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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ENDLESS YOUTH PRODUCTS, INC.
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[Name of Small Business Issuer in its Charter]
NEVADA 93-215736
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[State or other jurisdiction of [I.R.S. Employee
incorporation or organization] Identification No.]
6767 N. Tropicana Blvd., #206, Las Vegas, NV 89103
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[Address of principal executive offices] [Zip Code]
Issuer's telephone number: (702) 248-1005
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Securities to be registered under Section 12(b) of the Act:
TITLE OF EACH CLASS TO BE NAME OF EACH EXCHANGE ON
SO REGISTERED WHICH EACH CLASS IS TO BE
REGISTERED
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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[Title of class]
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[Title of class]
POTENTIAL PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
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INFORMATION REQUIRED IN REGISTRATION STATEMENT -- ALTERNATIVE 3
ALL REFERENCES TO SHARES AND PER-SHARE AMOUNTS IN THIS REGISTRATION FORM HAVE
BEEN ADJUSTED TO REFLECT A ONE-FOR-FIVE REVERSE STOCK SPLIT OF THE COMPANY'S
COMMON STOCK IN MAY 1998.
ITEM 1. DESCRIPTION OF BUSINESS.
FORWARD-LOOKING STATEMENTS
This registration statement on Form 10-SB contains forward-looking
statements that involve risks and uncertainties. The actual results of Endless
Youth Products, Inc. (the "COMPANY") may differ materially from those discussed
in such forward-looking statements. Such statements include, without limitation,
the Company's expectations and estimates as to introduction of new products and
expansion into markets; future financial performance, including growth in net
sales and earnings; the effect on sales of political or economic conditions in
the Company's markets; the Company's estimate of restructuring activities, costs
and benefits; cash flows from operations; information system upgrades; the
Company's plan to address the Year 2000 issue, the costs associated therewith
and the results of Year 2000 non-compliance by the Company or one or more of its
customers, suppliers or other strategic business partners; capital expenditures;
or the availability of funds from future securities sales. Readers are urged to
consider that statements which use the terms "believes," "does not believe," "no
reason to believe," "expects," "plans," "intends," "estimates," "anticipated,"
"anticipates" and similar expressions, as they relate to the Company or the
Company's management, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions. In
addition to factors that may be described in the Company's filings with the
Securities and Exchange Commission (the "COMMISSION"), including this filing,
the following factors, among others, could cause the Company's actual results to
differ materially from those expressed in any forward-looking statements made by
the Company: (i) difficulties or delays in developing and introducing new
products or failure of customers to accept new product offerings; (ii) changes
in consumer preferences, including reduced consumer demand for the Company's
vitamins and other current products; (iii) difficulties or delays in the
Company's continued expansion into certain markets and development of new
markets; (iv) effects of and changes in political and/or economic conditions,
including inflation and monetary conditions; (v) actions by competitors,
including business combinations, technological breakthroughs, new product
offerings and marketing and promotional successes; or (vi) combinations among
significant customers or the loss, insolvency or failure to pay its debts by a
significant customer or customers.
GENERAL
The Company engages in the business of developing and distributing
dietary supplements and personal care products with a focus on the anti-aging
product demands of an aging population. The Company's initial product is the
Endless Youth Longevity System, a combination package of vitamins and
supplements formulated in separate "AM" and "PM" packets. The System has been
sold pursuant to a Company produced thirty minute infomercial program through a
marketing agreement with a division of Guthy-Renker Corp. The Company has
completed production of a 30-minute infomercial for its first skin care product,
"Le Solution Derma System," a skin care device that delivers specially
formulated products in a proprietary appliance that both heats the products and
provides a small electric charge, both of which lead to increased absorption.
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The Company develops both its nutritional supplement and skin care
products under the direction of the Company's chief executive officer, who works
with a network of private label manufacturing facilities throughout the US.
These companies provide both development and marketing background in connection
with each product. Working with the specialists at these companies, the Company
chooses to use either existing products or to have developed proprietary
products. This system of using private label manufacturers is well-accepted in
the supplement industry as a method to build broad product lines without the
large overhead of laboratories and manufacturing plants.
In connection with distribution of the Longevity System, the Company
has entered into an agreement with Vendor Services, a vitamin distribution
company that sells infomercial marketed products. Vendor Services provides
marketing services to the Company in connection with the showing of the
Company's vitamin infomercial program. Under the Company's control and risk of
investment, Vendor Services works with the Company's chosen manufacturer to
secure product for the program. Vendor Services chooses the media on which the
infomercial will run and then fulfills all orders. The Company has provided full
insurance on its product and Vendor Services has been a named additional
insured. Through May 31, 1999, for these services Vendor Services was paid 91
percent of the net sales from the program. Since June 1, 1999, Vendor Services
has paid a lump-sum licensing fee for rights to the Longevity System and the
infomercial program. In connection with additional programs, Vendor Services has
been provided with first rights to develop and produce such programs for a
continued licensing fee. Vendor Services owns less than one percent of the
outstanding shares of common stock of the Company and has no rights to any
additional share issuances under the terms of the licensing arrangement.
Additionally, the Company had entered into an agreement with Schulberg
Media Works, the producer of its infomercial program. It was contemplated that
based on the gross revenues, Schulberg Media Works would have received seven
percent of such revenues if the Company purchased its own media and fulfilled
all orders without the use of a third-party distribution company. This agreement
was dependent on certain levels being achieved by the infomercial produced by
Schulberg Media Works and the fact that the Company would not use outside
organizations to perform various services. The Company subsequently chose to
work with Vendor Services and agreed to limit payments to Schulberg Media Works;
the Company provided that it would pay Schulberg Media Works with a percentage
of net revenues from the broadcast of the infomercial program retained by the
Company after payments to Vendor Services as represented by 1.75 percent of
gross revenues. This agreement with Schulberg Media Works does not apply to the
present licensing arrangement with Vendor Services and was limited to only the
original program produced by Schulberg Media Works. Schulberg Media Works owns
less than one percent of the total outstanding shares of common stock of the
Company and there are to be no additional shares issued under any agreement with
Schulberg Media Works.
As reported by industry sources, the annual domestic retail market for
vitamins, nutritional supplements and minerals is growing. However, no
assurances can be given as to future industry growth rates. In the last several
years, public awareness of the positive effects of vitamins and nutritional
supplements on health has been heightened by widely publicized reports of
scientific findings supporting such claims. Although there have been no specific
studies on Company products, many recent studies have indicated a correlation
between the regular consumption of selected vitamins and nutritional supplements
and reduced incidences of a wide range of conditions including cancer, heart
disease, stroke, arthritis, osteoporosis, mental fatigue and depression,
declining immune function, macular degeneration, memory loss and neural tube
birth defects. The Company believes
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that the rise of alternative medicine and the holistic health movement has
also contributed to increased sales of nutritional supplements.
The Company expects that the aging of the United States population,
together with a corresponding increased focus on preventative health measures,
will result in increased demand for vitamins and nutritional supplement
products. According to the United States Census Bureau, through 2010, the
35-and-older age group of consumers, which represents a substantial majority of
regular users of vitamin and nutritional supplements, is expected to grow
significantly faster than the general United States population. Based on a
national survey indicating that approximately 38 percent of Americans consumed
vitamins and nutritional supplements on a regular basis in 1997, the Company
believes that there is a large untapped domestic market for vitamins and
nutritional supplements. Industry sources also report that vitamin consumers are
taking more vitamins and nutritional supplements per day than in the past.
With respect to the personal care and skin care industry segment, the
Company operates in a market with many different products, which include an
extensive array of glamorous, exciting and innovative cosmetics and skin care.
The Company's vision is to provide excitement and innovation through unique,
high quality products at affordable prices.
The address of the Company's executive offices is: 6767 West Tropicana
Blvd., Suite 206, Las Vegas, NV 89103; Telephone: (702) 248-1005. The Company
was incorporated in Nevada in July 1996. On June 29, 1999, the Company's
shareholders authorized the Company's Chief Executive Officer, at his
discretion, to change the name of the Company to EndlessYouth.Com, Inc.
DISTRIBUTION
The Company's vitamin and nutritional supplement product, the Endless
Youth Longevity System, is distributed through a nationally broadcast
infomercial program. Sales are made direct to the customers, who call a
toll-free telephone number that accompanies the broadcast program. Endless
Youth's infomercial is broadcast pursuant to an agreement with the Vendor
Services group of Guthy-Renker Corp. Vendor Services is responsible for
providing and paying for all media, inventory, fulfillment, customer service and
other activities on behalf of the Company with respect to the marketing of the
Endless Youth Longevity System. Vendor Services receives a fixed percentage of
sales receipts for providing of these services.
Building upon the brand name recognition being created by national
broadcasts of its vitamin program, the Company has entered into a funding
agreement with Infomercial Development Systems, a television production group.
An infomercial program has been developed to directly market the Company's next
product in the skin care market segment, Le Solution Derma System, through a
distribution channel similar to that being used to market the Endless Youth
Longevity System. The infomercial program has been fully funded by Infomercial
Development Systems, which will receive a percentage of sales revenues derived
from the infomercial program. There are no circumstances, other than the payment
of this percentage based on sales revenue, by which the Company is required to
reimburse Infomercial Development Systems for any expenses that it incurred with
respect to the production of the infomercial for the Le Solution Derma System,
if such infomercial program is not a success. Infomercial Development Systems is
the sole owner of the produced infomercial program. Le Solution is an innovative
electronic device developed by Endless Youth to provide skin improvement. In
addition to the infomercial program, the Company plans to develop other direct
marketing channels and retail distribution for the Le Solution Derma System,
both domestic and international.
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Through the national broadcast of the Company's infomercial programs,
the Company believes that increasing consumer awareness of the "Endless Youth"
brand name is being generated. The Company believes that such strong and
sustainable national recognition will provide opportunities to develop other
product categories within the anti-aging market segment that the Company is
focused upon, as well as enter into potential licensing arrangements.
INTERNET COMMERCE
Pursuant to the broadcasts of the Endless Youth Longevity System
infomercial, the Company realized substantial traffic to its Web site,
www.endlessyouth.com. The Company is now in the process of redeveloping its site
into a subject-specific, demographically-targeted Web site focused on anti-aging
and the needs of an aging baby boomer market segment.
The Company will stress its e-commerce activities with the sale of its
proprietary "Endless Youth" brand products. The vitamin and nutritional
supplement product line will be expanded. Additional Endless Youth products will
be introduced to help in the prevention of health problems for an aging
population. Cutting-edge skin care products will provide the latest topical
systems to protect the skin from aging. All products will be sold under the
Endless Youth trade name.
Complementing the sale of product, www.endlessyouth.com shall provide
cutting edge news, features, interviews and regular columnists on specific
anti-aging topics. The Company believes that original content and highly
regarded interactive communities coupled with ongoing direct response broadcast
marketing activities will allow the Company to attract and retain its targeted
market which is more affluent, better educated and more likely to make online
purchases than typical Internet users. The Company believes that
www.endlessyouth.com will be a valuable media property for advertisers and
retailers who are increasingly allocating marketing resources to target
consumers online.
The new endlessyouth.com site, presently under development, should be
fully operational in the second quarter of the calendar year 2000. Development
is presently being undertaken with third-party web designers and technical
software providers. Certain portions of the content of the site, including
cutting edge news, will be provided by third-party licensees. Many content-rich
sites utilize such organizations to provide daily news data, which is
automatically downloaded to the licensee and then placed on the home page of the
site. The site will be aimed at aging bay-boomers with concerns for anti-aging,
and will focus on both health and skincare products. The Company believes that
this consumer base and their anti-aging needs is a coveted market segment as
these consumers have the economic means, as well as comfort with Internet
commerce, to make substantial purchases. This group will be targeted through an
aggressive marketing campaign that will affiliate the site with major portals
and lesser consumer sites with the strength that only Endless Youth proprietary
branded products will be available at endlessyouth.com, rather than the sale of
"commodity products" that are available on many other sites. Such proprietary
products will be marketed as high end and the "best" product in the anti-aging
field.
GROWTH IN INTERNET USAGE. The Internet is fast becoming one of the most
important mediums for global communication and business, allowing millions of
people to gather and transfer information instantly. International Data
Corporation, a market research firm, predicts that worldwide Internet use will
grow to 319.8 million users in 2002 from 68.7 million users in 1997,
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representing 366% growth over this period. The growth in Internet users is
driven by numerous factors, including:
- increased public awareness of the Internet;
- the growing base of personal computers and improved Internet
access;
- increased quantity and quality of Web content; and
- growing selection and acceptance of electronic commerce.
The Internet provides a unique opportunity for content providers to
reach a broad base of readers on a real-time basis with a diverse body of
information. Unlike traditional media, the Internet permits dissemination of
content without geographic limits, print production costs or broadcast capacity
constraints.
GROWTH IN ONLINE ADVERTISING. The Internet is an attractive medium for
advertisers because it allows more flexibility, interactivity and measurement
capabilities than traditional media, including print, television and radio, and
provides users with immediate access to information about advertisers and their
products. For example, the Internet allows advertisers to change messages
frequently in response to market developments or current events. The Internet
also allows advertisers to gather demographic information about users and to
deliver targeted messages to specific consumer groups. According to Jupiter
Communications, an independent industry research firm, total Internet
advertising revenues grew from $300 million in 1996 to $1.9 billion in 1998.
Jupiter Communications projects total Internet advertising revenues will grow to
$7.7 billion in 2002, representing an average annual growth rate of 45 percent
from 1998 to 2002.
According to International Data Corporation ("IDC"), of the $187
billion spent on advertising in 1997, 0.3 percent was spent on Internet media.
In 1998, 0.8 percent of all dollars spent on advertising were spent on Internet
media. The Company believes that the potential to shift advertising spending
away from traditional media to the Internet presents a significant growth
opportunity for Internet advertising.
GROWTH IN ELECTRONIC COMMERCE. The growing popularity of the Internet
represents a substantial opportunity for companies to take advantage of the
potential for conducting commercial transactions online, or "electronic
commerce." IDC estimates that commerce over the Internet will increase from over
$12 billion worldwide at the end of 1997 to approximately $425 billion worldwide
by the end of 2002. Jupiter Communications predicts that by 2002, 44 percent of
Internet users will make purchases online, as compared to the 22 percent who did
so in 1998.
THE NEED FOR COMPELLING INTERNET DESTINATIONS. As Internet companies
compete to attract and retain users, unique content has become increasingly
valuable. The Company believes compelling, original content produced by talented
editorial staff is a principal feature that distinguishes Web sites from each
other.
Web sites built around focused, proprietary content provide advertisers
with targeted channels for reaching their desired market. To date, online
advertisers and retailers have spent most of their marketing budgets on Web
sites with the highest traffic volume, including "portals," which bring together
and organize a wide variety of content, and "search engines," which allow users
to search for specific information. As Internet advertising and
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electronic commerce mature, however, the Company believes online advertisers
and retailers will increasingly spend their marketing dollars on more focused
Web sites to reach specific demographic groups, as has occurred in
traditional advertising media.
According to a 1998 study by Forrester Research, a market research
firm, a major shift in online advertising spending will occur as advertisers
move media campaigns from generalized portals toward more narrowly targeted Web
sites. Targeted sites provide content on designated topics, and therefore
attract users looking for subject-specific information. Because targeted sites
are usually the direct source of information the user wants, rather than simply
a gateway to other collections of information like a portal or search engine,
these sites are frequently referred to as "destination sites." Forrester
estimates that portals currently receive 59 percent of all Internet advertising
dollars while only accounting for 15 percent of Web traffic. However, Forrester
predicts that by 2002, destination sites will attract 70 percent of online
advertising dollars. Destination sites are attractive to advertisers and
retailers because these sites allow more seamless integration of marketing
campaigns and product sales with related content, and more effectively target
the advertisers' and retailers' most likely customers. In addition, destination
sites tend to have longer use periods, or "stickiness," further enhancing
marketing and retailing opportunities.
To address the perceived lack of compelling content available through
portals, a number of skillfully produced destination sites have been developed
to target specific demographic groups. Examples of such sites include
technology-oriented sites such as C/Net and ZDNet, financial news sites
including MarketWatch.com and TheStreet.com, sports-related sites such as
Sportsline.com and ESPN.com and women-oriented sites including iVillage and
Women.com, and health related sites such as DrKoop.com and WebMD.Com.
THE COMPANY'S INTERNET STRATEGY:
The Company's Internet strategy includes the following elements:
- Expand direct response marketing programs for branded Endless
Youth anti-aging products. Such marketing avenues include
30-minute infomercial programs, 30- and 60-second short form
television commercials, and radio spots. All marketing shall
focus on direct sale of Endless Youth products as well as
drive visits to www.endlessyouth.com.
- Expand the Company's revenue base in advertising and
electronic commerce by targeting the more than 4,000 companies
that currently advertise online. The Company intends to
increase its revenue from advertising and electronic commerce
through new editorial, marketing and technological
initiatives.
- Expand content and communities with regular introduction of
new editorial categories in the anti-aging area that will draw
and retain new users and advertisers.
- Develop extensive distribution and affiliate relationships
with numerous partners, including major portals as well as
more focused non-competitive sites. Position
www.endlessyouth.com as the leading and most recognized
Internet destination site for anti-aging information and
products.
- Grow the Company's brand recognition through advertising and
syndication of its anti-aging content.
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- Enhance the Company's technology to improve production, user
experience, advertising delivery and circulation analysis by
investing in personnel and venturing with third-party
organizations to develop software tools to create a
state-of-the-art online publishing system. This system is
designed to optimize the www.endlessyouth.com network's user
experience and advertising performance.
BUSINESS STRATEGY
The Company's business strategy is to:
- Strengthen and broaden core brands through marketing and
advertising, product development and manufacturing;
- Develop and introduce technologically advanced, innovative
products that set new trends;
- Expand the Company's presence in all markets in which it
competes and enter new markets where the Company identifies
opportunities for growth;
- Continue to reduce costs and improve operating efficiencies,
customer service and product quality and carefully managing
working capital; and
- Continue to expand market share and product lines through
possible strategic acquisitions, joint ventures and licensing
arrangements.
The Company believes that its Internet marketing strategy has limited
risks because the monetary outlay will not be substantial. The costs required
are for personnel that work in the area of Internet marketing between sites---
placement of the Company's site high on the portal lists for the Company's
specific category (anti-aging), plus development of part of an extensive
affiliate network. Through such a network, the Endless Youth banner or similar
advertising material could be placed for free on a very large number of consumer
sites; then, if there is a "click-through" by a user of a site where the
advertising is placed and such person then buys a product, the original site
would be provided with a percentage of sales (typically 15 percent). The entire
process will be automated by software and little manpower will be needed to
determine such revenue sharing. Furthermore, through "tags" on the Company's
infomercial programs, the Internet site is emphasized as the "anti-aging" source
on the Internet. This the Company believes will drive traffic to the site. Mr.
Wallach will be entitled to a licensing fee for the use of the Endless Youth
trade name of 3 percent of all net sales from the site. Vendor Services,
licensee for the Longevity System as described above, will be entitled to no
fees because the Longevity System will not be offered for sale on the Internet
site.
As more and more products are developed for the Endless Youth product
line, development costs and production charges should be lessened per item. The
Company is working with two private label manufacturers to produce its skin care
line and two for the production of the nutritional vitamin line. Through
negotiations with two groups in each business, the Company is able to reduce
manufacturing, packaging, and shipping costs. Once the Internet site is
operational, additional employees will need to be hired to oversee the Internet
commerce activities of the Company, including content updating, marketing,
accounting, and customer services--an employee will be required to coordinate
all activities with manufacturers and with fulfillment third-party
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organizations. Growth in employees will be solely dependent on sales. The
Company does not plan to hire additional employees until the business is in
full operation. It is planned that at least one employee will be hired within
the next 120 days to assist the chief executive officer in coordination.
CONTRACTS WITH SUPPLIERS AND MANUFACTURERS
The Company has established relationships with several suppliers and
manufacturers of its products. While the Company anticipates that it will enter
into contracts with some of these manufacturers and suppliers, there is a risk
that any of the Company's suppliers or manufacturers could discontinue selling
their products to the Company for any reason. Although the Company believes that
it could establish alternate sources for most of its products, any delay in
locating and establishing relationships with other sources could result in
product shortages and back orders for the products, with resulting loss of
revenues to the Company. The Company relies on the Vendor Services group of
Guthy-Renker Corp. to market and distribute its Endless Youth Longevity System
pursuant to the infomercial broadcasts. Vendor Services is also responsible for
the manufacturing, packaging and shipping of product. Any disruption of these
activities by Vendor Services will cause delays in the marketing of this
product, which would result in loss of revenues to the Company. Furthermore,
infomercial programs are both seasonal and have a limited life on the air, and
which require the possible production of sequel programs. Such seasonal
sensitivity and non-broadcast periods would result in a loss of revenues for
this product to the Company.
There can be no assurance that another company will not replicate one
or more of the Company's products. In addition, certain manufactures may retain
ownership of certain product formulations and manufacturing processes relating
to the Company's products. If the Company's relationship with these
manufacturers were impaired, there can be no assurance that the product
formulations and manufacturing process owned by these manufacturers could be
replicated by the Company or another manufacturer, or that these manufacturers
would not assert that such replication infringed upon its proprietary rights.
Accordingly, the Company's sales and earnings could be adversely affected if its
relationship with these manufacturers were impaired.
LICENSES, TRADEMARKS AND PATENTS
The Company does not own the rights to the Endless Youth trademark.
These rights are licensed from Neal K. Wallach, the Chairman and Chief Executive
Officer of the Company and a principal stockholder. See "Item 7 -- Certain
Relationships and Related Transactions." Mr. Wallach has registered the Endless
Youth trademark with the U.S. Patent and Trademark Office. The Company has an
application pending for the Le Solution Derma System trademark.
The Company regards these trademarks and other proprietary rights as
valuable assets and believes they have significant value in the marketing of its
products. The Company vigorously protects its trademarks against infringement.
The Company is in the process of filing a patent application with
respect to the Le Solution Derma System device.
PRODUCT LIABILITY
Although the Company does not engage in the actual manufacture of any
of the products that it markets and distributes, as a marketer of dietary
supplements and skin care products that are ingested by consumers or applied
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to their bodies, the Company may be subjected to various product liability
claims, including among other things that its products contain contaminants
or include inadequate instructions as to use or inadequate warnings
concerning side effects and interactions with other substances. Although the
Company has obtained product liability insurance that it believes is suitable
for its present needs, there can be no assurance that such insurance will
continue to be available at commercially reasonable rates, that the Company
will not be subject to claims in the future, that its insurance coverage will
be adequate or that widespread claims and the resultant adverse publicity
could adversely affect the Company.
ABSENCE OF CLINICAL STUDIES AND SCIENTIFIC REVIEW; FAILURE TO CONSUME AS
SUGGESTED
In general, the Company's products consist of dietary supplements and
personal care products about which the Company makes no therapeutic claims and
that the Company believes do not require approvals from the Food and Drug
Administration (the "FDA") or other regulatory agencies prior to sale.
Accordingly, the Company does not intend to conduct clinical studies of its
products or otherwise subject them to scientific review. In addition, the
Company's products consist of herbs, vitamins, minerals and other ingredients
that the Company regards as safe when taken as suggested by the Company.
However, because the Company will be dependent upon consumers' perception of the
safety and quality of its products as well as similar products distributed by
other companies, the Company could possibly be adversely affected in the event
any of the Company's products or any similar products distributed by other
companies should prove or be asserted to be harmful to consumers. In addition,
adverse effects resulting from consumers' failure to consume the Company's
products as suggested by the Company or other misuse or abuse of the Company's
products or any similar products distributed by other companies, could have a
material adverse impact on the Company.
The Company believes the nutritional supplement market is affected by
national media attention regarding the consumption of nutritional supplements.
There can be no assurance that future scientific research or publicity will be
favorable to the nutritional supplement market or any particular product, or
consistent with earlier favorable research or publicity. Future research reports
or publicity that are perceived as less favorable or that question such earlier
research or publicity could have a material adverse effect on the Company.
Because of the Company's dependence upon consumer perceptions, adverse
publicity, whether or not accurate, associated with illness or other adverse
effects resulting from the consumption of the Company's products or any similar
products distributed by other companies could have a material adverse effect on
the Company. Such adverse publicity could arise even if the adverse effects
associated with such products resulted from consumers' failure to consume such
products appropriately.
COMPETITION
The dietary supplement and skin care markets are highly competitive. It
is not possible to estimate accurately the number of competitors, since the
industry is fragmented with many public as well as privately held companies.
Brand recognition, together with product quality, performance and price and the
extent to which consumers are educated on product benefits, have a marked
influence on consumers' choices among competing products and brands.
Advertising, promotion, merchandising and packaging, and the timing of new
product introductions and line extensions, also have a significant impact on
buying decisions, and the structure and quality of the sales force affect
product reception, in-store position, permanent display space and inventory
levels in retail outlets. The Company competes in its product categories
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against many companies that have substantially greater resources than the
Company.
The market for Internet content is relatively new, rapidly changing and
intensely competitive. Traditional media companies, such as television
broadcasters, magazine publishers and radio stations, are constantly refining
their content and strategies to increase their audiences and advertising and
sponsorship revenues. Additionally, the number of Web sites competing for the
attention and spending of users, advertisers and sponsors has increased, and the
Company expects it to continue to increase, particularly because there are so
few barriers to entry on the Internet.
There is not to the Company's knowledge a single Internet site
dedicated to the niche market of "anti-aging" for health and skin care. Such
sites as mothernature, onhealth, drKoop, womenfirst, webMD, healthwell,
healthshop, thirdage, etc. are general in their approach. Furthermore, none
of these major health sites offer their own proprietary product lines.
Eve.com and clinique are the major consumer skin care sites, which cater to a
younger target market than will endlessyouth.com. Outside the Internet there
are many vitamin companies which are marketing "preventive remedies." These
include all of the major distributors, such as One-A-Day, Twin Lab, GNC,
Nature's Herb's, Solray, and Ginsana.
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Trade Commission
("FTC") and the FDA in the United States, as well as the Consumer Product Safety
Commission, the U.S. Department of Agriculture and the Environmental Protection
Agency, and by various agencies of the states and localities and foreign
countries in which the Company's products may be sold. Compliance with federal,
state, local and foreign laws and regulations pertaining to discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has not had, and is not anticipated to have, a material effect upon
the capital expenditures, earnings or competitive position of the Company. State
and local regulations in the United States that are designed to protect
consumers or the environment have an increasing influence on product claims,
contents and packaging.
In particular, the FDA, pursuant to the Federal Food, Drug, and
Cosmetic Act ("FDCA") regulates the production, packaging, labeling and
distribution of dietary supplements, including vitamins, minerals and herbs. In
addition, the FTC has jurisdiction to regulate advertising of dietary
supplements, while the U.S. Postal Service regulates advertising claims with
respect to such products sold by mail order.
The FDCA has been amended several times with respect to dietary
supplements, most recently by the Dietary Supplement Health and Education Act of
1994 ("DSHEA") and the Nutrition Labeling and Education Act of 1990 ("NLEA").
DSHEA, enacted on October 15, 1994, introduced a new statutory framework
governing the composition and labeling of dietary supplements. With respect to
composition, DSHEA creates a new class of "dietary supplements," dietary
ingredients consisting of vitamins, minerals, herbs, amino acids and other
dietary substances for human use to supplement the diet, as well as
concentrates, metabolites, extracts or combinations of such dietary ingredients.
Generally, under DSHEA, dietary ingredients that were on the market before
October 15, 1994 may be sold without FDA pre-approval and without notifying the
FDA. On the other hand, a new dietary ingredient (one not on the market before
October 15, 1994) requires proof that it has been used as an article of food
without being chemically altered, or evidence of a history of use or other
evidence of safety establishing that it is reasonably
11
<PAGE>
expected to be safe. The FDA must be supplied with such evidence at least 75
days before the initial use of a new dietary ingredient. There can be no
assurance that the FDA will accept the evidence of safety for any new dietary
ingredients that the Company may decide to use, and the FDA's refusal to
accept such evidence could result in regulation of such dietary ingredients
as food additives requiring FDA pre-approval prior to marketing.
As for labeling, DSHEA permits "statements of nutritional support"
for dietary supplements without FDA pre-approval. Such statements may
describe how particular dietary ingredients affect the structure, function or
general well-being of the body, or the mechanism of action by which a dietary
ingredient may affect body structure, function or well-being (but may not
state that a dietary supplement will diagnose, mitigate, treat, cure or
prevent a disease). A company making a statement of nutritional support must
possess substantiating evidence for the statement, disclose on the label that
the FDA has not reviewed that statement and that the product is not intended
for use for a disease, and notify the FDA of the statement within 30 days
after its initial use. However, there can be no assurance that the FDA will
not determine that a given statement of nutritional support that the Company
makes is not adequately substantiated as required by DSHEA, or is a drug
claim rather than an acceptable nutritional support statement requiring the
Company's submission and the FDA's approval of a new drug application
("NDA"). Either determination could entail costly and time-consuming clinical
studies and in either situation the Company may have to delete or modify the
statement or claim involved. In addition, DSHEA allows the dissemination of
"third party literature," publications such as reprints of scientific
articles linking particular dietary ingredients with health benefits. Third
party literature may be used in connection with the sale of dietary
supplements to consumers at retail or by mail order. Such a publication may
be so distributed if, among other things, it is not false or misleading, no
particular manufacturer or brand of dietary supplement is mentioned, and a
balanced view of available scientific information on the subject matter is
presented. There can be no assurance, however, that all pieces of third party
literature that may be disseminated in connection with the Company's products
will be determined by the FDA to satisfy each of these requirements, and any
such failure could subject the product involved to regulation as a new drug.
Management anticipates that the FDA may promulgate good manufacturing
practice ("GMP") regulations authorized by DSHEA, which are specific to dietary
supplements. GMP regulations would require supplements to be prepared, packaged
and held in compliance with such rules, and may require similar quality control
provisions contained in the GMP regulations for drugs. The Company currently
uses manufacturers that produce its vitamins and nutritional supplement products
pursuant to the applicable food GMP rules. There can be no assurance that, if
the FDA adopts GMP regulations specific to dietary supplements, such
manufacturers will be able to comply with such GMP rules upon promulgation or
without incurring material expense to do so.
The FDA has finalized regulations to implement certain labeling
provisions of DSHEA. In addition, further DSHEA labeling regulations are
expected to be proposed by the FDA once the agency receives the final report of
the expert Commission on Dietary Supplement Labels, established by DSHEA to
provide recommendations on labeling claims for supplements. The Commission on
Dietary Supplements issued its final report in November 1997. It is uncertain
when the FDA will propose further regulations based on this report. The Company
cannot determine what effect such regulations, when promulgated, will have on
its business in the future. There can be no assurance that such regulations will
not require expanded or different labeling for the Company's vitamins and
nutritional products or, among other things, require the recall, reformulation
or discontinuance of certain products, additional record
12
<PAGE>
keeping, warnings, notification procedures and expanded documentation of the
properties of certain products and scientific substantiation regarding
ingredients, product claims, safety or efficacy.
The FDA has broad authority to enforce the provisions of the FDCA
applicable to dietary supplements, including the power to seize adulterated or
misbranded products or unapproved new drugs, to request their recall from the
market, to enjoin their further manufacture or sale, to publicize information
about a hazardous product, to issue warning letters and to institute criminal
proceedings. Although the regulation of dietary supplements is less restrictive
than that imposed upon drugs and food additives, there can be no assurance that
dietary supplements will continue to be subject to the less restrictive
statutory scheme and regulations currently in effect. Further, there can be no
assurance that, if more stringent statutes are enacted or regulations are
promulgated, the Company will be able to comply with such statutes and
regulations without incurring material expense to do so.
The FTC, which exercises jurisdiction over the advertising of dietary
supplements, has in the past several years instituted enforcement actions
against several dietary supplement companies for false and misleading
advertising of certain products. These enforcement actions have resulted in
consent decrees and the payment of fines by the companies involved. In addition,
the FTC has increased its scrutiny of infomercials. Further, the U.S. Postal
Service has issued cease and desist orders against certain mail order
advertising claims made by dietary supplement manufacturers.
The Company may be subject to additional laws or regulations
administered by the FDA or other federal, state or foreign regulatory
authorities, the repeal of laws or regulations that considers favorable, such as
DSHEA, or more stringent interpretations of current laws or regulations, from
time to time in the future. The Company is unable to predict the nature of such
future laws, regulations, interpretations or applications, nor can it predict
what effect additional governmental regulations or administrative orders, when
and if promulgated, would have on its business in the future. These regulations
could, however, require the reformulation of certain products to meet new
standards, the recall or discontinuance of certain products not able to be
reformulated, imposition of additional record keeping requirements, expanded
documentation of the properties of certain products, expanded or different
labeling, or scientific substantiation. Any or all of such requirements could
have a material adverse effect on the Company's results of operations and
financial condition.
The Company is not aware that Vendor Services is involved in any
litigation with respect to its infomercials. No regulatory authority has
requested the Company to alter any of its infomercials or other
advertisements with respect to any of its products.
RESEARCH AND DEVELOPMENT
The Company has incurred and research and development expenditures in
connection with the development of its Endless Youth Longevity System and its Le
Solution Derma System products. The Company estimates that in the fiscal years
ended June 30, 1997 and 1998, it expended $25,000 and $125,000 respectively on
research and development activities.
EMPLOYEES
As of June 30, 1999, the Company had one full-time employee. Employees
are not represented by any collective bargaining organizations.
13
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will largely depend on the efforts and
abilities of its Chief Executive Officer, Neal K. Wallach. The Company's
operations could be adversely affected if, for any reason, Mr. Wallach did not
remain with the Company.
YEAR 2000
Certain of the Company's information technology systems have been and
will continue to be upgraded to be Year 2000 compliant. The Company has
identified and contacted and continues to identify and contact key suppliers,
both inventory and non-inventory (including Vendor Services and its current
vitamin manufacturer), key customers and other strategic business partners, such
as banks, pension trust managers and marketing data suppliers, either by
soliciting written responses to questionnaires and/or by meeting with certain of
such third parties. Furthermore, the fact that the Company has been paid a
licensing fee in advance from Vendor Services effectively eliminates its Year
2000 risks with respect to its infomercial. The parties from whom the Company
has received responses to date generally have indicated that their systems are
or will be Year 2000 compliant. The Company does not expect that incremental
out-of-pocket costs of its Year 2000 program (which do not include costs
incurred in connection with the Company's comprehensive business process
enhancement program) will be material.
The Company believes that at the current time it is difficult to
identify specifically the most reasonably likely worst case Year 2000 scenario.
As with all manufacturers and distributors of products such as those sold by the
Company, a reasonable worst case scenario would be the result of failures of
third parties (including, without limitation, governmental entities and entities
with which the Company has no direct involvement, as well as the Company's
suppliers of goods and services and customers) that continue for more than a
brief period in various geographic areas where the Company's products are
produced or sold at retail or in areas from which the Company's raw materials
and components are sourced. In connection with functions that represent a
particular Year 2000 risk, including the production, warehousing and
distribution of products and the supply of raw materials and components, the
Company is considering various contingency plans. Continuing failures in key
geographic areas in the United States and in certain European, South American
and Asian countries that limit the Company's ability to produce products, its
customers' ability to purchase the Company's products or consumers' ability to
shop, would be likely to have a material adverse effect on the Company's results
of operations. The extent of such deferred or lost revenue cannot be estimated
at this time.
As noted, the Company has already been paid a licensing fee for sales
of the Longevity System, which is not dependent on future sales. Vendor Services
has assured the Company that its fulfillment and accounting systems are Year
2000 compliant. The Company's auditors and other third partycontractors have
provided similar assurances. The Company has not used any independent
verification or validation processes to confirm those assurances.
The Company's Year 2000 efforts are ongoing and its overall plan, as
well as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company currently anticipates
continuity of its business activities, that continuity will be dependent upon
its ability, and the ability of third parties upon which the Company relies
directly, or indirectly, to be Year 2000 compliant. There can be no assurance
14
<PAGE>
that the Company will eliminate potential Year 2000 issues in a timely manner
or as to the ultimate cost of doing so.
To date, the Company has incurred no costs relating to Year 2000
issues. The Company does not directly engage in manufacturing, shipping, and
distribution of its products. The Internet development aspects of the business
will not be impacted because of the development stage of this business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION.
Management's discussion and analysis should be read in conjunction with
the Company's financial statements and the notes thereto set forth in this Form
10-KSB commencing on page X.
General
Endless Youth Products, Inc., (the "Company") engages in the business
of developing, marketing and distributing proprietary vitamins, nutritional,
skin care, personal care, and other anti-aging products under the "Endless
Youth" trade name. The following discussion is based on the audited financial
statements for years ending June 30, 1998 and 1999. The financial statements
have been prepared in conformity with generally accepted accounting principals.
Results of Operations
Gross Profit and Net Sales. Net sales for the year ended June 30,
1999 increased by $4,821,739 compared to the year ended June 30, 1998. Gross
Profit increased by $363,942 for the same period. Gross Profit and Net
sales increased as a result of the nationwide rollout of the Company's
"Endless Youth" infomercial in January of 1999. The Company had an agreement
with Vendor Services Inc., in which it paid Vendor Services Inc., 91% of net
sales for all costs associated with the production, distribution and
marketing of the "Endless Youth" vitamin products through infomercial sales.
This agreement was terminated by mutual consent in June of 1999. No revenues
were generated by the Company's web site during the fiscal year.
Cost of Sales. Cost of sales for the year ended June 30, 1999 increased
$4,457,797. The increase in cost of sales can be attributed to the increase in
net sales discussed above and an increase in media spending and airtime of the
infomercials. Cost of sales as a percentage of net sales during the year ended
June 30, 1999 was 90% compared to 33% during the year ended June 30, 1998. The
percentage increase is attributed to the Company's agreement with Vendor
Services Inc.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $479,577 in the year ended June 30, 1999
compared to the year ended June 30, 1998. This increase was primarily due to
increased sales activity, expense related to product development, marketing, and
royalties. The Company's management continues to pursue cost reduction measures
consistent with the level of business wherever opportunities can be identified.
Liquidity and Capital Resources
Although the Company has a negative working capital and equity, it
believes it has sufficient resources to fund the Company's operations and
capital requirements for the 2000 fiscal year. Deferred revenue, the Company's
largest liability, will be recognized as income over the next six months and
will not require any future services from the company. Despite the
15
<PAGE>
Company's negative cash flows from operations over the past two fiscal years
it does not anticipate the need for alternative sources of liquidity. The
Company expects positive cash flow during fiscal 2000 primarily due to
licensing fees and minimal monthly expenses.
Prepaid advertising was $121,758 and $0 at June 30, 1998 and June 30,
1999, respectively. The decrease in 1999 resulted from the amortization of the
remaining infomercial costs.
Year 2000 Compliance
The year 2000 issue results from computer programs that do not
differentiate between the year 1900 and the year 2000 because they were using
two digits rather than four to define the applicable year; accordingly computer
systems that have time-sensitive calculations may not properly recognize the
year 2000. The Company has conducted an initial review of its computer system to
identify whether the system is year 2000 compliant. The computer equipment and
software currently used by the Company is year 2000 compliant.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following information with respect to the outstanding shares of the
Company's common stock beneficially owned by (i) each director of the Company,
(ii) the chief executive officer, (iii) all beneficial owners of more than five
percent of common stock known to the Company and (iv) the directors and
executive officers as a group, is furnished as of June 30, 1999, except as
otherwise indicated.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (1)
<S> <C> <C>
Neal K. Wallach 2,034,963 61.8%
6767 W. Tropicana Blvd., #206
Las Vegas, NV 89103
EYP International LLC 1,135,000 35.0%
6767 W. Tropicana Blvd., #206
Las Vegas, NV 89103
James Hembree
4620 Jupiter Drive
Salt Lake City, UT 84124 1,525,000 44.4%
Gene Scher (4)
November Lazar Scher, Inc.
3575 Cahuenga Blvd., W., #330
Los Angeles, CA 90068 189,334 5.7%
Carl B. Wallach, M.D
32 Chelsea Drive
Randolph, NJ 07869 50,000 1.5%
All Officers and Directors as a Group
(four persons) 2,474,963 (2), (3), (5), (6) 70.4%
</TABLE>
- ----------------------
(1) Unless otherwise indicated below, each director, executive
officer and five percent shareholder has sole voting and investment power with
respect to all shares beneficially owned.
(2) Includes 1,135,000 shares owned by EYP International LLC, a
Nevada limited liability company ("EYP INTERNATIONAL"), of which Mr. Wallach
beneficially owns 54.0 percent of the equity interest; includes warrants to
purchase 49,500 shares, all of which are currently exercisable; excludes options
to purchase 360,000 shares of Common Stock granted to Mr. Wallach under the
Company's 1996 Stock Option Plan, none of which are presently exercisable or
exercisable within 60 days.
16
<PAGE>
(3) Includes 1,135,000 shares owned by EYP International, of which
Mr. Hembree beneficially owns 3.0 percent of the equity interest; includes
options to purchase 50,000 shares of common stock granted to Mr. Hembree under
the Company's 1996 Stock Option Plan, all of which are presently exercisable;
includes presently exercisable warrants to purchase 140,500 shares; includes
presently exercisable warrants to purchase 3,000 shares owned by Joyce Hembree,
Mr. Hembree's wife. Mr. Hembree disclaims beneficial ownership of the warrants
owned by his wife.
(4) Mr. Scher was removed as a director on June 1, 1999. The
number of shares indicated is based on the number of shares originally issued by
the Company to Mr. Scher and his affiliates; the Company has no information
concerning whether any such shares were subsequently sold or additional shares
were purchased in the public market.
(5) Includes shares held by November Lazar Scher, Inc. and
affiliates thereof, all of which are affiliates of Mr. Scher; includes options
to purchase 30,000 shares of common stock granted to Mr. Scher under the
Company's 1996 Stock Option Plan, all of which are presently exercisable.
(6) Includes options to purchase 40,000 shares of common stock
granted to Mr. Wallach under the Company's 1996 Stock Option Plan, all of which
options are presently exercisable.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
DIRECTORS AND OFFICERS
Set forth below are the names and other relevant information regarding
the executive officers and directors of the Company as of June 1, 1999.
<TABLE>
<CAPTION>
COMMENCEMENT YEAR
NAME AGE POSITION OF TERM OF OFFICE
- ------------------------- --- ------------------------- -----------------
<S> <C> <C> <C>
Neal K. Wallach 47 Chairman, Chief Executive 1996
Officer and a Director
James Hembree 70 Director 1997
Carl B. Wallach, M.D. 43 Director 1997
</TABLE>
Neal K. Wallach is Chairman, Chief Executive Officer and a director of
the Company. He is responsible for developing the corporate direction and
implementation of business strategies, including product development,
compensation plans, financial planning, inventory management and forecasting.
Mr. Wallach also oversees the company's marketing strategies along with the
development of promotional campaigns. Since the formation of the Company in July
1996, Mr. Wallach has been employed full time by the Company. Mr. Wallach has
more than 20 years of professional and international management consulting
experience with an emphasis on national distribution networks. Mr. Wallach has
held positions with several major national law firms. From 1985 to 1988 he was
General Counsel for Nygard International a large multinational manufacturer in
Winnipeg. From 1988 to 1992 he served as Executive Vice-President of Camp
Beverly Hills, Inc. a national retailer, where he developed and oversaw its
international franchise store network. The development of this network required
Mr. Wallach to oversee all aspects of start-up, marketing, and operations of the
franchise program. Significant hands-on experience was achieved in cost and
quality control, organizational development, and productivity. From 1992 to 1996
he was a Managing Director of Madison-Waverly Associates, an international
management consulting organization. Mr. Wallach is a member in good standing of
the State Bar of California and holds a Bachelor of Arts degree (International
Studies) from Tufts University and a Juris Doctor degree from the University of
Virginia School of Law.
James Hembree is retired from over 35 years at Dow Chemical, where he
was President and CEO of Dow Chemical Canada; former director of Dow Chemical
Canada; Dowell-Sclumberger Canada; and several other public companies. Mr.
Hembree retired from Dow in February 1986.
17
<PAGE>
Dr. Carl Wallach, is an internal medicine physician specializing in
gastroenterology, with a private practice in New Jersey. Dr. Wallach has been in
private medical practice in New Jersey for over five years.
BOARD OF DIRECTORS
All directors serve for a term of one year and until their successors
are duly elected. All officers serve at the discretion of the Board of
Directors. None of the Company's directors is a director of any company with
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, or of any company registered under the Investment
Company Act of 1940, as amended. There are no family relationships among any
members of the Board of Directors or the executive officers or significant
employees of the Company except that Carl Wallach, M.D., a director, is the
brother of Neal K. Wallach, the Chairman, Chief Executive Officer and a director
of the Company.
Gene Scher was a director of the Company until June 1, 1999. The
Company stopped doing business with Mr. Scher's company in Spring 1999 because
such services were no longer needed by the Company. Since the Company no longer
had a business relationship with Mr. Scher's organization, there was no need for
Mr. Scher to sit on the Board of the Company, and accordingly, he was removed
from the board of directors.
ITEM 6. EXECUTIVE COMPENSATION.
EMPLOYMENT CONTRACT
In July 1996 the Company entered into an employment agreement with Neal
K. Wallach. The agreement was amended in June 1999 to among other things
increase his annual base compensation from $96,000 to $120,000 per annum. The
term of Mr. Wallach's employment agreement is five years. The agreement is
automatically extended for consecutive periods of one year each unless either
the Company or Mr. Wallach elects not to renew the agreement by delivering
written notice thereof to the other party not less than 30 days prior to the
expiration of the current term. Mr. Wallach receives a salary of $120,000 per
year. Mr. Wallach will receive a bonus based on a formula tied into the
Company's net operating income and is eligible to receive additional bonuses
from time to time at the sole discretion of the Board of Directors. The
employment agreement is terminable by the Company at any time with cause. In
connection with entering into the employment agreement, Mr. Wallach was granted
200,000 options at an exercise price of $1.50 per share. The grant was made
under the Company's 1996 Stock Option Plan. These options vest at the rate of
40,000 options per year of employment completed. In March 1998 Mr. Wallach was
granted 200,000 additional options at $0.625 per share and in December 1998 was
granted an additional 200,000 options at $0.75 per share. These two option
grants also vest at the rate of 40,000 options per year.
1996 STOCK OPTION PLAN
In July 1996 the Company adopted the 1996 Stock Option Plan to provide
for the grant of incentive and non-qualified stock options to selected
employees, officers and directors. The Plan was amended as of June 2, 1999 to
increase the number of shares available thereunder. The Plan currently allows
for the issuance of options to purchase up to 1,250,000 shares of common stock.
The vesting schedule of the Plan allows for the exercise of a portion of the
options granted beginning after one year with full exercisability of all options
granted not more then ten years after the date of grant. As of June 30, 1999,
options to purchase 240,000 shares of common stock had been
18
<PAGE>
exercised, and options to purchase 480,000 shares of common stock were
outstanding at an average exercise price of $1.11 per share. Of that amount,
120,000 options are or will become exercisable within 60 days. As of June 30,
1999, 405,000 shares of common stock were available for future grants under
the Plan.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation paid or distributed
during the fiscal years ended June 30, 1997 and 1998 for services rendered by
the Chief Executive Officer of the Company:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL ------------------------- AWARDS OF COMMON UNDERLYING
POSITION YEAR SALARY (1) BONUSES STOCK OPTIONS COMPENSATION
------------------ ---- ------------ --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Neal K. Wallach,
Chairman and Chief
Executive Officer 1997 $96,000 -0- 200,000 $11,500
1998 $96,000 -0- 200,000 $11,500
</TABLE>
- ---------------
(1) Includes stock received in lieu of salary.
(2) Represents car allowance and medical insurance premiums paid
by the Company.
No other annual compensation, stock appreciation rights, long-term
restricted stock awards, or long-term incentive plan payouts were awarded to,
earned by or paid to the named executive officer during any of the Company's
last three fiscal years.
OPTION GRANTS TABLE
The following table sets forth certain information concerning grants of
options to the named executive officer during the fiscal year ended June 30,
1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF TOTAL
OF COMMON STOCK OPTIONS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION
NAME OPTIONS GRANTED EACH FISCAL YEAR PRICE DATE
- --------------------- ---------------- ---------------- -------- ----------
<S> <C> <C> <C> <C>
Neal K. Wallach 200,000 (1) 87.0% $0.625 March 27, 2008
</TABLE>
- -------------
(1) Such options vest at the rate of 40,000 per year.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION TABLE
The following table sets forth certain information concerning options
exercised and outstanding as of the end of the fiscal year ended June 30, 1998:
<TABLE>
<CAPTION>
NO. OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FY-END (#) AT FY-END ($)
NAME EXCERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------- ------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Neal K. Wallach 40,000 $0(1) 0 / 320,000 $0 / $0 (2)
</TABLE>
- ---------------
(1) Based on the closing bid price of the Company's common stock
on December 31, 1997, the date of exercise, of $0.75 per share, which was less
the exercise price of $1.50 per share.
19
<PAGE>
(2) Based on the closing bid price of the Company's common stock
on June 30, 1998 of $0.90 per share, which was less the applicable exercise
prices (120,000 options at $1.50 per share and 200,000 options at $0.625 per
share).
From time to time, Mr. Wallach has chosen to exercise his options, when
permitted, without consideration of Bid price at the moment because of his
belief with respect to the true value of the shares of the Company, regardless
of the market price.
DIRECTOR COMPENSATION
Directors are not paid any cash compensation for serving on the board.
Directors who are not officers or employees of the Company are eligible to
receive grants of non-qualified options under the Company's 1996 Stock Option
Plan.
During the fiscal year ended June 30, 1998, James Hembree, a director
of the Company, was granted 30,000 non-qualified options under the Company's
1996 Stock Option Plan. See "Item 7 -- Certain Relationships and Related
Transactions." No other non-employee director received options during such
fiscal year.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On June 30, 1996, Neal K. Wallach entered into a license agreement with
the Company pursuant to which he licensed to the Company the rights to the
trademarks "Endless Youth," "Power Certified," "Anti-Aging Formulations" and
"Life is SupHerb." The term of the license is five years, and will be extended
for an additional five years unless the Company or Mr. Wallach notifies the
other of its intent not to extend the term. Mr. Wallach receives a royalty equal
to three percent of the Company's gross sales, with a guaranteed annual minimum
of $50,000. Mr. Wallach is also entitled to receive 40 percent of the gross
revenues of any sublicense by the Company. Since 1996, under the provisions of
the License Agreement, Mr. Wallach has received consideration valued at
approximately $180,000, including shares of restricted stock of the Company. The
Company is required to pay all costs and expenses of maintaining current and
effective registrations for the trademarks.
In April 1997 the Company entered into a consulting agreement with
James Hembree. Mr. Hembree is a director of the Company. At the time he entered
into the agreement, Mr. Hembree purchased 25,000 shares of common stock for
$2.00 per share, and was granted warrants to purchase an additional 25,000
shares at $3.50 per share. These warrants expire on August 4, 2002. In
consideration of serving as a director, Mr. Hembree was granted the following
incentive stock options under the Company's 1996 Stock Option Plan, all of which
expire on March 27, 2003: 10,000 options at $2.00 per share; 5,000 options at
$3.00 per share; 10,000 options at $3.75 per share; and 5,000 options at $4.50
per share. To date, none of such options have been exercised. Mr. Hembree's
wife, Joyce Hembree, was also retained as a consultant and was granted warrants
to purchase 3,000 shares of common stock at $2.00 per share. These warrants
expires on August 4, 2002. The Consulting Agreement was amended as of June 18,
1999. Pursuant to such amendment, in exchange for expanding his consulting
services Mr. Hembree received warrants to purchase 64,000 shares at the exercise
price of $0.625 per share and warrants to purchase 24,000 shares at an exercise
price of $0.9375 per share.
20
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock. A
total of 3,242,374 shares of Common Stock have been issued. This amount does not
include 480,000 shares of common stock issuable upon exercise of options and
402,367 shares subject to outstanding warrants. Accordingly, there are 5,875,259
authorized shares of Common Stock which are not issued or reserved for issuance.
These shares may be issued at the discretion of the Board of Directors of the
Company in accordance with the Nevada General Corporation Law (the "NEVADA
LAW"). Unless otherwise required by Nevada law, as in the case of certain
extraordinary actions, stockholder approval will not be required for the
issuance of additional shares of Common Stock.
The holders of Common Stock are entitled to cast one vote for each
share held at all stockholder meetings for all purposes, including the election
of directors, and to share equally on a per share basis in such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
Upon liquidation or dissolution, each outstanding share of Common Stock will be
entitled to share equally in the assets of the Company legally available for
distribution to stockholders, after the payment of all debts and other
liabilities. No holder of Common Stock has a preemptive or preferential right to
purchase or subscribe for any unissued or additional authorized stock or any
securities of the Company convertible into shares of its Common Stock.
The Common Stock does not have cumulative voting rights, which means
that the holders of more than 50 percent of the Common Stock voting for the
election of directors can elect 100 percent of the directors of the Company if
they choose to do so. The By-Laws of the Company require that a majority of the
issued and outstanding shares of the Company be represented to constitute a
quorum and transact business at a stockholders' meeting.
PREFERRED STOCK
The Board of Director has the authority, without further action by the
shareholders, to issue up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversions rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such shares, without further vote
or actions by stockholders. The Board has not designated any shares of Preferred
Stock. Therefore, the full 1,000,000 shares of Preferred Stock are available for
issuance in series. The issuance of Preferred Stock could adverse affect the
voting power of holders of Common Stock and the likelihood that such holders
would receive dividends and dividend payments and payments upon liquidation
could have the effect of delaying, deferring or preventing a change of control
in the Company. The Company has no present plan to issue any shares of Preferred
Stock.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Company.
ANTI-TAKEOVER PROVISIONS
The Company is subject to Sections 78.411-.444 of the Nevada Law, an
anti-takeover law, which may discourage certain types of transactions involving
an actual or potential change in control of the Company, including transactions
in which the stockholders might otherwise receive a premium for their shares
over the current prices, and may limit the ability of the
21
<PAGE>
stockholders to approve a transaction that they may deem to be in their best
interests.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. The following is the high and
low bid price for the common stock for each quarter within the last two fiscal
years and the subsequent interim quarters.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH BID LOW BID
<S> <C> <C>
March 31, 1997 1.50 1.25
June 30, 1997 1.50 1.25
September 30, 1997 1.25 1.00
December 31, 1997 .90 .60
March 31, 1998 1.00 .90
June 30, 1998 1.25 .75
September 31, 1998 1.25 .75
December 31, 1998 1.00 .75
March 31, 1999 2.25 1.00
</TABLE>
As of June 9, 1999 there were 47 holders of record of the Company's
common stock.
DIVIDEND POLICY
The Company has never paid dividends on its common stock. The Company
currently intends to retain all future earnings to fund operations and the
expansion of its business. The determination of payment of dividends in the
future will be within the discretion of the Company's Board of Directors and
will depend on the earnings, capital requirements and operating and financial
condition of the Company, among other factors.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any currently pending legal proceedings
or governmental authority proceedings, and the Company is aware of no
contemplated proceedings.
The Company has not been materially affected by nor has it incurred any
significant cost related to compliance with federal, state or local
environmental laws, and does not anticipate any such material effect.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
22
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
NOTE: SOME OF THE TRANSACTIONS SET FORTH BELOW MAY QUALIFY FOR OTHER
REGISTRATION EXEMPTIONS UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
IN ADDITION TO THE EXEMPTIONS SPECIFICALLY MENTIONED.
With respect to grants of options for employees, the intrinsic value
thereof was determined based on the closing bid price of the Company's common
stock of the OTC Bulletin Board (the "market price") within a period of time
immediately prior to the. Except as noted below, with respect to grants of
warrants to non-employees, the fair value of the options was based on
negotiations at arm's length with the warrant holder, and in no case involved an
exercise price below the market price on the date of grant.
On July 24, 1996, the Company issued 1,135,000 shares of common stock
to EYP and 90,000 shares to Neal K. Wallach, in connection with the initial
incorporation and organization of the Company. The purchase price was cash in
the amount of $0.005 per share. The shares were issued under Section 4(2) of the
Securities Act.
On July 31, 1996, the Company issued 200,000 stock options to Neal K.
Wallach under its 1996 Stock Option Plan. Such options vest at the rate of
40,000 per year, and had an excessive price of $1.50 per share. Such options
were issued pursuant to Rule 701 under the Securities Act.
On January 13, 1997, the Company issued an aggregate of 470,667 shares
of common stock to approximately 30 purchasers. Two of the purchasers,
representing 98,925 shares, received stock in consideration for services
previously rendered to the Company in the production of its infomercial also,
valued at $1.50 per share. The purchasers of the remaining 371,742 shares paid a
cash consideration of $1.50 per share, for aggregate proceeds to the Company of
$557,613. All of these shares were issued under Rule 504 under the Securities
Act. No underwriter or sales agent was used.
On March 14, 1997, the Company issued 168,000 shares at $1.50 per share
to an investor, for aggregate proceeds to the Company of $252,000 in cash. The
shares were issued under Rule 504 under the Securities Act.
On April 18, 1997, the Company issued an aggregate of 27,920 shares of
common stock to eight persons who had previously rendered services to the
Company. Such shares were valued at $1.50 per share. These sales were made under
Rule 504 under the Securities Act. In addition, warrants to purchase an
aggregate of 7,200 shares of common stock at exercise prices ranging from $1.50
to $2.50 per share were issued to five persons who had previously rendered
services to the Company. These warrants were issued under Section 4(2) of the
Securities Act and Rule 506 thereunder.
On August 12, 1997, the Company issued an aggregate of 27,158 shares of
common stock to six persons in consideration of services previously rendered to
the Company in connection with the production of its infomercial. The shares
were valued at $1.50 per share. The shares were issued under Rule 504 under the
Securities Act.
On August 20, 1997, James Hembree, a director of the Company, purchased
25,000 shares at $2.00 per share, for a total consideration of $50,000. Such
shares were issued under Rule 504 under the Securities Act. Also on that date,
Mr. Hembree was issued warrants to purchase 25,000 shares at an exercise price
of $3.50 per share. The warrants were issued under Rule 701 under the
23
<PAGE>
Securities Act. See "Item 7 -- Certain Relationships and Related
Transactions."
On September 30, 1997, a single purchaser was issued warrants to
purchase 7,000 shares of common stock at $2.50 per share. These warrants were
issued in consideration of services provided to the Company. The warrants were
issued under Section 4(2) of the Securities Act.
On December 17, 1997, the Company issued warrants to purchase an
aggregate of 22,000 shares with an exercise price of $0.625 per share to three
persons, including James Hembree, a director of the Company. Such warrants were
issued for services previously provided to the Company. The warrants were issued
under Section 4(2) of the Securities Act. See "Item 7 -- Certain Relationships
and Related Transactions."
On December 22, 1997, the Company issued to James Hembree, a director
of the Company, 10,000 shares of its common stock in connection with his
consulting agreement. Such shares were issued under Rule 504 under the
Securities Act. See "Item 7 -- Certain Relationship and Related Transactions."
On December 27, 1997, as consideration for a loan made by James Hembree
and two other persons to the Company, the Company issued warrants to purchase an
aggregate 38,500 shares of common stock at an exercise price of $0.625 per
share. Such warrants were issued under Section 4(2) of the Securities Act.
On March 5, 1998, the Company issued 13,333 shares of its common stock
to a company domiciled in Vancouver, British Columbia that had provided services
to the Company pursuant to a written agreement. Such shares were issued under
Rule 903 of Regulation S under the Securities Act, in reliance on a
certification that such company was not a US Person for purposes of Regulation S
and agreed not to dispose of such shares in the United States except in
compliance with Regulation S. The shares are legended to such effect.
On March 27, 1998, the Company issued an aggregate of 188,000 shares of
common stock to eleven persons who had previously provided services to the
Company in connection with the production of its infomercial. 10,000 of these
shares were issued to Neal K. Wallach in lieu of salary. The shares were valued
at $1.25 per share, which was fair market price at the time. Such shares were
issued under Rule 504 under the Securities Act. In addition, the Company issued
an aggregate of 7,500 shares to two other persons who had provided services to
the Company in connection with the production of its infomercial. These shares
were issued under Section 4(2) under the Securities Act and also valued at $1.25
per share. Also on that date, the Company issued warrants to purchase an
aggregate of 105,500 shares of common stock at exercise prices ranging from
$0.625 to $3.75 per share. These included 30,000 warrants issued to Gene Scher,
a director of the Company. Such warrants were issued under Section 4(2) under
the Securities Act. Also on that date, the Company issued: (i) stock options to
Neal K. Wallach, vesting at a rate of 40,000 per year, having an exercise price
of $0.625 per share, and (ii) 30,000 options to James Hembree, vesting
immediately, at exercise prices ranging from $2.00 to $4.00 per share. All of
such options were issued pursuant to Rule 701 under the Securities Act.
On June 29, 1998, the Company issued an aggregate of 25,000 shares of
common stock to two persons who provided consulting services to the company. In
addition, the Company issued 12,000 shares to a person who had previously loaned
$5,000 to the Company, and who agreed to convert such loan into shares of the
Company's common stock and to purchase for cash an additional $4,000 worth of
common stock for cash. Also on that date, the Company issued 110,266
24
<PAGE>
shares of common stock to Neal K. Wallach, as repayment of a loan by Mr.
Wallach to the Company of $42,500 plus interest, and in lieu of a further
$40,200 owed as compensation under Mr. Wallach's employment contract with the
Company for services rendered through May 30, 1998. All such shares were
issued under Rule 504 under the Securities Act and were valued at $1.00 per
share.
On July 7, 1998, in lieu of paying certain royalties to a person who
had provided services to the Company, the Company issued to such person 80,000
shares of its common stock, which were valued at $1.25 per share. Such shares
were issued under Rule 504 under the Securities Act.
On October 6, 1998, the Company issued an aggregate of 114,000 shares
of its common stock to three persons who had provided services in connection
with its infomercial to the Company, which it valued at $0.75 per share. Such
shares were issued under Rule 504 under the Securities Act. Also on that date,
the Company issued warrants to purchase an aggregate of 55,000 shares of common
stock to two persons who had provided services to the Company. The exercise
prices ranged from $0.75 to $1.75 per share. Such warrants were issued under
Section 4(2) under the Securities Act.
On December 22, 1998, the Company issued an aggregate of 155,200 shares
of common stock to various persons who had provided services to the Company in
connection with its infomercial. In addition, the Company issued 360,197 shares
to Neal K. Wallach, in lieu of $199,800 in compensation owed for a portion of
the period July 1, 1996 through December 31, 1998 and for $34,328 in unpaid
licensing fees. All of such shares were issued under Rule 504 under the
Securities Act and were valued at $0.65 per share. In addition, the Company
issued 26,666 shares of common stock to a Company domiciled in Vancouver,
British Columbia that rendered services to the Company. Such shares were issued
under Rule 903 of Regulation S under the Securities Act, in reliance on a
certification that such company was not a US Person for purposes of Regulation S
and agreed not to dispose of such shares in the United States except in
compliance with Regulation S. The shares are legended to such effect. Also, the
Company issued a warrant to purchase 7,500 shares of common stock at an exercise
price of $0.625 per share in connection with services rendered to the Company.
Such shares were issued under Section 4(2) under the Securities Act. Also on
that date, the Company issued 30,000 options to each of Gene Scher and Carl
Wallach, vesting immediately, at exercise prices ranging from $0.75 to $2.00 per
share. Such options were issued pursuant to Rule 701 under the Securities Act.
On December 31, 1998, the Company issued 200,000 stock options to Neal
K. Wallach, vesting 40,000 per year, at an exercise price of $0.75 per share.
Such options were issued pursuant to Rule 701 under the Securities Act.
On January 27, 1999, the Company issued 16,500 shares of its common
stock in connection with the exercise of a warrant by a company domiciled in
Vancouver, British Columbia. Such shares were issued under Rule 903 of
Regulation S under the Securities Act, in reliance on a certification that such
company was not a US Person for purposes of Regulation S and agreed not to
dispose of such shares in the United States except in compliance with Regulation
S. The shares are legended to such effect.
On June 2, 1999 the Company's Board of Directors authorized the
issuance of an aggregate of 39,367 shares of common stock to five persons who
had previously rendered various services to the Company. Such shares were issued
under Rule 504 under the Securities Act. Also on that date, Neal K. Wallach was
issued 40,000 shares in lieu of salary through May 30, 1999. Such shares were
issued under Rule 701 under of the Securities Act. All of such shares
25
<PAGE>
were valued at $1.25 per share. Also on that date, the Company issued
warrants to purchase an aggregate of 46,667 shares at exercise prices ranging
from $1.50 to $1.75 per share to two persons who had provided services to the
Company. Such warrants were issued under Section Rule 701 under the
Securities Act. Also on that date, the Company issued 10,000 options to each
of James Hembree and Carl Wallach at an exercise price $1.50 per share. Such
options vest immediately and expire on June 1, 2004. Such options were issued
pursuant to Rule 701 under the Securities Act.
On June 18, 1999 the Company's Board of Directors authorized the
issuance of 7,000 shares to The Investor Relations Company Limited in connection
with consulting services to be provided to the Company. The number of shares are
determined pursuant to the contract as equalling $7,5000 worth of stock based on
its average bid price for the previous 30-day period. Such shares were issued
under Rule 701 under the Securities Act. Also on that date, Neal K. Wallach was
issued 240,000 shares on account of previous option exercises under the 1996
Stock Option Plan. Such shares were also issued under Rule 701 under the
Securities Act. Also on that date, in connection with the modification of his
consulting agreement (see "Item 7 -- Certain Relationships and Related
Transactions"), the Company issued to James Hembree warrants to purchase 64,000
shares at an exercise price of $0.625 per share and warrants to purchase 24,000
shares at an exercise price of $0.9375 per share. All of such warrants expire on
June 18, 2001, and were issued pursuant to Rule 701 under the Securities Act.
Also on that date, James Hembree was awarded an additional 10,000 nonqualified
options under the 1996 Stock Option Plan. Such options have an exercise price of
$1.50, vest immediately, and expire on June 1, 2004. Such options were issued
pursuant to Rule 701 under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that no director or
officer shall have any personal liability to the Company or its stockholders for
damages for breach of fiduciary duty as a director or officer, except that
liability will not be eliminated or limited for a director or officer for (i)
acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law, or (ii) the payment of distributions in violation of Section
78.300 of the Nevada Law.
The Company maintains director and officer liability insurance. There
are no pending claims for indemnification, nor is the Company aware of any
pending or threatened claims which would result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to director, officers and controlling persons of the
Company under the foreign provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
26
<PAGE>
PART F/S
FINANCIAL STATEMENTS
Beckman Kirkland & Whitney
Certified Public Accountants
5210 Lewis Road, Suite 14
Agoura Hills, CA 91301
November 3, 1999
Board of Directors and Shareholders
Endless Youth Products, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Endless Youth Products,
Inc. , as of June 30, 1999 and 1998, and the related statements of
operations, retained deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Endless Youth Products, Inc.,
as of June 30, 1999 and 1998, and the results of its operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Beckman Kirkland & Whitney
27
<PAGE>
ENDLESS YOUTH PRODUCTS
BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 355,434 $ 471
Prepaid advertising (Notes 1 & 2) 0 121,758
------------- --------------
TOTAL CURRENT ASSETS 355,434 122,229
Property and Equipment
net of accumulated depreciation (Notes 1 & 3) 8,510 13,448
------------- --------------
TOTAL ASSETS $ 363,944 $ 135,677
============= ==============
LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable $ 236,528 $ 204,305
Deferred Revenue (Note 5) 283,333 0
Advances from shareholders (Note 6) 75,388 97,113
------------- --------------
TOTAL LIABILITIES 595,249 301,418
SHAREHOLDERS' DEFICIT
Common stock, $.001 par value.
Authorized 4,000,000 shares; issued
and outstanding 3,295,708 and
2,016,178 at June 30, 1999 and
June 30, 1998, respectively (Note 7) 3,295 2,017
Additional paid-in capital 1,541,280 952,881
Retained deficit (1,775,880) (1,120,639)
------------- --------------
Total shareholders' Deficit (231,305) (165,741)
------------- --------------
TOTAL LIABILITIES AND
SHAREHOLDER'S DEFICIT EQUITY $ 363,944 $ 135,677
============= ==============
</TABLE>
See accompanying notes to financial statements
28
<PAGE>
ENDLESS YOUTH PRODUCTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended June 30,
1999 1998
--------------- --------------
<S> <C> <C>
Gross Receipts $ 6,578,259 $ 225,896
Less: Returns and allowances 1,544,701 14,077
--------------- --------------
Net Sales 5,033,558 211,819
Cost of Sales 4,527,856 70,059
--------------- --------------
Gross Profit 505,702 141,760
Selling, General and Administrative
Expenses 1,160,943 681,366
--------------- --------------
Income (Loss) from Operations (655,241) (539,606)
Other Income and (Expenses)
Interest Income 0 340
Interest Expense 0 (8,392)
--------------- --------------
Income (Loss) before income taxes (655,241) (547,658)
Provision for income taxes - (Note 4) 0 0
--------------- --------------
Net income (Loss) $ (655,241) $ (547,658)
=============== ==============
Loss per share amounts:
Basic:
Net income (loss) $ (0.28) $ (0.28)
Diluted:
Net income (loss) $ (0.25) $ (0.28)
Weighted average common and
common equivalent shares:
Basic 2,328,944 1,953,833
=============== ==============
Diluted 2,656,949 1,980,108
=============== ==============
</TABLE>
See accompanying notes to financial statements
29
<PAGE>
ENDLESS YOUTH PRODUCTS
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the years ended June 30,
1999 1998
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (655,241) $ (547,658)
Adjustments to reconcile net income to net cash
provided by operating activites:
Depreciation & Amortization 4,939 3,267
Decrease in inventory 0 35,903
Decrease in prepaid advertising 121,758 147,339
Increase in deferred revenue 283,333 0
Increase in accounts payable 32,221 76,647
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (212,990) (284,502)
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment 0 (10,090)
------------ -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 0 (10,090)
------------ -----------
CASH FLOW FROM FINANCING ACTIVITES
Proceeds from issuance of common stock 589,678 169,612
Advances from (Repayments to) shareholders (21,725) 83,600
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 567,953 253,212
------------ -----------
NET CHANGE IN CASH 354,963 (41,380)
CASH AT BEGINNING OF YEAR 471 41,851
------------ -----------
CASH AT END OF YEAR $ 355,434 $ 471
============ ===========
Interest expense paid during the period was: $ 0 $ 8,392
</TABLE>
See accompanying notes to financial statements
30
<PAGE>
ENDLESS YOUTH PRODUCTS
STATEMENTS OF SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
ADDITIONAL ACCUMU- NET
COMMON STOCK PAID IN LATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------------- ------------- ------------------ ------------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 1,891,587 $1,892 $ 783,394 $ (572,981) $ 212,305
Stock issued for services 79,591 80 109,532 109,612
Stock issued for cash 45,000 45 59,955 60,000
Net loss (547,658) (547,658)
--------------- ------------- ------------------ ------------------- -----------------
Balance at June 30, 1998 2,016,178 $2,017 $ 952,881 $ (1,120,639) $(165,741)
--------------- ------------- ------------------ ------------------- -----------------
Stock issued for services 1,045,763 1,045 421,207 422,252
Stock issued for cash 233,767 233 167,192 167,425
Net loss (655,241) (655,241)
--------------- ------------- ------------------ ------------------- -----------------
Balance at June 30, 1999 3,295,708 $3,295 $ 1,541,280 $ (1,775,880) $(231,305)
=============== ============= ================== =================== =================
</TABLE>
See accompanying notes to financial statements
31
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Endless Youth Products, Inc., (the Company) incorporated July of 1996
in the State of Nevada. The Company engages in the business of developing,
marketing and distributing proprietary vitamins, nutritional, skin care,
personal care, and other anti-aging products under the "Endless Youth" trade
name. The Company was in the development stage through June 30, 1998. The year
ending June 30, 1999 is the first year during which it is considered an
operating company.
Cash Equivalents
The Company considers all highly liquid certificates of deposit with an
original maturity of three months or less to be cash equivalents.
Depreciation and Amortization
Depreciation of property and equipment is computed using the
straight-line method based on estimated useful lives ranging as follows:
<TABLE>
<S> <C>
Furniture and Fixtures 7 years
Computer Equipment 5 years
</TABLE>
Prepaid Advertising Cost
Production costs related to the Company's direct response advertising
programs are capitalized and amortized based on the ratio that current period
revenues bear to the total of current and estimated future period revenues for
that direct-response-advertising cost pool.
Revenue Recognition
Revenue from product sales is recognized upon shipment. Test market
sales experience as well as research conducted by outside consultants provides
the Company with a reasonable basis for estimating future returns.
Use of 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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
Provisions (benefits) for federal and state income taxes are calculated
on reported financial statement income (loss) based on current tax law and also
include the cumulative effect of any changes in tax rates from those used
previously in determining deferred tax assets and liabilities. Such provisions
(benefits) differ from the amounts currently payable because certain items of
income and expense, known as temporary differences, are recognized in different
tax periods for financial reporting purposes than for income tax purposes.
32
<PAGE>
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS 128). This statement requires the company to
report basic and diluted earnings (loss) per share. Basic earnings per share is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share include the effect of the additional common shares that would
have been outstanding if dilutive stock options had been exercised.
The following table summarized the calculation of basic and diluted
earnings per share for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Numerator:
Basic and diluted earnings per share - net loss $ (655,241) $ (547,658)
Denominator:
Basic earnings per share - weighted average number
of common shares outstanding during the year 2,328,944 1,953,833
Incremental common shares attributable to
assumed exercise of options and warrants 328,005 26,275
Denominator for diluted earnings per share 2,656,949 1,980,108
Basic earnings per share $ (.28) $ (.28)
Diluted earnings per share $ (.25) $ (.28)
</TABLE>
Stock Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Compensation cost for stock options
and warrants is measured at the excess of the quoted market price of the
Company's stock at the date of grant over the amount the employee or outside
consultant must pay to acquire the stock. Restricted stock is recorded as
compensation cost over the requisite vesting periods based on the market value
on the date of grant. Compensation cost for shares issued under performance
share plans is recorded based upon the current market value of the Company's
stock at the time the warrants are granted.
NOTE 2 - PREPAID ADVERTISING COST
Prepaid advertising cost consists of infomercial production costs,
which are capitalized and amortized based on current and estimated future
revenues. At June 30, 1999 the remainder of these direct responses advertising
costs have been fully amortized. Amortization expense was $121,758 and $147,339
for the years ended June 30, 1999 and June 30, 1998, respectively.
33
<PAGE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consist of the following at June 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Furniture and Fixtures $ 2,986 $ 2,986
Computer Equipment 15,072 15,072
less accumulated depreciation (9,548) (4,610)
-------- --------
$ 8,510 $ 13,448
======== ========
</TABLE>
Depreciation expense charged to operations was $4,938 and $3,266 for
years ended June 30, 1999 and 1998.
NOTE 4 - INCOME TAXES
There is no current or deferred income tax expense for the years ended
June 30, 1999 and June 30, 1998. The Company incurred net operating losses of
$655,241 and $547,658 for the years ended June 30, 1999 and June 30, 1998,
respectively. As of June 30, 1999, the Company has net operating loss
carryforwards of $1,614,414. These losses will expire between 2012 and 2014 if
not utilized.
SFAS 109 requires that the future tax benefit of net operating loss
carryforwards be recorded as an asset using current tax rates to the extent that
management assesses the utilization of such carryforwards to be more likely then
not. The Company has recorded a deferred tax asset of $548,900 with a valuation
allowance of $548,900.
The following reconciles the federal statutory income tax rate to the effective
rate of the provision for income taxes.
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Federal Statutory rate 34 % 34 %
Valuation allowance adjustment (34)% (34)%
------ ----
Effective rate 0 % 0 %
====
</TABLE>
NOTE 5 - DEFERRED REVENUE
In June 1999 the Company entered into an agreement in which the Company
received a license fee in exchange for certain rights and privileges relating to
the Endless Youth product line. The company will recognize revenue relating to
this agreement over six months.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company has a license agreement with one of its officers that is
also a director and shareholder. Under the terms of the agreement, the Company
retains the sole right to market goods and services under the Endless Youth
trade name throughout the world. The licensor extended such worldwide rights to
the company following the initial domestic-only grant of these rights. The
Company is to pay the licensor a royalty of 3% of gross sales with a minimum
royalty of $50,000 per year. The licensor is to receive 40% of any revenues
generated from any sublicense or similar granting of rights agreements
The Company had advances from various shareholders of $75,388 and
$97,113 as of June 30, 1999 and June 30, 1998, respectively. In July of 1998,
$62,113 of advances was converted to 110,266 shares of stock, based on the
market value of stock at the time of conversion.
NOTE 7 - SHAREHOLDERS' EQUITY
34
<PAGE>
During the year ended June 30, 1999 and 1998 the Company issued
1,045,763 and 79,591 shares of common stock respectively, in exchange for
services rendered. The cost of the services has been charged to operations, and,
additional paid in capital has been increased by $421,207 and $109,532 for the
years ended June 30, 1999 and 1998 respectively, representing the excess fair
market value of the services over the par value of the common stock.
The Company has two stock option plans that provide for the granting of
either incentive stock options or non-qualified stock options to key employees
and non-employees.
During the year-ended June 30, 1998, the Company granted 200,000
incentive stock options to employees which vest at 40,000 options per year.
During the year ended June 30, 1999, an additional 200,000 incentive stock
options were granted which vest at 40,000 per year. As of June 30,1999, 360,000
incentive stock options were outstanding with an exercise price of between $.625
and $1.50 per share and will expire between July 2001 and March 2008.
During the year ended June 30, 1998 the Company granted 30,000 non qualified
options with immediate vesting, and during the year ended June 30,1999, 90,000
non-qualified options with immediate vesting were granted. As of June 30, 1999,
120,000 non-qualified options were outstanding with an exercise price between
$.75 and $4.50 per share and will expire between December 2001 and June 2004.
The Company issued warrants to purchase 250,501 and 198,000 shares of
common stock to outside consultants during the years ended June 30, 1999 and
June 30, 1998, respectively. The exercise price of the warrants range from $.625
to $3.50 per share and expire between April 2000 and December 2004.
Changes in the status of options are summarized as follows for fiscal
years ended June 30:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Outstanding at beginnings of year 350,000 160,000
Granted 290,000 230,000
Exercised (160,000) (40,000)
Expired 0 0
-------- --------
Outstanding at end of year 480,000 350,000
======== ========
Price range of options:
Outstanding at end of year $.625-$4.50 $.625-$4.50
</TABLE>
Changes in the status of warrants are summarized as follows for fiscal years
ended June 30:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Outstanding at beginnings of year 205,200 7,200
Granted 250,501 198,000
Exercised (69,834) 0
Expired (2,000) 0
-------- --------
Outstanding at end of year 383,867 205,200
======== ========
</TABLE>
NOTE 7 - SHAREHOLDERS' EQUITY (continued)
The Company applies APB 25 in accounting for its stock options and
warrants. The option price equals or exceeds the fair market value of the common
shares on the date of the grant and, accordingly, no compensation cost has been
recognized under the provisions of APB 25 for stock options. Under SFAS 123,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service (or vesting) period. Had
35
<PAGE>
compensation cost for Company's stock option and warrant agreements been
determined under SFAS 123, based on the fair market value at the grant dates,
the Company's pro forma net earnings and net earnings per share would have
been reflected as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net earnings
As reported ($655,241) ($547,658)
Pro forma ($685,787) ($556,364)
Net earnings per share
As reported ($.28) ($.28)
Pro forma ($.29) ($.28)
</TABLE>
The fair value of each option and warrant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for those options and warrants granted during
years ended June 30, 1999 and 1998, respectively: dividend yield of 0%, expected
volatility of 58%, risk-free interest rates of 5%, and expected lives ranging
from 1 to 10 years.
NOTE 8 - CONCENTRATION OF CASH
The Company held approximately $255,434 in excess of federal insurance
limits on accounts of financial institutions on June 30, 1999
NOTE 9 - YEAR 2000 COMPLIANCE
The Company primarily uses licensed software products in its operations
with a significant portion of processes and transactions centralized in one
particular software package. Management plans to upgrade to the most current
version of this and other software packages which, among other things, are Year
2000 compliant. Cost of the project is not expected to have a material effect on
the Company's financial statements.
PART III
ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements filed as part of the registration
statement: see pages 27 - 36.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1* Articles of Incorporation, as amended.
3.2* Bylaws.
10.1* License Agreement dated as of June 30, 1996 between the
Company and Neal K. Wallach.
10.2* Letter Agreement dated as of March 17, 1998 between Vendor
Services and Neal K. Wallach, as amended by a First Amendment
dated as of December 28, 1998, and a Second Amendment dated
March 19, 1999.
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
10.3* Agreement dated December 1, 1997 between the Company and
Schulberg Media Works, Inc. and letter agreement amending such
agreement dated March 11, 1998.
10.4* Agreement dated January 21, 1999 between the Company and
Infomercial Development Services, Inc.
10.5* Amended and Restated Employment Agreement dated as of June 2,
1999 between Neal K. Wallach and the Company.
10.6* 1996 Stock Option Plan.
10.7* Amendment No. 1 to Stock Option Plan.
10.8* Amendment No. 2 to Stock Option Plan.
10.9* Consulting Agreement dated August 4, 1997 between the Company
and James Hembree.
10.10* Amendment No. 1 to Hembree Consulting Agreement.
10.11* Consulting Agreement dated June 25, 1999 between the Company
and The Investor Relations Company Limited.
10.12* Stock Warrant Agreement dated June 14, 1999 between the
Company and The Investor Relations Company Limited.
10.13* Letter, dated January 27, 1999, from Company to Brian Kelly,
regarding financing for Le Solution Derma System.
10.14* Agreement, dated October 1, 1997, between the Company and
Leonard Sands.
10.15 Amendment, dated September 24, 1999, to Agreement between the
Company and Vendor Services, Inc.
11.1 Statement re: calculation of per-share earnings.
23.1 Consent of Beckman Kirkland & Whitney.
27.1 Financial Data Schedule.
*Previously filed as an exhibit to this Form 10-SB.
</TABLE>
37
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Amendment No.1 to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
ENDLESS YOUTH PRODUCTS, INC.
[REGISTRANT]
Date: November 5, 1999 By: /s/ Neal K. Wallach
-----------------------------------
Neal K. Wallach, Chairman and
Chief Executive Officer
38
<PAGE>
EXHIBIT 10.15
VENDOR SERVICES 3340 OCEAN PARK BOULEVARD
SANTA MONICA
CALIFORNIA 90495
TEL: 310-581-6250
FAX: 310-581-3232
DATE: September 24, 1999
TO: Neal Wallach
FROM: Ben Van de Bunt
SUBJECT: Endless Youth Amendment
- -------------------------------------------------------------------------------
Dear Neal:
The purpose of this letter agreement is to serve as the first amendment
("First Amendment") to that certain June 28, 1999 agreement ("Original
Agreement") by and among Vendor Services, Inc., a Delaware corporation
("Vendor"), Neal Wallach, an individual ("Wallach") and Endless Youth Products,
Inc., a Nevada corporation ("Endless").
For valuable consideration, the parties hereby agree as follows:
1. CONFLICT AND TERMS. To the extent there is a conflict between
the First Amendment and the Original Agreement, this First Amendment will
control. All defined terms herein shall have the same meaning as set forth in
the Original Agreement or as presented below.
2. POSSIBLE SETTLEMENT. Vendor and Endless have reached a
tentative agreement with Sun Ten which, if fully executed by all the
applicable parties, will be referred to as the "Sun Ten Agreement" and will
cause the Original Agreement to be automatically amended as follows:
a. Within one (1) business day of receiving actual payment from
Sun Ten to Vendor, Vendor will provide Endless with written notification via
facsimile that Sun Ten has made such payment to Vendor per the Sun Ten Agreement
(I.E., either cash or free product as specified in the Sun Ten Agreement).
Within ten (10) days of receiving actual payment from Sun Ten, Vendor shall pay
Endless twenty-five percent (25%) of the first two hundred and fifty thousand
dollars ($250,000) of "net proceeds" and thirty percent (30%) of the balance of
the "net proceeds". The Sun Ten Agreement between Sun Ten and Vendor currently
contemplates Vendor receiving $805,000 on the signing and an additional $600,000
within 75 days of the initial airing of a revised Endless Youth infomercial;
Endless and Vendor agree such time specified in the fully executed Sun Ten
Agreement shall control. The parties agree that the definition of "net proceeds"
shall equal all payments made by Sun Ten to Vendor pursuant to the Sun Ten
Agreement (I.E., either cash or free product as specified in the Sun Ten
Agreement), less enumerated legal fees and actual reimbursable costs paid by
Vendor to the law firm of Belin, Rawlings and Badal in this Sun Ten matter.
These legal fees and costs will be detailed in the law firm's routine monthly
billing statement with respect to this matter, and Vendor shall provide
applicable billing statements to Endless. As is customary, the law firm's
billing statement will provide its customary dates and hours with respect to
<PAGE>
specified legal work. Vendor agrees that such legal costs shall not exceed
ten percent (10%) of payments owed by Sun Ten (cash or free product) to
Vendor. For example, if Sun Ten pays Vendor with respect to the $805,000,
Endless would receive $62,500 (25% of $250,000) plus $166,500 (30% of
$555,000) for a total of $229,000; provided, however, that this $229,000
amount will be decreased by the above noted Endless' percentage share (25% or
30%) of the actual law firm billings on the Sun Ten matter (which will be
deducted from the $805,000 payment from Sun Ten). Thereafter, Endless would
receive $180,000 (30% of $600,000 which would be evidenced by a cash payment
or payment with product) of the additional $600,000 if and when Sun Ten makes
this payment to Vendor.
b. The parties agree Vendor shall only make payments to Endless if
Sun Ten pays Vendor.
c. Paragraph 2.3.4 shall be amended so that "April 1, 2000" shall be
replaced with August 1, 2000.
3. RESTRICTIONS. Endless shall take all necessary steps so that the
Endless stock owned by Vendor shall no longer be restricted and be fully
saleable by Vendor. Endless agrees to cause this to occur no later than
October 15, 1999.
4. LICENSE. The parties agree that amounts paid Endless hereunder
and the three hundred and forty thousand ($340,000) payment already made
under the Original Agreement shall be and were in exchange for the license
Endless has provided to Vendor regarding the rights to continue to use the
trade name "Endless Youth", the use of which is limited by the scope of the
agreements between the parties. Additionally, Endless continues to provide
Vendor with full rights to the infomercial as described in various agreements
between the parties. As such, Vendor shall have no further obligation to pay
Endless any royalties or advances or provide Endless accountings pursuant to
Original Agreement sections 2.3.1 and 2.3.3; provided, however, that if
Vendor creates a sequel to the existing infomercial, the terms of section
2.3.4 of the Original Agreement shall control. Furthermore, with respect to
any revised version of the infomercial or with respect to a sequel, the
Endless Youth title, "presentation frame" and accompanying voice over will be
used at the start and end of the program which notes the program is a
presentation of Endless Youth Products, as well as reference to
endlessyouth.com as "The Internet's Anti-Aging Source". A master of these
frames will be provided by Endless to Vendor. Endless will have the right to
reasonably approve any revised infomercial or sequel infomercial to be
certain that the "Endless Youth" trade name is being properly protected. In
such event, Endless shall not unreasonably withhold its approval.
Executed on September 24, 1999
Endless Youth Products, Inc., a
Nevada corporation
/s/ Neal K. Wallach
- -----------------------------------
Neal K. Wallach, its president
/s/ Neal K. Wallach
- -----------------------------------
Neal K. Wallach, an individual
Vendor Services, Inc., a
Delaware corporation
/s/ Ben Van De Bunt
- -----------------------------------
Ben Van de Bunt, its EVP and
Corporate Secretary
<PAGE>
EXHIBIT 11.1
Computation of Per Share Earnings (Loss)
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128") for the fiscal year ended June 30, 1999
and 1998. This statement replaces the previously-reported primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share is very similar to the
previously-reported primary earnings per share in that it includes the effect of
the additional common shares which would have been outstanding if dilutive stock
options had been exercised. Pursuant to the requirements of Staff Accounting
Bulletin ("SAB") No. 98 of the Securities and Exchange Commission, issued in
February 1998, common equivalent shares which have an anti-dilutive effect on
net earnings (loss) per share are no longer included in computing net earnings
(loss) per share for the periods presented.
The following table summarizes the calculation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Numerator:
Basic and diluted earnings
per share - net income (loss) (655,241) (547,658)
Denominator:
Basic earnings per share -
weighted average number of
common shares outstanding
during the year 2,328,944 1,953,833
Incremental common shares
attributable to assumed
exercise of outstanding
stock options and warrants 328,005 26,275
Denominator for diluted earnings
per share 2,656,949 1,980,108
Basic earnings (loss) per share (.28) (.28)
Diluted earnings (loss) per share (.25) (.28)
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form
10-SB of our report dated November 3, 1999 relating to the financial statements
of Endless Youth Products, Inc.
BECKMAN KIRKLAND & WHITNEY
November 5, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED JUNE 30, 1998 AND
1997 AND THE NINE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 355,434 471
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 355,434 122,229
<PP&E> 18,058 18,058
<DEPRECIATION> 9,548 4,610
<TOTAL-ASSETS> 363,944 135,677
<CURRENT-LIABILITIES> 595,249 301,418
<BONDS> 0 0
0 0
0 0
<COMMON> 3,295 2,017
<OTHER-SE> (234,606) (166,758)
<TOTAL-LIABILITY-AND-EQUITY> 363,944 135,677
<SALES> 5,633,558 211,819
<TOTAL-REVENUES> 5,633,558 211,819
<CGS> 4,527,856 70,059
<TOTAL-COSTS> 5,688,799 751,425
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 (8,392)
<INCOME-PRETAX> (655,241) (547,658)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (655,241) (547,658)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (655,241) (547,658)
<EPS-BASIC> (0.28) (0.28)
<EPS-DILUTED> (0.25) (0.28)
</TABLE>
