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 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 _________ to __________

                         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 June 30, 2001.


<PAGE>
                                      INDEX


                                                                          PAGE
                                                                         ------

Part I. FINANCIAL INFORMATION

  Item 1. Financial Statements

      Consolidated Balance Sheet as at June 30,2001                        3
      Interim Consolidated Statement of Changes in Shareholders'
      Equity for the period ended June 30,2001 and from date
      of inception to June 30,2000                                         4
      Interim Consolidated Statement of Operations for the period ended
      June 30,2001 and from date of inception to June 30,2000              5
      Interim Consolidated Statement of Cash Flows for the period ended
      June 30,2001 and from date of inception to June 30,2000              6
      Notes to Interim Consolidated Financial Statements               7 - 9

  Item 2. Management's Discussion and Analysis or Plan of Operation   10 -12

Part II. OTHER INFORMATION                                                12

  Item 1. Legal Proceedings                                               12

  Item 6. Exhibits and Reports on Form 8-K                                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
    Prepaid and sundry                                       76,425          24,408
                                                       ------------      -----------

                                                       $    118,680      $  205,065

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

                                                       $  1,049,063      $1,265,238

                              L I A B I L I T I E S

 CURRENT
    Accounts payable and accrued liabilities           $    777,620      $  599,603
    Current portion of bank term loan (Note 4)               34,479          34,479
                                                       ------------      -----------

                                                       $    812,099      $  634,082

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

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

                                                       $  1,246,949      $1,068,932
                                                       ------------      -----------
                              SHAREHOLDERS' DEFICIT

 SHARE CAPITAL ISSUED AND PAID UP (Note 6)             $    20,000       $   20,000
 CAPITAL IN EXCESS OF PAR VALUE                            996,000          996,000
 CUMULATIVE TRANSLATION ADJUSTMENT                         (31,679)         (41,462)
 CUMULATIVE IMPUTED INTEREST                                32,536           20,983
 DEFICIT                                                (1,214,743)        (799,215)
                                                       -------------    -------------

                                                       $  (197,886)      $  196,306
                                                       -------------    -------------

                                                       $ 1,049,063       $1,265,238
                                                       =============    =============
</TABLE>
                                       3
<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         Income           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)         (20,479)        (819,694)
                                        ------------    --------    ---------       -----------         --------       ----------
BALANCE - December 31, 2000              20,000,000    $ 20,000      996,000       $  (799,215)        $(20,479)       $ 196,306

FROM JANUARY 1, 2001 TO JUNE 30, 2001


  NET EARNINGS (LOSS)                             -           -            -          (415,528)          21,336         (394,192)
                                        ------------    --------    ---------       -----------         --------       ----------
BALANCE - June 30, 2001                  20,000,000    $ 20,000      996,000       $(1,214,743)        $    857       $ (197,886)
                                        ============    ========    =========       ===========         ========       ==========

</TABLE>


                             See accompanying notes.

                                       4
<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                 -
    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               217,594            13,914
    Amortization                                  160,256            10,070
    Foreign exchange loss                           2,916                 -
                                                ----------        ----------

                                               $   889,860       $  112,064
                                                ----------        ----------

 NET LOSS                                      $  (415,528)      $ (112,064)
                                                ----------        ----------

 OTHER COMPREHENSIVE INCOME (LOSS)
    Foreign currency translation adjustment    $     9,783       $   (1,368)
    Imputed interest on shareholder loans           11,553                -
                                               $    21,336       $   (1,368)
                                                -----------       ----------

 DEFICIT - Beginning of period                 $  (799,215)      $        -

 NET LOSS FOR THE PERIOD                          (415,528)        (112,064)
                                                -----------       ----------

 DEFICIT - End of period                       $(1,214,743)      $ (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
                                                ===========       ==========

                                       5
<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                                                  $  (415,528)    $  (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                  205,590         372,460
        Prepaid and sundry assets                                 (52,017)       (103,146)
                                                               ------------     -----------

    NET CASH FROM (USED IN) OPERATIONS                        $   (96,347)    $   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
    Capital shares issued                                               -          16,000
                                                               ------------    ------------

    NET CASH FROM FINANCING ACTIVITIES                        $         -     $   320,118
                                                               ------------    ------------

 EFFECT OF EXCHANGE RATE CHANGES ON CASH                      $     9,783     $    (1,368)
                                                               ------------    ------------



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

 CASH - Beginning of period                                       151,835               -
                                                               ------------    ------------
 CASH (INDEBTEDNESS) - End of period                          $    34,806     $    18,742
                                                               ============    ============
</TABLE>
                                       6
<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.

                                       7
<PAGE>

    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 prepaid and sundry
    assets.

                                       8
<PAGE>


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.

                                       9
<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.

                                       10
<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 4rth 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.

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

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. 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  its  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  $415,528  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 86% 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 $217,594 of wages and other
payroll  costs during this  period,  an increase of $203,680 or 94% from $13,914
for the corresponding period of the prior year.

Amortization of capital assets in the amount of $160,256during this period, an
increase  of $150,186 or 94% 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 $1,214,743  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.

                                       11
<PAGE>

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  $118,680  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 servicing of
the Small  Business  Loan owed by the company,  which had been arranged by Yuval
Barzakay.  Under the management agreement, Mr. Barzakay is responsible for these
principal and interest  repayments until the company is profitable.  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 $812,099 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.


                           PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     a.   Exhibits

     None.

     b.   Reports on Form 8-K

     None.

                                       12
<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: August 20, 2001               By  /s/ Yuval Barzakay
                                        -----------------------------------
                                         Yuval Barzakay, Chairman and Chief
                                         Executive Officer

                                       13