<PAGE>




                       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 31,2001

                                       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.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

           DELAWARE                                      98-0160284
--------------------------------------------------------------------------------
 (State or Other Jurisdiction                         (I.R.S. Employer
Incorporation or Organization)                     Identification Number)


--------------------------------------------------------------------------------
             4884 Dufferin Street, Unit 1, Toronto, Ontario M3H 5S8
                    (Address of Principal Executive Offices)

Issuer's Telephone Number, Including Area Code:            416-736-8882

                                       N/A
--------------------------------------------------------------------------------
              (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 March 31,2001.



                                       1

<PAGE>




                                      INDEX
<TABLE>
<CAPTION>
                                                                                                                      PAGE
<S>                                                                                                                   <C>
PART I. FINANCIAL INFORMATION                                                                                           3

  Item 1. Financial Statements                                                                                          3

      Consolidated Balance Sheet as at March 31,2001                                                                    4

      Interim Consolidated Statement of Changes in Shareholders' Equity for the period ended March 31,2001
         and cumulative from date of inception to March 31,2001                                                         5

      Interim Consolidated Statement of Operations for the period ended March 31,2001 and cumulative from
         date of inception to March 31,2001                                                                             6

      Interim Consolidated Statement of Cash Flows for the period ended March 31,2001 and cumulative from
         date of inception to 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 II. OTHER INFORMATION                                                                                             14

  Item 3. Certain Relationships and Related Transactions                                                               14

  Item 4. Description of Securities                                                                                    14

  Item 5. Changes in Auditors'                                                                                         14
</TABLE>



                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS











                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)

                    INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                                  MARCH 31,2001
                                  (Unaudited)

                            (Stated in U.S. Dollars)






                                       3
<PAGE>

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEET

                                  (Unaudited)
                            (Stated in U.S. Dollars)
<TABLE>
<CAPTION>
                                                               March 31       December 31
                                                                 2001            2000
==========================================================================================
<S>                                                         <C>              <C>
                                   A S S E T S

 CURRENT
    Cash                                                    $    -           $     151,835
    Accounts receivable                                           441,596          363,525
    Sales taxes receivable                                          3,782           27,574
    Prepaid and deposits                                           38,032           30,370
                                                            -------------    -------------

                                                            $     483,410    $     573,304

 CAPITAL ASSETS (Note 3)                                        1,004,450        1,060,173
                                                            -------------    -------------


                                                            $   1,487,860    $   1,633,477
                                                            =============    =============

                              L I A B I L I T I E S

 CURRENT
    Bank indebtedness                                       $     102,716    $    -
    Accounts payable and accrued liabilities                      499,250          620,586
    Deferred revenue                                              450,573          362,277
    Current portion of bank term loan (Note 4)                     32,829           32,829
                                                            -------------    -------------

                                                            $   1,085,368    $   1,015,692

 BANK TERM LOAN, Less current portion (Note 4)                    135,389          135,389

 SHAREHOLDERS' ADVANCES (Note 5)                                  302,793          302,793
                                                            -------------    -------------

                                                            $   1,523,550    $   1,453,874
                                                            -------------    -------------

                              SHAREHOLDERS' DEFICIT


 SHARE CAPITAL ISSUED AND PAID UP (Note 6)                  $      20,000    $      20,000

 CAPITAL IN EXCESS OF PAR VALUE                                   996,000          996,000

 DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE                   (971,122)        (782,763)

 FOREIGN CURRENCY TRANSLATION ADJUSTMENT                         (80,568)         (53,634)
                                                            -------------    -------------

                                                            $    (35,690)    $     179,603
                                                            -------------    -------------

                                                            $   1,487,860    $   1,633,477
                                                            =============    =============
</TABLE>
                             See accompanying notes.


                                       4
<PAGE>

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
        INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                                  (Unaudited)
                            (Stated in U.S. Dollars)
<TABLE>
<CAPTION>
====================================================================================================================================
                                                                                Deficit
                                                                              Accumulated   Accumulated
                                              Common Shares     Capital in      During         Other
                                                        Paid Up  Excess of    Development  Comprehensive              Comprehensive
                                          Number        Amount   Par Value       Stage         Loss            Total      Loss
                                       ---------------------------------------------------------------------------------------------
<S>                                      <C>         <C>         <C>          <C>             <C>           <C>        <C>
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       -

  COMPREHENSIVE LOSS
    Net Loss                                 -         -           -          (782,763)       -              (782,763)   $(782,763)
    Foreign Currency Translation
       Adjustments                           -         -           -            -            (53,634)         (53,634)     (53,634)
                                                                                                                        ----------

  COMPREHENSIVE LOSS                                                                                                     $(836,397)
                                       -------------------------------------------------------------------------------  ==========

BALANCE - December 31,2000               20,000,000  $ 20,000     996,000   $ (782,763)     $(53,634)     $   179,603

FROM JANUARY 1,2001 TO MARCH 31,2001

  COMPREHENSIVE LOSS
    Net Loss                                 -         -           -          (191,088)       -              (191,088)   $(191,088)
    Prior year interest expense
       adjustment (Note 8)                                                       2,729                          2,729
    Foreign Currency Translation
       Adjustments                           -         -           -            -            (26,934)         (26,934)     (53,634)
                                                                                                                        ----------

  COMPREHENSIVE LOSS                                                                                                     $(244,722)
                                       -------------------------------------------------------------------------------  ==========

BALANCE - March 31,2001                  20,000,000  $ 20,000     996,000   $ (971,122)     $(80,568)     $   (35,690)
                                       ===========================================================================================
</TABLE>


                             See accompanying notes.


                                       5
<PAGE>

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                  INTERIM CONSOLIDATED STATEMENT OF OPERATIONS

                                  (Unaudited)
                            (Stated in U.S. Dollars)
<TABLE>
<CAPTION>
                                                            For the Period Ended
                                              March 31           March 31            December 31
                                                 2001               2001                2000
=================================================================================================
                                             (3 Months)         (Cumulative
                                                                  to Date)
<S>                                        <C>                <C>                 <C>
 REVENUE                                   $       222,384    $        390,657    $       168,273
                                           ----------------   ----------------    ---------------


 EXPENSES
    Advertising and promotion              $        22,431    $        411,517    $       389,086
    Bad debts                                       11,292              11,292           -
    Bank charges and interest                       11,618              36,128             24,510
    General and office                               6,560              66,484             59,924
    Insurance                                           36               5,898              5,862
    Professional fees                               71,180             232,362            161,182
    Rent                                             7,834              32,726             24,892
    Telephone and communication                     91,273             314,632            223,359
    Travel                                             512              20,923             20,411
    Wages, commissions and benefits                128,241             355,201            226,960
    Amortization                                    79,816             200,008            120,192
    Less - Gain on foreign exchange               (17,321)           (322,663)          (305,342)
                                           ----------------   ----------------    ---------------

                                           $       413,472    $      1,364,508    $       951,036
                                           ----------------   ----------------    ---------------

 NET LOSS                                  $     (191,088)    $      (973,851)    $     (782,763)
                                           ================   ================    ===============



 LOSS PER COMMON SHARE (Note 7)            $        (0.01)    $         (0.05)    $        (0.04)
                                           ================   ================    ===============

 WEIGHTED AVERAGE NUMBER OF COMMON
   SHARES OUTSTANDING                          20,000,000          18,207,317         17,529,412
                                           ================   ================    ===============
</TABLE>
                             See accompanying notes.

                                       6
<PAGE>

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                  INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

                                  (Unaudited)
                            (Stated in U.S. Dollars)
<TABLE>
<CAPTION>
                                                                                   For the Period Ended
                                                                      March 31           March 31            December 31
                                                                        2001               2001                2000
========================================================================================================================
                                                                     (3 Months)         (Cumulative
                                                                                         to Date)
<S>                                                               <C>                <C>                <C>
CASH FROM (USED IN) OPERATIONS

    Net loss                                                      $     (191,088)    $      (973,851)    $     (782,763)
    Adjustments to reconcile net loss to net cash provided by
        operating activities:
        Amortization                                                       79,816             200,008            120,192
        Prior year interest adjustment                                      2,729               2,729           -
        Deferred revenue                                                   88,296             450,573            362,277
    Changes in assets and liabilities relating to operations
        Accounts receivable                                              (78,071)           (441,596)          (363,525)
        Accounts payable and accrued liabilities                         (97,545)             495,468            593,013
        Prepaid and sundry assets                                         (7,661)            (38,032)           (30,371)
                                                                  ----------------   ----------------    ---------------

    NET CASH USED IN OPERATIONS                                   $     (203,524)    $      (304,701)    $     (101,177)
                                                                  ----------------   ----------------    ---------------

 CASH USED IN INVESTING ACTIVITIES

    Purchase of capital assets                                    $      (24,093)    $    (1,204,458)    $   (1,180,365)
                                                                  ----------------   ----------------    ---------------

 CASH FROM FINANCING ACTIVITIES

    Advances from shareholders                                            -          $        302,793    $       302,793
    Loan proceeds                                                         -                   168,218            168,218
    Capital shares issued                                                 -                 1,016,000          1,016,000
                                                                  ----------------   ----------------    ---------------

    NET CASH FROM FINANCING ACTIVITIES                            $       -          $      1,487,011    $     1,487,011
                                                                  ----------------   ----------------    ---------------

 EFFECT OF EXCHANGE RATE CHANGES ON CASH                          $      (26,934)    $       (80,568)    $      (53,634)
                                                                  ----------------   ----------------    ---------------

 NET INCREASE IN CASH DURING THE PERIOD                           $     (254,551)    $      (102,716)    $       151,835

 CASH - Beginning of period                                               151,835            -                  -
                                                                  ----------------   ----------------    ---------------

 CASH (INDEBTEDNESS) - End of period                              $     (102,716)    $      (102,716)    $       151,835
                                                                  ================   ================    ===============
</TABLE>
                             See accompanying notes.



                                       7
<PAGE>


                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
               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. 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 records its revenue from customer contracts upon inception
        of the contract period and reflects that portion of the contracted
        service yet to be provided as deferred revenue.


                                       8
<PAGE>



                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
               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
<TABLE>
<CAPTION>
                                                      ACCUMULATED           NET               NET
                                        COST         AMORTIZATION          2001              2000
                                    ---------------------------------------------------------------
<S>                                 <C>                <C>             <C>              <C>
    Computer equipment              $  146,111         $ 22,973        $  123,138       $  139,835
    Computer software                   72,867           26,754            46,113           52,355
    Furniture and fixtures              67,152            6,906            60,246           63,417
    Leasehold improvements              70,510            7,238            63,272           66,434
    Network communication equipment    847,818          136,137           711,681          738,132
                                    ---------------------------------------------------------------
                                    $1,204,458         $200,008        $1,004,450       $1,060,173
                                    ===============================================================
</TABLE>



4.  BANK TERM LOAN

    One of the founding shareholders, Mr. Barzakay, arranged for a Canadian
    Small Business Loan for the company, as part of his initial advance to the
    company. As the company is liable for the debt and interest repayments, the
    loan facility has been reflected as long term debt of the company. However,
    as part of the intial funding agreement with the company, Mr. Barzakay has
    agreed to reimburse the company annually for all principal and interest
    payments. The loan is repayable in monthly payments of CDN$4,165 plus
    interest at the Royal Bank prime rate plus 1.5 percent. The loan matures in
    March,2005 and is personally guaranteed by Mr. Barzakay. The moneys that are
    to be reimbursed to the company are included in prepaid and other assets.


                                       9
<PAGE>


                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
               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 shareholders' advances. The individual
    shareholder advance amounts are as follows:

                  Marilyn Benlolo                              $      302,793
                                                               ==============


6.  SHARE CAPITAL

    Authorized
          50,000,000   Common shares at $.001 par value
    Issued
          20,000,000   Common shares at $.001 par value        $       20,000
                                                               ==============


7.  LOSS PER COMMON SHARE

    Loss per common share is calculated as the loss for the period divided by
    the weighted average number of the Company's common stock outstanding.
    Diluted loss per share does not differ from basic loss per share.


8.  2000 COMPARISONS

    Certain prior year comparative balances have been amended to reflect a
    change in the accounting for a bank term loan that had originally been
    arranged on behalf of the company by one of the founding shareholders. The
    loan had previously been reflected as a direct contribution by the
    shareholder. However, since the loan was instead arranged under the
    company's name, and simply guaranteed by the founding shareholder, it has
    been retroactively reflected as a bank term loan as indicated in note 4 to
    these financial statements. An adjustment has also been made to the prior
    year statement of operations to reflect an adjustment to the interest
    expense incurred on this loan.


                                       10
<PAGE>


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 new customers per month. This latter growth is expected to be
accomplished through a planned increase in advertising expenditures and the
hiring of additional sales staff during the second quarter.. If we do not
generate sufficient positive cash flow to meet cash requirements, we may, from
time to time, seek to raise capital from additional sources, including setting
up lines of credit, project specific financings and public or private debt or
equity financings. However, there can be no assurance that we will be able to
obtain any sort of financing on commercially acceptable terms, if at all.

         Management has also detected a discrepancy in the initial liability due
payable to Yuval Barzakay. Although the liability still exists, it is held
through a financial institution, under the name of the corporation, as opposed
to Yuval Barzakay. This liability is a Canadian government-guarantee Small
Business Loan with Yuval Barzakay personally guaranteeing twenty five percent.
As such Mr. Barzaskay pays all principal and interest payments on the loan to
Yapalot on an annual basis.

         We are a holding company and have no independent operating history
other than through Yapalot Communications. Inc. Expenses for the period ended
December 31, 2000 represent consolidated costs since inception.

COMPARISON OF THE PERIOD ENDED MARCH 31, 2001 TO THE PERIOD ENDED DECEMBER 31,
2000.

         During the current quarter ended March 31, 2001, we maintained our
current customer base. No additional gateways were installed at this time.
Marketing initiatives have been reduced. We have also minimized our staffing to
core essentials which include programming, IT, customer service, and
administrative. This was a cost cutting initiative coherent with current market
trends.


                                       11
<PAGE>

RESULTS OF OPERATIONS

For the 3 months ended March 31,2001:

         During this quarter ended March 31, 2001, we increased our revenue
activities, signing customers to contracted revenues amounting to $672,957, of
which $450,573 remains to be collected as the related service is provided. Our
resulting loss for this period of $191,088 reflects a significant increase in
various corporate expenses in the period compared with the prior periods, as
operations continue to roll out. This period's loss is largely a result of a
deferral of the recognition of the unserviced portion of the customer contract
revenues, as well as anticipated costs from our advertising program, which cost
us $22,431 in this quarter. In addition, we also developed the remaining
proportion of our planned staffing level this quarter, resulting in $128,241 of
wages and other payroll costs this quarter.

         The net loss for the current quarter was also affected by the cost of
professional legal, accounting and other services during the period, which grew
out of our ongoing organizational development to ensure we meet the needs of our
current and projected operations. Amortization of capital assets in the amount
of $79,816 this quarter also represents a significant cost, due to the increased
installation cost of our gateways. Most other expenses have developed rather
normally during this period, considering our increased infrastructure
requirements as we continue to develop our client base and resulting operating
costs.

FOR THE CUMULATIVE 12 MONTHS ENDED MARCH 31,2001

         For the cumulative period from incorporation, April 6, 2000, to March
31, 2001, we began increasing our contracted revenues to $841,230, of which
$450,573 will be recognized as revenue when the related service has been
provided by us. Our cumulative net loss of $973,851 for the twelve months ended
March 31,2001 is largely a result of anticipated costs of $411,517 from the
initial advertising program, as well the development of a significant proportion
of our planned staffing level, resulting in administration and sales wages paid
out during this cumulative period of $355,201. The net loss for the current
cumulative period also reflects the accumulated cost of professional legal,
accounting and other services required to ensure our ongoing organizational
development meets the needs of our current and projected operations. The
accumulated amortization cost of capital assets of $200,008 also represents a
significant charge against revenues, due to the cumulative installation cost of
our gateways. Most other expenses have developed rather normally during this
period, considering our increased infrastructure requirements as we continue to
develop our client base and resulting operating costs.

LIQUIDITY AND CAPITAL RESOURCES

         Our primary sources of liquidity are funds generated by loans from the
founding shareholders. Additional information on the loan agreement is described
in note 4 to the Company's Consolidated Financial Statements set forth in Part
III hereto.

         Current assets totaled $483,410 at March 31, 2001 compared to $573,304
at December 31, 2000. The decrease in the last quarter is attributable to the
utilization of cash for additional payments on gateway purchases, maintaining
our infrastructure as the business develops, and our acquiring customer service
contracts to be collected over the current operating cycle. At March 31, 2001,
we had a cash overdraft and no short-term deposits. As customers pay for the
service by automatic credit card payments, we anticipate an orderly collection
of the balance of Accounts Receivable as at March 31, 2001.

         As at March 31, 2001, current liabilities totaled $1,085,368 compared
to $1,015,692 at December 31, 2000. The increase is largely attributable to
recognizing an increasing portion of our contracted revenues as current deferred
revenues, as the service period relates to the coming current periods. In
addition, the current liabilities are also reduced by the continuation of
payments against current supplier balances, under initial


                                       12
<PAGE>

financing terms on the gateway hardware received by us, and increased from
carrying a bank overdraft as a result of the increasing carrying costs of our
developing infrastructure.

         Our operations are carried out in Canadian dollars. Our reporting
currency is in Unites States dollars. As indicated in the notes to this
financial information, any translation adjustment to the reporting currency
would be included in equity.

         During the cumulative period ended March 31, 2001, we conducted an
offering pursuant to Regulation D, Rule 504 of the Securities Act of 1933, as
amended, to accredited investors of 4,000,000 shares of common stock at $0.25 to
raise $1,000,000 for working capital.

FORWARD LOOKING STATEMENTS

         Statements that are not historical facts included in this registration
statement are "forward looking statements" and involve risks and uncertainties
that could cause actual to differ from projected results. Such statements
address activities, events or developments that we expect, believe, project,
intend or anticipate will or may occur, including such matters as future
capital, business strategies, expansion and growth of our operations and future
net cash flows. Factors that could cause actual results to differ materially are
described throughout this statement. Cautionary disclosures include, among
others: general economic conditions, the markets for and market price of our
services, the strength and financial resources of our competitors, our ability
to find and retain skilled personnel, the results of financing efforts and
regulatory developments and compliance. We disclaim any obligation to update or
revise any forward-looking statement to reflect events or circumstances
occurring hereafter or to reflect the occurrence of anticipated or unanticipated
events, other than as required by law.

ITEM 7. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.



                                       13
<PAGE>

                                    PART III
OTHER INFORMATION

ITEM 8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We currently have two outstanding loans. One to a founder, Marilyn Benlolo, for
$302,793 and a loan arranged by Yuval Barzakay in the amount of $168,218 payable
to The Royal Bank of Canada. Under the Canadian government-guaranteed facility,
Mr. Barzakay is required to provided his personal guarantee to the bank, of 25%
of the original loan proceeds. Both loans are interest free to the company.
These funds were used to finance us since our inception in March 2000. Yapalot
pays the Royal Bank loan and Mr. Barzakay reimburses both interest and principal
on an annual basis. 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.

ITEM 10. DESCRIPTION OF SECURITIES

We have authorized 50,000,000 shares of common stock, $.001 par value per share.
As of December 31, 2000, there were 20,000,000 shares issued and outstanding.
All shares are of the same class and have the same rights, preferences and
limitations. Holders of shares are entitled to receive dividends in cash,
property or shares when and if dividends are declared by the Board of Directors
out of funds legally available therefore. The By-Laws impose no limitations on
the payment of dividends. A quorum for any meeting of shareholders is a majority
of shares then issued and outstanding and entitled to be voted at the meeting.
Holders of shares are entitled to one vote per share. Upon liquidation,
dissolution or winding up of our business, any assets will be distributed to the
holders of shares after payment or provision for payment of all our debts,
obligations or liabilities. There are no preemptive rights, subscription rights,
or redemption provisions relating to the shares and none of the shares carries
any liability for further calls.



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                                   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: March 26, 2001


                                By  /s/ Yuval Barzakay
                                    --------------------------------------------
                                        Yuval Barzakay, Chairman and Chief
                                        Executive Officer