SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly period ended June 30, 2000.
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
-------- --------
Commission File Number 0-25238
YOUNETWORK CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-399035
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
115 East 23rd Street, New York, New York 10010
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(Address of Principal Executive Offices)
(212) 576-2030
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------- -------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 18, 2000, 8,980,
shares of Registrant's Class A Common Stock, $.001 par value, were outstanding,
1,988 shares of Registrant's Class B Common Stock, $.001 par value, were
outstanding and 223,827,132 shares of Registrant's Class C Common Stock, $.001
par value, were outstanding.
<PAGE>
YOUNETWORK CORPORATION
10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
Page No.
--------
Part I: Financial Information
Item 1 - Financial Statements
Balance Sheets as of December 31, 1999 and June 30, 2000
(Unaudited)................................................. 3
Statements of Operations for the Three Months Ended
June 30, 2000 and 1999, for the Six Months Ended
June 30, 2000 and 1999 and for the Period from
Inception (January 14, 1998) to June 30, 2000 (Unaudited)... 4
Statements of Cash Flows for the Three Months Ended June 30,
2000 and 1999, for the Six Months Ended June 30, 2000 and
1999 and for the Period from Inception (January 14, 1998) to
June 30, 2000 (Unaudited)................................... 5
Notes to Financial Statements............................... 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10
Part II - Other Information
Item 1 - Legal Proceedings........................................... 14
Item 2 - Changes in Securities and Use of Proceeds................... 14
Item 3 - Defaults Upon Senior Securities............................. 14
Item 4 - Submission of Matters to a Vote of Security Holders......... 14
Item 5 - Other Information........................................... 14
Item 6 - Exhibits and Reports on Form 8-K............................ 14
Signatures........................................................... 15
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
YOUNETWORK CORPORATION
(A Development Stage Company)
Balance Sheets
December 31, 1999 and June 30, 2000
<TABLE>
<CAPTION>
ASSETS
------
December 31, June 30,
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 41,127 $ 2,574
Prepaid expenses 59,308 25,993
----------- -----------
Total current assets 100,435 28,567
Property and equipment, net 763,731 625,466
Other assets:
Software development costs, net 508,334 415,978
Software license, net 165,431 82,997
Security deposits 187,196 187,196
Loan to stockholder 12,201 --
Other assets 41,974 31,024
Intangible assets, net -- 23,613
----------- -----------
Total other assets 915,136 740,808
----------- -----------
$ 1,779,302 $ 1,394,841
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Current portion of capital lease obligation $ 242,627 $ 242,627
Notes payable - stockholders 200,000 70,000
Due to related party 200,000 --
Deferred revenue 175,000 --
Accounts payable 114,381 272,594
Due to Compuces -- 145,797
Accrued rebate payable 4,063 5,267
Other current liabilities 73,710 113,848
----------- -----------
Total current liabilities 1,009,781 850,133
Capital lease obligations, less current portion 254,439 161,649
Due to related party -- 194,966
Note payable - stockholder -- 30,000
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 8,980 shares at June 30, 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 1,988 shares at June 30, 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 223,827,132
at June 30, 2000 4,185 4,415
Additional paid-in capital 2,395,242 3,143,513
Deficit accumulated during the development stage (1,884,346) (2,989,836)
----------- -----------
Total stockholders' equity 515,082 158,093
----------- -----------
$ 1,779,302 $ 1,394,841
=========== ===========
</TABLE>
3
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YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Operations
For the Three Months Ended June 30, 2000 and 1999
and for the Six Months Ended June 30, 2000 and 1999
and for the Period from Inception (January 14, 1998) to June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
For the
Period From
Inception
Three Months Ended Six Months Ended (January 14,
June 30, June 30, 1998)
------------------------------ ----------------------------- to June 30,
2000 1999 2000 1999 2000
------------------------------ ----------------------------- -----------
<S> <C> <C> <C> <C> <C>
Revenue $ (1,255) $ 540 $ 20,940 $ 540 $ 70,640
Cost of goods sold 12,029 -- 33,199 -- 81,777
------------ ----------- ----------- ----------- -----------
Gross profit (13,284) 540 (12,259) 540 (11,137)
Expenses:
Compensation 171,104 66,620 331,870 91,474 796,097
Development costs 47,772 -- 187,467 -- 524,838
General and administrative 506,027 172,748 720,143 237,520 1,779,256
------------ ----------- ----------- ----------- -----------
Total expenses 724,903 239,368 1,239,480 328,994 3,100,191
------------ ----------- ----------- ----------- -----------
Operating loss (738,187) (238,828) (1,251,955) (328,454) (3,111,328)
Other income (expense):
Other -- -- 175,000 -- 175,000
Interest expense (10,017) -- (29,004) -- (64,996)
Interest income 11 6,086 252 5,023 11,487
------------ ----------- ----------- ----------- -----------
Net other income
(expense) (10,006) 6,086 146,248 5,023 121,491
------------ ----------- ----------- ----------- -----------
Net loss $ (748,193) $ (232,742) $(1,104,490) $ (323,431) $(2,989,836)
============ =========== =========== =========== ===========
Net loss per common share,
basic and diluted $ (.01) $ (.01) $ (.01) $ (.01)
============ =========== =========== ===========
Weighted average of common
shares outstanding - basic
and diluted 130,885,988 40,753,957 85,895,683 37,889,839
============ =========== =========== ===========
</TABLE>
4
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Cash Flows
For the Six Months Ended June 30, 2000 and
1999 and for the Period from Inception (January 14,
1998) to June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
For the
Period From
Six Months Ended Inception
June 30, January 14, 1998)
-------------------------- to June 30,
2000 1999 2000
--------- ---------- -----------
<S> <C> <C> <C>
Net cash used in operating activities $(177,838) $ (325,057) $(1,220,654)
--------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment (13,925) (63,630) (279,608)
Software development costs (340,585) (516,545)
Loan to stockholder -- -- (12,201)
Purchase of software license -- -- (270,276)
Payment of security deposits (135,331) (187,196)
--------- ---------- -----------
Cash used in investing
Activities (13,925) (539,546) (1,265,826)
--------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
stock 246,000 1,488,000 2,512,170
Proceeds from notes payable -
Stockholders -- -- 200,000
Deferred registration costs -- (175,740) --
Payments of capital lease obligations (92,790) (6,808) (223,116)
--------- ---------- -----------
Net cash provided by financing
Activities 153,210 1,305,452 2,489,054
--------- ---------- -----------
Net increase (decrease) in cash (38,553) 440,849 2,574
Cash, beginning of period 41,127 178,068 --
--------- ---------- -----------
Cash, end of period $ 2,574 $ 618,917 $ 2,574
========= ========== ===========
</TABLE>
5
<PAGE>
YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
and for the Period from Inception (January 14, 1998) to June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
For the
Period From
Inception
Six Months Ended (January 14,
June 30, 1998)
------------------- to June 30,
2000 1999 2000
------- ------ --------
Supplemental Disclosure of Cash Flow Information
<S> <C> <C> <C>
Cash paid during the period for:
Interest $32,220 $2,021 $ 54,172
======= ====== ========
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 Class C common stock for
servicemark $25,000 $ -- $ 25,000
======= ====== ========
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 shares of Class C common stock for no cash proceeds. In May
2000, 2,000,000 shares were issued for no cash proceeds.
During the period from inception (January 14, 1998) to June 30, 2000, the
Company issued 8,980 shares of Class A common stock and 1,988 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 are for interim periods
and 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 these audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles.
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
six months ended June 30, 2000 are not necessarily indicative of the results to
be expected for the full year.
The financial statements have been prepared in conformity with generally
accepted accounting principles and as such, include estimates and assumptions of
management that affect the amounts reported in the financial statements. Actual
results could differ from these estimates.
As of June 28, 2000, the Company suspended its Web site and related online
business operations. On a going forward basis, the Company will seek to derive
revenue from licensing the use of the YouNetwork system components to third
parties. Additionally, the Company will seek to derive hosting and management
revenue from its existing infrastructure.
The computation of loss per share of common stock is based on the weighted
average number of shares and common share equivalents outstanding during the
periods presented. All stock options and warrants have been excluded from the
computation of diluted loss per share as their effect would be antidilutive and
accordingly, there is no reconciliation between basic and diluted loss per share
for each of the periods presented.
During the three months ended June 30, 2000, rebates of $4,839 were issued and
sales were $3,854 resulting in ($1,255) of net revenue.
Note 2 - The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As noted in the
Company's audited financial statements for the year ended December 31, 1999, the
Company has incurred significant net losses. This factor, among others, raises
substantial doubt as to the Company's ability to obtain debt or equity financing
and achieve profitable operations. The Company's ability to continue as a going
concern is dependent upon its ability to generate positive cash flows from
operations. These accompanying financial statements do not include any
adjustments related to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue its existence. Since May 2000,
Compuces, Inc., the holder of approximately 80.9% of the Company's voting
securities, has
7
<PAGE>
advanced funds to the Company to satisfy its working capital requirements. As of
June 30, 2000, these advances totaled $56,797.
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 shares of Class A Common Stock ("Class A
Shares") or part thereof were offered at no cost to each consumer who registered
to become a member of the Company's consumer network. The remaining 750,000
shares of Class A Common Stock or part thereof were to be distributed to members
based upon referring new members to the consumer network. Class B shares of
Common Stock ("Class B Shares") were offered to the consumer network members at
$1.00 per share, which shares were to be paid with rebates earned by members
making purchases on the consumer network.
Upon the issuance of Class A Shares, the Company recorded a charge to operations
for promotions costs for the value of the shares issued based on the current
fair market value of the Company's securities. Upon the issuance of Class B
Shares, the Company recorded 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 were recorded when members make
purchases on the consumer network. Since inception, the Company issued 8,980
Class A Shares and 1,988 Class B Shares.
The aforementioned registration statement became effective in July 1999
In June 2000, the Company terminated the issuance of any additional Class A or
Class B Shares thereunder.
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 from
this company advances of $175,000. In March 2000, the Company was released from
all obligations pursuant to this agreement and was not required to perform its
obligation under the agreement or repay the advance. As a result, the Company
recorded $175,000 as other income in the quarter ended March 31, 2000.
Note 5 - On May 19, 2000, the Company and Compuces, Inc., a Delaware corporation
("Compuces"), entered into a Stock Purchase Agreement. The Company agreed to
sell to Compuces shares of the Company's Class C common stock, par value $.0001
per share (the "Class C Shares") in an amount constituting after giving effect
to such sale, 80% of the Company's outstanding shares of Class C Common Stock on
a fully diluted basis. Accordingly, Compuces is now the beneficial holder of
approximately 80.9% of the Class C Shares and approximately 80.9% of the
Company's outstanding voting securities (which include the Class A and Class B
Shares), which effected a "change in control" of the Company.
Compuces is a wholly-owned subsidiary of International Commerce Exchange
Systems, Inc., a Delaware corporation ("ICES"). ICES is a privately held company
which develops, invests in and operates Internet technology related companies.
8
<PAGE>
The consideration for the issuance of the Class C Shares to Compuces was the
agreement by Compuces to advance funds to the Company in an amount sufficient to
pay certain specified debts of the Company in an amount not to exceed $300,000.
As of June 30, 2000, Compuces has advanced the Company approximately $89,000 for
the repayment of such debts.
Note 6 - There is a note payable to George Santacroce, a former chief executive
officer and director of the Company, in the amount of $60,000. The Company shall
pay the aggregate amount in twelve equal and consecutive monthly installments of
$5,000 each commencing January 1, 2001.
The Company has borrowed money from Compuces to fund working capital
requirements. These borrowings are non-interest bearing and due on demand. The
amount payable under this arrangement as of June 30, 2000 is $56,797.
The Company is indebted to Don Senerath, the Company's chairperson, in the
amount of $40,000. This amount is payable upon demand by Don Senerath, without
interest or fees, to the extent that the Company has funds available for such
purpose.
The Company owes International Computing, LLC ("IC"), a New York limited
liability company, $194,966 for software development costs. Until July 21, 2000,
IC was 100% owned by Steadfast Ventures, LLC, a Delaware limited liability
company, of which Don Senerath, the Company's chairperson, is a member. On July
21, 2000, Steadfast Ventures, LLC sold 70% of its membership units in IC to
ICES.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The matters discussed in this section contain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended, that involve risks
and uncertainties. All statements other than statements of historical
information provided herein maybe deemed to be forward-looking statements.
Without limiting the foregoing, the words "may", "will", "could", "should",
"intends", "thinks", "believes", "anticipates", "estimates", "plans", "expects",
or the negative of such terms and similar expressions are intended to identify
forward-looking statements. 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 the Company's Annual Report on Form 10-KSB, for the year ended
December 31, 1999. The following cautionary statements identify important
factors that could cause the Company's actual results to differ materially from
those projected in the forward-looking statements made in this Report. Among the
key factors that have a direct bearing on the Company's 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 judgement 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.
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 the Company, you should not place undue reliance on any such
forward-looking statements. Other factors may be described from time to time in
the Company's other filings with the Securities and Exchange Commission, news
releases and other communications. Further, any forward-looking statement speaks
only as of the date on which it is made and the Company undertakes 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 the Company to predict which will
10
<PAGE>
arise. In addition, the Company cannot assess the impact of each factor on the
Company's 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.
Subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements set forth above and contained elsewhere in
this Quarterly Report on Form 10-QSB.
Overview
The Company was 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 the Company, YouNetwork Corporation, a
Delaware corporation.
The Company was formed to develop an online consumer network. Revenue was
intended to be derived from the sale of competitively priced consumer products
and services through the Company's Web site, www.YouNetwork.com, ranging from
housewares, electronics and toys to music and video, with more than 1.3 million
individual product offerings.
However, due to the limited availability of capital, the Company's sales and
marketing programs were curtailed and the anticipated membership base was not
realized. As a result, on June 28, 2000, the Company's Web site was suspended
and any related online business ceased operations.
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 shares of Class A Common Stock ("Class A Shares") or part
thereof were offered at no cost to each consumer who registered to become a
member of the Company's consumer network. The remaining 750,000 shares of Class
A Common Stock or part thereof were to be distributed to members based upon
referring new members to the consumer network. Class B shares of Common Stock
were offered to the consumer network members at $1.00 per share, which shares
were to be paid with rebates earned by members making purchases on the consumer
network.
In July 1999, the aforementioned registration statement became effective. In
June, 2000, the Company terminated any additional issuances of Class A and Class
B Shares thereunder.
On May 19, 2000, the Company and Compuces, Inc., a Delaware corporation
("Compuces"), entered into a Stock Purchase Agreement. The Company agreed to
sell to Compuces shares of the Company's Class C common stock, par value $.0001
per share (the "Class C Shares") in an amount constituting after giving effect
to such sale, 80% of the Company's outstanding shares of Class C Common Stock on
a fully diluted basis. Accordingly, Compuces is now the beneficial holder of
approximately 80.9% of the Class C Shares and approximately 80.9% of the
Company's outstanding voting securities (which include the Class A and Class B
Shares), which effected a "change in control" of the Company.
Compuces is a wholly-owned subsidiary of International Commerce Exchange
Systems, Inc., a Delaware corporation ("ICES"). ICES is a privately held company
which develops, invests in and operates Internet technology related companies.
11
<PAGE>
The consideration for the issuance of the Class C Shares to Compuces was the
agreement by Compuces to advance funds to the Company in an amount sufficient to
pay certain specified debts of the Company in an amount not to exceed $300,000.
As of June 30, 2000, Compuces has advanced to the Company approximately $89,000
for the repayment of such debts. The Company filed its Form 8-K relating to this
transaction on June 6, 2000.
The Company has ceased the operations of its online business and has suspended
access to its Web site. Nothing contained in the Company's Web site should be
construed as part of this filing.
It is the intent of the Company to utilize the existing investment in its
infrastructure and reformulate its business. Management believes that the
existing infrastructure can be leveraged, in conjunction with certain strategic
partners, to provide Web development, hosting and support services to e-commerce
business to business and business to consumer merchants. During this period of
restructuring, the Company intends to keep its operating overhead at minimal
levels.
The Company has historically financed its operations through working capital
provided by operations, related party loans and advances and the private
placement of equity securities. The Company's ability to continue its operations
in any form is currently dependent on financing from external sources. There can
be no assurance that additional capital will be available on terms favorable to
the Company or at all, or that the Company will be able to generate sufficient
cash flow in order to sustain operations. To the extent that additional capital
is raised through the sale of equity or debt securities, the issuance of such
securities could result in additional dilution to the Company's stockholders. In
the event that the Company experiences the need for additional capital, and is
not able to generate capital from financing sources or from future operations,
management may be required to modify, suspend or discontinue the operations of
the Company indefinitely.
The Company's accompanying financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As noted in the
Company's audited financial statements for the year ended December 31, 1999, the
Company has incurred significant net losses. This factor, among others, raises
substantial doubt as to the Company's ability to obtain long-term debt or equity
financing and achieve profitable operations. The Company's ability to continue
as a going concern is dependent upon its ability to generate positive cash flows
from operations. These accompanying financial statements do not include any
adjustments related to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
Results of Operations for the three months ended June 30, 2000 and 1999
Since inception, the Company has been in the early stages of development and has
had nominal amount of revenues to date.
The Company incurred operating expenses of $724, 903 and $239,368 for the three
months ended June 30, 2000 and 1999, respectively. The increase in operating
expenses reflects the costs associated with the buildup of the corporate
infrastructure of the Company. These costs consist principally of compensation
expense, systems development costs and other general and administrative
expenses.
12
<PAGE>
Compensation expenses relate to establishing strategic relationships through
license arrangements and vendor affiliations to market the business. In
addition, the Company incurred costs in developing its proprietary tracking
system as well as other general and administrative expenses since inception.
Other expenses increased during the three months ended June 30, 2000 by $16,092
primarily due to interest expense on capital lease obligations of $10,017 and a
decrease in interest income of $6,075.
Results of Operations for the six months ended June 30, 2000 and 1999
Since inception, the Company has been in the early stages of development and has
had nominal amount of revenues to date.
The Company incurred operating expenses of $1,239,480 and $328,994 for the six
months ended June 30, 2000 and 1999, respectively. The increase in operating
expenses reflects the costs associated with the buildup of the corporate
infrastructure of the Company. These costs consist principally of compensation
expense, systems 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, the Company incurred costs in developing its proprietary tracking
system as well as other general and administrative expenses since inception.
Other income increased during the six months ended June 30, 2000, by $141,225
primarily due to a contract settlement in March 2000 of $175,000 offset by an
increase in interest expense on capital lease obligations of $29,004 and a
decrease in interest income of $4,771.
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<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On May 19, 2000, the Company entered into a Stock Purchase Agreement with
Compuces, Inc., a Delaware corporation and wholly-owned subsidiary of
International Commerce Exchange Systems, Inc., a Delaware corporation. Under the
terms of this agreement, the Company sold to Compuces, Inc. in a private
placement, shares of the Company's Class C common stock, par value $.0001 per
share, constituting, after giving effect to such sale 80% of the Company's class
C Common Stock and approximately 80.9% of the Company's voting securities. The
consideration for the issuance of the Class C Shares of the Company was the
agreement by Compuces, Inc. to advance funds to the Company in an amount
sufficient to pay certain specified debts of the Company in an amount not to
exceed $300,000.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K. On June 6, 2000 the Registrant filed a Current
Report on Form 8-K to report the change in control that resulted from sale of
Class C Common Stock to Compuces, Inc.
14
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
YOUNETWORK CORPORATION
Dated: August 23, 2000 By: /s/ Don Senerath
----------------
Name: Don Senerath
Title: Chief Executive Officer
& Chief Financial Officer
15
