use in 1998 to 2.7 billion by year-end 1999. By 2004, IP telephony
minutes will reach 135 billion. Revenues for this service are estimated to grow
from US $480 million in 1999 to US $19 billion by 2004.
We plan to construct and deploy a new sophisticated network from the ground
up. This VoIP network is intended to bypass Bell and any regulatory body by
accessing the unregulated Internet IP network, hence Voice over IP. At present,
the internet is unregulated as to content, volume and distribution. Any
regulation being discussed for future consideration by Congress concerns
elements of adult content, freedom of speech and taxation on goods sold.
Individual states are addressing the issue of taxation. We use the internet as a
conduit to transfer data. Although we do not anticipate that Congress will pass
legislation to regulate data transfer of this type, any taxation that may be
imposed on this use will be passed on to our customers. Should regulations be
passed, our business model will not change.
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This is a new and emerging technology. We are not the first company to
market voice over the internet. Companies such as Net2Phone and DialPad.com have
each launched discounted internet calls from a personal computer ("PC"). This
requires the customer to use a PC to place a long distance call. Our services do
not require the customer to use a PC. Instead, we route internet voice calls
from any standard telephone to any standard telephone. We have built a private
digital network by networking computers internationally in multiple countries.
These computers are linked via a dedicated internet "pipe" thus creating the
Yapalot Global Private Network ("YGPN") that consists of computer servers around
the world. We use this network to convert analogue voice signals from our
customers telephone to digital data that we transfer from one PC to the next
across the globe. Therefore, our customers are able to make a phone call over
the internet without the use of their PC. Their phone becomes a conduit to voice
transfer over the internet. We anticipate that future internet related services
will soon be available like Internet Fax and Internet Conference Calls without
the use of a PC or specially equipped phone.
We compete with companies that are much larger and have far greater
financial resources than us. While there can be no assurances, we believe our
approach to the international telecommunications market will distinguish our
services and yield cost savings to our customers. We route our calls privately
within our YGPN, thus keeping costs to the consumer low. Our competition still
use legacy networks that require them to hand off each call to local telephone
companies in each country. These telephone companies charge our competitors a
per-minute rate. Furthermore, our approach to marketing our services differs
from competitors, such as Bell, AT&T and Sprint in that they must charge a
per-minute rate. Per-minute rates cannot be avoided as long as the international
phone companies charge each other to route calls. International telephone
companies are the conduits for delivering the long distance services of our
competitors, while we can offer our customers an unlimited flat rate
international long distance service because of our YGPN.
EQUIPMENT SUPPLIERS
We have a written agreement with Clarent Corporation ("Clarent"), based in
Redwood City, California to manufacture our equipment. Clarent is the world's
leading IP telephony technology supplier to mainstream carriers and providers.
In addition, Clarent will provide technical training for installing and
operating the hardware and software for the VoIP network. The agreement sets
forth a payment schedule according to the deployment, training and operation of
the VoIP network. We also will be utilizing other routing equipment manufactured
by Cisco Systems, Lucent and IBM. The equipment for the construction and
operation of our network is readily available from these manufacturers. We are
not dependent upon any single company for the purchase of hardware and software
necessary to construct our VoIP network. If any of our suppliers ceased to
exist, it would not affect our ability to operate our network.
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TRADEMARK CONCERNS
The name "Yapalot" is trademarked in Canada and is in the process of being
trademarked abroad. Our network cannot be registered because it is Internet
based and cannot be patented. Approved agents, which are distribution points
across the world with licenses to operate through our network, will be available
for sale outside of Canada.
GOVERNMENT REGULATIONS
Our VoIP network is Internet based and, therefore, does not require
government approval or licensing.
One component of the network, called a "PRI", can be described as a
telephone line. These "PRI's" are necessary in any country in which our network
has a point of presence. Some countries require a license to operate a "PRI",
although most do not have such regulations. We will obtain the necessary
licensing in those countries that require it. To date, we have realized an
approximate legal cost of $5,000 per country to obtain the required licensing.
We are licensed in Hong Kong and Russia and we are seeking a license in the
Philippines. No licenses are required in Europe. We do not anticipate that the
time or cost involved in securing licensing will be a limiting factor in our
development and growth.
EMPLOYEES
At present, we have a total of 32 full-time employees and no part time
employees. They are responsible for the construction of the VoIP network,
software design and business operations. In July 2000, we hired an additional 12
full-time employees dedicated to customer service. Over the next 12 months and
once the VoIP network is complete, we will require approximately 13 additional
full-time employees for various functions throughout the company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Through our wholly-owned subsidiary, Yapalot Communications Inc., we are
creating and marketing a global Internet Protocol telecommunications network. By
the end of fiscal year 2000, we anticipate completing the launch of ten initial
gateways, at a cost of $1,000,000, plus beginning the launch of an additional 22
gateways, at a cost of $2,500,000. The ten initial gateways were financed using
the private funds of our founding members. We believe that we will generate
sufficient positive cash flow from operations to meet our operating requirements
and the purchase of the 22 gateways over the next 12 months. Our belief is based
on our current customer growth of approximately 450 new customers per month,
coupled by stronger purchasing power to purchase additional gateways from
Clarent. We believe they will offer us reduced prices and favorable installment
payment terms on each gateway. In addition, we are also working on Approved
Agent agreements which we anticipate will be completed early 2001. We have also
put plans into effect to significantly build the current monthly customer
acquisition base from 450 to approximately 700 new customers per month. We
anticipate generating this growth by increasing our advertising expenditures and
hiring additional sales staff early in 2001. If we do not generate sufficient
positive cash flow to meet our 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.
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To achieve our business plan, to date we have hired a total of 32 full time
employees comprised of a customer service team of 12 employees and 20 employees
in the areas of administration, marketing and sales.
We are a holding company and have no independent operating history other
than Yapalot Communications, Inc. Revenues and expenses for the period ended
September 30, 2000 represent consolidated costs since inception.
SELECTED FINANCIAL DATA
The following table sets forth summary financial data for the date and
period indicated. The financial data for the period ended April 30, 2000 is
derived from financial statements of the Company audited by Bromberg &
Associate, Chartered Accountant, appearing under PART F/S. The financial data
for the period ended September 30, 2000 was prepared by our Management. All
figures in this registration statement and the financial statements are set
forth in U.S. dollars.
<TABLE>
<CAPTION>
April 30, 2000 September 30, 2000
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<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ -- $ 17,523
Expenses 26,509 457,580
Other Income (Expense) -- --
Net loss (26,509) (421,823)
BALANCE SHEET DATA:
Working capital (deficit) $ 58,640 $ 325,798
Total assets 238,898 1,268,604
Total liabilities 249,407 786,102
Stockholders' equity (10,509) 482,502
</TABLE>
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COMPARISON OF THE PERIOD ENDED SEPTEMBER 30,2000 TO
THE PERIOD ENDED JUNE 30,2000.
During the current quarter ended September 30, 2000, we completed contract
negotiations with our major equipment suppliers. We also took delivery and
installed gateways for Montreal, Vancouver, Toronto, Hong Kong, Israel, New York
City, Miami, Italy, and Greece. Under the terms of our supplier agreements, we
have paid initial deposits of 25% of the equipment costs, with installment
payments for the balance paid over the following three fiscal quarters. This
financial information reflects the initial deposits paid on these two latter
gateways. During this period, we also completed most of the renovations of our
offices and the acquisition of furniture and equipment workstations for our
employees.
RESULTS OF OPERATIONS
During this quarter ended September 30, 2000, we commenced generating
revenues, as reflected in our financial statements for this period from our
initial marketing efforts. Our resulting loss for this period of $331,743
reflects a significant increase in various corporate expenses in the period
compared with the prior periods, as operations begin to roll out. This period's
loss is largely a result of anticipated costs from the initial advertising
program, which cost us $144,485 in this quarter. In addition, we also developed
a significant proportion of our planned staffing level this quarter. This
resulted in administration and sales wages paid out this quarter by us
representing over 80% of the total accumulated wages cost to date. 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 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.
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 our Interim Consolidated Financial Statements.
Current assets totaled $640,313 at September 30, 2000 compared to $602,799
at June 30, 2000. The increase is attributable to additional hardware equipment
purchased for the New York and Miami gateways, as well as additional prepaid
Canadian Goods and Services Taxes refundable to the corporation. At September
30, 2000, we had cash but no short-term deposits. As operating activities had
just begun, there were only a small amount of Accounts Receivable on hand at
September 30, 2000.
As at September 30, 2000, current liabilities totaled $314,514 compared to
$396,113 at June 30, 2000. The decrease is attributable to the payments having
begun against current supplier balances, under initial financing terms on the
gateway hardware received by us.
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Our operations are carried out in Canadian dollars. Our reporting currency
is in Unites States dollars. As indicated in the notes to the financial
statements, any translation adjustment to the reporting currency would be
included in equity.
During the period ended September 30, 2000, we conducted an offering
pursuant to Rule 504 of Regulation D of the Securities Act of 1933, as amended
(the "Securities Act"), to accredited investors only, as that term is defined
pursuant to Rule 501 of Regulation D, of 4,000,000 shares of common stock at
$0.25 to raise $1,000,000 for working capital.
Our sources of revenues should be as follows in order of their launch
sequence:
Flat rate long distance: Will be sold to households and small businesses
throughout the country on a yearly subscription basis creating re-occurring
revenues. Subscribers will be billed a monthly fee for unlimited long distance
to one or more countries of their preference. Customers will subscribe via our
inbound customer service order center or via e-commerce from any where in the
world.
Prepaid "One-Card" plan: Will be sold to retail locations across the
country at a fixed cost rate per card. For a pay in advance set price customers
can purchase a disposable or rechargeable card, which gives them access to our
VoIP network via a personal PIN number. Once purchased customers dial into our
network and are prompted to chose one country of their choice to have one month
of unlimited long distance to that country.
Corporate long distance solutions: All corporations doing business outside
of their local area can take advantage of our VoIP network. We intend to offer
corporations large reductions in their long distance costs with contracted flat
rate monthly service.
14
<PAGE>
Franchising: We currently are speaking to International Franchising
Specialists to locate highly qualified persons outside of Canada in the
telecommunications industry. Management expects franchises will be sold to
qualified persons who will generate revenues from franchise and master franchise
agreements. Franchisees will be given complete access to our VoIP network
connecting them to the world. Billing and System Access will be monitored by our
Central Command Center (CCC) located in Toronto, Canada. Ongoing royalty fees
will be charged to all franchisees generating increasing re-occurring monthly
revenues.
Global voice mail and fax and international conferencing services are being
developed at present.
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 registration 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 3. DESCRIPTION OF PROPERTY
We lease offices at 4884 Dufferin Street, Unit 1, Toronto, Ontario, Canada
M3H 5S8. The 6,000 square foot facility is occupied pursuant to a five year
lease that commenced on April 1, 2000 with an option to renew for an additional
five years. The monthly rental is $4,083.00 per month including taxes,
maintenance and insurance.
The headquarters were designed as an open concept, forty employee facility
with the capacity to oversee and manage worldwide operations, handle customer
service and support, house sales and marketing staff, conduct billing and offer
a retail sales outlet. Management believes these facilities are adequate for our
current needs and anticipated future needs.
15
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 30, 2000 with respect
to persons known to us to be beneficial owners of more than 5% of our voting
common stock. The table also states the beneficial ownership of such common
stock by each director of us and by all directors and executive officers of us
as a group.
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Number of Shares Percent
---------------- ---------------- -------
<S> <C> <C>
Yuval Barzakay 9,600,000 48%
4884 Dufferin Street, Unit 1
Toronto, Ontario
Canada M3H 5S8
Marilyn Benlolo 6,400,000 32%
4884 Dufferin Street, Unit 1
Toronto, Ontario
Canada M3H 5S8
Directors and executive officers
As a group (2 persons) 16,000,000 80%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information about our directors,
executive officers and significant employees.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Yuval Barzakay(1)(2) 29 Chairman, President and CEO
Marilyn Benlolo 56 Chief Operating Officer and Director
Meyer Keslassy 55 Chief Financial Officer and Director
Albert Kshoznicer(1) 54 Director
Alon Barzakay(2) 27 Director
Dimitra Kagiannis 28 Secretary
</TABLE>
(1) Yuval Barzakay is a son-in-law to Albert Kshoznicer.
(2) Yuval Barzakay and Alon Barzakay are brothers.
16
<PAGE>
YUVAL BARZAKAY, CHAIRMAN, PRESIDENT AND CEO - Mr. Barzakay has been our
Chairman, President and CEO since inception. He was CEO of Absolute Mobility
Inc. from 1990 to April 2000 and founder and CEO of Absolute Total Security
since 1992. Mr. Barzakay attended York University in Toronto.
MARILYN BENLOLO, CHIEF OPERATING OFFICER AND DIRECTOR - Mrs. Benlolo has been
our Chief Operating Officer and Director since inception. From May 1999 until
April 2000, she was president and founder of Nations Discount Finance Corp., a
finance company specializing in business development financing, auto leasing and
mortgaging. She was a teacher specializing in languages with the North York
Board of Education in Toronto, Canada, from 1962-1998. Mrs. Benlolo received her
Bachelor of Arts from the University of Toronto in 1962.
MEYER KESLASSY, CHIEF FINANCIAL OFFICER AND DIRECTOR - Mr. Keslassy has been our
Chief Financial Officer and Director since April 2000. Since August 1998, he was
CFO of Bolton Steel Corp., with annual revenues in excess of $50 Million. From
1980 to 1998, he was the owner and President of M.K. Accounting Services in
Toronto, Canada. He graduated from the University Hautes Etudes Commerciales,
Paris with a H.E.C. degree (accounting degree) in 1965 .
ALBERT KSHOZNICER, DIRECTOR - Mr. Kshoznicer has been a Director since April
2000. He is President and Treasurer of ABS Woodworking Inc., a
multimillion-dollar company located in Toronto, Ontario, since 1980. He is
Chairman of Shelby Investments Inc., a Toronto based property developer, from
1985 to present. From 1970 to 1975, he was President and founder of Vital Hotel,
Winnipeg, Manitoba and prior to that he was President of Balik Development Inc.,
a home development company in Toronto.
ALON BARZAKAY, DIRECTOR - Mr. Barzakay has been a Director since April 2000. He
practices corporate and commercial litigation at Bienstock and Clark, Attorneys
at Law, since 1998. He received his J.D. from Detroit College of Law at Michigan
State University in 1998.
DIMITRA KAGIANNIS, SECRETARY - Ms. Kagiannis has been Secretary since April
2000. Previously she was Accounts Administrator of Absolute Mobility and
Absolute Security from 1996 to April, 2000. She received her Administration
Diploma from the CDI Institute for Office Administration in Toronto in 1993.
Directors serve for a term of one year or until their successors are
elected and qualified. Executive officers are appointed by and serve at the will
of the Board of Directors.
ITEM 6. EXECUTIVE COMPENSATION
No remuneration currently is being paid to our officers and senior
management. Compensation will commence once the Company becomes profitable.
There is no employment agreement with any executive officer.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Yapalot Communications Inc. currently has two outstanding loans to its two
founders: Yuval Barzakay $168,794 and Marilyn Benlolo $302,793. Both loans are
interest free and the funds were used to finance Yapalot Communications Inc.
since its inception in March 2000. Both loans are for a term of no less than one
year and are payable after one year or when revenues reach a level in which the
loans can be repaid. They are non-interesting bearing loans.
17
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
Yapalot has authorized 50,000,000 shares of common stock, $.001 par value
per share. As of September 30, 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 the business of the Company, any assets will be
distributed to the holders of shares after payment or provision for payment of
all debts, obligations or liabilities of the Company. Except as provided in this
Offering, 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.
DIVIDEND POLICY
Dividends may be declared by the Board of Directors and paid from time to
time to the holders of common stock, on such record dates as may be determined
by the Board of Directors out of the net profits or surplus of the Company.
We have never declared or paid a dividend on our common stock. We intend to
retain our earnings to finance the growth and development of our business.
PART II
ITEM 1. MARKET PRICE OF DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Yapalot's common stock currently is not traded. The amount of common stock
that can be sold by our founders pursuant to Rule 144 is 160,000 shares.
ITEM 2. LEGAL PROCEEDINGS
Neither Yapalot nor its officers or directors are a party to any litigation
affecting the Company or its assets. To our knowledge, no litigation has been
threatened or is anticipated against the Company or its officers and directors
acting in their fiduciary capacity.
18
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
We dismissed Bromberg & Associates, the independent public accountants that
were previously engaged as the principal accountant to audit our financial
statements and as our principal accountant on September 15, 2000. The dismissal
of Bromberg & Associates was approved by our Board of Directors on September 14,
2000. From the date of our inception through September 15, 2000, Bromberg &
Associates' report on the financial statements has never (i) contained an
adverse opinion or a disclaimer of opinion; nor (ii) been qualified or modified
as to uncertainty, audit scope, or accounting principles. From the date of our
inception through September 15, 2000, there were no disagreements between us and
Bromberg & Associates on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of Bromberg & Associates, would have cause Bromberg
& Associates to make reference to the subject matter of the disagreement or
disagreements.
On September 15, 2000, we hired Weisbrod Goldmacher, LLP, Chartered
Accountants as our new auditors to perform certain accounting services for us
and to perform an audit of our financial statements for the year ended December
31, 2000. Their responsibility was to review the interim financial information
from our inception on April 6, 2000 to June 30, 2000.The hiring of Weisbrod
Goldmacher was approved by the Board of Directors. During our most recent fiscal
year and subsequent interim periods prior to the engagement of Weisbrod
Goldmacher, we did not, nor did anyone on our behalf, consult Weisbrod
Goldmacher regarding either (A) the application of accounting principles to a
specified completed or proposed transaction, or the type of audit opinion that
might be rendered on our financial statements as to which a written report or
oral advice was provided to us that was an important factor considered by us in
reaching a decision as to an accounting, auditing or financial report issue, or
(B) any matter that was the subject of a disagreement between us and Bromberg &
Associates, or an event described in paragraph 304(a)(1)(v) of the SEC's
Regulation S-B.
ITEM 4. RECENT SALE OF UNREGISTERED SECURITIES
The following sets forth certain information for all securities the Company
sold since inception without registration under the Securities Act. All
transactions were effected in reliance on the exemption from registration
afforded by Rule 4(2) of the Securities Act for transactions not involving a
public offering.
We conducted an offering pursuant to Rule 504 of Regulation D of the
Securities Act of 4,000,000 shares of common stock at $0.25 to accredited
investors only, as defined in Rule 501 of Regulation D, during late summer 2000
to raise $1,000,000 for working capital.
In March 2000, Yuval Barzakay and Marilyn Benlolo were issued 60 and 40
shares of Common Stock of Yapalot Communications Inc. in consideration for U.S.
$67 (Canadian $100). Upon creation of Yapalot Communications Holdings Inc., all
100 issued and outstanding shares of Yapalot Communications Inc. were
transferred to Yapalot Communications Holdings Inc. In exchange for their shares
and an additional aggregate payment of $15,933, Mr. Barzakay and Mrs. Benlolo
were issued 9,600,000 and 6,400,000 shares of Yapalot Communications Holdings
Inc., respectively.
19
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XII of our Bylaws provides for indemnification of officers and
directors against expenses incurred in connection with any legal action they
become a party to by reason of being or having been a director or officer of us.
Such indemnification is not available if such officer or director is adjudged to
be liable for negligence or misconduct in the performance of their duties.We
currently do not maintain indemnity insurance for our officers and directors.
20
<PAGE>
PART F/S
The following financial statements are filed as part of this registration
statement on Form 10-SB. The financial statements as of April 30, 2000 have been
audited by Bromberg & Associate, Chartered Accountants, independent public
accountants, as stated in their report appearing herein. The financial
statements for the periods ending June 30, 2000 and September 30, 2000 were
prepared by our Management.
INDEX TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Consolidated Balance Sheet as at September 30, 2000........................ F-2
Interim Consolidated Statement of Changes in Shareholders' Equity
for the period ended September 30, 2000................................... F-3
Interim Consolidated Statement of Operations for the period ended
September 30, 2000........................................................ F-4
Interim Consolidated Statement of Cash Flows for the period ended
September 30, 2000........................................................ F-5
Notes to Interim Consolidated Financial Statements......................... F-6
APRIL 30, 2000
Auditors'Report............................................................ F-9
Consolidated Balance Sheet as of April 30, 2000............................F-10
Consolidated Statement of Operations for the period ended
April 6, 2000 to April 30, 2000...........................................F-11
Consolidated Statement of Changes in Shareholders' Equity
for the period ended April 6, 2000 to April 30, 2000......................F-12
Consolidated Statement of Cash Flows for the period ended
April 6, 2000 to April 30, 2000...........................................F-13
Notes to Consolidated Financial Statements.................................F-14
F - 1
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,2000
(Unaudited)
(Stated in U.S. Dollars)
A S S E T S
CURRENT
Cash $ 605,277
Accounts receivable 1,433
Sales taxes receivable 26,176
Prepaid and deposits 7,427
----------
$ 640,313
CAPITAL ASSETS (Note 3) 624,446
$1,264,759
==========
L I A B I L I T I E S
CURRENT
Accounts payable and accrued liabilities $ 314,514
SHAREHOLDERS' ADVANCES (Note 4) 471,587
$ 786,102
----------
S H A R E H O L D E R S' E Q U I T Y
SHARE CAPITAL (Note 5) $1,016,000
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE (447,653)
CUMULATIVE TRANSLATION ADJUSTMENT (89,689)
----------
$ 478,658
==========
$1,264,759
==========
F - 2
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FROM DATE OF INCORPORATION, APRIL 6,2000,
TO SEPTEMBER 30,2000
(Unaudited)
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated
During Other
Common Shares Development Comprehensive Comprehensive
Number Amount Stage Loss Total Loss
---------- ---------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
ISSUE OF COMMON SHARES
Founder shares issued at inception 16,000,000 $ 16,000 $ -- $ -- $ 16,000 --
Shares issued in current fiscal quarter 4,000,000 1,000,000 -- -- 1,000,000 --
COMPREHENSIVE LOSS
Net Loss -- -- (447,653) -- (447,653) $(447,653)
Foreign Currency Translation Adjustments -- -- -- (89,689) (89,689) (89,689)
---------- ---------- --------- -------- ---------- ---------
COMPREHENSIVE LOSS $(537,342)
BALANCE - End of period 20,000,000 $1,016,000 $(447,653) $(89,689) $ 478,658
========== ========== ========= ======== ========== =========
</TABLE>
See accompanying notes.
F - 3
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FROM DATE OF INCORPORATION, APRIL 6,2000,
TO SEPTEMBER 30,2000
(Unaudited)
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
For the Period Ended
September 30 September 30
2000 2000
------------ ------------
(3 Months) (Cumulative
to Date)
<S> <C> <C>
REVENUE $ 17,523 $ 17,523
------------ ------------
EXPENSES
Advertising and promotion $ 144,485 $ 144,485
Bank charges and interest 13,040 16,463
General and office 18,253 32,579
Professional fees 41,777 76,344
Rent 7,668 16,201
Telephone and communication 24,167 54,189
Travel 6,948 8,003
Wages 68,089 82,003
Amortization 24,839 34,909
------------ ------------
$ 349,266 $ 465,176
------------ ------------
NET LOSS $ (331,743) $ (447,653)
============ ============
LOSS PER COMMON SHARE (Note 6) $ (0.02) $ (0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 17,304,348 16,677,966
============ ============
</TABLE>
See accompanying notes.
F - 4
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FROM DATE OF INCORPORATION, APRIL 6,2000,
TO SEPTEMBER 30,2000
(Unaudited)
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
For the Period Ended
September 30 September 30
2000 2000
------------ ------------
(3 Months) (Cumulative
to Date)
<S> <C> <C>
CASH FROM (USED IN) OPERATIONS
Net loss $ (331,743) $ (447,653)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization 24,839 34,909
Changes in assets and liabilities relating to operations
Accounts receivable (1,433) (1,433)
Accounts payable and accrued liabilities (84,122) 288,338
Prepaid and sundry assets 95,719 (7,427)
Effect of exchange rate changes on cash (88,321) (89,689)
----------- -----------
NET CASH FROM OPERATIONS $ (385,061) $ (222,955)
----------- -----------
CASH USED IN INVESTING ACTIVITIES
Purchase of capital assets $ (195,873) $ (659,355)
----------- -----------
CASH FROM FINANCING ACTIVITIES
Advances from shareholders 167,469 $ 471,587
Capital shares issued 1,000,000 1,016,000
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES $ 1,167,469 $ 1,487,587
----------- -----------
NET INCREASE IN CASH DURING THE PERIOD $ 586,535 $ 605,277
CASH - Beginning of period 18,742 --
----------- -----------
CASH - End of period $ 605,277 $ 605,277
=========== ===========
</TABLE>
See accompanying notes.
F - 5
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,2000
(Unaudited)
(Stated in U.S. Dollars)
The financial information for the period ended September 30,2000 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 September 30,2000 are not necessarily
indicative of the results to be expected for a full year.
1. NATURE OF OPERATIONS
Yapalot Communications Holdings Inc. a development stage company, 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 development
activities consist of the 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 recognizes revenue as the service is used and becomes
billable.
See accompanying notes.
F - 6
<PAGE>
e) Estimates
The preparation of financial statements in conformity with generally
accepted accounting princiles 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
COST AMORTIZATION 2000
-------- ------------ ---------
Computer equipment $123,897 $ 9,292 $114,605
Computer software 27,760 6,940 20,820
Furniture and fixtures 67,247 630 66,617
Leasehold improvements 65,618 822 64,796
Network communication equipment 374,833 17,225 357,608
-------- ------- --------
$659,355 $34,909 $624,446
======== ======= ========
4. 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 shareholders' advances. The
individual shareholder advance amounts are as follows:
Yuval Barzakay $168,794
Marilyn Benlolo $302,793
--------
$471,587
See accompanying notes.
F - 7
<PAGE>
5. SHARE CAPITAL
Authorized
50,000,000 Common shares at $.001 par value
Issued
20,000,000 Common shares $1,016,000
==========
During the period the Company raised $1,000,000 by issuing 4,000,000 common
shares at $.25 per share.
6. 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.
See accompanying notes.
F - 8
<PAGE>
[LETTERHEAD OF BROMBERG & ASSOCIATE]
AUDITORS' REPORT
Board of Directors and Shareholders
Yapalot Communications Holdings Inc.
We have audited the consolidated balance sheet of Yapalot Communications
Holdings Inc., (a development stage company) as at April 30, 2000 and the
consolidated statements of operations and cash flows from April 6, 2000, date of
inception, to April 30, 2000 then ended. These financial statements are the
responsibility of the corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the consolidated financial statements are
free of material misstatement. An audit includes examining on test basis
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the corporation as at April 30,
2000 and the results of its operations and its cash flows from April 6, 2000,
date of inception, to April 30, 2000 then ended in conformity with United States
Generally Accepted accounting principles.
/s/ Bromberg & Associate
CHARTERED ACCOUNTANTS
TORONTO, CANADA
December 21, 2000
See accompanying notes.
F-9
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS AT APRIL 30, 2000US FUNDS
ASSETS
CURRENT
Bank $ 58,640
Prepaid expenses 16,956
---------
$ 75,596
CAPITAL ASSETS (Notes 3 & 4) 159,196
---------
234,792
---------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 34,479
ADVANCES BY SHAREHOLDERS (Note 5) 215,917
---------
250,396
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Authorized
50,000,000 common shares with par value of $0.001
Issued
16,000,000 common shares 16,000
Deficit accumulated during the development stage (31,604)
---------
$ 234,792
APPROVED ON BEHALF OF THE BOARD
------------- ------------
Director Director
See accompanying notes.
F-10
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 6, 2000 TO APRIL 30, 2000
US FUNDS
06-Apr-00
Cumulative To
30-Apr-00
Revenue $ --
-----------
Expenses
Professional Fees $ 5,195
Office and General $ 4,813
Amortization $ 4,469
Consulting Fees $ 3,497
Wages $ 2,718
Rent $ 2,246
Foreign Exchange $ 1,516
Telephone $ 1,006
Utilities $ 459
Data Expense $ 396
Payroll Costs $ 176
Bank Charges and interest $ 1,007
Incorporation costs $ 4,106
-----------
$ 31,604
-----------
Net Loss $ (31,604)
===========
Loss per Share - Basic $ (0.00)
- Diluted $ (0.00)
===========
Weighted average number
of common shares
outstanding 16,000,000
===========
See accompanying notes.
F-11
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED APRIL 6, 2000 TO APRIL 30, 2000
US FUNDS
Deficit
Accumulated
During the
Common Paid-in Contributed development
Shares Capital surplus stage
----------- ------- -------- -------
Opening Balance-
April 6, 2000 -- -- -- --
Issued 16,000,000 shares
For cash consideration of
$16,000 16,000,000 $16,000 --
----------- ------- -------- -------
-- -- -- $31,604
Ending Balance
-April 30, 2000 16,000,000 $16,000 -- $31,604
---------- ------- -------- -------
See accompanying notes.
F-12
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED APRIL 6, 2000 TO APRIL 30, 2000
US FUNDS
April 6, 2000
Cumulative to
April 30, 2000
Cash flows from operating activities
Net Loss $ (31,604)
Less-item not requiring cash outlay
Amortization 4,469
--------------
Adjustments to reconcile with net cash used
For operating activities
Increase in prepaid expenses (16,956)
Increase in accounts payable 34,479
--------------
Net cash used for operating activities (9,612)
--------------
Cash flows from financing activities
Advances by shareholders 215,917
Issue of common shares 16,000
--------------
Net cash provided by financing activities 231,917
--------------
Cash flows from investing activities
Purchase of capital assets (163,665)
--------------
(163,665)
--------------
Bank, end of period $ 58,640
--------------
See accompanying notes.
F-13
<PAGE>
YAPALOT COMMUNICATIONS HOLDINGS INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT APRIL 6, 2000 TO APRIL 30, 2000
1. Nature of business
Yapalot Communications Holdings Inc, a development stage company, was
incorporated on April 6, 2000 in the state of Delaware. The Company 's
activities consist of the deployment of Voice over Internet Protocol (VoIP)
network services around the world, as well as developing communications
solutions. These solutions include pc-phone communication, conference bridge and
unified messenging solutions, all via VoIP technology. The company has adopted a
fiscal year end of December 31, 2000.
2. Consolidated Financial Statements -
The consolidated financial statements include the assets, liabilities, revenue
and expenses of its wholly owned subsidiary, Yapalot Communications Inc, which
was incorporated on March 8, 2000.
3. Summary of significant accounting policies.
a) Capital assets and amortization
Capital assets are recorded at cost, Amortization is recorded as
follows:
Network equipment - 20% declining balance method
Leasehold improvements - straight line balance method over
the terms of the lease
Office furniture and equipment - 20% declining balance method
Computer equipment - 30% declining balance method
The company has a policy of writing down capital assets to their fair
value, where applicable. Fair value is determined by reference to the
present value of the estimated future cash inflows compared to their
carrying value. Any impairment loss that may occur will be charged to
operations in the current year.
b) General
These financial statements have been prepared in accordance with
United States generally accepted accounting principles (GAAP), as they
relate to these financial statements.
c) Revenue and Deferred Revenue
Revenue is recognized when the service has been performed and is
billable. The company treats as deferred revenue any amount received
from the customer prior to the service being provided.
F-14
<PAGE>
d) 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.
e) Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
f) Income Taxes
Deferred income taxes are provided for temporary differences between
the financial and tax bases of assets and liabilities. These
differences primarily relate to the accounting for fixed assets,
including capital lease assets, and for net operating loss and credit
carryforwards.
g) Start-up and other Pre-operating Expenses
Start-up and pre-operating expenses are expensed as incurred.
4. Capial assets
Accumulated
Cost Amortization Net
--------- ----------- ----------
Network Equipment $ 93,259 $ 1,856 $ 91,403
Leasehold Improvements $ 30,518 $ 903 $ 29,615
Office Furniture and Equipment $ 4,112 $ 123 $ 3,989
Computer Equipment $ 35,776 $ 1,587 $ 34,189
--------- ----------- ----------
$ 163,665 $ 4,469 $ 159,196
--------- ----------- ----------
5. Advances by Shareholders
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 shareholders' advances. The
individual shareholder advance amounts are as follows:
Yuval Barzakay $168,794
Marilyn Benlolo $302,793
--------
$471,587
6. Subsequent event
Subsequent to April 30, 2000, the Company received additional funds from
its shareholders, resulting in a total amount of advances from shareholders
of $450,000.
F-15
<PAGE>
PART III
INDEX OF EXHIBITS
2.1 Articles of Incorporation of Yapalot Communications Holdings Inc.*
2.2 Bylaws of Yapalot Communications Holdings Inc.*
2.3 Articles of Incorporation of Yapalot Communications Inc.*
2.4 Bylaws of Yapalot Communications Inc.*
4.1 Specimen Stock Certificate*
10.1 Office Lease Agreement*
16.1 Consent of Independent Auditors -- Bromberg & Associate*
16.2 Consent and Opinion of Counsel -- Shustak Jalil & Heller*
16.3 Letter of Bromberg & Associates
27 Financial Data Schedule*
99.1 Clarent Sales and Purchase Order Form*
99.2 Agreement between Chris Kwon Enterprises and Yapalot Communications,
Inc.
99.3 Agreement between Appwerx Inc. and Yapalot Communications, Inc.
99.4 Agreement between UUNET and Yapalot Communications.
* Previously filed
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934,
the registrant caused this Amendment No. 3 to the registration statement to be
signed on its behalf by the undersigned, hereunto duly authorized this 21st day
of December 2000.
YAPALOT COMMUNICATIONS HOLDINGS INC.
BY: /s/ Yuval Barzakay
---------------------------------
Yuval Barzakay, President,
Chief Executive Officer and Chairman
