<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1999
Commission File Number: 333-71949
YOUNETWORK CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-399035
-------- ---------
(State of Incorporation) (I.R.S. Employer Identification No.)
220 East 23rd Street New York, New York 10010
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(Address of principal executive offices) (Zip Code)
(212) 576-2030
--------------
(Registrant's telephone number, including area code)
Check mark whether the issuer: (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
As of August 26, 1999, a total of 41,160,325 shares of the Registrants Common
Stock, $.0001 par value, were issued and outstanding.
<PAGE>
YOUNETWORK CORPORATION
FORM 10-QSB
INDEX
PART 1: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 - Financial statements
<S> <C>
Balance Sheets - December 31, 1998 and June 30, 1999 (Unaudited) 2-3
Statements of Operations for the Three Months Ended June 30, 1999 and 1998 (Unaudited),
the Six Months Ended June 30, 1999 and 1998 (Unaudited), and for the Period from
Inception (January 14, 1998) to June 30, 1999 (Unaudited) 4
Statement of Changes in Stockholders' Equity for the Period from Inception (January 14,
1998) to December 31, 1998 and the Six Months Ended June 30, 1999 (Unaudited) 5
Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 (Unaudited),
and for the Period from Inception (January 14, 1998) to June 30, 1999 (Unaudited) 6-7
Notes to Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Part II. Other Information
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
YOUNETWORK CORPORATION
(A Development Stage Company)
Balance Sheets
ASSETS
------ December 31, June 30,
1998 1999
------------ -----------
(Audited) (Unaudited)
Current assets:
Cash $ 178,068 $ 618,917
Due from stockholder - 23,862
Other current assets 672 -
----------- ------------
Total current assets 178,740 642,779
Property and equipment, net 47,369 97,097
Other assets:
Software development costs 69,425 410,010
Deferred registration costs - 175,740
Prepaid software license - 247,753
Deposits 3,500 138,831
----------- ------------
Total other assets 72,925 972,334
----------- ------------
$ 299,034 $ 1,712,210
=========== ============
2
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Balance Sheets (Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Audited) (Unaudited)
<S> <C> <C>
Current liabilities:
Deferred revenue $ 175,000 $ 175,000
Current portion of capital lease obligation 14,000 14,789
Due to related party 23,150 -
Accounts payable 9,224 291,255
Other current liabilities 14,729 11,263
----------- ------------
Total current liabilities 236,103 492,307
Capital lease obligation 25,554 17,957
Commitment
Stockholders' equity:
Common stock:
Class A - par value $.0001 per share:
Authorized - 1,500,000 shares
No shares issued and outstanding - -
Class B - par value $.0001 per share:
Authorized - 1,500,000 shares
No shares issued and outstanding - -
Class C - par value $.0001 per share:
Authorized - 247,000,000 shares
Issued and outstanding - 33,000,000 shares at
December 31, 1998 and 41,159,452 shares at
June 30, 1999 3,300 4,116
Additional paid-in capital 196,900 1,684,084
Deficit accumulated during the development stage (162,823) (486,254)
----------- ------------
Total stockholders' equity 37,377 1,201,946
----------- ------------
$ 299,034 $ 1,712,210
=========== ============
</TABLE>
3
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the
Period from
Inception
Three Months Ended Six Months Ended (January 14,
June 30, June 30, 1998)
---------------------- ------------------------- to June 30,
1999 1998 1999 1998 1999
---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 540 $ - $ 540 $ - $ 540
Expenses:
Compensation 66,620 22,724 91,474 22,724 158,725
Development costs - 20,000 - 20,000 20,000
General and administrative 163,246 19,603 223,618 19,603 289,707
Depreciation and amortization 9,502 419 13,902 419 21,410
Interest income, net of interest
expense (6,086) - (5,023) - (3,048)
---------- ---------- ---------- ---------- ----------
Total expenses 233,282 62,746 323,971 62,746 486,794
---------- ---------- ---------- ---------- ----------
Net loss during the development
stage $(232,742) $(62,746) $(323,431) $ (62,746) $ (486,254)
========== ========== ========== ========== ==========
Net loss per common share, basic
and diluted $ (0.01) $ - $ (0.01) $ - $ (0.02)
========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding,
basic and diluted 40,753,957 24,090,000 37,889,839 24,090,000 29,322,037
========== ========== ========== ========== ==========
</TABLE>
4
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statement of Changes in Stockholders' Equity For the
Period from Inception (January 14, 1998) to December 31, 1998
and the Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
--------------------------- Additional During the
Paid-In Development
Shares Amount Capital Stage Total
------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of 24,090,000 shares of
common stock on January 22,
1998 for cash (at less than
$.01 per share) 24,090,000 $ 2,409 $ (2,209) $ - $ 200
Issuance of 8,910,000 shares of
common stock on December 4,
1998 for cash (at $.02 per share) 8,910,000 891 199,109 - 200,000
Net loss for the period from
inception (January 14, 1998)
to December 31, 1998 - - - (162,823) (162,823)
---------- ------- ---------- --------- ----------
Balances, at December 31, 1998 33,000,000 3,300 196,900 (162,823) 37,377
Issuance of 4,630,000 shares of
common stock on March 22,
1999 for cash (at $.10 per share) 4,630,000 463 462,537 - 463,000
Exercise of common stock purchase
warrants for no cash proceeds in
accordance with anti-dilutive
provisions 1,479,452 148 (148) - -
Issuance of 2,050,000 shares of
common stock on April 19, 1999
for cash (at $.50 per share) 2,050,000 205 1,024,795 - 1,025,000
Net loss for the six months ended
June 30, 1999 - - - (323,431) (323,431)
---------- ------- ---------- --------- ----------
Balances, June 30, 1999 41,159,452 $ 4,116 $1,684,084 $(486,254) $1,201,946
========== ======= ========== ========= ==========
</TABLE>
5
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Period
from Inception
For the Six For the Six (January 14,
Months Ended Months Ended 1998) to
June 30, 1999 June 30, 1998 June 30, 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss during the development stage $ (323,431) $(62,746) $ (486,254)
Adjustments to reconcile net loss during the
development stage to net cash provided by
(used in) operating activities:
Depreciation and amortization 13,902 419 21,410
Change in assets and liabilities:
Prepaid software license (247,753) - (247,753)
Due from stockholder (23,862) - (23,862)
Other current assets 672 (160) -
Deferred revenue - 100,000 175,000
Due to related party (23,150) - -
Accounts payable 282,031 4,757 291,255
Other current liabilities (3,466) 6,845 11,263
---------- -------- ----------
Net cash provided by (used in)
operating activities (325,057) 49,115 (258,941)
---------- -------- ----------
Cash flows from investing activities:
Purchase of property and equipment (63,630) (7,549) (73,557)
Software development costs (340,585) (24,775) (410,010)
Payment of security deposit (135,331) (3,500) (138,831)
---------- -------- ----------
Cash used in investing activities (539,546) (35,824) (622,398)
---------- -------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,488,000 200 1,688,200
Deferred registration costs (175,740) - (175,740)
Payments of capital lease obligation (6,808) - (12,204)
---------- -------- ----------
Net cash provided by financing
activities 1,305,452 200 1,500,256
---------- -------- ----------
Net increase in cash 440,849 13,491 618,917
Cash, beginning of period 178,068 - -
---------- -------- ----------
Cash, end of period $ 618,917 $ 13,491 $ 618,917
========== ======== ==========
</TABLE>
6
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Cash Flows (Concluded)
(Unaudited)
Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
For the Period
from Inception
For the Six For the Six (January 14,
Months Ended Months Ended 1998) to
June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- ---------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $ 2,021 $ - $ 3,996
=========== ========== ==========
Supplemental Schedule of Non-Cash Investing and Financing Activities
Capital lease obligation incurred for the
acquisition of new equipment $ - $ - $ 44,950
=========== ========== ==========
</TABLE>
In March 1999, common stock purchase warrants were exercised and the Company
issued 1,479,462 of Class C common stock for no cash proceeds.
7
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
ITEM 1. NOTES TO FINANCIAL STATEMENTS
Note 1 - The accompanying financial statements of YouNetwork Corporation (the
"Company") have been prepared in accordance with generally accepted accounting
principles and, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary to fairly present the
Company's financial position at June 30, 1999 and its results of operations,
changes in stockholders' equity and cash flows for the interim periods
presented. The accounting policies and other information followed by the Company
are contained in the notes to the Company's annual financial statements and are
included in the Company's registration statement (see Note 2) on Form SB-2 and
are incorporated herein by reference. This quarterly report should be read in
conjunction with such annual report.
Note 2 - During 1999, the Company filed a registration statement under the
Securities Act of 1933 to register 1,000,000 shares each of Class A and Class B
common stock. The first 250,000 Class A shares will be offered at no cost to
each consumer who registers to become a member of the Company's consumer
network. The remaining 750,000 Class A shares will be distributed to members
based upon referring new members to the consumer network. Class B shares will be
offered to consumer network members at $1.00 per share, which may only be paid
with rebates earned by members making purchases on the consumer network.
Upon the issuance of Class A shares, the Company will record a charge
to operations for promotions costs for the value of the shares issued based on
the most recent private offering. Upon the issuance of Class B shares, the
Company will record a reduction in the liability for rebates due to members of
the consumer network. A liability for rebates due to members and a corresponding
charge to cost of goods sold are recorded when members make purchases on the
consumer network.
On July 13, 1999, the aforementioned registration statement became
effective.
Note 3 - In May 1999, the Company received a software license from a supplier
for a period of one year. License fees of approximately $270,000 related to the
agreement will be charged to operations over twelve months.
Note 4 - In May 1999, the Company entered into an agreement with a leasing
company to provide the Company with a $600,000 line of credit to finance
computers and other equipment. As of June 30, 1999, the Company had paid
approximately $138,000 for security deposits to the leasing company.
8
<PAGE>
ITEM 2: PLAN OF OPERATION.
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and the notes thereto. Certain statements set forth below constitute
"forward-looking statements." Forward-looking statements involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, performance or achievements, or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Given these uncertainties, investors
and prospective investors are cautioned not to place undue reliance on
forward-looking statements. We disclaim any obligation to update information
contained in any forward-looking statement.
OVERVIEW.
We are a development stage company, which launched a unique online
consumer network. Our consumer network offers a broad range of consumer products
and services through our website, www. YouNetwork.com. On July 20, 1999, we
commenced offering products or services for sale. Since our inception we have
been primarily engaged in the development of our computer software programs,
negotiating agreements with our vendors, raising capital, and initial planning
and development of the our website and operations. As a result, there has not
been any significant operating revenue generated by utilization of our services
or products through December 31, 1998, and the six months ended, June 30, 1999.
For the period from inception through June 30, 1999, the Company has incurred
cumulative losses of $486,254.
During the first quarter of 1999, our efforts were focused on the
preparation and completion of a registration statement on Form SB-2 filed with
the Securities and Exchange Commission on February 5, 1999. Pursuant to our
registration statement, we registered 2,000,000 shares of our common stock. This
initial public offering was declared effective by the SEC on July 13, 1999. We
raised no proceeds from this offering. One class A share is offered at no cost
to each of the first 250,000 members. The remaining 750,000 class A shares will
be offered to our members based on net value, a proprietary referral tracking
technology developed by us. Our class B shares is offered at the rate of one
share for each $1.00 of a member's rebate balance. We will receive an indirect
economic benefit from the sale of our class B shares to the extent that our
obligation to pay rebate dollars to our members is reduced.
YouNetwork plans to raise its membership base through its unique
offering of 1,000,000 Class A shares and 1,000,000 Class B shares, which are
currently offered for sale on our website. The first 250,000 people who register
on our website shall receive one Class A share at no cost. The remaining 750,000
Class A shares shall be distributed to our new member through net value, which
we define as one point for each five referrals a member refers to our website
who joins YouNetwork. Class B shares are offered and sold based on one rebate
dollar for each Class B share. A rebate dollar is accumulated in a members
rebate balance through the purchase of products and services on our website.
9
<PAGE>
We have historically financed our operations primarily through the sale
of equity securities.
As of June 30, 1999, our principal commitments consisted of obligations
outstanding under operating and capital leases. Although we have no material
commitments for capital expenditures, we anticipate a substantial increase in
our capital expenditures and lease commitments consistent with anticipated
growth in operations, infrastructure and personnel.
Our capital requirements depend on numerous factors, including, market
acceptance of our services, the amount of resources we devote to investments in
our electronic commerce networks, the resources we devote to marketing and
selling our services and our brand promotions and other factors. We have
experienced a substantial increase in our capital expenditures since our
inception consistent with the growth in our operations and staffing; we
anticipate that this will continue for the foreseeable future particularly
relating to our website and systems infrastructure.
On May 26, 1999, we entered into a master lease agreement with Leasing
Technologies, Inc., in which we leased computers, servers and other hardware.
The term of the agreement shall commence on the installation date of such
equipment for a term of 36 months.
In March and April of 1999, we sold 6,680,000 shares of our class C
common stock resulting in proceeds of $1,488,000. Proceeds from the private
placement are being used for salaries and fees, network expansion, equipment
upgrades, and development costs in connection with our proprietary software,
tracking.
In March of 1999, we issued warrants to a consultant to purchase 100,000
shares of class C common stock in consideration of certain services to be
rendered in the form of graphic design of our website. The rights represented by
this warrant are exercisable at any time commencing on March 31, 1999, and
expiring on March 1, 2000, at an exercise price of $2.00 per share provided,
however, that if the warrant is exercised after our first underwriting public
offer of our common stock, the exercise price shall be the lesser of $2.00 or
50% of the offering price for which our common stock is sold in our first
underwritten public offering, subject to adjustment in accordance with its
anti-dilution provision. After the expiration of the exercise period, the
consultant will have no right to purchase any shares of the common stock
underlying this warrant.
In May of 1999, we issued warrants to purchase a maximum of 144,000
shares to a leasing company in partial consideration for entering into an
equipment leasing agreement for $600,000 line of credit to finance computers and
other equipment. The warrants are exercisable during the five-year period
commencing May 23, 1999, at the exercise price of $.50 per share. The shares of
common stock underlying the warrants contain piggyback registration rights.
10
<PAGE>
In August of 1999, we granted approximately 80,000 stock options
("Options") under our 1999 Stock Option Plan to several employees and one
professional in consideration of services rendered. The Options do not vest
until December 31, 1999, and are exercisable during the 1999 year period
commencing December 31, 1999, at an exercise price of $0.35 per share.
We believe that our current cash will be sufficient to meet our
anticipated needs for working capital, capital expenditures and business
expansion for the next 6 months. After 6 months, if cash generated from
operations is insufficient to satisfy our liquidity requirements, we may seek to
sell additional equity or debt securities or to obtain a credit facility. The
sale of additional equity or convertible debt securities could result in
additional dilution to our stockholders. There can be no assurance that
financing will be available in amounts or on terms acceptable to us, if at all.
PRODUCT RESEARCH AND DEVELOPMENT.
International Computing, LLC, formerly known as Digital Pulp
Technologies, LLC, provides software and system integration consultation
services in connection with our efforts to build out our website and to develop
our proprietary tracking technology. For the period from inception through
December 31, 1998, we paid International Computing $89,425 for such consulting
services. In March 1999, we entered into an oral agreement with International
Computing to continue to provide software and systems integration consultation
services to us, which will be paid $50,000 per month for such services through
completion of the proprietary software development.
Since its inception, YouNetwork has been primarily engaged in the
development of its computer software program, negotiating agreements with its
vendors and raising capital. As a consequence, there has not been any operating
revenue generated by the utilization of our services and/or products since
inception. Management believes that by offering competitively priced products,
purchase incentives in the form of rebates and equity participation to members,
they can develop an on-line sales channel with low customer acquisition costs.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessing to organize and properly address certain fields containing a
two-digit year is commonly referred to as the Year 2000 problem. As the year
2000 approaches, computer systems may be unable to accurately process certain
date-based information.
We have implemented a Year 2000 program to ensure that our computer
systems and applications will function properly beyond 1999. We have identified
vendor and business partner software with which we electronically interact, or
from which we purchase supplies,
11
<PAGE>
and have requested Year 2000 compliance certifications. We have received verbal
assurances from those vendors and business partners that they and their
respective suppliers are Year 2000 compliant. Although we believe all of our
systems are and will be Year 2000 compliant, there can be no assurances that all
of our vendors' and business partners' systems will be Year 2000 compliant. Our
cost to comply with the Year 2000 initiative is not expected to be material.
In June of 1999, we began converting our computer system to be Year 2000
compliant. As of August 26, 1999, we spent approximately $32,500 on our Year
2000 compliance efforts. This figure includes all labor and expenses.
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against the
Company.
ITEM 2: CHANGES IN SECURITIES
Not Applicable
ITEM 3: DEFAULTS IN SENIOR SECURITIES
Not Applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5: OTHER INFORMATION
Not Applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
(1) Exhibits:
27.1 Financial Data Schedule
(2) Reports on Form 8-K: None
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
YOUNETWORK CORPORATION
By: /s/ Don S. Senerath
-----------------------------------
Don S. Senerath, CEO
and Principal Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 618,917
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 642,779
<PP&E> 118,507
<DEPRECIATION> 21,410
<TOTAL-ASSETS> 1,712,210
<CURRENT-LIABILITIES> 492,307
<BONDS> 0
0
0
<COMMON> 4,116
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,712,210
<SALES> 540
<TOTAL-REVENUES> 540
<CGS> 0
<TOTAL-COSTS> 321,944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,027
<INCOME-PRETAX> (323,431)
<INCOME-TAX> 0
<INCOME-CONTINUING> (323,431)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (323,431)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
