<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


[X]  Annual Report pursuant to Section 13 or l5 (d) of the Securities Exchange
     Act of 1934 for the year ended December 31, 2000

                                       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)

Registrant's telephone number, including area code:                416-736-8882
                                                                   ------------

Securities Registered Pursuant to Section 12(b) of the Act:                None


Securities Registered Pursuant to Section 12(g) of the Act:                None


                                                          Name of Each Exchange
            Title of Each Class                            on which Registered
            -------------------                           ---------------------
Common Stock, par value $0.0001 per share                          None


                                       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 [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].

We generated $168,273 of gross revenues for the fiscal year ended December 31,
2000.

As of December 31, 2000, 20,000,000 shares of our Common Stock were outstanding,
at a par value of $0.001 per share.



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                                     PART I


         The information set forth in this report on Form 10-KSB including,
without limitation, that contained in Item 6. Management's Discussion and
Analysis and Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Actual results may materially differ from those
projected in the forward-looking statements as a result of certain risks and
uncertainties set forth in this report. Although management believes that the
assumptions made and expectations reflected in the forward-looking statements
are reasonable, there is no assurance that the underlying assumptions will, in
fact, prove to be correct or that actual future results will not be different
from the expectations expressed in this report.

ITEM 1.  DESCRIPTION OF BUSINESS

         Yapalot Communications Holdings Inc. was incorporated on April 6, 2000
under the laws of Delaware to deploy and market a global Internet Protocol
("IP") telecommunications network. Yapalot is the holding company for its
wholly-owned subsidiary, Yapalot Communications Inc. which was incorporated
under the laws of Canada on March 8, 2000. Yapalot Communications Holdings Inc.
and Yapalot Communications Inc. are referred to as a single entity throughout
this document as "Yapalot", "we" or "us".

         We specialize in voice communication solutions over an Internet
Protocol (IP) network our network of computers around the world allows for voice
telecommunications over the Internet. We do this by moving packets of
information from one place to another over our IP network that we have deployed
and now manage. Voice traffic travels into our network from our customer's
telephones, we "packetize" (digitize the sound into small data packets) them,
send them over our IP network to the destination that the customer dialed, and
then we "unpackatize" them when they reach the destination. The final result is
a telephone call over an IP network or Voice over IP (VoIP).

         Our Network Operations Center (NOC) at our head office in Toronto,
Canada manages the network. The NOC continually monitors network performance,
and trouble-shoots incidences. Two personnel control the NOC at all times to
facilitate a rapid response to network issues. Our NOC staff, led by Mr. James
Tetaka has been instrumental in the smooth operation of our network.

            The long distance market is highly competitive, with numerous
competitors of varying sizes. The principal methods of competition are price,
advertising, promotion and quality. In all of our products and services Yapalot
competes not only with other widely advertised services, but also with private
label resellers that generally sell at lower prices. We presently have 1,852
customers.

GROWTH STRATEGY

Principal Business Activities

Our growth strategy is based on:

     1.   Rapid network growth by deploying network servers and increasing the
          size of our network around the world.

     2.   Distribution rights to qualified persons interested in selling and
          marketing Yapalot services. Distributors or "Approved Agents" will
          have access to our network enabling them to market and offer Flat Rate
          Unlimited long distance to customers in their territory.

     3.   Flat Rate Unlimited long distance voice solutions for the consumer and
          business market.

     4.   The development of an outbound Corporate Sales team.

     5.   Pre-paid long distance card solution that is time sensitive and thus
          enables unlimited long distance for a specified period of time.

     6.   Wholesale of minutes on our network to other carriers and brokers, and
          pre-paid card companies.

Network Growth

         In order to expand our reach, we must deploy network servers around the
world and manage them. Initially, we began providing flat rate long distance
service in July 2000 in several major cities: Toronto, Montreal, Vancouver, Hong


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Kong, Moscow, Chicago, Los Angeles, Miami and New York, and in the countries of
France, the United Kingdom, Italy and Israel. In August 2000, we expanded our
long distance services to include the entire continental United States. In
September 2000, we launched additional long distance services in German, Norway
and the Netherlands. We anticipate expanding our services in November 2000 to
include Japan and Argentina at a cost of approximately $200,000, and in December
2000 to include Greece at a cost of approximately $100,000.

         We collocate (house) each of our network servers in a suitable housing
facility in a country or city. These facilities are accessible to our staff 24
hours a day, 7 days a week. Our choice of collocation vendors is a key solution
to our present and future growth potential. These vendors hold more than 200
collocation facilities around the world. They were selected because of their
global reach, which means that we can deploy additional network servers around
the world relatively quickly and unencumbered by the difficult task of having to
find suitable real estate. We have executed three-year renewable contracts with
each vendor. These temperature-controlled facilities house our computers,
network servers, digital and analogue phone lines, routers and other equipment
in a rack-mounted configuration.

Approved Agents and Master Dealers

         We have already taken steps to expand to other countries, and have
aligned ourselves with vendors such as UUNET because they have a substantial
global real-estate presence to house our network equipment.

         The other way we plan to grow internationally is via distribution using
Yapalot Approved Agents. The response from interested Approved Agents has been
overwhelming with over 200 enquiries to date received from Agents around the
world through our web site. Approved Agents will sell Yapalot services in their
countries and promote the Yapalot name. The cost to the Agent is $80,000 and is
non-exclusive. We also have a Master Dealer program, which costs $500,000 and
gives exclusive distribution rights to the person or company for a specific
territory, i.e. State, Province, or small country to sell Yapalot services and
set up new Approved Agents.

         To date, no Approved Agents or Master Dealers have been established,
although numerous negotiations are underway. We have an executed agreement
labeled "Approved Agent Agreement" with Chris Kwon Enterprises, they have not
paid the requisite $80,000 fee as stipulated in the agreement. Therefore, we
consider Chris Kwon Enterprises to be a Sales Agent. Under the terms of their
agreement, they receive a commission for their Yapalot sales. We will re-label
these agreements as "Sales Agent Agreements" in the future. As a Sales Agent,
Chris Kwon Enterprises is expected to sell and solicit subscriptions for our
services for which they are paid a one-time commission per sale. A Sales Agent
is not required to pay a fee to us. At this time, we have not determined the
commission to be paid to Chris Kwon Enterprises. At such time that their
commission is determined, we will incorporate that information into Schedule A
of their agreement. Sales Agents, including Chris Kwon Enterprises, must adhere
to quarterly sales quotas. However, we have not yet determined what those quotas
will be. Therefore, at such time that we have determined Chris Kwon Enterprises
quota, we will incorporate such information into Schedule B of their Agreement.

         APPROVED AGENTS- This relationship will require the Approved Agent to
pay us an initial fee of $80,000. The Agent is responsible to hire and train
sales staff to successfully sell and promote our services. This relationship is
non-exclusive and we have the right to sell more agencies in any location. The
Approved Agent is responsible for any and all costs associated with operating
his business and promoting our services. We furnish to the Approved Agent
collateral, and POP marketing material such as brochures, as may be required
from time to time to help promote our services. The purpose of the fee is to
allow the Approved Agent access to sell subscriptions to the Yapalot network.
For each subscription, the Approved Agent receives residual commissions from us
equal to 50% of the Monthly Service Fee (MSF) that we bill to the customer.

         MASTER DEALER- This relationship will assign the Master Dealer an
exclusive territory, such as a country, state or province, to promote and sell
our Approved Agencies. The cost is $500,000 and this arrangement assures the
Master Dealer that we will not set up distribution or Approved Agents in a
specific territory. For each Approved Agency that the Master Dealer sells in his
territory the master dealer earns 60% of the initial Approved Agent fee and on
ongoing 5% of all MSF generated by the Approved Agent in that territory. The
Master Dealer may also operate his own Approved Agent locations under the same
terms as the Approved Agent. Essentially, the Master Dealer is a Yapalot sales
representative with an exclusive territory to develop and sell our Approved
Agencies for $80,000 each.


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UNLIMITED LONG DISTANCE

         We promote our unlimited long distance package using a variety of media
that include print, television and radio advertising in the Toronto market.
Customers simply choose the destination they call the most and for $50 per
month. They can talk as long as they want from their home phone or cell phone.
If a customer in Toronto wished to call Los Angeles, he can select that
destination and for $50 per month he can talk as long as he wants to the State
of California. The U.S. destinations are broken down by state and in Canada by
Province, but for most of Europe it is by individual country. Therefore, the
cost is $50 per month for Italy, Israel, France, Norway and each of the
individual states. More countries are being added as our network grows. We have
elected to promote our unlimited package because our competitors are constantly
promoting per minute rates. Our customers never have to count minutes and they
talk as long as they want for one low rate to the destination of their choice.
(Provided that we offer service to the destination they choose).

OUR CUSTOMERS

Consumers

         Initially we are marketing our Long Distance services to consumers that
have a strong ethnic diversity. We began by offering Unlimited Long Distance to
Israel from Toronto by appealing to this ethnic group, which has a strong
attachment to their homeland and family. Each global destination is targeted to
an ethnic group or corporate need for a particular destination. The primary
marketing vehicle for this segment is radio, print and TV. At the present time
we have produced television and radio commercials that are presently airing
throughout Ontario, Canada. It is our intention to have our Approved Agents both
locally and internationally when launched target and market as we have in
Canada. We also intend to reach new customers by growing our distribution by way
of retail channels authorized to sell Yapalot services. These distribution
channels may include electronic stores, variety stores, cellular stores and
others.

Corporate

         By capitalizing on a successful consumer offering, we have now
assembled a corporate sales team of seven personnel including a corporate sales
manager. They have begun prospecting and promoting our corporate product
offering that also includes unlimited long distance as well as enhanced services
like Global Conference, and Global Fax. We anticipate that this sales team will
grow to approximately 20 representatives by the first quarter 2001. The team's
primary focus is to prospect small to medium sized businesses and creating
tailor-made long distance packages and enhanced services. The team will be able
to capitalize on marketing efforts already in the marketplace, which has created
awareness and brand recognition of the Yapalot name.

Pre-Paid

            Our pre-paid offer is different from traditional pre-paid cards
marketed by competitors. Rather than offer our customers the same or slightly
lower per minute rates, our prepaid cards are time-sensitive and offer unlimited
long distance for a specific period of time to a selected destination. For
example: (1)A customer may walk into a variety store, (2) purchases a thirty day
card, (3) he then calls the activation number on the back of the card, (4) the
computer generated voice response system (IVR) prompts him to enter his card
number (5) Then prompts him to select the destination. Once the destination is
selected by the customer, the card is activated by the IVR and is valid for
unlimited calling for thirty days to the selected destination. At the present
time, we have secured distribution of our prepaid cards through 3,000 retail
outlets on Ontario formalized by a card distribution agreement with Chris Kwon
Enterprises for a period of five years.

Wholesale

            We are able to wholesale minutes to other long distance companies
and carriers around the world. We have competitive rates and are therefore able
to sell minutes to many long distance companies and pre-paid telephone card
companies. To date, we have sold approximately 250,000 minutes a month on a
wholesale basis.


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INDUSTRY BACKGROUND

         As the telecommunication industry has been deregulated, competition has
corrected the high prices of long distance service with competitive cost
effective pricing. Our Voice over Internet Protocol ("VoIP") technology allows
for substantial cost savings over traditional telephone company switching
systems by eliminating all long distance tolls and replacing them with efficient
IP technology. Yapalot was formed by a team of experienced telecommunications
executives.

         We have developed strategic alliances with manufacturers such as
Ericsson and Clarent Corporation ("Clarent"). We consulted with Ericsson, on a
non-exclusive basis, in connection with the initial deployment of our long
distance services. Clarent is currently the manufacturer of our Yapalot Gateway
Servers. Clarent also provides us with consulting services, technical support
and deployment support, all on a non-exclusive basis. We have a written
agreement with Clarent that may be terminated by either party with 30 days
written notice. We have also formed non-exclusive alliances with UUNET, an MCI
Worldcom company, and Appwerx. UUNET houses our technical equipment in the
countries in which we presently provide services. In addition, they provide the
IP bandwith we require for the operation of our network. We have a one year
contract with UUNET. We may renegotiate this contract once the full term of each
is completed.

         We contracted with Appwerx in May 2000 to develop the PC to phone
solution. A contract has been executed that will allow Yapalot to own the
software once it is completed. The project is expected to be completed by
February 2001. The software will allow our customers to make free calls using a
PC to any phone through a graphical interface that will be a picture of a phone.

         Our purpose is to provide flexible long distance voice and data
solutions to consumers and businesses by attempting to achieve the following:

         o Provide flat rate long distance packages

         o Prepaid card service "One Card"

         o Post paid billing scenario

         o Free long distance calls: PC to phone

         o Corporate long distance solutions

         o Corporate global voice mail

         o International conferencing

         o Global fax

         During our first year of operations, we are focusing on global
deployment of our gateways and a Canada-wide advertising campaign, which is
currently underway. Beginning in our second year, we will place the same
promotional efforts employed in Canada to sell flat rate long distance service
subscriptions worldwide. We have the potential to sell flat rate long distance
service subscriptions in all of the countries available on the Yapalot network.
Subscriptions worldwide will be set up and managed by our customer service
center located in Toronto, Canada, through our inbound call center or through
our website.

YAPALOT'S VOIP NETWORK

         Our VoIP network was developed using hardware (gateways) manufactured
by Clarent Corporation and software either manufactured by Clarent or
proprietary. We co-located our gateways with UUNET, a company which specializes
in data solutions and server location facilities for global companies, by
positioning our gateways, also known as points of presence, in specific
countries in rental space provided by UUNET. We purchased Internet bandwidth
from UUNET that can carry all data between our gateways to avoid data being
carried over public Internet service. Once our gateway is in place it is linked
via the Internet to other gateways owned and operated by Yapalot. The software
is responsible for routing all telephone, fax and video transmissions from
gateway to gateway and then terminating them through a PRI (regular telephone
line). Our initial deployment of 10 gateways in eight different countries has a
one time cost of $1,000,000 including installation, training and software. We
anticipate an additional fixed cost of $100,000 per gateway

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and an ongoing cost of $4,000 per gateway to add an additional city to our
network. Our global expansion from a hardware standpoint is $100,000 per site
with ten completed sites projected by the end of December 2000.

YAPALOT'S PRODUCTS

         In North America our services spread across two major markets: consumer
and corporate. The consumer market will be enticed by discounting long distance
and flat rate packages. While business will also be attracted by discounted
rates, they will be more anxious to use new services, such as global voice mail,
global fax and global conference.

         We will provide an inbound call center located in Toronto.
International customers will subscribe to our service via e-commerce on our
website or contact their local Yapalot representative to subscribe via phone.

         Our services and products will be diverse and all share a common goal:
cost reduction in global communications via voice, fax or data. The network
infrastructure will yield substantial benefits over traditional telephone
companies as follows:

         Infrastructure - Based on the Internet standard of IP, which allows for
the flow of data across the globe. This data can then carry voice, fax and video
to almost anywhere.

         Performance - Voice over IP or VoIP with a standard T1 data connection
can support over 120 simultaneous phone calls in every country of presence.

         Products - The ability to market long distance voice services via phone
to phone, PC to phone and PC to PC. These services can be post paid, prepaid
cards or flat rate service. These services can also migrate to the corporate
world with enhanced network abilities to link corporate offices around the world
with both voice and data transfer, conference calling and global voice mail.

         Flexibility - Because the infrastructure backbone is Internet IP based,
the marketing of the services can be done anywhere in the world even without a
point of presence, hence a global reach.

         E-Commerce - The ability to subscribe clients internationally via
commerce giving them access to our VoIP network.

COMPETITION FOR TELECOMMUNICATIONS SERVICES

         In the world of deregulated telecommunication, competition has
corrected the high prices of long distance service with competitive cost
effective pricing. Communication is expedited due to the Internet and
e-commerce. Management believes that they can capture a substantial portion of
the international market largely due to our "Flat Rate" program. Our services
address these issues by providing value added services that combine with flat
rate service to create a reoccurring revenue stream.

         An increasing number of competitors must find ways to effectively
create revenue by attracting clients at lower rates and providing new services.
The competition in North America and many parts of Europe has led to the decline
in profit margins. Bell Canada owns the phone switches and cables, but with
deregulation must wholesale airtime to AT&T, Sprint, and now Telus who resell to
Canadian consumers. Other wholesalers also have entered the market and are
repackaging in the form of Prepaid Cards, and domestic flat rate service like
London Telecom. All these companies ultimately rely on Bell who owns the
network.

         According to an October 1999 International Data Corporation report, the
worldwide Internet protocol telephony market will explode from 310 million
minutes of use in 1998 to 2.7 billion by year-end 1999. By 2004, IP telephony
minutes will reach 135 billion. Revenues for this service are estimated to grow
from US $480 million in 1999 to US $19 billion by 2004.

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         We plan to construct and deploy a new sophisticated network from the
ground up. This VoIP network is intended to bypass Bell and any regulatory body
by accessing the unregulated Internet IP network, hence Voice over IP. At
present, the internet is unregulated as to content, volume and distribution. Any
regulation being discussed for future consideration by Congress concerns
elements of adult content, freedom of speech and taxation on goods sold.
Individual states are addressing the issue of taxation. We use the internet as a
conduit to transfer data. Although we do not anticipate that Congress will pass
legislation to regulate data transfer of this type, any taxation that may be
imposed on this use will be passed on to our customers. Our ability to pass
taxes to our customers will depend on the size of any taxes imposed. Should
regulations be passed, our business model will not change.

         This is a new and emerging technology. We are not the first company to
market voice over the internet. Companies such as Net2Phone and DialPad.com have
each launched discounted internet calls from a personal computer ("PC"). This
requires the customer to use a PC to place a long distance call. Our services do
not require the customer to use a PC. Instead, we route internet voice calls
from any standard telephone to any standard telephone. We have built a private
digital network by networking computers internationally in multiple countries.
These computers are linked via a dedicated internet "pipe" thus creating the
Yapalot Global Private Network ("YGPN") that consists of computer servers around
the world. We use this network to convert analogue voice signals from our
customers telephone to digital data that we transfer from one PC to the next
across the globe. Therefore, our customers are able to make a phone call over
the internet without the use of their PC. Their phone becomes a conduit to voice
transfer over the internet. We anticipate that future internet related services
will soon be available like Internet Fax and Internet Conference Calls without
the use of a PC or specially equipped phone.

         We compete with companies that are much larger and have far greater
financial resources than us. While there can be no assurances, we believe our
approach to the international telecommunications market will distinguish our
services and yield cost savings to our customers. We route our calls privately
within our YGPN, thus keeping costs to the consumer low. Our competition still
use legacy networks that require them to hand off each call to local telephone
companies in each country. These telephone companies charge our competitors a
per-minute rate. Furthermore, our approach to marketing our services differs
from competitors, such as Bell, AT&T and Sprint in that they must charge a
per-minute rate. Per-minute rates cannot be avoided as long as the international
phone companies charge each other to route calls. International telephone
companies are the conduits for delivering the long distance services of our
competitors, while we can offer our customers an unlimited flat rate
international long distance service because of our YGPN.

         It appears that our business is one with low barriers to entry and no
patented technology. Therefore, if our business model is a success, we may face
so much competition, that there is not guarantee of long or medium term success.

EQUIPMENT SUPPLIERS

         We have a written agreement with Clarent Corporation ("Clarent"), based
in Redwood City, California to manufacture our equipment. Clarent is the world's
leading IP telephony technology supplier to mainstream carriers and providers.
In addition, Clarent will provide technical training for installing and
operating the hardware and software for the VoIP network. The agreement sets
forth a payment schedule according to the deployment, training and operation of
the VoIP network. We also will be utilizing other routing equipment manufactured
by Cisco Systems, Lucent and IBM. The equipment for the construction and
operation of our network is readily available from these manufacturers. We are
not dependent upon any single company for the purchase of hardware and software
necessary to construct our VoIP network. If any of our suppliers ceased to
exist, it would not affect our ability to operate our network.

TRADEMARK CONCERNS

         The name "Yapalot" is trademarked in Canada and is in the process of
being trademarked abroad. Our network cannot be registered because it is
Internet based and cannot be patented. Approved agents, which are distribution
points across the world with licenses to operate through our network, will be
available for sale outside of Canada.


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GOVERNMENT REGULATIONS

         Our VoIP network is Internet based and, therefore, does not require
government approval or licensing.

         One component of the network, called a "PRI", can be described as a
telephone line. These "PRI's" are necessary in any country in which our network
has a point of presence. Some countries require a license to operate a "PRI",
although most do not have such regulations. We will obtain the necessary
licensing in those countries that require it. To date, we have realized an
approximate legal cost of $5,000 per country to obtain the required licensing.
We are licensed in Hong Kong and Russia and we are seeking a license in the
Philippines. No licenses are required in Europe. We do not anticipate that the
time or cost involved in securing licensing will be a limiting factor in our
development and growth.

EMPLOYEES

         At present, we have a total of 32 full-time employees and no part time
employees. They are responsible for the construction of the VoIP network,
software design and business operations. In July 2000, we hired an additional 12
full-time employees dedicated to customer service. Over the next 12 months and
once the VoIP network is complete, we will require approximately 13 additional
full-time employees for various functions throughout the company.

ITEM 2.  PROPERTIES

         We lease offices at 4884 Dufferin Street, Unit 1, Toronto, Ontario,
Canada M3H 5S8. The 6,000 square foot facility is occupied pursuant to a five
year lease that commenced on April 1, 2000 with an option to renew for an
additional five years. The monthly rental is $4,083.00 per month including
taxes, maintenance and insurance.

         The headquarters were designed as an open concept, forty employee
facility with the capacity to oversee and manage worldwide operations, handle
customer service and support, house sales and marketing staff, conduct billing
and offer a retail sales outlet. Management believes these facilities are
adequate for our current needs and anticipated future needs.

ITEM 3.  LEGAL PROCEEDINGS

         We are currently not engaged in any legal proceedings and not aware of
any pending or threatened litigation that could have a material adverse effect
on our business, financial condition or results of operations.

ITEM 4.  SUBMISSION OF MATERIALS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         In August 2000, we had 20,000,000 shares of common stock issued and
outstanding.

         As of December 31, 2000 there were 76 holders of record of our common
stock. We have not declared or paid any cash dividends on our common stock since
our inception, and our Board of Directors currently intends to retain all
earnings for use in the business for the foreseeable future. Any future payment
of dividends will depend upon our results of operations, financial condition,
cash requirements and other factors deemed relevant by our Board of Directors.

ITEM 6.  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

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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 year ended December 31, 2000, we completed the launch of
ten initial gateways at a cost of $1,000,000. We have now commenced the launch
of an additional 22 gateways, at a further cost 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 and the purchase of the 22
gateways over the next 12 months. This belief is founded on our current customer
base growth of approximately 450 new customers per month, coupled by stronger
purchasing power to purchase Gateways from Clarent at reduced prices and
favorable installment payment terms on each Gateway. In addition, we are also
working on Approved Agent Agreements which we anticipate will be completed early
in the new year. Management has also put plans into effect to significantly
build the current monthly customer acquisition base from 450 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 early in the new year. 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.

         To achieve our business plan to date, we have hired a total of 32 full
time employees comprised of a customer service team of 12 employees and 20
employees in the areas of administration, marketing and sales.

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

COMPARISON OF THE PERIOD ENDED DECEMBER 31, 2000 TO THE PERIOD ENDED SEPTEMBER
30, 2000.

         During the current quarter ended December 31, 2000, we completed
contract negotiations with our major equipment suppliers. We also took delivery
and installed gateways for Montreal, Vancouver, Toronto, Hong Kong and Israel,
New York City, Miami, Italy, and Greece. Under the terms of our supplier
agreements, we have paid initial deposits of 25% of the equipment cost, with
installment payments for the balance paid over the following three fiscal
quarters. During this period, we also completed most of the renovations of our
offices and the acquisition of furniture and equipment workstations for our
employees.

RESULTS OF OPERATIONS

For the 3 months ended December 31,2000:

         During this quarter ended December 31, 2000, we significantly increased
our revenue activities, signing customers to contracted revenues amounting to
$530,550, of which $363,525 remains to be collected as the related service is
provided. Our resulting loss for this period of $380,179 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 a heavy
advertising program, which cost us $244,601 in this quarter. In addition, we
also developed the remaining proportion of our planned staffing level this
quarter, resulting in $144,957 of wages and other payroll costs this quarter.


                                       9
<PAGE>

         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 $85,283 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 9 months ended December 31,2000

         For the cumulative period from incorporation, April 6, 2000, to
December 31, 2000, we began increasing our contracted revenues to $530,550, of
which $362,277 will be recognized as revenue when the related service has been
provided by us. Our cumulative net loss of $802,002 for the nine months ended
December 31,2000 is largely a result of anticipated costs of $389,086 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 $226,960. 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 $120,192 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 $542,934 at December 31, 2000 compared to
$640,313 at September 30, 2000. The decrease in the last quarter is attributable
to additional hardware equipment purchased for the new gateways, the utilization
of cash maintaining our infrastructure as the business develops, our acquiring
customer service contracts to be collected over the current operating cycle, as
well as additional prepaid Canadian Goods and Services Taxes refundable to us.
At December 31, 2000, we had cash but 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 December 31, 2000.

         As at December 31, 2000, current liabilities totaled $982,864 compared
to $314,515 at September 30, 2000. The increase is largely attributable to
recognizing a significant 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 commencement of
payments against current supplier balances, under initial financing terms on the
gateway hardware received by us, and increased as a result of the increasing
carrying costs of our developing infrastructure while preserving our cash
reserves.

         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 period ended December 31, 2000, 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


                                       10
<PAGE>


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.  FINANCIAL STATEMENTS

         Our financial statements, including the notes thereto, together with
the report of Weisbrod Goldmacher, LLP., independent Chartered Accountants
thereon, are presented following the signature page.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                    PART III

OTHER INFORMATION

ITEM 9.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         We currently have two outstanding loans to our two founders: Yuval
Barzakay $157,086 and Marilyn Benlolo $302,793. Both loans are interest free and
the funds were used to finance us since our inception in March 2000. Both loans
are for a term of no less than one year and are payable after one year or when
revenues reach a level in which the loans can be repaid. They are
non-interesting bearing loans.

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.


                                       11
<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: March 26, 2001



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


















                                       12
<PAGE>






















                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31,2000

                            (Stated in U.S. Dollars)





<PAGE>









                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                      INDEX


                                                                        PAGE


Auditors' Report                                                         1

Consolidated Balance Sheet                                               2

Consolidated Statement of Deficit                                        3

Consolidated Statement of Operations                                     4

Consolidated Statement of Cash Flows                                     5

Notes to Consolidated Financial Statements                             6 - 8




<PAGE>


                            WEISBROD GOLDMACHER, LLP


                     C H A R T E R E D  A C C O U N T A N T S


ALAN WEISBROD, BBM., C.A.                              TELEPHONE (416) 661-1499
MURRAY GOLDMACHER, B.Sc., C.A.                               FAX (416) 661-1510




                              AUDITOR'S REPORT



TO THE SHAREHOLDERS OF:
YAPALOT COMMUNICATIONS HOLDINGS INC.

We have audited the consolidated balance sheet of Yapalot Communications
Holdings Inc., a development stage company, as at December 31,2000 and the
consolidated statements of operations, deficit and cash flows for the period
from date of incorporation, April 6,2000 to December 31,2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,2000
and the results of its operations and the changes in its cash flows for the
period then ended in accordance with generally accepted accounting principles in
the United States.







TORONTO, Canada                                         WEISBROD GOLDMACHER, LLP
February 16,2001                                           CHARTERED ACCOUNTANTS




                                                                              1.
--------------------------------------------------------------------------------
            312 DOLOMITE DRIVE SUITE 209 NORTH YORK ONTARIO M3J 2N2


<PAGE>

                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31,2000
                            (Stated in U.S. Dollars)


================================================================================


                                   A S S E T S

 CURRENT
    Cash                                                            $  151,835
    Accounts receivable                                                363,525
    Sales taxes receivable                                              27,574
                                                                    -----------
                                                                    $  542,934

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

                                                                    $1,603,107
                                                                    ==========

                              L I A B I L I T I E S

 CURRENT
    Accounts payable and accrued liabilities                        $  620,587
    Deferred revenue                                                   362,277
                                                                    -----------
                                                                    $  982,864

 SHAREHOLDERS' ADVANCES (Note 4)                                       459,879
                                                                    -----------
                                                                    $ 1,442,743
                                                                    -----------

                              SHAREHOLDERS' EQUITY

 SHARE CAPITAL ISSUED AND PAID UP (Note 5)                          $    20,000

 CAPITAL IN EXCESS OF PAR VALUE                                         996,000

 DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE                          (802,002)

 FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                (53,634)
                                                                    -----------
                                                                    $   160,364
                                                                    -----------

                                                                    $ 1,603,107
                                                                    ===========


    APPROVED ON BEHALF OF THE BOARD:

     /s/ Yuval Barzakay
____________________________ Director

    /s/ Albert Kshocnicer
____________________________ Director


                             See accompanying notes.
                                                                              2.



<PAGE>




                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                    FROM DATE OF INCORPORATION, APRIL 6,2000,
                               TO DECEMBER 31,2000
                            (Stated in U.S. Dollars)

<TABLE>
<CAPTION>

====================================================================================================================================
                                                                               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>
ISSUE OF COMMON SHARES
  Founder shares issued at inception       16,000,000    $16,000   $   -        $    -        $    -       $   16,000         -
  Shares issued in current fiscal period    4,000,000      4,000    996,000          -             -        1,000,000         -

COMPREHENSIVE LOSS
  Net Loss                                       -           -         -         (802,002)         -         (802,002)   $(802,002)
  Foreign Currency Translation Adjustment        -           -         -             -          (53,634)      (53,634)     (53,634)
                                                                                                                         ---------

COMPREHENSIVE LOSS                                                                                                       $(855,636)
                                            ---------------------------------------------------------------------------  =========

BALANCE - End of period                     20,000,000   $20,000   $996,000     $(802,002)    $ (53,634)    $ 160,364
                                            ========================================================================================

</TABLE>










                             See accompanying notes.
                                                                              3.


<PAGE>


                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    FROM DATE OF INCORPORATION, APRIL 6,2000,
                               TO DECEMBER 31,2000
                            (Stated in U.S. Dollars)

================================================================================

 REVENUE                                                           $    168,273
                                                                   ------------


 EXPENSES
    Advertising and promotion                                      $    389,086
    Bank charges and interest                                            43,749
    General and office                                                   59,924
    Insurance                                                             5,862
    Professional fees                                                   161,182
    Rent                                                                 24,892
    Telephone and communication                                         223,359
    Travel                                                               20,411
    Wages, commissions and benefits                                     226,960
    Amortization                                                        120,192
    Less: Gain on foreign exchange                                    (305,342)
                                                                   ------------

                                                                   $    970,275
                                                                   ------------

 NET LOSS                                                          $   (802,002)
                                                                   ============


 LOSS PER COMMON SHARE (Note 6)                                    $      (0.05)
                                                                   ============

 WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING                                                      17,529,412
                                                                   ============














                             See accompanying notes.
                                                                              4.


<PAGE>


                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                    FROM DATE OF INCORPORATION, APRIL 6,2000,
                               TO DECEMBER 31,2000
                            (Stated in U.S. Dollars)

================================================================================

CASH FROM (USED IN) OPERATIONS

    Net loss                                                      $  (802,002)
    Adjustments to reconcile net loss to net cash provided by
        operating activities:
           Amortization                                                120,192
           Deferred revenue                                            362,277
    Changes in assets and liabilities relating to operations
        Accounts receivable                                           (363,525)
        Accounts payable and accrued liabilities                       593,013
                                                                   -----------

    NET CASH USED IN OPERATIONS                                    $   (90,045)
                                                                   -----------


 CASH USED IN INVESTING ACTIVITIES

    Purchase of capital assets                                     $(1,180,365)
                                                                   -----------

 CASH FROM FINANCING ACTIVITIES

    Advances from shareholders                                         459,879
    Proceeds from capital shares issued                            $ 1,016,000
                                                                   -----------

    NET CASH FROM FINANCING ACTIVITIES                             $ 1,475,879
                                                                   -----------

 EFFECT OF EXCHANGE RATE CHANGES ON CASH                           $   (53,634)
                                                                   -----------


 NET INCREASE IN CASH DURING THE PERIOD                            $  151,835


 CASH - Beginning of period                                              -
                                                                   -----------

 CASH - End of period                                              $   151,835
                                                                   ===========






                             See accompanying notes.
                                                                              5.



<PAGE>


                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31,2000
                            (Stated in U.S. Dollars)

================================================================================

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

    b)  Basis of Financial Statements
        These 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
            Vehicles                           -   30%  Declining balance basis
            Leasehold improvements             -   20%  of cost
            Signs                              -   20%  Declining balance basis
            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.

    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.

                                                                              6.
<PAGE>



                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31,2000
                            (Stated in U.S. Dollars)

================================================================================

    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 United
        States generally accepted accounting principles (GAAP), as they relate
        to these financial statements.


3.  CAPITAL ASSETS
                                                      ACCUMULATED       NET
                                        COST         AMORTIZATION      2000
                                      ------------------------------------------
    Computer equipment                  $152,562           $12,727      $139,835
    Computer software                     72,522            20,167        52,355
    Furniture and fixtures                67,152             3,735        63,417
    Leasehold improvements                70,346             3,912        66,434
    Network communication equipment      817,783            79,651       738,132
                                      ------------------------------------------
                                      $1,180,365      $    120,192    $1,060,173
                                      ==========================================


4.  SHAREHOLDERS' ADVANCES

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

                  Yuval Barzakay                         $   157,086
                  Marilyn Benlolo                            302,793
                                                         -----------

                                                         $   459,879
                                                         ===========

                                                                              7.
<PAGE>



                      YAPALOT COMMUNICATIONS HOLDINGS INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31,2000
                            (Stated in U.S. Dollars)

================================================================================

5.  SHARE CAPITAL

    AUTHORIZED
          50,000,000   Common shares at $.001 par value

    ISSUED AND PAID UP
          20,000,000   Common shares at $.001 par value      $       20,000
                                                             ==============

    During the period the Company raised $1,000,000 by issuing 4,000,000 common
    shares at $.25 per share. All other shares are held by the founding
    shareholders.


6.  LOSS PER COMMON SHARE

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




                                                                               8