SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  Form 10-QSB/A
                                Amendment No. 1

(X)  Quarterly  Report  pursuant  to  Section  13 or l5 (d)  of  the  Securities
     Exchange Act of 1934


                   For the quarterly period ended June 30, 2001

                                       OR

( )  Transition  Report  pursuant  to  Section  13 or 15 (d) of the  Securities
     Exchange Act of 1934

          For the transition period from January 1, 2001 to June 30, 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 September 12, 2001.

<PAGE>

                                      INDEX

                                                                          PAGE
                                                                         -------

Part I. FINANCIAL INFORMATION                                               3

  Item 1. Financial Statements                                              3

      Consolidated Balance Sheet as at June 30,2001                         4
      Interim Consolidated Statement of Changes in Shareholders'
      Equity for the period ended June 30, 2001 and from date of
      inception to June 30, 2000                                            5
      Interim Consolidated Statement of Operations for the period
      ended June 30, 2001 and from date of inception to June 30, 2000       6
      Interim Consolidated Statement of Cash Flows for the period
      ended June 30, 2001 and from date of inception to June 30, 2000       7
      Notes to Interim Consolidated Financial Statements                8 - 9

  Item 2. Management's Discussion and Analysis or Plan of Operation   11 - 12


<PAGE>


                          PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                           CONSOLIDATED BALANCE SHEET

                                  (Unaudited)
                            (Stated in U.S. Dollars)

<TABLE>

                                                                   June 30         December 31
                                                                     2001             2000
                                                                  ----------     --------------
<S>                                                               <C>            <C>

                                   A S S E T S

 CURRENT
    Cash                                                       $   34,806         $   151,835
    Accounts receivable                                             7,449               1,248
    Sales taxes receivable                                              -              27,574
    Due from shareholder (Note 4)                                  20,171              24,408
    Prepaid and sundry                                             16,912                   -
                                                                ----------          -----------

                                                               $   79,338         $   205,065

 CAPITAL ASSETS (Note 3)                                          930,383           1,060,173
                                                                ----------          -----------


                                                               $1,009,721         $ 1,265,238

                              L I A B I L I T I E S

 CURRENT
    Accounts payable and accrued liabilities                   $  805,153         $  599,603
    Current portion of bank term loan (Note 4)                     34,479             34,479
                                                                -----------         -----------

                                                               $  839,632         $  634,082

 BANK TERM LOAN, Less current portion (Note 4)                    133,739            133,739

 SHAREHOLDERS' ADVANCES (Note 5)                                  301,111            301,111
                                                                -----------         -----------

                                                               $1,274,482        $ 1,068,932

                              SHAREHOLDERS' DEFICIT

 SHARE CAPITAL ISSUED AND PAID UP (Note 6)                     $   20,000        $    20,000
 CAPITAL IN EXCESS OF PAR VALUE                                 1,028,536          1,016,983
 CUMULATIVE TRANSLATION ADJUSTMENT                                (35,314)           (41,462)
 DEFICIT                                                       (1,277,983)          (799,215)
                                                               -----------        -------------

                                                               $ (264,761)      $    196,306
                                                               -----------        -------------
                                                               $1,009,721       $  1,265,238
                                                               ===========        =============
</TABLE>

<PAGE>

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
        INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                  (Unaudited)
                            (Stated in U.S. Dollars)
<TABLE>


                                                                                                         Accumulated
                                                 Common Shares          Capital in                         Other
                                                            Paid Up      Excess of      Accumulated    Comprehensive
                                              Number        Amount       Par Value        Deficit          Loss             Total
                                             ---------     ---------    ------------    ------------   -------------       -------
<S>                                          <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

  Net loss                                            -           -              -        (799,215)             -         (799,215)
  Foreign currency translation adjustments            -           -              -               -        (41,462)         (41,462)
  Imputed interest on shareholder loans                                     20,983               -                          20,983
                                             ----------     --------    -----------      ----------     ----------       ----------
BALANCE - December 31,2000                   20,000,000    $ 20,000      1,016,983      $ (799,215)    $  (41,462)      $  196,306


FROM JANUARY 1,2001 TO JUNE 30,2001

  Net loss                                           -            -              -        (478,768)             -
  (478,768)
  Foreign currency translation adjustments           -            -              -               -          6,148           6,148
  Imputed interest on shareholder loans                                     11,553                                         11,553
                                            ----------     --------    -----------      ----------     ----------       ----------
BALANCE - June 30,2001                      20,000,000    $  20,000      1,028,536     $(1,277,983)    $  (35,314)      $(264,761)
                                            ==========     ========    ===========      ==========     ==========

</TABLE>



                             See accompanying notes.
<PAGE>


                      YAPALOT COMMUNICATIONS HOLDINGS INC.
            INTERIM CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT

                                  (Unaudited)
                            (Stated in U.S. Dollars)

                                                    For the Period Ended
                                                 June 30             June 30
                                                   2001                2000
                                               ------------        ------------

 REVENUE                                      $   474,332          $      -

 EXPENSES
    Advertising and promotion                 $    11,174          $      -
    Bad debts                                      18,562                 -
    Bank charges and interest                      25,785             3,423
    General and office                             18,481            10,480
    Insurance                                          36                 -
    Management salaries                            65,180                 -
    Professional fees                             255,325            34,567
    Rent                                           14,678             8,533
    Telephone and communication                   164,322            30,022
    Travel                                            731             1,055
    Wages, commissions and benefits               218,570            13,914
    Amortization                                  160,256            10,070
                                                ----------         ----------

                                              $   953,100         $ 112,064
                                                ----------         ----------
 NET LOSS                                     $  (478,768)        $(112,064)

 OTHER COMPREHENSIVE INCOME (LOSS)
    Foreign currency translation adjustment   $     6,148         $  (1,368)
                                                ----------         ----------
 DEFICIT - Beginning of period                $  (799,215)        $       -
 NET LOSS FOR THE PERIOD                         (478,768)         (112,064)
                                                ----------         ----------

 DEFICIT - End of period                      $(1,277,983)        $(112,064)


 LOSS PER COMMON SHARE (Note 7)               $     (0.02)        $   (0.01)
                                                ==========         ==========
 WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING                                20,000,000         16,000,000
                                               ===========        ===========

                             See accompanying notes.
<PAGE>

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                  INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

                                  (Unaudited)
                            (Stated in U.S. Dollars)
<TABLE>

                                                                     For the Period Ended
                                                                  June 30             June 30
                                                                    2001                2000
                                                                 ----------          ----------
<S>                                                              <C>                 <C>

CASH FROM (USED IN) OPERATIONS

    Net loss                                                    $  (478,768)        $ (112,064)
    Adjustments  to  reconcile  net  loss  to net  cash
     provided  by  operating
        activities:
        Amortization                                                160,256             10,070
        Non-cash imputed interest                                    11,553                  -
    Changes in assets and liabilities relating to operations
        Accounts receivable                                          (6,201)                 -
        Accounts payable and accrued liabilities                    233,123            372,460
        Prepaid and sundry assets                                   (16,912)          (103,146)
                                                                 ------------       -----------

    NET CASH FROM (USED IN) OPERATIONS                           $  (96,949)        $  167,320

 CASH USED IN INVESTING ACTIVITIES

    Purchase of capital assets                                   $  (30,465)        $ (463,482)
    Incorporation costs paid                                              -             (3,846)
                                                                 -----------        -----------

    NET CASH USED IN INVESTING ACTIVITIES                        $  (30,465)        $ (467,328)
                                                                 -----------

 CASH FROM FINANCING ACTIVITIES

    Advances from shareholders                                   $        -         $  135,900
    Loan proceeds                                                         -            168,218
    Amounts due from shareholder                                      4,237                  -
    Capital shares issued                                                 -             16,000
                                                                 -----------        -----------

    NET CASH FROM FINANCING ACTIVITIES                           $    4,237         $  320,118

 EFFECT OF EXCHANGE RATE CHANGES ON CASH                         $    6,148         $   (1,368)

 NET INCREASE (DECREASE) IN CASH DURING THE PERIOD               $ (117,029)        $   18,742

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

 CASH - End of period                                            $   34,806         $   18,742
                                                                 ===========        ===========
</TABLE>


<PAGE>


                      YAPALOT COMMUNICATIONS HOLDINGS INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30,2001
                                  (Unaudited)
                            (Stated in U.S. Dollars)


The financial  information for the period ended June 30, 2001  presented in this
Form 10-QSB has been prepared from accounting records of Yapalot  Communications
Holdings Inc. (the "Company") without audit. The information  furnished reflects
all  adjustments  which are, in the opinion of management,  necessary for a fair
statement of the results of this interim  period.  The results of operations for
the period ended June 30, 2001 are not necessarily  indicative of the results to
be expected for a full year.


1.   NATURE OF OPERATIONS

     Yapalot Communications Holdings Inc. was incorporated under the laws of the
     State of  Delaware  on April  6,2000 and has  adopted a fiscal  year end of
     December  31.  The  company's  activities  consist of the  development  and
     deployment of Voice Over Internet  Protocol (VoIP) network  services around
     the  world  as  well  as  developing  different   communications  solutions
     utilizing VoIP technology.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a)   Basis of Consolidation

     These interim consolidated  financial statements present the combination of
     the interim financial statements of Yapalot Communications Holdings Inc., a
     United  States   company,   and  its   wholly-owned   subsidiary,   Yapalot
     Communications  Inc., a company incorporated under the laws of the Province
     of Ontario, Canada on March 8,2000.

     b)   Basis of Financial Statements

     These interim consolidated financial statements are stated in United States
     dollars, the "reporting currency". The consolidated transactions of Yapalot
     Communications  Holdings Inc. have been recorded in Canadian  dollars,  the
     "functional currency", and have been restated into United States dollars at
     the period end  exchange  rates for  balance  sheet  items and the  average
     exchange  rate for the period for  revenues,  expenses,  gains and  losses.
     Translation adjustments to the reporting currency are included in equity.

     c)   Capital Assets and Amortization

     Capital   assets  are  carried  at   acquisition   cost  less   accumulated
     amortization.  Amortization  is  provided  annually by the company at rates
     intended  to  amortize  the assets  over their  estimated  useful  lives as
     follows:

           Computer equipment                 -   30%  Declining balance basis
           Computer software                  -  100% Declining balance basis
           Furniture and fixtures             -   20%  Declining balance basis
           Leasehold improvements             -   20%  of cost
           Network communications equipment   -   20%  Declining balances basis

     Where the company determines that circumstances  indicate that the carrying
     value of certain  capital  assets  may not be  recoverable,  the  company's
     policy is to write the asset down to an  estimate  of the future cash flows
     expected to result from the use of the asset and its eventual  disposition.
     Such an impairment loss will be charged to operations in the current year.

     d)   Revenue Recognition

     The Company  records its revenue  from  customer  contracts as services are
provided.


<PAGE>

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30,2001
                                  (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>

                                                      Accumulated       Net        Net
                                          Cost       Amortization      2001       2000
                                        ---------  ----------------- --------   --------
    <S>                                <C>          <C>              <C>         <C>

    Computer equipment                 $  146,919       $33,249       $113,670   $139,835
    Computer software                      72,867        33,341         39,526     52,355
    Furniture and fixtures                 67,152        10,077         57,075     63,417
    Leasehold improvements                 71,000        10,967         60,033     66,434
    Network communication equipment       852,893       192,814        660,079    738,132
                                       ----------    ----------      ---------  ---------
                                       $1,210,831      $280,448       $930,383 $1,060,173
                                       ==========    ==========      =========  =========
</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 the  amount due from a
    shareholder. This balance is being offset with salary amounts that have been
    accrued toward Mr. Barzakay in connection with his management agreement with
    the company.


<PAGE>
                      YAPALOT COMMUNICATIONS HOLDINGS INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30,2001
                                  (Unaudited)
                            (Stated in U.S. Dollars)


5.  SHAREHOLDERS' ADVANCES

    The  balances  due to  shareholders  are  non-interest  bearing,  however in
    accordance with generally accepted accounting policies,  an interest rate of
    7% was imputed in this non arms length arrangement.  The imputed interest is
    charged to operations and credited to stockholders'  equity.  The individual
    shareholder advance amounts are as follows:

                  Marilyn Benlolo                          $   301,111
                                                           ===========


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.

<PAGE>

Item 2.    Management's Discussion and Analysis or Plan of Operation

This report contains statements that are not historical facts which are "forward
looking  statements"  within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the  Securities and Exchange Act of 1934, as
amended.  The company's results involve risks and uncertainties that could cause
actual to differ from projected  results.  Such statements  address  activities,
events or developments that we expect,  believe,  project,  intend or anticipate
will  or  may  occur,  including  such  matters  as  future  capital,   business
strategies,  expansion and growth of our  operations  and future net cash flows.
Factors  that could cause  actual  results to differ  materially  are  described
throughout this statement. Cautionary disclosures include, among others: general
economic  conditions,  the markets  for and market  price of our  services,  the
strength and  financial  resources of our  competitors,  our ability to find and
retain  skilled  personnel,  the results of  financing  efforts  and  regulatory
developments and compliance.  We disclaim any obligation to update or revise any
forward-looking statement to reflect events or circumstances occurring hereafter
or to reflect the occurrence of anticipated or unanticipated  events, other than
as required by law.

Overview

We are a Voice Over IP  telecommunications  company whose objective is to create
shareholder value by developing  operations and proprietary assets that generate
sustainable revenues and which yield long-term growth potential.  Our operations
are located primarily in North America.

During  the next few  years,  we expect to  continue  to  implement  our  growth
strategy.  Our growth  strategy  includes  a global  deployment  of the  Yapalot
Network  through  the  following:  (i) allow us to gain  strategic  position  by
deploying  Network Gateways in different parts of the world,  (ii) improve asset
productivity,  and (iii) improve growth potential in both emerging  technologies
and key targeted vertical market sectors.  To increase market share, we may also
attempt to acquire key  competitors,  as well as  companies  and assets that may
have important products and synergies with our existing operations and products.
<PAGE>


Significant Developments

For the  fiscal  period  ended June 30,  2001,  we  completed  the launch of ten
initial  gateways  at a cost of  $1,000,000.  We have  delayed the launch of the
previously  proposed  22  additional  gateways  pending  adequate  financing  of
approximately  $2,500,000.  Mr. Yuval  Barzakay,  the company's  chief executive
officer,has  concluded  a three  week  tour  within  Asia  with  the  investment
community in efforts to raise the required  financing.  The ten initial gateways
were financed using the private funds of our founding  shareholders.  We believe
that we will  generate  sufficient  positive  cash flow from  operations to meet
operating  requirements.  This  belief is founded on our current  customer  base
revenue  stream.  Yapalot may acquire  Clarent  equipment at reduced  prices and
favorable  installment payment terms on each Gateway which will allow for future
development. In addition, we are also working on Approved Agent Agreements which
we anticipate will be completed by year end.

Management  has also put plans into  effect to  significantly  build the current
monthly  customer  acquisition  base to  approximately  700.  This growth is not
expected to materialize until the 3rd or 4th quarter of this year. The customer
growth is expected to be accomplished  through a planned increase in advertising
expenditures  in the 3rd  quarter,  as well as a hiring  program for  additional
staff.  If we do not  generate  sufficient  positive  cash  flow  to  meet  cash
requirements,  we may, from time to time,  seek to raise capital from additional
sources,  including setting up lines of credit,  project specific financings and
public or private debt or equity financings.  However, there can be no assurance
that we will be able to obtain any sort of financing on commercially  acceptable
terms, if at all.

Management  has also detected a discrepency  in the initial  liability  shown as
owing to Yuval Barzakay. Although the liability still exists, it is held through
a financial institution,  under the name of the corporation, as opposed to Yuval
Barzakay.  This  liability is a Canadian  government - guarantee  small business
loan with  Yuval  Barzakay  personally  guaranteeing  25% of the  original  loan
balance to the financial  institution with the Canadian governemnt  guaranteeing
the  remaining  75% of the original loan  balance.  Notwithstanding  above,  Mr.
Barzakay  entered into an agreement  with the Company,  whereby Mr.  Barzakay is
responsible  for repaying  all  principal  and interest  payments on the loan to
Yapalot on an annual basis.

We are a holding  company and have no independent  operating  history other than
through Yapalot Communications. Inc.

COMPARISON OF THE PERIOD ENDED JUNE 30, 2001 TO THE PERIOD ENDED JUNE 30, 2000.

During the six months ended June 30, 2001,  we maintained  our current  customer
base. No additional  gateways were  installed  during this time.  During the six
months  ended June 30,  2001,  we  increased  our  customer  contracts  by 1,031
subscribers.  There are no print or media  marketing  initiatives  at this time,
except a small telemarketing initiative to maintain customer loyalty and acquire
new  customers.  Staffing  remains  unchanged  from Q1 2001. Our Q1 cost cutting
initiative is working to allow the company to maintain  it's present  operations
while the  company is seeking  financing.  While the  company  seeks  additional
financing, only payables integral to maintaining network operations and customer
satisfaction are being addressed. The cost cutting initiative that started in Q1
2001  is  coherent  with  current   market  trends  of  reducing   overhead  and
streamlining  operations towards faster profitability.  Many of today's start-up
companies are faced with the hard reality that investment  banking financing and
VC financing is a lot more difficult to come by as these  institutions  are more
reluctant  to invest as they have seen the NASDQ and the DOW decline so sharply.
Institutions  are listening to companies that can demonstrate that they have the
resolve to reduce costs, streamline operations, and show a road to profitability
sooner than later.

RESULTS OF OPERATIONS

For the 6 months ended June 30, 2001:  During the period ended June 30, 2001, we
increased  our revenue  activities,  signing  customers to  contracted  revenues
amounting to $474,332. Our resulting loss for this period of $478,768 reflects a
significant  increase in various corporate  expenses in the period compared with
the prior  periods,  as  operations  continue to roll out. This period's loss is
largely a result of  anticipated  costs  from  professional  advisors  due to an
increase in the need for contract and agreement  reviews and the ongoing cost of
utilizing  the  network  systems in this  period.  The net loss for the  current
period was also affected by the cost of professional legal, accounting and other
services  during  the  period,  which  grew  out of our  ongoing  organizational
development to ensure we meet the needs of our current and projected operations.
Professional  fees  amounted to  $255,325,  an increase of $220,758 or 639% from
$34,567 for the  corresponding  period of the prior year.  In addition,  we also
developed the remaining  proportion of our planned  staffing level this quarter,
resulting in $218,570 of wages and other  payroll  costs during this period,  an
increase of $204,656 or 1,471% from $13,914 for the corresponding  period of the
prior year.

Amortization of capital assets during this period were $160,256,  an increase of
$150,186 or 1,497% from $10,070 for the corresponding  period of the prior year.
This  represents a significant  charge  against  revenues,  due to the increased
installation  cost of our gateways.  Most of our other  expenses have  developed
rather  normally during this period,  considering  our increased  infrastructure
requirements  as we continue to develop our client base and resulting  operating
costs.

For the cumulative 15 months ended June 30, 2001

For the cumulative period from  incorporation,  April 6, 2000, to June 30, 2001,
we began increasing our contracted revenues to $642,605. Our cumulative net loss
of $1,277,983  for the fifteen  months ended June 30,2001 is largely a result of
anticipated costs of $400,260 from the initial advertising  program, as well the
development of a significant proportion of our planned staffing level, resulting
in  administration  and sales  wages paid out during this  cumulative  period of
$444,554.  The net loss for the  current  cumulative  period also  reflects  the
accumulated cost of professional  legal,  accounting and other services required
to ensure our ongoing organizational  development meets the needs of our current
and projected operations. The accumulated amortization cost of capital assets of
$280,448  also  represents a significant  charge  against  revenues,  due to the
cumulative installation cost of our gateways. Most other expenses have developed
rather  normally during this period,  considering  our increased  infrastructure
requirements  as we continue to develop our client base and resulting  operating
costs.

LIQUIDITY AND CAPITAL RESOURCES

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

Current assets totaled $79,338 at June 30, 2001 compared to $205,065 at December
31, 2000. The decrease in current assets is  attributable  to the utilization of
cash  for   additional   payments   on  gateway   purchases,   maintaining   our
infrastructure  as the business  develops,  and our acquiring  customer  service
contracts to be collected over the current  operating  cycle. The current assets
are increased in the period by prepaid rental  payments and by the net servicing
of the Small Business Loan owed by the company, which had been arranged by Yuval
Barzakay.   Pursuant  to  his  agreement  with  the  Company,  Mr.  Barzakay  is
responsible  for the  principal and interest  repayments.  During the six months
ended  June 30,  2001,  approximately  $66,600  of  accrued  salary  owed to Mr.
Barzakay was applied  against the principal and interest  repayments owed by Mr.
Barzakey in connection  with the Small  Business  Loan. At June 30, 2001, we had
cash of $34,806 and no short-term deposits.  As customers pay for the service by
automatic  credit card  payments,  we  anticipate  an orderly  collection of the
balance of Accounts Receivable.

As of June 30, 2001, current  liabilities  totaled $839,623 compared to $634,082
at December 31, 2000. The increase is largely attributable to a reduced level of
payments against balances owing under the initial financing terms on the gateway
hardware  received by us and from an increase in recent  professional  fees as a
result of the increasing  amount of contracts and agreements  that require legal
scrutiny.

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

<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                        YAPALOT COMMUNICATIONS HOLDINGS INC.
Dated: September 12, 2001


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