SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________.
Commission File Number: 000-26611
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ENDLESS YOUTH PRODUCTS, INC.
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(Exact Name of Registrant as Specified in its Charter)
State of Nevada 93-215736
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Stamford Financial, Stamford Financial Building, Stamford, NY 12167
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(Address of Principal Executive Offices)
(607) 652-3311
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Registrants telephone number
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements by
reference in Part III of this Form 10-KSB or any amendment to the Form 10-KSB.
[X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
State registrant's revenues for its most current fiscal year $680,466
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As of October 12, 2000, the aggregate value of the registrant's voting stock
held by non-affiliates was $1,041,270 (computed by multiplying the last reported
sale price on October 12, 2000 by the number of shares of common stock held by
persons other than officers, directors or by record holders of 10% or more of
the registrant's outstanding common stock. This characterization of officers,
directors and 10% or more beneficial owners as affiliates is for purposes of
computation only and is not an admission for any purposes that such person are
affiliates of the registrant).
At October 12, 2000, 3,304,078 shares of Common Stock were outstanding, which is
the registrant's only class of common stock.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbor created thereby. These forward-looking statements
can generally be identified as such because the context of the statement will
include words such as the Company or we "believe," "anticipate," "estimate,"
"expect" or words of similar import as they relate to us or our management.
Similarly, statements that describe our future plans, objectives or goals are
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties, including those described in the section
captioned "Risk Factors" below.
GENERAL
The historical business of Endless Youth Products, Inc. (the "Company")
was the development, marketing and distribution of proprietary vitamins,
nutritional skin care, personal care and other anti-aging products under the
"Endless Youth" trade name. In June, 2000 the Company's sole officer and
director, Neal Wallach, determined to abandon this business and, together with
EXP International LLC transferred a controlling interest in the Company to the
Sababurg Foundation and several other parties. On June 7, 2000, Edward Shah
became the sole officer and director of the Company filling the vacancy caused
by Mr. Wallach's resignation. At present, management is evaluating possible
future operating activities including selling computer software systems, system
financing and advisory services with special considerations to Internet
technology. The company has had no revenue from operations since June 30, 2000.
The Company was organized by Mr. Wallach to develop and, through
third-party contractors, market and distribute dietary supplements and personal
care precuts. At the time of the change in control, the dietary supplement
business had diminished to the point of being dependent on a licensee to produce
a sequel infomercial for its principal product. At the time the Company planned
to develop an internet "portal" focusing on the needs of aging "baby-boomers."
New management has abandoned this plan.
The Company's products were been sold pursuant to a Company produced
thirty-minute infomercial program through a marketing agreement with Vendor
Services, Inc., a subsidiary of Guthy-Renker Corp.
In connection with distribution of certain nutritional products (the
"Longevity System"), the Company entered into an agreement with Vendor Services,
Inc., a vitamin distribution company that sells infomercial marketed products.
Vendor Services provided marketing and distribution services to the Company in
connection with the showing of the Company's vitamin infomercial program. The
Company 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. Pursuant to an
agreement dated June 28, 1999 and effective as of June 1, 1999, Vendor Services
paid a lump-sum licensing fee for the continued rights to the Longevity System
and the infomercial program subsequent to June 1,
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1999. On September 24, 1999, the Company entered into an Agreement with Vendor
Services that amended the deadline for Vendor Services to commence the testing
of a sequel infomercial to replace the original infomercial for the Longevity
System. The lump-sum licensing fee was payable to the Company for a period
ending on August 1, 2000, the date on which Vendor Services was required to
commence the testing of such sequel program. Vendor Services lost its right to
market these products by not producing a sequel by August 1, 2000.
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. Schulberg Media Works has claimed that it is owed
$175,000 despite former management's claim that no amounts were due to Schulberg
Media for programs produced by Vendor Services. Current management is evaluating
the claim with a view to settlement.
The address of the Company's executive offices is: c/o Stamford
Financial, Stamford Financial Building, Stamford, NY 12167; Telephone: (607)
652-3311. 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. This
plan has been abandoned by current management.
CONTRACTS WITH SUPPLIERS AND MANUFACTURERS
The Company had relationships with several suppliers and manufacturers
of its health products. The Company relied on the Vendor Services, Inc. a
subsidiary 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. However, pursuant to its June 28, 1999 agreement with
Vendor Services, the Company has already received a final payment for all past
and future sales and services made under the agreement.
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.
PRODUCT LIABILITY
Although the Company did not engage in the actual manufacture of any of
the products that it marketed and distributed, the Company may be subjected to
various product liability claims, including among other things that its products
contained contaminants or include inadequate instructions as to use or
inadequate warnings concerning side effects and interactions with other
substances. Although the Company had obtained product liability insurance that
it believes is
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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.
EMPLOYEES
As of June 30, 2000, the Company had no full-time employees. It's sole
director and executive officer serves on a part-time basis without compensation.
RISK FACTORS
An investment in the Company involves a high degree of risk. You should consider
an investment in the Company only if you can afford to lose your entire
investment. In addition to the other information in this report, the following
risk factors should be considered carefully in evaluating an investment in our
common stock. When used in this report, the words "expect," "anticipates,"
"intends" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. These risks and
uncertainties include, but are not limited to, those risks discussed below and
elsewhere in this report. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors
discussed below and elsewhere in the report.
We are Developing and Plan to Implement a New Business Plan and We Anticipate
Operating Losses in the Near Term
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We have little meaningful operating history upon which an evaluation of
our prospective business and its prospects can be based. Because we are
developing and plan to implement a new business plan, the Company's business and
it's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stages of
development. In the foreseeable future, we will be required to among other
things:
o attract, retain and motivate qualified personnel;
o implement and successfully execute our business strategy;
o respond to competitive developments;
o develop and market products and services.
There can be no assurance that we will be successful in addressing
these business requirements. In addition, prior operating history in the
nutritional field makes the prediction of future overall results difficult or
impossible. We expect to incur substantial expenses related to the development
of our business, marketing activities and personnel, among other things. We
expect to incur net operating losses in the foreseeable future. There can be no
assurance that we will be able to achieve and maintain profitability.
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We are Uncertain Whether the Market Will Accept our Product and Service
Offerings and the Size of the Market for our Products and Services is Unknown
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There can be no assurance that our planned products and services will
attain market acceptance. In addition, we cannot guaranty that future products
and services will. Because the market for information technology and
hardware/software finance which we plan to offer is constantly changing, we are
unable to accurately estimate the commercial viability and market demand for the
range of products and services to be offered by us. We can give no assurance
that the market will in fact grow at the rates projected by us, or at all. We
will be required to invest substantial resources in developing awareness of and
confidence in our services and there can be no assurance that we will have the
resources necessary to be successful.
Our Success Depends on Recruiting Key Executives
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Our business depends on our being able to recruit technical employees
and managers.
Our Business Could be Hurt By Competition
-----------------------------------------
We will compete with services providers and other vendors. In addition,
the market for the services we propose to offer is highly competitive and
competition is expected to increase significantly. There are no effective
barriers that will prevent a potential competitor from entering the market. Many
of our competitors have greater financial, development, technical, marketing and
sales resources than we have and would have greater expertise and established
brand recognition. In addition, there can be no assurance that our competitors
will not develop products and services that are superior to our products and
services or that achieve greater market acceptance than our products and
services.
Risk of Inaccuracy of Projections and other Forward-Looking Statements
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This report contains certain forward-looking statements, including,
among others:
o Our ability to execute our business strategies and generate
revenues from our planned operations; and
o Our ability to finance future growth and possible acquisitions
through the issuance of shares of our common stock.
These forward-looking statements are based upon a number of assumptions
and estimates that, while considered reasonable by us when taken as a whole, are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond our control, and are
based upon specific assumptions with respect to future business decisions, many
of which will change. It can be anticipated that some or all of the assumptions
underlying the projections and forward-looking statements included herein will
not materialize or will vary significantly from actual results. Accordingly, it
can be expected that actual results will vary from the projections and that such
variations, in all likelihood, will be material and are likely to increase over
time.
In addition to the other risks described elsewhere in this Risk Factors
discussion, important factors to consider and evaluate in such forward-looking
statements include:
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o changes in the external competitive market factors or in our
internal budgeting process which might impact our results of
operations;
o unanticipated working capital or other cash requirements; and
o changes in our business strategy or an inability to execute
our strategy due to unanticipated changes in our targeted
market.
In light of these risks and uncertainties, many of which are described
in greater detail elsewhere in this "Risk Factors" discussion, we cannot give
assurance that the forward-looking statements contained in this report will in
fact transpire.
No History of Operations
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Our proposed operations are subject to the risks and competition
inherent in the establishment of a relatively new business enterprise in a
competitive field of information technology start-up companies. There can be no
assurance that future operations will be profitable. Revenues and profits, if
any, will depend upon various factors, including market acceptance, market
awareness, ability to develop and expand a network of participating hardware and
software suppliers, dependability of our advertising and recruiting network, and
general economic conditions. There is no assurance that we will achieve our
expansion goals.
Adverse Economic Conditions or a Change in General Market Patterns
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A weak economic environment could adversely affect our sales and
promotional efforts. General economic conditions impact information technology
and related commerce and demand and interest for our services may decline at any
time, especially during recessionary periods. Many factors beyond our control
may decrease overall demand for information technology services including, among
other things, decrease in the entry costs by other similarly situated companies,
increase in the overall unemployment rate, additional government regulation.
There can be no assurance that the general market demand for information
technology services and related fields will remain the same or will not decrease
in the future.
Reliance on Future Acquisitions Strategy
----------------------------------------
We expect to rely on acquisitions as a primary component of its growth
strategy. We regularly engage in evaluations of potential target candidates,
including evaluations relating to acquisitions that may be material in size
and/or scope. There is no assurance that we will be able to identify potentially
successful companies that provide suitable acquisition opportunities or that we
will be able to acquire any such companies on favorable terms. Also,
acquisitions involve a number of special risks including the diversion of
management's attention, assimilation of the personnel and operations of the
acquired companies, possible loss of key employees. There is no assurance that
the acquired companies will be able to successfully integrate into our
developing infrastructure or to operate profitably. There is also no assurance
given as to our ability to obtain adequate funding to complete any contemplated
acquisition or that such acquisition will not ultimately have an adverse effect
on our business and operations.
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Competition From Larger and More Established Companies May Hamper Market Ability
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The competition in the information technology industry is intense.
Large and highly fragmented, this industry hosts a number of well-established
competitors, including national, regional and local companies possessing greater
financial, marketing, personnel and other resources than we have.
Failure to Attract Qualified Personnel
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A change in labor market conditions that either further reduces the
availability of employees or increases significantly the cost of labor could
have a material adverse effect on our proposed business, financial condition and
results of operations. Our proposed business will be dependent upon our ability
to attract and retain highly trained and qualified technical personnel and
corporate management. There is no assurance that we will be able to employ a
sufficient number of qualified training personnel in order to achieve our growth
objectives.
Issuance of Future Shares May Dilute Investor Share Value
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Our Certificate of Incorporation, as amended, authorizes the issuance
of 10,000,000 shares of common stock and 1,000,000 shares of preferred stock.
The future issuance of all or part of the remaining authorized common stock
and/or all or part of the preferred stock may result in substantial dilution in
the percentage of our common stock held by our then existing shareholders.
Moreover, any common stock issued in the future may be valued on an arbitrary
basis by us in order to make an acquisition of an intangible asset. The issuance
of our shares for future services or acquisitions or other corporate actions may
have the effect of diluting the value of the shares held by investors, and might
have an adverse effect on any trading market, should a trading market develop
for our common stock.
Penny Stock Regulation
----------------------
Penny stocks generally are equity securities with a price of less than
$5.00 per share other than securities registered on certain national securities
exchanges or quoted on the Nasdaq Stock Market, provided that current price and
volume information with respect to transactions in such securities is provided
by the exchange or system. Our securities may be subject to "penny stock rules"
that impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
"penny stock rules" require the delivery, prior to the transaction, of a
disclosure schedule prescribed by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Consequently, the "penny
stock rules" may restrict the ability of broker-dealers to sell our securities.
The foregoing required penny stock restrictions will not apply to our securities
if such securities maintain a market price of $5.00 or greater. There can be no
assurance that the price of our securities will reach or maintain such a level.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently maintains a temporary office c/o Stamford
Financial, Stamford Financial Building, Stamford, NY 12167.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently party to any legal proceeding, however,
Schulberg Media Works has claimed that it is owed $175,000 despite former
management's claim that no amounts were due to Schulberg Media for programs
produced by Vendor Services. Current management is evaluating the claim with a
view to settlement. Management does not believe that the Company will have
liability for such claim beyond that which it has accrued.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. 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.
QUARTER ENDED HIGH BID LOW BID
March 31, 1998 .625 .25
June 30, 1998 1.25 .50
September 31, 1998 1.25 .50
December 31, 1998 .625 .425
March 31, 1999 2.25 1.00
June 30, 1999 .75 .50
September 30, 1999 1.75 .30
December 30, 1999 .51 .1563
March 31, 2000 no data no data
June 30, 2000 .625 .0625
As of October 12, 2000 there were 100 holders of record of the
Company's common stock. We believe that there are in excess of 300 beneficial
owners of our shares.
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.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
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-QSB commencing on page
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 financial statements for
the years ending June 30, 1999 and 2000. The financial statements have been
prepared in conformity with generally accepted accounting principles.
Results of Operations
Net Sales. Net sales for the year ended June 30, 2000 decreased by $4,353,092
compared to the year ended June 30, 1999. Revenues primarily consist of license
fees for the year ended June 30, 2000 and sales from nationwide rollout of the
company's product for the year ended June 30, 1999. The Company has abandoned
its nutritional business and is developing a plan to engage in information
technology consulting and procurement. The Company does not anticipate any
further revenues from the nutritional business and revenues from it's proposed
new business may not develop for a significant period of time.
Cost of Sales. Cost of sales for the year ended June 30, 2000 decreased by
$4,527,856. Cost of sales decreased because the Company had no product sales
during the year ended June 30, 2000. Revenues generated during the year
primarily from license fees.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $458,473 during the year ended June 30,
2000 compared to the year ended June 30, 1999. This decrease was primarily due
to decreased sales activity, expenses related to product development and
marketing. 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 negative working capital and equity, management
believes it will be able to obtain sufficient financing to fund the Company's
operations and capital requirements for the 2001 fiscal year. Management plans
to keep monthly expenses at a minimal until cash flows from operations improve.
Forward Looking Statements
This report on Form 10-QSB contains certain forward-looking statements within
the meaning of section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements relate to matters such as the Company's future
operation results and liquidity. Such forward-looking statements are based on
the beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. Such statements are
based on management's
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current expectations and are subject to certain risks, uncertainties and
assumptions. Should one or more risks or uncertainties materialize, or should
underlying assumptions prove incorrect, the Company's actual results,
performance or achievements could differ materially from those expressed in, or
implied by such forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS
See financial statement annexed hereto.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT.
Information with respect to executive officers and directors of the
Company will be set forth in the Company's definitive proxy statement which is
expected to be filed within 120 days of June 30, 2000 and is incorporated herein
by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information with respect to executive compensation will be set forth in
the Company's definitive proxy statement which is expected to be filed within
120 days of June 30, 2000 and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to the ownership of the Company's securities
by certain persons will be set forth in the Company's definitive proxy statement
which is expected to be filed within 120 days of June 30, 2000 and is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to transactions with management and others
will be set forth in the Company's definitive proxy statement which is expected
to be filed within 120 days of June 30, 2000 and is incorporated herein by
reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
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.
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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.
10.16* General Mutual Release and Settlement Agreement, dated July 7,
1999, between the Company and Sun Ten Laboratories.
11.1* Statement re: calculation of per-share earnings.
27.1 Financial Data Schedule.
*Previously filed as an exhibit to this Form 10-SB.
(b) Reports on Form 8-K
Form 8-K report dated June 7, 2000.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ENDLESS YOUTH PRODUCTS, INC.
Date: October 13, 2000 By: /s/ Edward Shah
------------------------------------
Edward Shah, Chief Executive Officer
and Sole Director
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INDEPENDENT AUDITORS' REPORT
September 25, 2000
Board of Directors and Shareholders
Endless Youth Products, Inc.
Samford, New York
We have audited the accompanying balance sheets of Endless Youth Products, Inc.
as of June 30, 2000 and 1999, and the related statements of operations,
shareholders' 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 audits.
We conducted our audits 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 audits provide 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, 2000 and 1999, and the results of operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
had net income of $112,000 for the year ended June 30, 2000, however, as of June
30, 2000 the Company had a working capital deficiency of $117,000 and a
shareholders deficit of $117,000.
/s/ Beckman, Kirkland & Whitney
Beckman, Kirkland & Whitney
Agoura Hills, California
F-1
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<TABLE>
<CAPTION>
ENDLESS YOUTH PRODUCTS, INC.
BALANCE SHEETS
June 30, June 30,
ASSETS 2000 1999
---- ----
CURRENT ASSETS
<S> <C> <C>
Cash $ 165 $ 355,434
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TOTAL CURRENT ASSETS 165 355,434
Property and Equipment
net of accumulated depreciation (Notes 1 & 3) 0 8,510
--------------- ---------------
TOTAL ASSETS $ 165 $ 363,944
=============== ===============
LIABILITIES AND SHAREHOLDERS'
(DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 117,388 $ 236,528
Deferred Revenue (Note 5) 0 283,333
Advances from shareholders (Note 7) 0 75,388
--------------- ---------------
TOTAL LIABILITIES 117,388 595,249
SHAREHOLDERS' DEFICIT
Common stock, $.001 par value.
Authorized 10,000,000 shares; issued
and outstanding 3,306,878 at
June 30, 2000 and 3,295,708 at
June 30, 1999, respectively (Note 8) 3,306 3,295
Preferred stock, $.001 par value.
Authorized 1,000,000; 0 shares issued
and outstanding at June 30, 2000 and
June 30, 1999 - -
Additional paid-in capital 1,543,358 1,541,280
Accumulated deficit (1,663,887) (1,775,880)
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Total shareholders' Deficit (117,223) (231,305)
--------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDER'S DEFICIT $ 165 $ 363,944
=============== ===============
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
ENDLESS YOUTH PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
For the years ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
---- ----
<S> <C> <C>
NET INCOME (LOSS) $ 111,993 $ (655,241)
Adjustments to reconcile net income to net cash
provided by operating activites:
Depreciation & Amortization 3,200 4,939
Loss on disposal of equipment 5,310
Increase (Decrease) in prepaid advertising 0 121,758
Increase (Decrease) in deferred revenue (283,333) 283,333
Increase (Decrease) in accounts payable (119,140) 32,221
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (281,970) (212,990)
-------------- --------------
CASH FLOW FROM FINANCING ACTIVITES
Proceeds from issuance of common stock 2,089 589,678
Advances from (Repayments to) shareholders (75,388) (21,725)
-------------- --------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (73,299) 567,953
-------------- --------------
NET CHANGE IN CASH (355,269) 354,963
CASH AT BEGINNING OF YEAR 355,434 471
-------------- --------------
CASH AT END OF YEAR $ 165 $ 355,434
============== ==============
Interest expense paid during the period was: 0 0
Income taxes paid during the period was: 0 0
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
ENDLESS YOUTH PRODUCTS, INC.
STATEMENTS OF OPERATIONS
For the years ended
June 30,
2000 1999
----------------- -------------------
<S> <C> <C>
Gross Receipts 680,466 6,578,259
Less: Returns and allowances 0 1,544,701
----------------- -------------------
Net Sales 680,466 5,033,558
Cost of Sales 0 4,527,856
----------------- -------------------
Gross Profit 680,466 505,702
Selling, General and Administrative
Expenses 702,470 1,160,943
----------------- -------------------
Income (Loss) from Operations (22,004) (655,241)
Other Income and (Expenses)
Interest Income 9,306 0
Other Income (Note 6) 130,000 0
Interest Expense (5,309)
----------------- -------------------
Income (Loss) before income taxes 111,993 (655,241)
Provision for income taxes - (Note 4) 0 0
----------------- -------------------
Net income (Loss) $ 111,993 $ (655,241)
================= ===================
Loss per share amounts:
Basic:
Net income (loss) $ 0.03 $ (0.28)
Diluted:
Net income (loss) n/a n\a
Weighted average common and
common equivalent shares:
Basic 3,302,224 2,328,944
================= ===================
Diluted n/a n\a
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
ENDLESS YOUTH PRODUCTS, INC.
STATEMENTS OF SHAREHOLERS' DEFICIT
Additional Accumu- Net
Common Stock paid in lated Shareholders'
Shares Amount Capital Deficit Deficit
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
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 Income for Period (655,241) (655,241)
--------- ------ --------- ------------ ---------
Balance at June 30, 1999 3,295,708 $3,295 $ 1,541,280 $ (1,775,880) $(231,305)
Stock issued for services 11,170 11 2,078 2,089
Net Income for Period 111,993 111,993
--------- ------ --------- ------------ ---------
Balance at June 30, 2000 3,306,878 $3,306 $ 1,543,358 $ (1,663,887) $(117,223)
========= ====== =========== ============ =========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
ENDLESS YOUTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
-----------
Endless Youth Products, Inc., (the Company) was incorporated July of 1996 in the
State of Nevada. The Company is engaged 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
has not had any revenues from these operations since June 2000. The Company's
management is currently evaluating possible future operating activities
including selling computer software systems and advisory services with special
consideration to Internet technology.
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. Since its inception in 1996 the Company has incurred
substantial development stage and operating losses. The Company's management has
reduced operating expenses and is currently evaluating future operating
activities to improve cash flow. The Company had net income of $112,000 for the
year ended June 30, 2000, however, as of June 30, 2000 the Company had a working
capital deficiency of $117,000 and a shareholder's deficit of $117,000. The
Company's financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
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:
Furniture and Fixtures 7 years
Computer Equipment 5 years
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.
F-6
<PAGE>
ENDLESS YOUTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
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.
F-7
<PAGE>
ENDLESS YOUTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The following table summarized the calculation of basic and diluted earnings per
share for the years ended June 30,
2000 1999
---- ----
Numerator:
Basic and diluted earnings per share -
net income (loss) $ 111,993 $ (655,241)
Denominator:
Basic earnings per share - weighted average number
of common shares outstanding during the period 3,302,224 2,328,944
Incremental common shares attributable to
assumed exercise of options and warrants N/A N/A
Denominator for diluted earnings per share N/A N/A
Basic earnings per share $ 0.03 $ (0.28)
Diluted earnings per share N/A N/A
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 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 shares are granted. Options
and warrants issued for outside services are accounted for under SFAS 123 using
the Black-Scholes option-pricing model.
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 response advertising costs have been
fully amortized. Amortization expense was $121,758 for the year ended June 30,
1999.
F-8
<PAGE>
ENDLESS YOUTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consist of the following at:
June 30, June 30,
2000 1999
---- ----
Furniture and Fixtures $ - $ 2,986
Computer Equipment - 15,072
less: Accumulated Depreciation - (9,548)
----------- ------------
$ - $ 8,510
=========== ============
Depreciation expense charged to operations was $3,200 and $4,939 for years ended
June 30, 2000 and 1999.
NOTE 4 - INCOME TAXES
There is no current or deferred income tax expense for the year ended June 30,
2000 and 1999. As of June 30, 2000, the Company has net operating loss
carryforwards of $1,363,514. 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. As of June 30, 2000 the Company has recorded a deferred tax asset of
$463,595 with a valuation allowance of $463,595.
The following reconciles the federal statutory income tax rate to the effective
rate of the provision for income taxes.
June 30, 2000 June 30, 1999
------------- -------------
Federal Statuatory rate 34 % 34 %
Valuation allowance adjustment (34) % (34) %
------------- -------------
Effective rate 0 % 0 %
============= =============
F-9
<PAGE>
ENDLESS YOUTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
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. In September 1999 the agreement was amended, the
company recognized revenue from this agreement over a thirteen month period
commencing in June of 1999.
NOTE 6 - OTHER INCOME
The Company received $130,000 in July of 1999 as settlement for damages incurred
from the faulty manufacturing of the Company's product.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company had a license agreement with one of its shareholders that was also a
director and an officer until June of 2000. Under the terms of the agreement,
the Company retained 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. This license agreement was cancelled in May of 2000
The Company had advances from various shareholders of $0 and $75,388 as of June
30, 2000, and June 30, 1999, 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 8 - SHAREHOLDERS' EQUITY
During the years ended June 30, 2000 and June 30, 1999 the Company issued 11,170
and 1,045,763 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 $2,078 and $421,207 for the
years ended June 30, 2000 and June 30, 1999, respectively, representing the
excess fair market value of the services over the par value of the common stock.
The company had 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, 1999, 200,000 incentive stock options were
granted which vest at 40,000 per year. As of June 30, 1999, 240,000 incentive
stock options were outstanding with an exercise price between $.625 and $1.50.
These options were cancelled in May of 2000.
During the year ended June 30, 1999 the Company granted 90,000 non-qualified
options with immediate vesting. There were no non-qualified options granted for
the year ended June 30, 2000.
F-10
<PAGE>
ENDLESS YOUTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
NOTE 8 SHAREHOLDERS' EQUITY (continued)
The Company issued warrants to purchase 0 and 250,501 shares of common stock to
outside consultants during the years ended June 30, 2000 and June 30, 1999,
respectively. The exercise price of the warrants range from $.625 to $2.50 per
share and expire between April 2000 and March 2003.
Changes in the status of options are summarized as follows for the fiscal years
ended June 30:
2000 1999
---- ----
Outstanding at beginnings of year 480,000 350,000
Granted - 290,000
Exercised - (160,000)
Expired - -
Cancelled (410,000) -
----------------- ------------------
Outstanding at end of year 70,000 480,000
================= ==================
================= ==================
Exercisable at end of year 70,000 120,000
================= ==================
Price range of options:
Outstanding at end of year $.625 - $2.50 $.625 - $4.50
Changes in the status of warrants are summarized as follows for the fiscal years
ended June 30:
2000 1999
---- ----
Outstanding at beginnings of year 383,867 205,200
Granted - 250,501
Exercised - (69,834)
Expired (123,867) (2,000)
Cancelled (193,000)
-------------- -------------
Outstanding at end of year 67,000 383,867
============== =============
The Company applies APB 25 in accounting for its employee 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. The Company applies
SFAS 123 for options and warrants issued for outside services. Compensation cost
is measured at the grant date based on the value of the award and is recognized
over the service (or vesting) period.
F-11
<PAGE>
ENDLESS YOUTH PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
NOTE 8 SHAREHOLDERS' EQUITY (continued)
Had compensation cost for Company's employee 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 at June 30:
2000 1999
---- ----
Net earnings
As reported $ 111,993 $(655,241)
Pro forma $ 111,993 $(685,787)
Net earnings per share
As reported $ 0.03 $ (0.28)
Pro forma $ 0.03 $ (0.29)
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, 2000 and 1999, 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 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. The Company has not experienced any problems relating to year
2000 compliance.
F-12
