YOUNETWORK CORP, 10KSB40, 2000-04-14

YOUNETWORK CORP
10KSB40, 2000-04-14
MISCELLANEOUS BUSINESS SERVICES

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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 December 31, 1999

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ______________ to ______________

Commission File Number 0-25238

YOUNETWORK CORPORATION
----------------------------------------------
(Name of small business issuer in its charter)

Delaware 13-399035
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

115 East 23rd Street. New York, NY 10010
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (212) 387-0310
--------------

Securities registered pursuant to Section 12(b) of the Exchange Act:

Securities registered pursuant to Section 12(g) of the Exchange Act:

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 |_|

<PAGE>

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

Issuer's revenues for its most recent fiscal year: $ 49,700.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant (as determined for the purpose of this Form
10-KSB only) as of March 20, 2000 was $10,618,000. There is no established
market for our stock. For purposes of this calculation, the value of each share
of our common equity of the registrant held by non-affiliates was determined
based on the value of one share of our common equity, the price at which our
common equity shares are sold.

The number of shares outstanding of each of our classes of common equity as of
March 27, 2000 is 8,602 shares of Class A, 1,642 shares of Class B and
42,070,052 shares of Class C.

TABLE OF CONTENTS

Page
Item Number and Caption Number
------

PART I.......................................................................-4-
Item 1. Description of Business....................................-4-
Item 2. Description of Properties.................................-14-
Item 3. Legal Proceedings.........................................-14-
Item 4. Submission of Matters to a Vote of
Security Holders.......................................-15-

PART II.....................................................................-16-
Item 5. Market for Common Equity and Related
Stockholder Matters....................................-16-

Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operation...........-17-
Item 7. Financial Statements......................................-21-
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................-21-

PART III....................................................................-22-
Item 9. Directors, Executive Officers, Promoters
and Control Persons....................................-22-
Item 10. Executive Compensation....................................-23-
Item 11. Security Ownership of Certain Beneficial
Owners and Management..................................-25-
Item 12. Certain Relationships and Related Transactions............-26-
Item 13. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................-27-

PART I

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Item 1. Description of Business.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-KSB (this "Form 10-KSB"),
including statements under "Item 1. Description of Business," "Item 3 Legal
Proceedings" and "Item 7. Management's Discussion and Analysis or Plan of
Operation," constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995 (collectively, the "Reform Act").
Certain, but not necessarily all, of such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of YouNetwork Corporation (the
"Company", `we" or "us") to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, the following: general
economic and business conditions; competition in the telecommunications
industry; industry capacity; success of acquisitions and operating initiatives;
management of growth; dependence on senior management; brand awareness; general
risks of the telecommunications industries; development risk; risk relating to
the availability of qualified personnel; labor and employee benefit costs;
changes in, or failure to comply with, government regulations; construction
schedules; the costs and other effects of legal and administrative proceedings;
changes in methods of marketing and technology; changes in political, social and
economic conditions and other factors referenced in this Form 10-KSB. YouNetwork
will not undertake and specifically declines any obligation to publicly release
the results of any revisions which may be made to any forward-looking statement
to reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.

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 derive our revenue from the sale of competitively priced consumer
products and services through our website, YouNetwork.com. Our web site was
launched in late summer 1999, and currently offer 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

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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

Our unique on-line consumer network.

We have developed a powerful self-perpetuating e-commerce engine that
empowers the user to profit from promoting our program. Membership is free,
without fee or obligation. Members are rewarded with common stock in our
registered public offering and purchase dividends for life for sponsoring new
members into our Network. Each member receives purchase dividends generated
from: (i) his or her own Network purchases; (ii) the purchasing activity of each
new member they introduce to the Network; and (iii) the purchasing activities of
other new generations of referrals. A member's dividend account balance can be
applied to new purchases, turned into cash, or used to purchase shares in
YouNetwork's initial public offering.

We believe the key to our success shall be our NetValue program, a
proprietary-tracking system that quantifies each member's referral efforts and
applies a value for the purpose of distribution of incentives. The NetValue
system enables us to manage referrals, recommendations, purchases, dividend
disbursements and stock incentives as well as provide accurate information to
the member all in real time. We believe that the member's referral activity will
lead to meaningful accumulation in a member's NetValue account.

Our consumer network model also provides a powerful direct marketing tool
as well. The traditional use of mailings imposes significant costs, without the
ability to target offerings in real time. Our consumer network site is built
dynamically. When a user is online, products and services can be targeted in
real time to each consumer.

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. The purpose of the merger is to take advantage of the laws of the
state of Delaware.

Our website is located at www.YouNetwork.com. Nothing contained on our
website should be construed as a part of this filing.

Our solution to market services and products and develop a sizeable membership
base.

We are using the unique characteristics of the web to cost-effectively
market our products and services and to develop a sizeable membership base. By
offering our members a variety of competitively priced branded product
offerings, together with purchase incentives, rebates and equity participation
in our company, we believe that we have created an innovative online sales
channel with low customer acquisition costs. The key elements of our approach
are:

(a) Development of a detailed member database.

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Gather a significant base of information about our members through
registration information, responses to closed end beta tests and
purchasing information obtained from third parties.

(b) Customer convenience.

We provide attractive electronic commerce opportunities for potential
purchasers. Order processing services are available 24 hours a day, seven
days a week, which facilitates on-demand ordering. Our vendors will ship
products directly to a member's address, without the need to travel to a
store, thereby enhancing convenience, particularly for customers in rural
locations without ready access to retail stores.

As part of our promotion to rapidly build membership, we offer at no cost,
one class A share to each of our first 250,000 members who have joined our
consumer network, an additional 750,000 class A shares to our members
based upon their net value, and 1,000,000 class B shares to our members
for a purchase price of $1.00 each. The class B shares may only be paid
with rebates a member may earn by making purchases on our consumer
network.

(d) Net value.

We have developed proprietary tracking technology. Our tracking technology
will be utilized to track the referrals of our members and to pay rebates
to the member based on a member's purchases and the purchases made by a
member's referrals.

Products and Services.

We derive our revenue from the sale of competitively priced consumer
products and services through our website, YouNetwork.com. The network, which
was launched in late summer 1999, currently offers twelve different product
segments, ranging from home and garden, 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. Our business is based upon a matrix of marketing incentives
specifically designed for Internet application. Due to our low operating costs,
our prices are lower than brick and mortar retailers and competitive with other
Internet marketing sites. In addition, our low operating costs allow us to
direct our resources towards providing an unsurpassed level of service
electronically in real time. Our current Product Offerings are as follows:

o Music o Electronics o Watches
o Video o Software o Collectibles
o Video Games o Computers o Home and Garden
o Books o Office Supplies o Communications

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Fulfillment, Warehousing and Vendor Relations

All of our product and service fulfillment are provided by vendors and
distributors. We operate no fulfillment or facility of our own. We have
established a relationships with a number of vendors and distributors in order
to offer a broad based product mix at competitive prices.

We use automated interfaces for accepting, sorting and processing orders
to achieve the most rapid and economical purchase and delivery terms. All of our
order related functions are processed online.

In order to build our commerce network, we have entered into a number of
premier vendor affiliations, which we are dependent on such as: Ingram Micro,
Baker & Taylor, Ingram Entertainment, Inc., Petswarehouse.com, United
Stationers, Muze, Inc. and DiscoverMusic.com.

Affiliations.

On June 16, 1998, we entered into a distribution agreement with Ingram
Micro, Inc. to purchase computers, hardware, software and peripherals. In
January 4, 1999, we also entered into a non-exclusive license with Muze, Inc.
for us to gain access to music, video and book databases. In July 1998, we
entered into a non-exclusive license with Baker & Taylor, Inc., which
distributes books, spoken word audio products and provides certain value added
services. Baker & Taylor gives us the ability to provide access to its
proprietary data base to our members. We entered into a distribution agreement
on January 19, 1999, and February 15, 1999, with Baker & Taylor, Inc for the
purchase of books, spoken word audio products, pre-recorded video products,
laser disc and DVD formats, multi-media products and music audio products.

On March 6, 1999, we entered into an agreement with United Stationers
Supply Co. in connection with the distribution of stationary and office supplies
for a term of one year, to be renewed automatically annually. We entered into an
agreement with Discover.com on September 1, 1999. Under the terms of the
agreement Discovermusic.com shall provide us with sound recordings available for
real time listening or downloading and listening in sample lengths by visitors
to our web site. On November 1, 1999, we entered into an affiliation agreement
between us and Success Marketing, Inc. Under the terms of the agreement in
consideration of providing additional; members to join our web site we have
agreed to register Success as a member and provide credit to the account of
Success in the form of NetValue, defined as point system awarded to our members
based on a certain number of referrals who join our web site.

On November 11, 1999, we entered into a distribution agreement with Ingram
Entertainment, Inc. The agreement incorporates by reference a master database
license agreement, which provides products and pricing. On February 28, 2000, we
also entered into a distribution agreement with PetsWarehouse.com The agreement
incorporates by reference a master database license agreement, which provides
pets warehouses prices and products.

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On March 8, 2000, we terminated our relationship with Qwest Communications
Corporation, which we entered into on March 6, 1998, to solicit orders for long
distance service.

We view our strategic relationships as a key factor in our overall
business strategy; however, there can be no assurance that our license or vendor
affiliates will view their relationships with us as significant to their own
business or that they will not reassess their commitment to us in the future.
There can be no assurance that any agreement with a licensor or vendor would be
specifically enforceable by us. Our arrangements with our licensors or vendors
generally may be terminated by either party with little notice. There can be no
assurance that these relationships will be successful. In the event that any one
or more of our strategic relationship is discontinued for any reason, our
business, results of operations and financial condition may be materially
adversely affected. In addition, there can be no assurance that we will be
successful in establishing additional vendor or licensor relationships.

Marketing and Distribution of our products and services.

All of our product and service fulfillment are provided by vendors and
distributors. We operate no fulfillment or facility of our own. We have
established relationships with a number of vendors and distributors in order to
offer a broad based product mix at competitive prices. We use automated
interfaces for accepting, sorting and processing orders to achieve the most
rapid and economical purchase and delivery terms. All of our order related
functions are processed online.

Our sales and marketing strategy is designed to strengthen awareness of
our brand, increase online traffic, build member loyalty, maximize repeat
purchases, increase the size and frequency of electronic commerce transactions
and develop additional revenue opportunities.

(a) Marketing our products through our website.

The marketing of our services is primarily by word-of-mouth and indirect
promotions by members with links to our website through the use of our
services. We believe that such relationship marketing (along with our
unique equity participation and rebate incentives) will generate a
substantial amount of additional traffic and new members. To augment these
marketing efforts, we intend to initiate a more formal and aggressive
brand promotional campaign to enhance membership growth, and draw
additional advertisers and commerce partners.

(b) Product marketing.

We apply a direct marketing program modeled after traditional direct mail
campaigns to generate product sales. As we gather additional information
about our members, we intend to further target our offers and increase our
range of product offerings. Information obtained from a member is treated
as confidential.

Technology and infrastructure.

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Our systems are designed for portability, efficiency and growth. Using
state of the art technology from Windows NT and Unix technology we have created
a custom solution that is based on high bandwith access, latest server
technology and redundant storage systems. We have placed an emphasis on
portability of our application modules in order to support the migration of
systems as they encounter the added demand of a fast growing customer base. Our
access to the internet is reinforced with multiple support providers and daily
and weekly backups to minimize data loss as a result of system failure. A high
degree of automation is employed to assure quality of service as well as
cost-efficient operation of our system. We continue to monitor and upgrade
components of our infrastructure with the goal of providing highly productive
user experience to our members.

Competition.

The market for electronic commerce direct selling channels on the Internet
is new and rapidly evolving, and competition for members, consumers and visitors
is intense and is expected to increase significantly in the future. Barriers to
entry are relatively insubstantial. We believe that the principal competitive
factors for companies seeking to create electronic commerce networks on the
Internet are critical mass, functionality, brand recognition, member affinity
and loyalty, broad demographic focus and open access for visitors. Our primary
competitors, which are primarily focused on creating electronic commerce
networks on the Internet, include such companies as: Amazon.com, Value America,
Shopping.com, Buy.com, the NetMarket division of Cendent Corporation and
Ebay.com. In addition, there is an emergence of loyalty based internet sites
such as MyPoints and All Advantage. Nearly all of our existing and potential
competitors, web directories, search engines and large traditional media
companies, have longer operating histories in the web market, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than us. Moreover, our competitors are able to
undertake more extensive marketing campaigns for their brands and services and
make more attractive offers to potential employees, vendor affiliates, commerce
companies and third-party content providers.

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Intellectual property and proprietary rights.

We have submitted an application to register our servicemark, "YouNetwork"
with the United States Patent and Trademark Office. We currently have no patents
and we do not anticipate that patents will become a significant part of our
intellectual property in the foreseeable future. We regard our technology as
proprietary and will attempt to protect our tracking and net value by relying on
trademark, service mark, copyright and trade secret laws and restrictions on
disclosure and transferring title and other methods. We will enter into
confidentiality or license agreements with our employees and consultants and
will attempt to limit access by vendors of our proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use our proprietary information without authorization or to develop
similar technology independently. Policing unauthorized use of our proprietary
information is difficult. Legal standards relating to the validity,
enforceability and scope of protection of certain proprietary rights in
internet-related businesses are uncertain and still evolving, and no assurance
can be given as to the future viability or value of any of our proprietary
rights.

Employees.

As of March 22, 2000, we had 8 full-time employees, and one part-time
employee. Our future success will depend, in part, on our ability to continue to
attract, retain and motivate highly qualified technical and management personnel
for whom competition is intense. From time to time, we also employ independent
contractors to support our research and development, marketing, sales and
support and administrative organizations. Our employees are not covered by any
collective bargaining agreement and we have never experienced a work stoppage.
We believe our relations with our employees are good.

Insurance.

We carry business interruption insurance but not a secondary "off-site"
system or a formal disaster recovery plan. Our business interruption insurance
policy coverage is up to $750,000. We also have a data processing policy
covering hardware for up to $1,000,000 and software up to $250,000 in connection
with our internet services.

Government Regulation

We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to e-commerce on the
Internet. Due to the increasing popularity and use of the Internet, a number of
legislative and regulatory proposals are under consideration by federal, state
and local governmental organizations, and it is possible that a number of laws
or regulations may be adopted with respect to the Internet relating to such
issues as user privacy, taxation, infringement, pricing, quality of products and
services and intellectual property ownership. The adoption of any such laws or
regulations may decrease the growth in the use of the Internet, which could in
turn decrease the demand for our products and services, increase our cost of
doing business, or otherwise have a material adverse effect on our business,

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results of operations and financial condition. Any new legislation or
regulation, or application or interpretation of existing laws, could have a
material adverse effect on our business, results of operations and financial
condition.

Item 2. Description of Properties

Leased Properties

Our headquarters are currently located in a leased facility in the Borough
of Manhattan, New York, New York, consisting of approximately 6000 square feet
of office space, which is under a lease that expires June 30, 2002. The current
annual rent is $132,000. We also have a leased facility in the Borough of
Manhattan, New York, New York, consisting of approximately 1,000 square feet of
office space, which is under a lease that expires April 3, 2003.

Item 3. Legal Proceedings.

To the knowledge of YouNetwork there are no threatened legal proceedings
or pending legal proceedings (or property subject of a pending legal
proceeding).

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.

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PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

Market Information
[

On July 13, 1999, our registration statement (File No. 333-71949) was
declared effective and we commenced our offering in connection with 1,000,000
Class A shares for no cash consideration and 1,000,000 Class B shares offered to
our members at the rate of one share for each $1.00 of a member's purchase
dividend.

We did not receive any proceeds from the sale of our class A or class B
shares. One class A share is offered to each of the first 250,000 members at no
cost. The remaining 750,000 class A shares are offered to a member based on each
member's net value. Class B shares in our offering were offered to a member at a
rate of one share for each $1.00 of a member's purchase dividend balance, which
may only be paid with purchase dividend earned by members who purchase our
products on our consumer network. A purchase dividend balance is created when a
member is credited for a percentage of the value of products or services
purchased on our website. A member may choose to have their purchase dividend
balance paid to them in cash, purchase additional products or services or
purchase class B shares in this offering. If a member chooses to purchase a
class B share with his or her purchase dividend dollars, the purchase dividend
balance will be reduced $1.00 for each class B share purchased. Since a purchase
dividend balance is a liability owed by us to our members, the purchase of a
class B share will offset an outstanding liability to those members who choose
to purchase a class B share with their purchase dividend dollars.

Our Common Stock is currently not traded on any forum, including, an
exchange, the Over the Counter Bulletin Board or pink sheets. There has been no
public market for our common stock. Future sales of substantial amounts of
common stock in the public market, or the availability of shares for sale, could
adversely affect the prevailing market price of our common stock and our ability
to raise capital through an offering of equity securities.

Holders

As of March 22, 2000, there were approximately 106 holders of our common
equity. All holders of shares of common equity are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders. We
do not have cumulative voting rights in the election of directors; accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. In the event of our liquidation, dissolution or winding up, holders
of common stock are entitled to share ratably in all of our assets remaining
after payment of liabilities. Holders of common stock have no preemptive or
other subscription of conversion rights. There are no redemption or sinking fund
provisions applicable to our common stock.

Stock Options

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We have an amended 1999 stock option plan to increase our stock options
from 2,000,000 to 4,000,000. Our amended 1999 Plan provides for the granting of
options to key employees, including officers, non-employee directors and
consultants of YouNetwork and its subsidiaries to purchase up to 4,000,000
shares of common stock which are intended to qualify either as Incentive Stock
Options within the meaning of the Internal Revenue Code of 1986, as amended, or
as options which are not intended to meet the requirements of such section,
non-statutory stock options.

The 1999 plan is administered by the board of directors. Under the plan,
the board of directors has the authority to determine the persons to whom
options will be granted, the number of shares to be covered by each option,
whether the options granted are intended to be incentive stock options, the
manner of exercise, and the time, manner and form of payment upon exercise of an
option.

Incentive stock options granted under the Plans may not be granted at a
price less than the fair market value of the common stock on the date of grant
(or less than 110% of fair market value in the case of employees holding 10% or
more of the voting stock of YouNetwork). Non-qualified stock options may be
granted at an exercise price established by the stock option committee selected
by the board of directors, but may not be less than 85% of fair market value of
the shares on the date of grant. Incentive stock options granted under the plans
must expire not more than ten years from the date of grant, and not more than
five years from the date of grant in the case of incentive stock options granted
to an employee holding 10% or more of the voting stock of YouNetwork.

Dividends

YouNetwork has not paid any dividends since its inception. YouNetwork has
no intention of paying any dividends on its common stock in the foreseeable
future, as it intends to use any earnings to generate increased growth. The
payment by YouNetwork of purchase dividends, if any, in the future rests within
the discretion of its Board of Directors and, among other things, will depend
upon YouNetwork's earnings, capital requirements and financial condition, as
well as other relevant factors.

Recent Sales of Unregistered Securities.

The following gives effect to the 330,000 to 1 exchange of class C shares
of common stock effected February 3, 1999, pursuant to an agreement and plan of
merger between YouNetwork, Corp., a New York corporation and the registrant,
YouNetwork Corporation, a Delaware corporation.

Private Placement.

In 1999, YouNetwork sold 7,351,500 shares of its class C common stock for
proceeds of approximately $2,159,500. The reason for the offering was to raise
necessary additional capital to finance network expansion and equipment
upgrades, and development costs in connection with our

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proprietary software, tracking. The offering was a private transaction exempt
from registration. All investors are accredited.

Pursuant to an agreement among YouNetwork, Dalia Silverman and Kleopatra
Georgiades (the "Original Investors"), the Original Investors purchased from
YouNetwork, for an aggregate purchase price of $200,000: (i) an aggregate of
8,910,000 shares of common stock (the "Purchased shares") representing 27% of
the issued and outstanding common stock, on a fully diluted basis; and (ii)
Options (the "Purchase Options") to purchase in the aggregate such number of
shares of common stock, at nominal consideration, as shall equal, in the
aggregate when added to the Purchased shares, 27% of the issued and outstanding
common stock of YouNetwork on a fully diluted basis, immediately following the
sale of additional common stock by YouNetwork in consideration of the first
$400,000 of common stock sale proceeds received by YouNetwork following December
4, 1998.

The proceeds from the sale of our shares to the Original Investors was
used for software development in the approximate amount of $68,000, legal
expenses in the amount of $10,000, and $122,000 to salaries, office expenses and
general administrative costs. In March of 1999, the Original Investors exercised
the Purchase Options following a private placement in March of 1999 for the sale
of 4,630,000 shares of class C common stock by YouNetwork to certain accredited
investors for consideration of $463,000. As a result of the exercise of the
Original Investors respective Purchase Options, the Original Investors received
1,479,452 shares of YouNetwork class C common stock.

The foregoing offerings were private transactions exempt from
registration. All investors in these private transactions are accredited.

Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation.

Overview

We have launched a unique online consumer network which offers a broad
range of consumer products and services through our website, www.
YouNetwork.com. We believe that our consumer network is unique in that we offer
shares of our company for no cash consideration when a member joins our web
site, refers other members or purchases a share through our dividend program. We
also utilize proprietary technology to track the referrals of a member, and to
pay purchase dividend to a member based on his or her purchases, as well as
those purchases made by such referrals.

Revenues and Expenses

For most of the year of 1999, operations continued to be in the
development stage. We had limited revenues for the period ended December 31,
1999, totaling $49,700.

Cost of sales

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Cost of goods sold totaled $ 48,578, resulting in a gross margin of $1,122
or 2.3% after rebates (which are allocated to the members as purchase
dividends). These rebates may be used against future purchases, taken as cash,
or used to purchase Class B shares, valued at $1, in YouNetwork.

Selling, General and Administrative Expenses

We incurred expenses of approximately $1,700,000, for the year ended
December 31, 1999 consisting of compensation expense, system development costs
and other general and administrative expenses. Compensation expenses are related
to establishing strategic relationships through license arrangements and vendor
affiliations to market the business. Certain key positions including that of the
CEO were filled during this fiscal year. Larger space requirements necessitated
a move to approximately 6000 square feet of office space

Liquidity

Since inception YouNetwork has incurred a net losses of $1,884,346, and
had a working capital deficit of approximately $909,000 as of December 31, 1999.
As of December 31, 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 requirements consistent with anticipated growth in operations,
infrastructure and personnel.

At year-end our cash position totaled $41,127, and we continue to seek
additional funds to achieve adequate liquidity. Failure to raise adequate
capital could have a material impact on our company going forward. We believe
that our forward strategy will allow us to meet our fund raising requirements.

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.

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.

The system has been operational since September of 1999, since this time
through December 31, 1999 the site has registered 27,635 members and sold
approximately $49,000 dollars in product. YouNetwork has grown to its current
size without any marketing expenses. While we experienced limited membership and
revenue growth during this period, we identified the opportunity to leverage the
business and technology platforms as a means to grow member users and revenues
through a private label application strategy, incorporating a revenue sharing
model.

14
<PAGE>

We anticipate that this parallel strategy offers us the opportunity to
recognize an accelerated growth rate. There can be no assurances that there will
be a growing market for this opportunity, or that the clients that we have
identified will be able to sustain or fund the use of our services.

YouNetwork has developed a powerful loyalty e-commerce solution that
utilizes viral marketing and a referral compensation program that has proven to
create repeat purchasing and increase gross margin. We believe that our solution
is the only such program successfully deployed on the Internet.

We have identified a business strategy that will enable YouNetwork to
capitalize on the current investor trend favoring business-to-business
solutions. YouNetwork will market its proprietary loyalty e-commerce systems to
Corporate Intranets, Internet Content Sites and Consumer Affinity Groups. An
easy to use interface will allow the account to place a replicated YouNetwork
site at the World Wide Web address of their choice and customize the site with
their name, logo and information as well as their selection of product
categories. YouNetwork will provide site hosting and management as well as
customer service, product merchandising, marketing support and training. The
account will pay a one time integration fee as well as monthly hosting. The
revenue sharing program will allow these groups and their members to earn money
from the sale of goods and services.

In the e-commerce sector, we believe we will be the first to combine
e-commerce with a referral loyalty program that allows affinity groups to
private label the program. As e-commerce becomes a commodity on the Internet,
consumers will begin to purchase from sites that promote their lifestyle and
benefit them financially. By combining the loyalty model with localized affinity
marketing YouNetwork will establish a unique footprint in the Internet business.

Changes in operation and revenues.

We believe that the implementation of our forward-looking strategy will
result in significant expenditures to build our infrastructure especially in the
areas of product merchandising, marketing and technical support. We will realize
significant economies of scale as we implement our integration and hosting
strategy for our targeted private label clients. We will recognize income from
both the fees charged to these clients as well as our portion of the revenue
sharing income.

Item 7. Financial Statements.

See Item 13 of this form 10-KSB.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

PART III

15
<PAGE>

Item 9. Directors and Executive Officers, Promoters and Control Persons

The following table sets forth certain information concerning the
directors and executive officers of YouNetwork.

Directors and Executive Officers

NAME AGE POSITION

Don S. Senerath...................30 Chairman
George M. Santacroce..............51 Chief Executive Officer and Director
Kyle S. Taylor....................42 President and Director
Peter R. Silverman................53 Director

Don S. Senerath has been Chairman of the Board of Directors of YouNetwork since
inception in January 1998. Mr. Senerath is also an officer of International
Computing LLC (formerly known as Digital Pulp Technologies LLC), a Manhattan
based new media consulting and development firm which he founded in 1997. Mr.
Senerath has developed large scale back-end electronic commerce systems for
major corporations in the telecom, commercial capital, entertainment and
computer industries. From 1994 through 1997, Mr. Senerath was employed as the
chief engineer at Integrated Media Inc., where he developed a full scale
Internet system for Miramax Films, and interactive television products for
Nynex, for which he was awarded the Nynex Quality Award in 1995. In 1994, Mr.
Senerath received a Bachelor of Science degree in Electrical Engineering and
Computer Science from Cornell University, where his academic research
concentrated on the compression and delivery of media with applications in
distribution. Mr. Senerath is the Chief architect of YouNetwork Corporation's
proprietary technologies.

George M. Santacroce was appointed Chief Executive Officer of YouNetwork
effective November, 1999. Mr. Santacroce has extensive experience in retail
marketing and merchandising along with a strong background in business
management. He has developed strong relationships in the fields of product
procurement and developments, international relations, marketing and
entertainment. His experiences include, President of Tommy Hilfiger Collections
and Flagship Retail, CEO of Aquascutum of London for North America, Senior Vice
President at Bergdorf Goodman of the Neiman Marcus Group; President of Burberrys
of London, a license division of Cluett/West Point Pepperell. His expertise has
been focused on startup and turn around opportunities. Mr. Santacroce is a
graduate of Syracuse University in 1969, where he received a Bachelor of Arts
Degree in Business Management and Fashion Merchandising. Mr. Santacroce was
educated in both Europe and the United States.

Kyle S. Taylor has been President and a director of YouNetwork since our
inception in January 1998. After attending the University of Tennessee, Mr.
Taylor spent twelve years in the retail apparel business both working as an
executive with a division of Federated Corporation as well as owning and
operating a privately held retail business. In 1994, Mr. Taylor was hired by
Delta Woodside Industries, a NYSE textile conglomerate as Vice President of
Merchandising with responsibilities for product development, brand marketing and
merchandising. During his tenure at Delta Woodside he developed and implemented

16
<PAGE>

several marketing campaigns, including a national product launch in conjunction
with Sears Corporation, J.C. Penny, Federated Department Stores and other major
retail accounts. In 1996, Mr. Taylor pursued new opportunities in the On-Line
Marketing. As Marketing Director for Interactive Imaginations, the owners of
Riddler.com and The Commonwealth Network, he was responsible for developing
electronic commerce programs with on-line retailers and corporate sponsors such
as CitiBank, Qwest International, Inc., Kodak, America On-line, Barnes & Noble
and others.

Peter R. Silverman has been a director since December 1998. Mr. Silverman has
been a practicing attorney for over 27 years and has specialized in the
development of start up companies in the telecom and Internet industry. He is
the founding member of the law firm, Silverman, Collura & Chernis, P.C. Mr.
Silverman received a Bachelor of Arts degree from George Washington University
in 1967 and a law degree from Brooklyn Law School in 1970.

All directors hold office until the next annual meeting of the stockholders and
until their successors have been duly elected and qualified. Executive officers
are elected by and serve at the direction of the board of directors. There are
no family relationships among any of our directors or executive Officers.

Compliance with Section 16(a) of the Exchange Act

We do not have a class of securities registered pursuant to Section 12 of
the Exchange Act; therefore, our officers, directors and affiliates are not
subject to the reporting obligations set forth in Section 16(a) of the Exchange
Act.

Item 10. Executive Compensation.

Summary Compensation Table

The following table provides a summary of cash and non-cash compensation
for each of the last two fiscal years ended December 31, 1998 and 1999 with
respect to the following officers of YouNetwork:

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
- ------------------- ----------------------
Other Annual Restricted Securities
Stock Underlying LTIP All Other
Name and Principal Year Salary(1) Bonus Compensation Awards Options/SARs Payouts Compensation
- ------------------ ---- --------- ----- ------------ ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George Santacroce
CEO(2) 1999 $20,000 -0- -0- 100,000 -0- -0-

Kyle S. Taylor, 1998 $65,251 -0- -0- -0- -0- -0-
President 1999
</TABLE>

17
<PAGE>

(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of each of such individual's total annual salary and bonus.

(2) Mr. Santacroce joined YouNetwork in November of 1999.

Options/ SAR Grants in Last Fiscal Year. The following table sets forth
certain information with respect to option or SAR grants during the fiscal year
ended December 31, 1999 to the named executive officers.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of Securities Percent of Total Options
Underlying Options Granted to Employees in Exercise or Base Price
Name Granted Fiscal Year ($.SH) Expiration Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George Santacroce 1,500,000(1) 69.11% $1.10 April 30, 2001
- ---------------------------------------------------------------------------------------------------------------------
George Santacroce 500,000 23.04% $8.00 April, 30, 2001
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

1) 1,000,000 options have a vesting schedule of 100,000 options a month for
the first ten months of employment, 250,000 options shall vest after the
first 4 months of employment, and 250,000 options shall vest after 12
months of employment.

2) Options shall vest after 18 months of employment.

Aggregated Options/SAR Exercises Year-end Table. During the fiscal year ended
December 31, 1999, none of the named executive officers exercised any
options/SARs issued by YouNetwork. The following table sets forth information
regarding the stock options held as of December 31, 1999 by the named executive
officers.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year End
------------------------------------------- ---------------------------------
- ----------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George Santacroce 200,000 1,800,000 0 0
- ----------------------------------------------------------------------------------------------------------
</TABLE>

Directors' Compensation

Our directors do not receive any fixed compensation for their services as
directors. Directors are reimbursed for their reasonable out-of-pocket expenses
incurred in connection with performance of their duties. We did not pay our
directors any cash or other form of compensation for acting in such capacity.

18
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information as to the common stock
ownership of each of our directors, executive officers, all executive officers
and directors as a group, and all persons known by us to be the beneficial
owners of more than five percent of our common stock. Unless otherwise noted,
all persons named in the table have sole voting and dispositive power with
respect to all shares of common stock beneficially owned by them. Unless
otherwise indicated, the address of each beneficial owner is c/o YouNetwork
Corporation, 220 East 23rd Street, Suite 607 New York, New York 10010.

<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner (1) Title Of Class Beneficial Ownership Percent of Class
- -------------------- -------------- -------------------- ----------------
<S> <C> <C>
Kyle S. Taylor Class C Common 9,562,500 22.7%
Don S. Senerath Class C Common 12,475,000 29.7%
Dalia Silverman Class C Common 4,662,226 11.1%
Kleopatra Georgiades Class C Common 4,762,726 11.3%
Spencer Trask Partners Class C Common 4,000,000 9.5%
Richard Perry (3) Class C Common 250,000 0.6%
George Santacroce (4) Class C Common 200,000 0.5%
All Officers and Directors as a
Group (4 persons) Class C Common 22,487,500 53.5%
</TABLE>

(1) Except as otherwise noted, the persons named in this table, based upon
information provided by these persons, have sole voting and investment
power with respect to all shares of common stock owned by them. Dalia
Silverman is the wife of Peter R. Silverman, one of our directors. Mr.
Silverman disclaims any beneficial ownership in the shares owned by his
wife, Dalia Silverman. There is no family relationship between Kleopatra
Georgiades and any of our directors or officers. Michael Karfunkel, George
Karfunkel and Kevin Kimberlin are partners of Spencer Trask Partners.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock which is issuable upon the exercise of a
Warrant or Stock Option which is presently exercisable or which becomes
exercisable within 60 days of March 20, 2000, are deemed outstanding.
Percentage of beneficial ownership is based upon 42,070,052 shares of
common

19
<PAGE>

stock outstanding as of March 27, 2000. To our knowledge, except as set
forth in the footnotes to this table and subject to applicable community
property laws, each person named in the table has sole voting and
investment power with respect to the shares set forth opposite such
person's name.

(3) Represents options for the purchase of 250,000 shares of our common stock.

(4) Represents options for the purchase of 200,000 shares of our common stock.

Item 12. Certain Relationships and Related Transactions.

On February 3, 1999, YouNetwork, a New York corporation, merged with and
into us, the surviving corporation. Pursuant to the agreement and plan of
merger, dated February 3, 1999, all shareholders of the New York corporation
exchanged their common stock for our class C common stock $.0001 par value per
share, on a basis of 330,000 shares of our class C common stock for each
outstanding share of the New York corporation. The reason for the merger was to
take advantage of the laws of the State of Delaware.

Pursuant to a stockholders' agreement, dated as of December 4, 1998, among
Kyle S. Taylor, Don S. Senerath (the "Management Stockholders"), Dalia Silverman
and Kleopatra Georgiades (the "Original Investors") and us; our Board of
Directors, the Management Stockholders and Original Investors who owned 77.3% of
our common stock agreed to vote their shares of common stock to elect a board of
directors consisting of three directors, one of whom was designated by the
Original Investors, and two of whom were designated by the Management
Stockholders. The ratio of directors designated by the Original Investors to
those designated by the Management Stockholders shall be maintained in the event
the board is increased in number. Pursuant to the stockholders' agreement no
significant transaction can be approved without the unanimous approval of all of
the directors. A significant transaction is defined in the agreement as:

o any creation of any class of capital stock;
o the sale or issuance of shares of capital stock, warrants or other
securities convertible into or exchangeable for capital stock;
o any declaration or issuance of any dividend;
o any transaction or contract with a value of $10,000 or more;
o any amendment to or modification of any provision of our Certificate
of Incorporation or By-laws;
o any change in our auditors;
o any consolidation or merger of us;
o any executive employment contract;
o payment of salaries to any officer at a rate of more than $85,000
per annum; and
o the election of officers.

The stockholders' agreement also provides for certain bring along rights
and rights of first refusal among the Management Stockholders and the Original
Investors with respect to any sale of their shares. The stockholders' agreement
terminates on December 1, 2010, or such earlier time as either:

20
<PAGE>

o the Original Investors no longer own at least 10% of our common stock on a
fully diluted basis; or
o we have completed a public offering of its securities resulting in net
proceeds to us of at least $10,000,000.

Pursuant to a December 4, 1998, stock sale agreement among us, the
Management Stockholders and the Original Investors, the Original Investors
purchased from us, for an aggregate purchase price of $200,000: (a) an aggregate
of 8,910,000 shares of common stock (the "Purchased Shares") representing 27% of
the issued and outstanding common stock, on a fully diluted basis; and (b)
Options (the "Purchase Options") to purchase in the aggregate such number of
shares of common stock, at nominal consideration, as shall equal, in the
aggregate when added to our Purchased Shares, 27% of our issued and outstanding
common stock on a fully diluted basis, immediately following the sale of
additional common stock by us in consideration of the first $400,000 of common
stock sale proceeds received by us following December 4, 1998.

The proceeds from the sale of our shares to the Original Investors was
used for software development in the approximate amount of $68,000, legal
expenses in the amount of $10,000, and $122,000 to salaries, office expenses and
general administrative costs. In March of 1999, the Original Investors exercised
the Purchase Options following a private placement in March of 1999 to
accredited investors only for the sale of 4,630,000 class C shares by us for
consideration of $463,000. Proceeds from the private placement is being used for
salaries and fees, network expansion, equipment upgrades, and development costs
in connection with our proprietary software, tracking.

Pursuant to three promissory notes, Dalia Silverman has loaned to us a
total of $137,500 in 1999 as follows: on November 3, 1999, $75,000, on December
8, 1999, $25,000 and on December 20, 1999 $37,500. Each note is payable on
demand at an interest rate of seven percent per annum.

Under two promissory notes, Kleopatra Georgiades loaned to us a total of
$62,500 in 1999 as follows: $ 25,000 on December 14, 1999, and $37,500 on
December 20, 1999.

As a result of their March 1999 exercise of their respective Purchase
Options, the Original Investors each received 1,479,452 shares of our class C
common stock. The $463,000 raised from the private placement in March of 1999,
was used for salaries, fees and working capital.

On November 1, 1999, we entered into an employment agreement with George
Santacroce, to serve as our chief executive officer. The term of the agreement
is for two years commencing on November 1, 1999. Mr. Santacroce receives a base
compensation of $120,000 for the first nine months following November 1, 1999.
Under the terms of the agreement, Mr. Santacroce commencing August 1, 2000 and
through the end of the term shall be entitled to receive a base salary at a rate
of $400,000 per annum, payable in arrears in equal installments in

21
<PAGE>

accordance with our payroll practices. The agreement contains a provision for
performance based bonuses, including non-qualified stock options. The employment
agreement contains a non-compete clause for a period of six months following the
termination of Mr. Santacroce's employment. A state court might not enforce or
only partially enforce this non-compete provision. In addition, if we terminate
the agreement without cause, Mr. Santacroce may be entitled to a severance
payment which shall equal the amount of $20,000 multiplied by the number of
months of employment completed prior to termination, in the event of termination
within the first nine months of employment. If Mr. Santacroce's employment is
terminated without cause after nine months of the term, or the agreement is not
extended for an additional term, the severance payment shall be $180,000. He
will receive the balance of any unpaid salary which would otherwise be payable
to him during the remainder of the term of the agreement.

Currently we do not have any employment agreements with Kyle Taylor our
president and Don S. Senerath; however, pursuant to the stock sale agreement if
either Mr. Taylor's or Mr. Senerath's employment with us is terminated without
substantial cause, as defined in the Agreement, the terminated executive will
receive compensation equivalent to twelve times his monthly compensation during
the month immediately prior to the termination date, which compensation shall be
paid quarterly in advance.

Under the agreement, Mr. Taylor and Mr. Senerath have agreed that for a
period of two years from the date of termination of employment, with the
exception of termination by us without substantial cause, they will not,
directly or indirectly, engage in the business of electronic commerce with
respect to buying or selling of consumer products through a membership network
or buying syndicate which offers its members purchase incentives or which
utilizes programs or systems which duplicate or are similar to the programs and
systems which have been developed exclusively by or for us; or (ii) solicit our
employees or its clients.

From inception, YouNetwork has retained the services of International
Computing, which provides software and system integration consultation services
in connection with our efforts to build out our web site and to develop our
proprietary tracking technology. Don S. Senerath, Chairman of the board of
directors of YouNetwork, is a member of International Computing. For the period
from January 14, 1998 (inception) to December 31, 1999, Mr. Senerath did not
perform any significant services on behalf of YouNetwork in his role as chairman
and no compensation expense has been recorded by YouNetwork. Consulting fees
paid or accrued by YouNetwork to International Computing for the period from
January 14, 1998 (inception) to December 31, 1998 were approximately $89,000, of
which approximately $69,000 was capitalized and the balance charged to
operations. For the year ended December 31, 1999, consulting fees paid or
accrued by YouNetwork to International Computing were $510,000, of which
approximately $425,000 was capitalized and the balance was charged to
operations. At December 31, 1999, $200,000 was due to International Computing by
YouNetwork.

We believe that all of the transactions set forth above with persons
affiliated with us were made on terms no less favorable to us than could have
been obtained from unaffiliated third parties.

22
<PAGE>

Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Index to Financial Statements

1. Financial Statements Page

Independent Auditor's Report F-1

Balance Sheet as of December 31, 1999 F-3

Statements of Operations - for theYear Ended
December 31, 1999; for the Period from January
14, 1998 (Inception) to December 31, 1998; and
for the Period from January 14, 1998 (Inception)
to December 31, 1999 F-4

Statements of Stockholders' Equity for theYear
Ended December 31, 1999; for the Period from
January 14, 1998 (Inception) to December 31,
1998; and for the Period from January 14, 1998
(Inception) to December 31, 1999 F-5

Statements of Cash Flow for theYear Ended
December 31, 1999; for the Period from January
14, 1998 (Inception) to December 31, 1998; and
for the Period from January 14, 1998 (Inception)
to December 31, 1999 F-8

Notes to Financial Statements F-10

2. Exhibits Included Herein

See Exhibit Index herein for the exhibits filed as part of
this Form 10-KSB.

(b) Reports on Form 8-K

None.

<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)

Index
-----

Page
----

Independent Auditor's Report F-1

Balance Sheet as of December 31, 1999 F-3

Statements of Operations for the Year Ended December 31, 1999;
for the Period January 14, 1998 (Inception) to
December 31, 1998; and for the Period from January 14, 1998
(Inception) to December 31, 1999 F-4

Statements of Stockholders' Equity for the Year Ended
December 31, 1999; for the Period from January 14, 1998
(Inception) to December 31, 1998; and for the Period from
January 14, 1998 (Inception) to December 31, 1999 F-5

Statements of Cash Flows for the Year Ended December 31, 1999;
for the Period from January 14, 1998 (Inception) to
December 31, 1998; and for the Period from January 14, 1998
(Inception) to December 31, 1999 F-8

Notes to Financial Statements F-10

<PAGE>

INDEPENDENT AUDITOR'S REPORT

The Board of Directors
YouNetwork Corporation

We have audited the accompanying balance sheet of YouNetwork Corporation,
a development stage company, as of December 31, 1999, and the related statements
of operations, stockholders' equity and cash flows for the year ended December
31, 1999 and for the period from January 14, 1998 (inception) to December 31,
1998 and for the period from January 14, 1998 (inception) to December 31, 1999.
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 YouNetwork Corporation, a
development stage company, as of December 31, 1999, and the results of its
operations and its cash flows for the year ended December 31, 1999 and for the
period from January 14, 1998 (inception) to December 31, 1998 and for the period
from January 14, 1998 (inception) to December 31, 1999, in conformity with
generally accepted accounting principles.

F-1
<PAGE>

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage, has incurred
losses since inception of approximately $1,884,000 and expects to incur net
losses for the foreseeable future. At December 31, 1999, the Company had a
working capital deficit of approximately $909,000. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans as to these matters are also described in Note 1. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ MAHONEY COHEN & COMPANY, CPA, P.C.
--------------------------------------
MAHONEY COHEN & COMPANY, CPA, P.C.

New York, New York
March 7, 2000

F-2
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Balance Sheet
December 31, 1999

<TABLE>
<CAPTION>
ASSETS
------

<S> <C>
Current assets:
Cash and cash equivalents $ 41,127
Prepaid expenses 59,308
-----------
Total current assets 100,435

Property and equipment, net (Notes 3 and 4) 763,731

Other assets:
Software development costs, net (Notes 2 and 8) 508,334
Security deposits 187,196
Loan to stockholder 12,201
Software license 165,431
Other assets 41,974
-----------
Total other assets 915,136
-----------
$ 1,779,302
===========

<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
Current portion of capital lease obligations (Note 4) $ 242,627
Notes payable - stockholders (Note 6) 200,000
Deferred revenue (Note 5) 175,000
Accounts payable 114,381
Accrued rebate payable 4,063
Other current liabilities 73,710
Due to related party (Note 8) 200,000
-----------
Total current liabilities 1,009,781

Capital lease obligations, less current portion (Note 4) 254,439

Commitments (Note 12)

Stockholders' equity (Note 11):
Common stock:
Class A - par value $.0001 per share:
Authorized - 1,500,000 shares
Issued and outstanding - 7,052 shares
Class B - par value $.0001
per share: 1
Authorized - 1,500,000 shares
Issued and outstanding - 1,058 shares --
Class C - par value $.0001 per share:
Authorized - 247,000,000 shares
Issued and outstanding - 41,852,352 shares 4,185
Additional paid-in capital 2,395,242
Deficit accumulated during the development stage (1,884,346)
-----------
Total stockholders' equity 515,082
-----------
$ 1,779,302
===========
</TABLE>

See accompanying notes.

F-3
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Operations

Cost of goods 48,578 -- 48,578
------------ ------------ ------------

Gross profit 1,122 -- 1,122

Expenses:
Compensation 396,976 67,251 464,227
Development costs 317,371 20,000 337,371
General and administrative 985,516 73,597 1,059,113
------------ ------------ ------------
Total expenses 1,699,863 160,848 1,860,711
------------ ------------ ------------

Operating loss (1,698,741) (160,848) (1,859,589)

Other income (expense):
Interest expense (34,017) (1,975) (35,992)
Interest income 11,235 11,235
------------ ------------ ------------
Net other expense (22,782) (1,975) (24,757)
------------ ------------ ------------

Net loss $ (1,721,523) $ (162,823) $ (1,884,346)
============ ============ ============
Net loss per common share, basic and
diluted $ (.04) $ (.01)
============ ============
Weighted average of common shares
outstanding - basic and diluted 39,423,603 24,916,434
============ ============
</TABLE>

See accompanying notes.

F-4
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Stockholders' Equity

<TABLE>
<CAPTION>
Common Stock Deficit
-------------------------------------------------- Accumulated
Class A Class B Class C Additional During the
------- ------- ------- Paid-in Development
Shares Amount Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ------ ------ ------- -----
<S> <C> <C> <C> <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) $ --

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 --

Net loss -- -- -- -- -- -- -- (162,823)
------ ------ ------ ------ ---------- ------- ---------- ----------
Balances, December 31, 1998 -- -- -- -- 33,000,000 3,300 196,900 (162,823)

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 --

Exercise of common stock purchase
warrants for no cash proceeds in
accordance with anti-dilutive provisions
(Note 11) -- -- -- -- 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 --
------ ------ ------ ------ ---------- ------- ---------- ---------

Totals carried forward -- $ -- -- $ -- 41,159,452 $ 4,116 $1,684,084 $ (162,823)
------ ------ ------- ------ ---------- ------- ---------- ----------

</TABLE>

Treasury Stock
------------------
Shares Amount Total
------ ------ -----

Issuance of 24,090,000 shares of common
stock on January 22, 1998 for cash (at
less than $.01 per share) -- $ -- $ 200

Issuance of 8,910,000 shares of common
stock on December 4, 1998 for cash
(at $.02 per share) -- -- 200,000

Net loss -- -- (162,823)
------ ------ ----------

Balances, December 31, 1998 -- -- 37,377

Issuance of 4,630,000 shares of common
stock on March 22, 1999 for cash (at
$.10 per share) -- -- 463,000

Exercise of common stock purchase
warrants for no cash proceeds in
accordance with anti-dilutive provisions
(Note 11) -- -- --

Issuance of 2,050,000 shares of common
stock on April 19, 1999 for cash (at $.50
per share) -- -- 1,025,000
------ ------ ----------
Totals carried forward -- $ -- $1,525,377
------ ------ ----------

See accompanying notes.

F-5
<PAGE>

YOUNETWORK CORPORATION

(A Development Stage Company)
Statements of Stockholders' Equity

Totals brought forward -- $ -- -- $ -- 41,159,452 $ 4,116 $1,684,084 $ (162,823)

Issuance of warrants for Web site
design -- -- -- -- -- -- 38,000 --

Issuance of warrants for portion of
computer equipment lease -- -- -- -- -- -- 54,748 --

Issuance of 595,000 shares of common
stock on August 19, 1999 for cash
(at $1 per share) -- -- -- -- 595,000 59 594,941 --

Issuance of 29,000 shares of common
stock on October 13, 1999 for cash
(at $1 per share) -- -- -- -- 29,000 3 28,997 --

Issuance of 6,400 shares of common
stock on October 1, 1999 for
advertising (at $1 per share) -- -- -- -- 6,400 1 6,399 --

Issuance of warrants for leasehold
improvements -- -- -- -- -- -- 11,000 --
------ ------ ------ ------ ---------- ------- ---------- ---------
Totals carried forward -- $ -- -- $ -- 41,789,852 $ 4,179 $2,418,169 $ (162,823)
------ ------ ------ ------ ---------- ------- ---------- ----------
</TABLE>

Treasury Stock
------------------
Shares Amount Total
------ ------ -----

Totals brought forward -- $ -- $1,525,377

Issuance of warrants for Web site
design -- -- 38,000

Issuance of warrants for portion of
computer equipment lease -- -- 54,748

Issuance of 595,000 shares of common
stock on August 19, 1999 for cash
(at $1 per share) -- -- 595,000

Issuance of 29,000 shares of common
stock on October 13, 1999 for cash
(at $1 per share) -- -- 29,000

Issuance of 6,400 shares of common
stock on October 1, 1999 for
advertising (at $1 per share) -- -- 6,400

Issuance of warrants for leasehold
improvements -- -- 11,000

------ ------ ----------
Totals carried forward -- $ -- $2,259,525
------ ------ ----------

See accompanying notes.

F-6
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Stockholders' Equity

Totals brought forward -- $ -- -- $ - 41,789,852 $ 4,179 $2,418,169 $ (162,823)

Issuance of 15,000 shares of common
stock on November 9, 1999 for lease
broker fees (at $1 per share) -- -- -- -- 15,000 2 14,998 --

Issuance of 25,000 shares of common
stock on December 5, 1999 for cash
(at $1 per share) -- -- -- -- 25,000 2 24,998 --

Shares contributed to Treasury -- -- -- -- -- -- -- --
Issuance of 250,000 shares of common
stock on November 7, 1999 for cash
(at $.50 per share) from Treasury -- -- -- -- -- -- 125,000 --

Issuance of 22,500 shares of common
stock on November 30, 1999 for cash
(at $1 per share) -- -- -- -- 22,500 2 22,498 --

Registration costs incurred -- -- -- -- -- -- (218,530) --

Issuance of 7,052 shares of Class A
common stock 7,052 1 -- -- -- -- 7,051 --

Issuance of 1,058 shares of Class B
common stock -- -- 1,058 -- -- -- 1,058 --

Net loss -- -- -- -- -- -- -- (1,721,523)
------ ------ ------ ------ ---------- ------- ---------- ---------
Balance, December 31, 1999 7,052 $ 1 1,058 $ -- 41,852,352 $ 4,185 $2,395,242 $(1,884,346)
====== ====== ====== ====== ========== ======= ========== ===========
</TABLE>

Treasury Stock
------------------
Shares Amount Total
------ ------ -----

Totals brought forward -- $ -- $2,259,525

Issuance of 15,000 shares of common
stock on November 9, 1999 for lease
broker fees (at $1 per share) -- -- 15,000

Issuance of 25,000 shares of common
stock on December 5, 1999 for cash
(at $1 per share) -- -- 25,000

Shares contributed to Treasury 250,000 -- --
Issuance of 250,000 shares of common
stock on November 7, 1999 for cash
(at $.50 per share) from Treasury (250,000) 125,00

Issuance of 22,500 shares of common
stock on November 30, 1999 for cash
(at $1 per share) -- -- 22,500

Registration costs incurred -- -- (218,530)

Issuance of 7,052 shares of Class A
common stock -- -- 7,052

Issuance of 1,058 shares of Class B
common stock -- -- 1,058

Net loss -- -- (1,721,523)
----------
Balance, December 31, 1999 -- $ -- $ 515,082
======= ======== ==========

See accompanying notes.

F-7
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Cash Flows

<TABLE>
<CAPTION>
Period From Period From
January 14, January 14,
1998 1998
Year Ended (Inception) to (Inception) to
December 31, December 31, December 31,
1999 1998 1999
------------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,721,523) $ (162,823) $(1,884,346)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 180,249 7,508 187,757
Amortization of software license 104,845 -- 104,845
Amortization of other asset 12,774 -- 12,774
Warrants and common stock issued for
services 29,510 -- 29,510
Change in assets and liabilities:
Prepaid expenses (59,308) -- (59,308)
Other current assets 672 (672) --
Deferred revenue -- 175,000 175,000
Accounts payable 105,157 9,224 114,381
Accrued rebate payable 4,063 -- 4,063
Other current liabilities 58,981 14,729 73,710
Due to related party 176,850 23,150 200,000
----------- ----------- -----------
Net cash provided by (used in)
operating activities (1,107,730) 66,116 (1,041,614)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (256,958) (9,927) (266,885)
Software development costs (447,120) (69,425) (516,545)
Loan to stockholder (12,201) -- (12,201)
Purchase of software license (270,276) -- (270,276)
Payment of security deposits (183,696) (3,500) (187,196)
----------- ----------- -----------
Cash used in investing activities (1,170,251) (82,852) (1,253,103)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock,
net of registration costs 2,065,970 200,200 2,266,170
Proceeds from notes payable - stockholders 200,000 -- 200,000
Payments of capital lease obligations (124,930) (5,396) (130,326)
----------- ----------- -----------
Net cash provided by financing
activities 2,141,040 194,804 2,335,844
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (carried forward) $ (136,941) $ 178,068 $ 41,127
----------- ----------- -----------
</TABLE>

See accompanying notes.

F-8
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Statements of Cash Flows (Concluded)

<TABLE>
<CAPTION>
Period From Period From
January 14, January 14,
1998 1998
Year Ended (Inception) to (Inception) to
December 31, December 31, December 31,
1999 1998 1999
------------------- -------------- ---------------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents (brought forward) $(136,941) $ 178,068 $ 41,127

Cash and cash equivalents, beginning of period 178,068 -- --
--------- --------- ---------
Cash and cash equivalents, end of period $ 41,127 $ 178,068 $ 41,127
========= ========= =========

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for:
Interest $ 19,977 $ 1,975 $ 21,952
========= ========= =========

Supplemental Schedule of Non-Cash Investing and Financing Activities

Capital lease obligation incurred for the
acquisition of equipment $ 582,442 $ 44,950 $ 627,392
========= ========= =========

Issuance of Class A common stock for
services $ 21,400 $ -- $ 21,400
========= ========= =========

Issuance of warrants for leasehold
improvements $ 11,000 $ -- $ 11,000
========= ========= =========

Issuance of warrants for acquisition
of software development costs $ 38,000 $ -- $ 38,000
========= ========= =========

Issuance of warrants for portion of
computer equipment lease $ 54,748 $ -- $ 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 year ended December 31, 1999, the Company issued 7,052 shares of
Class A common stock and 1,058 shares of Class B common stock for no cash
proceeds.

See accompanying notes.

F-9
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 1 - The Company

YouNetwork Corp. was incorporated in the State of New York on January 14,
1998. On February 3, 1999, the stockholders of YouNetwork Corp. exchanged their
common stock for shares of Class C common stock of YouNetwork Corporation (the
"Company") (see Note 11). The Company developed an online consumer network
comprised of consumers who are Internet shoppers. The Company markets a wide
range of branded consumer products and services provided through vendor
affiliations at discounted prices to members of its network. Members will earn
rebates based on purchases. Members will be able to request rebates as cash, as
a credit to future product purchases or to purchase stock in the Company. The
Company will not maintain an inventory in any product line which it markets.

Basis of Presentation and Management's Plans

Since its inception, the Company 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
significant operating revenue generated by the utilization of the Company's
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 online sales channel with
low customer acquisition costs.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. For the period from January 14, 1998
(inception) to December 31, 1999, the Company has incurred a net loss of
approximately $1,884,000 and had a working capital deficit of approximately
$909,000 as of December 31, 1999. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management expects to
incur additional losses for the foreseeable future and recognizes the need for
an infusion of cash to achieve their business plan. The Company is actively
pursuing various options which include seeking additional equity financing. The
Company believes it will be able to raise sufficient funds to achieve its
planned business objectives through private placements and through the issuance
of stock to members of its online consumer network. The Company has no bank
lines of credit and there can be no assurance that the Company will be able to
obtain any needed additional financing on commercially reasonable terms. If the
Company is unable to obtain sufficient funds, it may be necessary for the
Company to explore other options which could have a material adverse effect on
the Company's business. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classifications of liabilities that might result
from the outcome of this uncertainty.

F-10
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 2 - Summary of Significant Accounting Policies

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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue at the time the goods are shipped or
services are provided by its vendors. The Company acts as a principal in these
transactions.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Property and Equipment

Property and equipment is recorded at cost. Expenditures for major
additions and betterments are capitalized. Maintenance and repairs are charged
to operations as incurred. Depreciation of property and equipment is computed by
the straight-line method over the assets' estimated useful lives ranging from
three to five years. Leasehold improvements are amortized by the straight-line
method over the lesser of the term of the related lease or the useful life. Upon
sale or retirement of property and equipment, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.

Software Development Costs

The Company accounts for its software development costs in accordance with
the provisions of Statement of Position 98-1, "Accounting for Costs of Computer
Software for Internal Use", issued by the American Institute of Certified Public
Accountants ("SOP 98-1"). Under the provisions of SOP 98-1, certain costs
incurred in developing internal use software principally in the software
application development stage, are eligible for capitalization.

F-11
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 2 - Summary of Significant Accounting Policies (Continued)

Software Development Costs (Continued)

The Company has developed certain proprietary e-commerce technology for
its online systems. Development includes software for its member referral
tracking, shopping list and checkout, rebate and reward accounting, credit card
transaction engine, automated merchandising and product presentation, as well as
data base management tools and reporting programs. Front-end site development
includes such items as design and development of the shopping interface, dynamic
home page and Internet gateway. Accordingly, during the period from January 14,
1998 (inception) to December 31, 1999, the Company capitalized $516,545 of fees
incurred related to software application development costs. Such costs are being
amortized on a straight-line basis over three years commencing October 1, 1999.
To date, substantially all of the Company's software development has been
conducted by an affiliate, International Computing, Inc. ("International
Computing"), formerly Digital Pulp Technologies, Inc. (see Note 8).

Advertising and Promotion Costs

Advertising and promotion costs are charged to operations during the
period in which they are incurred. The Company distributes one Class A share to
each of the first 250,000 members of the consumer network. Such cost amounted to
approximately $7,000 and is included in advertising and promotion costs for the
year ended December 31, 1999. Such costs were nominal for the period ended
December 31, 1998.

Computation of Net Loss per Common Share

Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period, adjusted for the dilutive effect of common stock equivalents, consisting
of dilutive common stock options using the treasury stock method.

For all periods presented, common stock warrants are not included
in the computation as they would be anti-dilutive. In the event that the Company
was to report net income in future periods, these warrants could have a dilutive
effect on future earnings per share calculations in those periods.

The Company's board of directors declared a 3.65 to 1 stock split of its
common stock effective December 4, 1998. The stock split was effective prior to
the issuance of shares discussed in Note 11. All share data has been
retroactively adjusted for the effect of the split on December 4, 1998 and the
exchange of stock on February 3, 1999.

F-12
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 2 - Summary of Significant Accounting Policies (Continued)

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), encourages but does not require companies
to record compensation cost for stock-based employee compensation plans at fair
value. The Company has elected to continue to account for stock-based
compensation using the method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's common stock at
the date of the option grant over the amount the employee must pay to acquire
the stock. See Note 10 - Stock Option Plan.

Income Taxes

The Company accounts for deferred income taxes using the liability method.
Deferred income taxes are measured by applying enacted statutory rates to net
operating loss carryforwards. Deferred tax assets are reduced, if necessary, by
a valuation allowance for any tax benefits which are not expected to be
realized.

Fair Value of Financial Instruments

The Company applies the provision of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS 107"). SFAS 107 requires all entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and not recognized
on the balance sheet, for which it is practicable to estimate fair value. SFAS
107 defines fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
At December 31, 1999, management believes the fair value of all financial
instruments approximated carrying value.

Note 3 - Property and Equipment

Property and equipment consists of:

Computer equipment $713,932
Office equipment 7,435
Leasehold improvements 183,910
--------
905,277
Less: Accumulated depreciation and
amortization 141,546
--------
$763,731
========

F-13
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 4 - Capital Lease Obligations

Capital lease obligations consist of:

Capital lease obligations, payable in monthly
installments of $22,679, including interest
between 7.45% and 11%, maturing in December
2001, secured by specific equipment with a
carrying value of $509,091

$ 536,928
Less: Amount representing interest
Less: Current portion
39,862
---------
497,066
242,627
---------
$ 254,439
=========

Minimum future lease payments under the capital lease as of December
31, 1999 are as follows:

Year Ending
December 31,
------------

2000 $ 242,627
2001 254,439
---------
$ 497,066
=========

The Company leases certain computer equipment under an agreement which
is classified as a capital lease. Assets included under capital lease are
included in the balance sheet as follows:

Computer equipment $ 627,391
Accumulated amortization (118,300)
----------
$ 509,091
==========
Note 5 - Deferred Revenue

The Company entered into an agreement in March 1998 with a company
which provides long-distance telephone service. The agreement includes
provisions for advances to the Company totalling $250,000. During 1998, the
Company received advances of $175,000. Commissions earned by the Company for the
referral of customers to the telephone company are offsetable against these
advances. The initial term of the agreement is three years. Advances made in
excess of commissions earned are payable by the Company on the earlier of the
termination of the agreement

F-14
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 5 - Deferred Revenue (Continued)

or twelve months from the date of full execution of the agreement. In March
2000, the Company was released from all obligations pursuant to the agreement
and was not required to perform its obligations under the agreement or repay the
advance. There were no commissions earned during the year ended December 31,1999
and the period ended December 31, 1998.

Note 6 - Notes Payable - Stockholders

The notes payable are due on demand and bear interest at 7% per annum.

Note 7 - Income Taxes

At December 31, 1999, the Company had a U.S. federal and New York State
net operating loss carryforward of approximately $1,869,000 expiring through
2019. The Company has established a valuation allowance with respect to these
federal and state carryforwards. The difference between the statutory rate of
34% and the Company's effective tax rate of 0% is due to an increase in the
valuation allowance. The valuation allowance increased by $664,900 during the
year ended December 31, 1999.

Deferred tax assets:

Net operating loss carryforwards $ 730,000
Valuation allowance (730,000)
------------
Net deferred tax assets $ --
============
Note 8 - Related Party Transactions

From inception, the Company has retained the services of International
Computing, a corporation that is partially-owned by the Company's chairman who
is also a significant stockholder of the Company. For the period from January
14, 1998 (inception) to December 31, 1999, this individual had not performed any
significant services on behalf of the Company in his role as chairman and no
compensation expense has been recorded by the Company. International Computing
has provided software and systems integration consultation services in
connection with the Company's development of its proprietary tracking software.
Consulting fees paid or accrued by the Company to International Computing for
the period from January 14, 1998 (inception) to December 31, 1998 were
approximately $89,000, of which approximately $69,000 was capitalized and the
balance charged to operations. For the year ended December 31, 1999, consulting
fees paid or accrued by the Company to International Computing were $510,000, of
which approximately $425,000 was capitalized and the balance was charged to
operations. At December 31, 1999, $200,000 was due to International Computing by
the Company.

F-15
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 9 - Concentration of Credit Risk

The Company maintains cash balances at two banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000.

Note 10 - Stock Option Plan

In October 1999, the Board of Directors and the stockholders of the
Company approved a Stock Option Plan (the "1999 Plan") which provides for the
granting of options to purchase up to 4,000,000 shares of common stock, pursuant
to which key employees, directors and consultants are eligible to receive
incentive and/or non-qualified stock options. The exercise period and price of
options granted under the 1999 Plan are determined by the Board of Directors.
The exercise price for incentive stock options must not be less than the fair
market value of the shares of common stock on the date of the grant, except that
the exercise price of options granted to a stockholder owning more than 10% of
the outstanding capital stock may not be less than 110% of the fair value of the
common stock at date of grant.

Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its applicable options under the fair value method of the statement.

A summary of applicable option activity and related information for the
year ended December 31, 1999 is as follows:

Weighted-
Average
Exercise
Options Price
------- --------

Outstanding, beginning of year -- $ --

Granted 2,170,500 2.66
Exercised -- --
Forfeited -- --
Outstanding, end of year 2,170,500 2.66
=========
Exercisable, end of year 57,500 $ .59
=========

The weighted-average fair value of options granted during 1999 was
$.56. Exercise prices for options outstanding ranged from $.50 to $8.00 as of
December 31, 1999. These options expire at various times through April 2001.

F-16
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 10 - Stock Option Plan (Continued)

The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the weighted-average
assumptions for 1999, including a risk free interest rate of 6%, a volatility
factor of the expected market price of the Company's common stock of 231%, a
dividend yield of 0% and a weighted-average remaining contractual life of the
options of 10 months.

This model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's options have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. The effects of
applying SFAS No. 123 for pro forma disclosures are not likely to be
representative of the effects on reported net income or losses for future years.
The Company's pro forma information for the year ended December 31, 1999
follows:

Pro forma net loss $ (1,922,523)

Pro forma net loss per share (.05)

Note 11 - Stockholders' Equity

Stock Warrants

On December 4, 1998, the Company issued 8,910,000 shares (the
"Purchased Shares") of common stock and common stock purchase warrants (the
"Purchase Warrants") for $200,000. The Purchase Warrants can be used to purchase
in the aggregate such number of shares of common stock, at nominal
consideration, as shall equal, in the aggregate when added to the Purchased
Shares, 27% of the issued and outstanding shares of common stock of the Company
on a fully diluted basis, immediately following the sale of additional common
stock by the Company in consideration of the first $400,000 of common stock
proceeds received by the Company after December 4, 1998. During 1998, no
warrants were exercised. During the year ended December 31, 1999, the warrants
were exercised and the Company issued 1,479,452 shares of Class C common stock
to certain stockholders in accordance with anti-dilutive provisions of the
stockholders' agreement.

F-17
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 11 - Stockholders' Equity (Continued)

Exchange of Stock

On February 3, 1999, the stockholders of YouNetwork Corp., a New York
corporation, exchanged all of their common stock for 24,090,000 shares of Class
C common stock of YouNetwork Corporation, a Delaware corporation under common
control. Since the entities are under common control, the transaction was
accounted for in the same manner as a pooling of interest.

In November 1999, two of the principal shareholders contributed, for no
consideration, a total of 250,000 shares of Class C common stock to the Company.
Such shares were then sold by the Company to an unrelated shareholder for
$125,000.

Registration Statement

On February 8, 1999, YouNetwork Corporation 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. In July 1999, the registration statement
became effective and the first 250,000 Class A shares were offered at no cost to
each consumer who registered to become a member of YouNetwork Corporation'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
are 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.
During the year ended December 31, 1999, 7,052 shares of Class A common stock
and 1,058 of Class B common stock were issued.

Upon the issuance of Class A shares, the Company records a charge to
operations for promotions costs for the value of the shares issued based on the
fair value of the common stock. Upon the issuance of Class B shares, the Company
records 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
revenue are recorded when members make purchases on the consumer network.

F-18
<PAGE>

YOUNETWORK CORPORATION
(A Development Stage Company)
Notes to Financial Statements

Note 12 - Commitments

Leases

The Company leases office space under operating leases expiring in
April 2003. The future minimum lease payments, excluding escalation charges, are
as follows:

Year Ending
December 31,

2000 $ 153,000
2001 153,000
2002 87,000
2003 7,000
----------
$ 400,000
==========

Total rent expense charged to operations for the period from January
14, 1998 (inception) to December 31, 1998 and the year ended December 31, 1999
was approximately $12,100 and $96,000, respectively.

Employment Contract

The Company has an employment agreement with a key executive officer
which expires on October 31, 2001. Such agreement provides for a base salary of
$120,000 for the first nine months of the agreement and $400,000 thereafter. The
agreement also provides for a severance payment equal to $20,000 per month
multiplied by the number of months of employment prior to termination, up to a
cap of $180,000 in the event of termination without cause. If the executive
officer resigns from his employment after six months, he shall be entitled to a
pro-rata share of the severance. The executive received stock options for
2,000,000 shares of common stock at prices ranging from $1.10 to $8.00 per share
which vest over a period of eighteen months.

F-19
<PAGE>

Number Description of Exhibit
- ------ ----------------------

2.1 Agreement and plan of merger, dated February 3, 999, by and between
YouNetwork Corp., a New York corporation and YouNetwork Corporation, a
Delaware corporation (incorporated by reference to the Company's
registration statement on Form SB-2 (file No. 333-71949).

3.1 Certificate of Incorporation of Registrant, as amended (incorporated
by reference to the Company's registration statement on Form SB-2
(file No. 333-71949).

3.2 By-laws of Registrant (incorporated by reference to the Company's
registration statement on Form SB-2 (file No. 333-71949).

4.1 Specimen certificate representing Registrant's class A common stock
(incorporated by reference to the Company's registration statement on
Form SB-2 (file No. 333-71949).

4.2 Specimen certificate representing Registrant's class B common stock
(incorporated by reference to the Company's registration statement on
Form SB-2 (file No. 333-71949).

10.1 Stockholders' Agreement, dated December 4, 1998 (incorporated by
reference to the Company's registration statement on Form SB-2 (file
No. 333-71949).

10.2 Stock and Warrant Purchase Agreement, dated December 4, 1998
(incorporated by reference to the Company's registration statement on
Form SB-2 (file No. 333-71949).

10.3 Agreement between Muze, Inc. and YouNetwork , dated January 7, 1999
(incorporated by reference to the Company's registration statement on
Form SB-2 (file No. 333-71949).

10.4 Agreement between Qwest International Inc. (a successor in interest to
LCI International Telecom Corp.), dated March 6, 1998 (incorporated by
reference to the Company's registration statement on Form SB-2 (file
No. 333-71949).

10.5 Agreement between Baker & Taylor, Inc. and YouNetwork, dated, July 9,
1998 (incorporated by reference to the Company's registration
statement on Form SB-2 (file No. 333-71949).

<PAGE>

10.6 1999 Stock Option Plan (incorporated by reference to the Company's
registration statement on Form SB-2 (file No. 333-71949).

10.7 Master lease agreement between Leasing Technologies, Inc and
YouNetwork corporation, dated April 15, 1999 (incorporated by
reference to the Company's registration statement on Form SB-2 (file
No. 333-71949).

10.8* Employment agreement between YouNetwork Corporation and George
Santacroce

10.9* Promissory notes between Dalia Silverman and YouNetwork

10.10* Promissory notes between Kleopatra Georgiades and YouNetwork

27* Financial Data Schedule

- ----------
*Filed with this Form 10K.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: April 14, 2000 YOUNETWORK COPORATION

By: /s/ Kyle S. Taylor
--------------------------------
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.

Name Title Date
---- ----- ----

/s/ Don S. Senerath Chairman of the Board April 14, 2000
- ------------------------------ of Directors

/s/ George M. Santacroce Chief Executive Officer April 14, 2000
- ------------------------------ and Director

/s/ Kyle S. Taylor President and Director April 14, 2000
- ------------------------------

/s/ Peter R. Silverman Director April 14, 2000
- ------------------------------

Exhibit 10.8

YOUNETWORK CORPORATION
GEORGE SANTACROCE
EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT dated as of November 1, 1999 (the "Agreement")
between YouNetwork Corporation, a New York corporation with an office at 115
East 23rd Street, 9th Floor, New York, New York (the "Company"), and George M.
Santacroce residing at 200 East 87th Street, Apt. 14C, New York, New York 10128
(the "Executive").

WHEREAS, the Company has recently launched an on-line e commerce consumer
network and desires to employ the Executive as its Chief Executive Officer.

WHEREAS, the Executive has substantial executive and managerial
experiences in retail marketing.

NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:

1. EMPLOYMENT AND DUTIES

1.1. General. The Company hereby employs the Executive, and the
Executive agrees to serve, as Chief Executive Officer of the Company and upon
the Board of Directors of the Company (the "Board") upon the terms and
conditions herein contained, and in such capacities the Executive agrees to
serve the Company faithfully and to the best of his ability under the reasonable
direction of the Board. The Executive's offices shall be in New York City.

1.2. Exclusive Services. For so long as the Executive is employed by
the Company, he shall devote his fulltime working hours to his duties hereunder.
The Executive shall not, directly or indirectly engage in any other activities
which would interfere significantly with his faithful performance of his duties
hereunder.

1.3. Term of Employment. The Executive's employment under this
Agreement shall commence on November 1, 1999 (the "Effective Date") and shall
terminate on the earliest of (i) October 31, 2001, (ii) the death of the
Executive or (iii) the termination of the Executive's employment pursuant to
this Agreement (the ATerm@). Within six months prior to the end of the Term, the
Executive and the Company shall negotiate in good faith with regard to an
extended term of employment.

2. SALARY

2.1. Base Salary, First Nine Months. For the first nine months
following the Effective Date, the Executive shall be entitled to receive a base
salary at a rate of $120,000 per annum, payable in arrears in equal installments
in accordance with the Company's payroll practices.

<PAGE>

2.2. Base Salary, Year Two. Commencing August 1, 2000 and through
the end of the Term, the Executive shall be entitled to receive a base salary at
a rate of $400,000 per annum, payable in arrears in equal installments in
accordance with the Company's payroll practices.

3. EMPLOYEE BENEFITS

3.1. General Benefits. The Executive will be eligible to participate
in benefit programs of the Company consistent with those benefit programs
provided to other senior executives of the Company;

3.2. Reimbursement of Expenses. The Company will reimburse the
Executive for reasonable, ordinary and necessary business expenses incurred by
him in the fulfillment of his duties hereunder upon presentation by the
Executive of an itemized account of such expenditures, in accordance with
Company practices consistently applied.

4. TERMINATION OF EMPLOYMENT

4.1. Termination for Cause; Resignation.

(1) If, prior to the expiration of the Employment Term, the Executive's
employment is terminated by the Company for Cause, the Executive shall be
entitled only to payment of his Base Salary as then in effect through and
including the date of termination.

(2) If the Executive resigns from his employment hereunder in the first
six months of the Term, the Executive shall be entitled only to payment of his
Base Salary as then in effect through and including the date of resignation.
Upon such resignation the Executive shall surrender to the Company and the
Company shall cancel any and all employee stock options or common stock purchase
warrants which have been previously issued to the Executive as of the date of
such resignation.

(3) If the Executive resigns from his employment hereunder after the first
six months of the Term, the Executive shall be entitled only to (i) payment of
his base salary then in effect through and including the date of his
resignation; and (ii) a severance payment which shall be the amount of the
severance payment to which the Executive would have been entitled pursuant to
Section 4.3, had he been terminated without cause. Upon such resignation the
Executive shall surrender to the Company and the Company shall cancel one half
of all employee stock options or common stock purchase warrants which have been
previously issued to the Executive as of the date of such resignation.
Notwithstanding the foregoing, if the Executive resigns from his employment
hereunder after the first year of the Term, the Executive shall not be required
to surrender to the Company any employee stock options

2
<PAGE>

or common stock purchase warrants which have been previously issued to the
Executive as of the date of such resignation;

(4) The Executive following a termination for cause and/or resignation
shall have no further right to receive any other compensation, or to participate
in any other plan, arrangement, or benefit, after such termination or
resignation of employment.

4.2. Cause. Termination for "Cause" shall mean termination of the
Executive's employment because the Executive (a) has engaged in fraudulent or
criminal conduct in connection with the performance of his duties hereunder,
which conduct materially and adversely affects the Company; (b) admits to or has
been convicted of a crime punishable by imprisonment for more than one year; or
(c) has failed to perform in all material respects (following a detailed written
warning specifying the nature of such deficiency and an opportunity to cure such
conduct) the normal and customary duties required of his position of employment.

4.3. Termination Without Cause.

(1) If prior to the expiration of the Term the Executive shall be
terminated without cause or due to a disability as defined herein, the Company
shall pay to the Executive a severance payment (ASeverance Payment@). In the
event the Executive is so terminated in the first nine months of the Term, the
Severance Payment shall equal the amount of $20,000 multiplied by the number of
months of employment completed prior to termination . In the event the Executive
is terminated without cause at any time after the first nine months of the Term,
or the Term is not extended for an additional term pursuant to mutual agreement
between the Executive and the Company, the Severance Payment shall be $180,000.
The failure to timely pay the Executive's salary shall be deemed to be a
termination without cause.

(2) Other than the payments referred to in Section 4.3(a), the Executive
shall be entitled to no further compensation under this Agreement following
termination without cause, with the exception of termination without cause
following a secondary public offering of the Company's securities, in which
event the Executive shall also be paid his salary for the remainder of the Term.

5. DISABILITY. For purposes of this agreement, disability shall mean
the failure of the Executive to render the services provided in this Agreement
because of illness, physical or mental disability or other incapacity, for a
period of 90 days , or for shorter periods aggregating 90 days during any
twelve-month period of the Executive to render the services provided for by this
Agreement.

6. NONCOMPETITION NONSOLICITATION AND CONFIDENTIALITY

3
<PAGE>

6.1. Noncompetition/Nonsolicitation. The Executive shall not,
directly or indirectly, as a sole proprietor, member of a partnership,
stockholder or investor, officer or director of a corporation, or as an
employee, associate, consultant or agent of any person, partnership, corporation
or other business organization or entity other than the Company: (a) engage in
an e commerce business utilizing a business model that is substantially similar
to the business model of the Company; (b) solicit or endeavor to entice away
from the Company or any of its subsidiaries any person who is, or was during the
then most recent 12-month period, employed by or associated with the Company or
any of its subsidiaries; or (c) solicit or endeavor to entice away from the
Company or any of its subsidiaries any person or entity who is, or was within
the then most recent 12-month period, a customer, client or prospect of the
Company or any of its subsidiaries. The obligations of this Section 6.1 shall
apply for 6 months after, (i) termination of employment of the Executive for
cause; (ii) the Executive's resignation; or (iii) the end of the Term (where no
termination has occurred during the Term) as well as during employment and shall
be extended by a period of time equal to any period during which the Executive
shall be in breach of such obligations. With the exception of Section 6.1(b)
(which shall be applicable for a period of six months), the provisions of this
paragraph shall have no application in the event of termination without cause.

6.2. Confidentiality. The Executive covenants and agrees with the
Company that he will not at any time, except in performance of his obligations
to the Company hereunder or with the prior written consent of the Company,
directly or indirectly, disclose any secret or confidential information that he
may learn or has learned by reason of his association with the Company or any of
its subsidiaries and affiliates. The term "confidential information" includes
information not commonly known within the Industry; information not previously
disclosed to the public or to the trade by the Company's management, or
otherwise in the public domain, with respect the Company's, or any of its
affiliates' or subsidiaries', products, services, facilities, applications and
methods, trade secrets and other intellectual property, systems, procedures,
manuals, confidential reports, product or service price lists, customer lists,
technical information, financial information (including the revenues, costs or
profits associated with any of the Company's products), business plans,
prospects or opportunities which are not commonly known within the Industry.

6.3. Exclusive Property. The Executive confirms that all
confidential information is and shall remain the exclusive property of the
Company. All business records, papers and documents kept or made by the
Executive relating to the business of the Company shall be and remain the
property of the Company.

4
<PAGE>

6.4. Injunctive Relief. Without intending to limit the remedies
available to the Company, the Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material and irreparable
injury to the Company or its affiliates or subsidiaries for which there is no
adequate remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of such a breach or threat thereof,
the Company shall be entitled to seek a temporary restraining order and/or a
preliminary or permanent injunction restraining the Executive from engaging in
activities prohibited by this Section 6 or such other relief as may be required
specifically to enforce any of the covenants in this Section 6. If for any
reason a final decision of any court determines that the restrictions under this
Section 6 are not reasonable or that consideration therefor is inadequate, such
restrictions shall be interpreted, modified or rewritten by such court to
include as much of the duration and scope identified in this Section 6 as will
render such restrictions valid and enforceable.

7. EMPLOYEE STOCK OPTIONS.

7.1 Upon execution of this Agreement, the Company shall issue to the
Executive the following options under the Company's Employee Stock Option Plan:

(1) 1,000,000 Options exercisable at $1.10, vesting at a rate of 100,000
Options per month for each of the first 10 months of employment;

(2) 250,000 Options exercisable at $1.10, vesting following the first 4
months of employment;

(3) 250,000 Options exercisable at $1.10, vesting upon completion of the
first 12 months of employment;

(4) 500,000 Options exercisable at $8.00, vesting at the end of 18 months
of employment;

(5) The Options and the Shares underlying the Options will be subject to
the same piggyback or other registration rights which are afforded to any of the
Founding Shareholders of the Company.

8. MISCELLANEOUS

8.1. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:

5
<PAGE>

To the Company:

YouNetwork Corporation
115 East 23rd Street 9th Floor
New York, New York
Attention: Kyle S. Taylor, President

With a copy to:

Silverman, Collura & Chernis, P.C.
381 Park Avenue South
Suite 1601
New York, New York 10016

Attn: Peter R. Silverman

To the Executive:

George Santacroce
200 East 87th Street
Apt. 14C
New York, NY 10128

With a copy to:

Olshan Grundman Frome Rosenzweig & Wolosky, LLP
505 Park Avenue
New York, NY 10022

Attn: Barry H. Platnick, Esq.

Any such notice or communication shall be sent certified or registered
mail, return receipt requested, addressed as above (or to such other address as
such party may designate in writing from time to time), and the actual date of
receipt, as shown by the receipt therefor, shall determine the time at which
notice was given.

8.2. Severability. If a court of competent jurisdiction determines
that any term or provision hereof is invalid or unenforceable, (a) the remaining
terms and provisions hereof shall be unimpaired and (b) such court shall have
the authority to replace such invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.

8.3. Assignment. This Agreement shall inure to the benefit of the
heirs and representatives of the Executive and the assigns and successors of the
Company, but neither this Agreement nor any rights hereunder shall be assignable
or otherwise subject to hypothecation by the Executive and/or the Company.

6
<PAGE>

8.4. Entire Agreement. This Agreement represents the entire
agreement of the parties and shall supersede any and all previous contracts,
arrangements or understandings between the Company and the Executive, including
the Prior Agreement. The Agreement may be amended at any time by mutual written
agreement of the parties hereto.

8.5. Withholding. The Company shall be entitled to withhold, or
cause to be withheld, from payment any amount of withholding taxes required by
law with respect to payments made to the Executive in connection with his
employment hereunder.

8.6. Governing Law. This Agreement shall be construed, interpreted,
and governed in accordance with the laws of New York without reference to rules
relating to conflict of law.

7
<PAGE>

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set his hand, as of the day and year
first above written.

YOUNETWORK CORPORATION

By:______________________________________

Name:
Title:

GEORGE M. SANTACROCE

_________________________________________

George M. Santacroce

Exhibit 10.9

NOTE PAYABLE ON DEMAND

$75,000 November 3, 1999

FOR VALUE RECEIVED, YouNetwork Corporation, ("Maker") on demand promises
to pay Dalia Silverman (the "Lender") or order, the sum of $75,000 ("Principal
Balance") with interest at the rate of seven percent (7%) per annum as follows:

1. Prepayment. This Note may be prepaid in whole or in part by Maker
without the prior written consent of Lender.

2. Payment. Payments shall be made at the address of the Lender, or at any
other place Lender designates in writing from time to time, and shall be in
lawful money of the United States of America.

3. Acceleration. The Principal Balance and interest shall immediately
become due and payable (without demand for payment, notice of nonpayment,
presentment, notice of dishonor, protest, notice of protest, or any other notice
or demand, all of which Maker hereby waives) if:

a. Maker makes an assignment for the benefit of creditors, or a
trustee or receiver of Maker or of a substantial portion of its
assets is appointed, and the trustee or receiver is not discharged
thirty (30) days; or

b. Any proceeding involving Maker is voluntarily commenced by Maker
under any bankruptcy, reorganization, insolvency, readjustment of
debt, marshalling of assets and liabilities, dissolution, or
liquidation law or statute of the United States or of any state, or
a proceeding of this nature is involuntarily instituted against
Maker, and

<PAGE>

Maker by any action indicates its approval of, or consent to, or
acquiescence in, the proceeding, or the proceeding remains
undismissed for thirty (30) days.

4. Costs of collection; Form. If Maker fails to make timely the payments
required hereby, Maker shall pay all costs of collection when incurred
including, without limitation, attorneys' fees and expenses and court costs.
Such costs will be added to the balance of principal and interest then due.
Maker may bring suit in the courts of such state to whom jurisdiction Maker
submits.

5. Failure or delay non-waiver. Failure of the holder hereof to assert any
right contained herein, or delay in asserting any such right, shall not be
deemed a waiver of that right.

6. Non-Negotiability. This Note may not be transferred, assigned, pledged
or negotiated without the written consent of Maker, which shall not be
unreasonably withheld. This Note is subject to all the terms, conditions,
warranties, representations, and covenants contained in the Agreements.

7. Waiver of procedural defenses. Maker waives demand for payment, notice
of nonpayment, presentment, notice of dishonor, protest, notice of protest, or
any other notice or demand in connection with this Note.

8. Modifications. This Note may not be changed, modified or amended, or
terminated, nor may any of its provisions be waived, except by an agreement in
writing signed by the party against whom enforcement thereof is sought.

9. Choice of law. This Note shall be governed by and construed in
accordance with the laws of the state of New York.

2
<PAGE>

10. Promises binding. This Note shall be binding upon Maker and Maker's
successors, and assigns.

YOUNETWORK CORPORATION

By:______________________________________
Kyle S. Taylor, President

3
<PAGE>

NOTE PAYABLE ON DEMAND

$25,000 December 8, 1999

FOR VALUE RECEIVED, YouNetwork Corporation, ("Maker") on demand promises
to pay Dalia Silverman (the "Lender") or order, the sum of $25,000 ("Principal
Balance") with interest at the rate of seven percent (7%) per annum as follows:

1. Prepayment. This Note may be prepaid in whole or in part by Maker
without the prior written consent of Lender.

2. Payment. Payments shall be made at the address of the Lender, or at any
other place Lender designates in writing from time to time, and shall be in
lawful money of the United States of America.

<PAGE>

Maker by any action indicates its approval of, or consent to, or
acquiescence in, the proceeding, or the proceeding remains
undismissed for thirty (30) days.

5. Failure or delay non-waiver. Failure of the holder hereof to assert any
right contained herein, or delay in asserting any such right, shall not be
deemed a waiver of that right.

9. Choice of law. This Note shall be governed by and construed in
accordance with the laws of the state of New York.

2
<PAGE>

10. Promises binding. This Note shall be binding upon Maker and Maker's
successors, and assigns.

YOUNETWORK CORPORATION

By:______________________________________
Kyle S. Taylor, President

3
<PAGE>

NOTE PAYABLE ON DEMAND

$37,500 December 20, 1999

FOR VALUE RECEIVED, YouNetwork Corporation, ("Maker") on demand promises
to pay Dalia Silverman (the "Lender") or order, the sum of $37,500 ("Principal
Balance") with interest at the rate of seven percent (7%) per annum as follows:

1. Prepayment. This Note may be prepaid in whole or in part by Maker
without the prior written consent of Lender.

2. Payment. Payments shall be made at the address of the Lender, or at any
other place Lender designates in writing from time to time, and shall be in
lawful money of the United States of America.

<PAGE>

Maker by any action indicates its approval of, or consent to, or
acquiescence in, the proceeding, or the proceeding remains
undismissed for thirty (30) days.

5. Failure or delay non-waiver. Failure of the holder hereof to assert any
right contained herein, or delay in asserting any such right, shall not be
deemed a waiver of that right.

9. Choice of law. This Note shall be governed by and construed in
accordance with the laws of the state of New York.

2
<PAGE>

10. Promises binding. This Note shall be binding upon Maker and Maker's
successors, and assigns.

YOUNETWORK CORPORATION

By:______________________________________
Kyle S. Taylor, President

3
<PAGE>

NOTE PAYABLE ON DEMAND

$50,000 January 20, 2000

FOR VALUE RECEIVED, YouNetwork Corporation, ("Maker") on demand promises
to pay Dalia Silverman (the "Lender") or order, the sum of $50,000 ("Principal
Balance") with interest at the rate of seven percent (7%) per annum as follows:

1. Prepayment. This Note may be prepaid in whole or in part by Maker
without the prior written consent of Lender.

2. Payment. Payments shall be made at the address of the Lender, or at any
other place Lender designates in writing from time to time, and shall be in
lawful money of the United States of America.

<PAGE>

Maker by any action indicates its approval of, or consent to, or
acquiescence in, the proceeding, or the proceeding remains
undismissed for thirty (30) days.

5. Failure or delay non-waiver. Failure of the holder hereof to assert any
right contained herein, or delay in asserting any such right, shall not be
deemed a waiver of that right.

9. Choice of law. This Note shall be governed by and construed in
accordance with the laws of the state of New York.

2
<PAGE>

10. Promises binding. This Note shall be binding upon Maker and Maker's
successors, and assigns.

YOUNETWORK CORPORATION

By:______________________________________
Kyle S. Taylor, President

Exhibit 10.10

NOTE PAYABLE ON DEMAND

$25,000 December 14, 1999

FOR VALUE RECEIVED, YouNetwork Corporation, ("Maker") on demand promises
to pay Kleopatra Georgiades (the "Lender") or order, the sum of $25,000
("Principal Balance") with interest at the rate of seven percent (7%) per annum
as follows:

1. Prepayment. This Note may be prepaid in whole or in part by Maker
without the prior written consent of Lender.

2. Payment. Payments shall be made at the address of the Lender, or at any
other place Lender designates in writing from time to time, and shall be in
lawful money of the United States of America.

<PAGE>

Maker by any action indicates its approval of, or consent to, or
acquiescence in, the proceeding, or the proceeding remains
undismissed for thirty (30) days.

5. Failure or delay non-waiver. Failure of the holder hereof to assert any
right contained herein, or delay in asserting any such right, shall not be
deemed a waiver of that right.

9. Choice of law. This Note shall be governed by and construed in
accordance with the laws of the state of New York.

2
<PAGE>

10. Promises binding. This Note shall be binding upon Maker and Maker's
successors, and assigns.

YOUNETWORK CORPORATION

By:______________________________________
Kyle S. Taylor, President

3
<PAGE>

NOTE PAYABLE ON DEMAND

$37,500 December 20, 1999

FOR VALUE RECEIVED, YouNetwork Corporation, ("Maker") on demand promises
to pay Kleopatra Georgiades (the "Lender") or order, the sum of $37,500
("Principal Balance") with interest at the rate of seven percent (7%) per annum
as follows:

1. Prepayment. This Note may be prepaid in whole or in part by Maker
without the prior written consent of Lender.

2. Payment. Payments shall be made at the address of the Lender, or at any
other place Lender designates in writing from time to time, and shall be in
lawful money of the United States of America.

<PAGE>

Maker by any action indicates its approval of, or consent to, or
acquiescence in, the proceeding, or the proceeding remains
undismissed for thirty (30) days.

5. Failure or delay non-waiver. Failure of the holder hereof to assert any
right contained herein, or delay in asserting any such right, shall not be
deemed a waiver of that right.

9. Choice of law. This Note shall be governed by and construed in
accordance with the laws of the state of New York.

2
<PAGE>

10. Promises binding. This Note shall be binding upon Maker and Maker's
successors, and assigns.

YOUNETWORK CORPORATION

By:______________________________________
Kyle S. Taylor, President

3
<PAGE>

NOTE PAYABLE ON DEMAND

$50,000 January 20, 2000

FOR VALUE RECEIVED, YouNetwork Corporation, ("Maker") on demand promises
to pay Kleopatra Georgiades (the "Lender") or order, the sum of $50,000
("Principal Balance") with interest at the rate of seven percent (7%) per annum
as follows:

1. Prepayment. This Note may be prepaid in whole or in part by Maker
without the prior written consent of Lender.

2. Payment. Payments shall be made at the address of the Lender, or at any
other place Lender designates in writing from time to time, and shall be in
lawful money of the United States of America.

<PAGE>

Maker by any action indicates its approval of, or consent to, or
acquiescence in, the proceeding, or the proceeding remains
undismissed for thirty (30) days.

5. Failure or delay non-waiver. Failure of the holder hereof to assert any
right contained herein, or delay in asserting any such right, shall not be
deemed a waiver of that right.

9. Choice of law. This Note shall be governed by and construed in
accordance with the laws of the state of New York.

2
<PAGE>

10. Promises binding. This Note shall be binding upon Maker and Maker's
successors, and assigns.

YOUNETWORK CORPORATION

By:______________________________________
Kyle S. Taylor, President

<ARTICLE> 5

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