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 March 31, 2000
Commission File Number:
YOUNETWORK CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State of Incorporation) (I.R.S. Employer Identification No.)
115 East 23rd Street, New York, New York 10010k 10010
-----------------------------------------------------
(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.
/X/ Yes / / No
As of March 20 2000, a total of 42,080,846 shares of the Registrant's Common
Stock, $.001 par value, were issued and outstanding.
<PAGE>
YOUNETWORK CORPORATION
Index
FORM 10-QSB
(A Development Stage Company)
Page
----
Part I: Financial Information
Item 1 - Financial Statements
Balance Sheets as of December 31, 1999 and
March 31, 2000 (Unaudited) 2
Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 (Unaudited) and for the
Period from Inception (January 14, 1998) to
March 31, 2000 (Unaudited) 3
Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 (Unaudited) and for the
Period from Inception (January 14, 1998) to
March 31, 2000 4-5
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II: Other Information
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Balance Sheets
December 31, 1999 and March 31, 2000
<TABLE>
<CAPTION>
ASSETS
------
December 31, March 31,
1999 2000
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 41,127 $ 21,469
Prepaid expenses 59,308 42,650
----------- -----------
Total current assets 100,435 64,119
Property and equipment, net 763,731 700,818
Other assets:
Software development costs 508,334 463,471
Software license 165,431 119,213
Security deposits 187,196 187,196
Loan to stockholder 12,201 20,304
Other assets 41,974 46,497
----------- -----------
Total other assets 915,136 836,681
----------- -----------
$ 1,779,302 $ 1,601,618
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of capital lease obligation $ 242,627 $ 251,955
Notes payable - stockholders 200,000 310,000
Due to related party 200,000 147,232
Deferred revenue 175,000 --
Accounts payable 114,381 238,495
Accrued rebate payable 4,063 713
Other current liabilities 73,710 95,600
----------- -----------
Total current liabilities 1,009,781 1,043,995
Capital lease obligations, less current portion 254,439 190,825
Commitments
Stockholders' equity:
Common stock:
Class A - par value $.0001 per share:
Authorized - 1,500,000 shares
Issued and outstanding - 7,052 shares at December 31,
1999 and 8,621 shares at March 31, 2000 1 1
Class B - par value $.0001 per share:
Authorized - 1,500,000 shares
Issued and outstanding - 1,058 shares at December
31, 1999 and 1,813 shares at March 31, 2000 -- --
Class C - par value $.0001 per share:
Authorized - 247,000,000 shares
Issued and outstanding - 41,852,352 shares
at December 31, 1999 and $42,070,052
at March 31, 2000 4,185 4,207
Additional paid-in capital 2,395,242 2,604,244
Deficit accumulated during the development stage (1,884,346) (2,241,654)
----------- -----------
Total stockholders' equity 515,082 366,798
----------- -----------
$ 1,779,302 $ 1,601,618
=========== ===========
</TABLE>
3
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Operations
For the Three Months Ended March 31, 2000 and 1999
and for the Period from Inception (January 14, 1998) to March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
For the
Period From
Three Months Ended Inception
March 31, (January 14, 1998)
------------------------------ to March 31,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 22,195 $ -- $ 71,895
Cost of goods sold 21,170 -- 69,748
------------ ------------ ------------
Gross profit 1,025 -- 2,147
Expenses:
Compensation 160,766 24,854 624,993
Development costs 139,695 -- 477,066
General and administrative 214,126 64,772 1,273,239
------------ ------------ ------------
Total expenses 514,587 89,626 2,375,298
------------ ------------ ------------
Operating loss (513,562) (89,626) (2,373,151)
Other income (expense):
Other 175,000 -- 175,000
Interest expense (18,987) (1,063) (54,979)
Interest income 241 -- 11,476
------------ ------------ ------------
Net other income (expense) 156,254 (1,063) 131,497
------------ ------------ ------------
Net loss $ (357,308) $ (90,689) $ (2,241,654)
============ ============ ============
Net loss per common share, basic and
diluted $ (.01) $ --
============ ============
Weighted average of common shares
outstanding - basic and diluted 42,026,923 34,993,896
============ ============
</TABLE>
4
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
and for the Period from Inception (January 14, 1998) to March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
For the
Period From
Three Months Ended Inception
March 31, (January 14, 1998)
------------------------------ to March 31,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Net cash used in operating activities $ (241,646) $ (52,648) $(1,283,260)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (12,925) (913) (279,810)
Software development costs (70) (165,000) (516,615)
Loan to stockholder (8,103) -- (20,304)
Purchase of software license -- -- (270,276)
Payment of security deposits -- (1,200) (187,196)
----------- ----------- -----------
Cash used in investing
activities (21,098) (167,113) (1,274,201)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
stock 196,700 463,000 2,462,870
Proceeds from notes payable -
stockholders 110,000 -- 310,000
Deferred registration costs -- (62,047) --
Payments of capital lease obligations (63,614) (3,358) (193,940)
----------- ----------- -----------
Net cash provided by financing
activities 243,086 397,595 2,578,930
----------- ----------- -----------
Net increase (decrease) in cash (19,658) 177,834 21,469
Cash, beginning of period 41,127 178,068 --
----------- ----------- -----------
Cash, end of period $ 21,469 $ 355,902 $ 21,469
=========== =========== ===========
</TABLE>
5
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Cash Flows (Concluded)
For the Three Months Ended March 31, 2000 and 1999
and for the Period from Inception (January 14, 1998) to March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
For the
Period From
Three Months Ended Inception
March 31, (January 14, 1998)
------------------------------ to March 31,
2000 1999 2000
------------ ------------ ------------
Supplemental Disclosure of Cash Flow Information
<S> <C> <C> <C>
Cash paid during the period for:
Interest $ 9,108 $ 1,063 $ 31,060
========== ========== ==========
Supplemental Schedule of Non-Cash Investing and Financing Activities
Capital lease obligation incurred for the
acquisition of equipment $ -- $ -- $ 627,392
========== ========== ==========
Issuance of Class A common stock for
services $ -- $ -- $ 21,400
========== ========== ==========
Issuance of warrants for leasehold
improvements $ -- $ -- $ 11,000
========== ========== ==========
Issuance of Class C common stock for
servicemark $ 10,000 $ -- $ 10,000
========== ========== ==========
Issuance of warrants for acquisition
of software development costs $ -- $ -- $ 38,000
========== ========== ==========
Issuance of warrants for portion of
computer equipment lease $ -- $ -- $ 54,748
========== ========== ==========
</TABLE>
In March 1999, common stock purchase warrants were exercised and the Company
issued 1,479,452 of Class C common stock for no cash proceeds.
During the period from inception (January 14, 1998) to March 31, 2000, the
Company issued 8,621 shares of Class A common stock and 1,813 shares of Class B
common stock for no cash proceeds.
During the three months ended March 31, 2000, the Company issued 1,569 shares of
Class A common stock and 755 shares of Class B common stock for no cash
proceeds.
6
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Note 1 - The accompanying unaudited financial statements, which are for interim
periods, do not include all disclosures provided in the annual financial
statements. These unaudited financial statements should be read in conjunction
with the financial statements and the footnotes thereto contained in the Annual
Report on Form 10-KSB for the year ended December 31, 1999, of YouNetwork
Corporation (the "Company"), as filed with the Securities and Exchange
Commission. The December 31, 1999 balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.
Note 2 - In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial statements. The results of
operations for the three months ended March 31, 2000 are not necessarily
indicative of the results to be expected for the full year.
Note 3 - 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.
During the three months ended March 31, 2000, the Company issued 1,569
Class A shares and 755 Class B shares.
Note 4 - The Company entered into an agreement in March 1998 with a Company that
provides long-distance telephone service. During 1998, the Company received
advances of $175,000. In March 2000, the Company was released from all
obligation pursuant to the agreement and was not required to perform its
obligation under the agreement or repay the advance.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Special Note Regarding Forward-Looking Statements
Any statements in this Quarterly Report on Form 10-QSB about our expectations,
beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements. These statements are often,
but not always, made through the use of words or phrases such as "will," "will
likely result," "expect," "will continue," "anticipate," "estimate," "intend,"
"plan," "projection," "would," "should" and "outlook." Accordingly, these
statements involve estimates, assumptions and uncertainties which could cause
actual results to differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this Report and our Annual Report on Form 10-KSB,
for the year ended December 31, 1999. The following cautionary statements
identify important factors that could cause our actual results to differ
materially from those projected in the forward-looking statements made in this
prospectus. Among the key factors that have a direct bearing on our results of
operations are:
o general economic and business conditions; the existence or absence of
adverse publicity; changes in, or failure to comply with, government
regulations; changes in marketing and technology; changes in political, social
and economic conditions;
o increased competition in the Internet ; Internet capacity; general risks
of the Internet;
o success of acquisitions and operating initiatives; changes in business
strategy or development plans; management of growth;
o availability, terms and deployment of capital;
o costs and other effects of legal and administrative proceedings;
o dependence on senior management; business abilities and judgment of
personnel; availability of qualified personnel; labor and employee benefit
costs;
o development risks; risks relating to the availability of financing; and
o other factors referenced in this Report and the Form 10-KSB.
8
<PAGE>
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Overview
We are a company which launched a unique and novel online consumer
network. By combining the virtues of cooperative marketing with incentives
designed to reward a member's purchasing influence, we believe our consumer
network will develop a sizeable membership base, without entry fees, and
distinguish itself from the emerging wave of direct Internet marketing companies
which are seeking to tap the rapidly developing market for Internet commerce.
We currently offer our members shares to join our web site in the first
initial public offering to register the issuance of shares to join a web site
with the SEC. We raise no direct proceeds from this offering. One class A share
is currently offered at no cost to each of the first 250,000 members. The
remaining 750,000 class A shares are offered to our members based on net value,
a proprietary referral tracking technology developed by us. Our class B shares
are 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.
We derive our revenue from the sale of competitively priced consumer
products and services through our website, YouNetwork.com. Our web site
currently offers twelve different product segments, ranging from house wares,
electronics and toys to music and video, with more than 1.3 million individual
product offerings. Product fulfillment is achieved through manufacturers,
distributors and other vendors which ship directly to our members. We maintain
no inventory, warehouse, stores or sales facilities. Due to our low operating
costs, our prices are lower than brick and mortar retailers and competitive with
other Internet marketing sites.
We were incorporated on January 14, 1998, under the name YouNetwork Corp.,
a New York corporation. Pursuant to a merger effective, February 3, 1999, the
New York corporation merged into us, YouNetwork Corporation, a Delaware
corporation. Our website is located at www.YouNetwork.com. Nothing contained on
our website should be construed as a part of this filing.
9
<PAGE>
Results of Operations
From inception, operations have been in the early stages of development.
We had nominal amount of revenues for the three and nine months ended September
30, 1999.
We incurred operating expenses of $514,587 and $89,626 for the three
months ended September 2000 and 1999, respectively.
The operating expenses increased from $89,626 for the three months ended
March 31, 1999 to $514,587 for the three months ended March 31, 2000. The
increase in operating expenses reflects the higher costs associated with the
build-up of the corporate infrastructure of the Company. These costs consist
primarily of compensation expense, system development costs and other general
and administrative expenses.
Compensation expenses relate to establishing strategic relationships
through license arrangements and vendor affiliations to market the business. In
addition, we incurred costs in developing our proprietary tracing system as well
as other general and administrative expenses since inception.
As of December 31, 1999, we had net operating loss carryforwards for
federal income tax purposes of approximately $1,884,000. There can be no
assurance that we will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforward will expire in the
fiscal year 2013. We have established a valuation allowance with respect to
these federal and state carryforwards.
10
<PAGE>
PART II
OTHER INFORMATION
Item 1: Legal Proceedings
To the knowledge of the Company there are no legal proceedings pending or
threatened.
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 6: Exhibits and Reports on Form 8K
(1) Exhibits:
27.1 Financial Data Schedule
(2) Reports on Form 8-K: None
11
<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
Date: May 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,469
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64,119
<PP&E> 918,202
<DEPRECIATION> 217,384
<TOTAL-ASSETS> 1,601,618
<CURRENT-LIABILITIES> 1,043,995
<BONDS> 0
0
0
<COMMON> 4,208
<OTHER-SE> 362,590
<TOTAL-LIABILITY-AND-EQUITY> 366,798
<SALES> 22,195
<TOTAL-REVENUES> 22,195
<CGS> 21,170
<TOTAL-COSTS> 514,587
<OTHER-EXPENSES> (175,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,746
<INCOME-PRETAX> (357,308)
<INCOME-TAX> (357,308)
<INCOME-CONTINUING> (357,308)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (357,308)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
